Amid incentives, stronger collateral, and rising prices, DeFi lending surged in the third quarter, capturing a record 55.7% market share during the quarter.
DeFi lending hit a new record high in the third quarter, according to a new report from the Galaxy Digital research team, which found that the dollar-denominated value of outstanding loans on decentralized finance (DeFi) applications increased by $14.52 billion, or 54.84%, to $40.99 billion at the end of the third quarter.
When combined with centralized financing (CeFi) lenders, total outstanding cryptocurrency-backed loans reached $65.37 billion in the third quarter, up $21.12 billion from the previous quarter. This is a new all-time high after surpassing the previous high of $53.44 billion in Q4 2021 by $11.93 billion.
DeFi lending explodes to record levels
Galaxy Research, in its latest report, attributed the continued expansion of DeFi lending to several factors. This includes the growth of points farming and airdrop incentive programs, which encourage users to keep their loans open even during market stress. The growing use of enhanced collateral assets such as Pendle PTs, which allow users to close stablecoin strategies at favorable loan-to-value ratios, is also another factor, in addition to the rising prices of crypto assets, which increase borrowing capacity as the value of collateral appreciates.
The report warns, however, that there is a risk of double counting in the combined totals of CeFi and DeFi loans, as some CeFi entities borrow through DeFi protocols before lending these assets to off-chain clients, making it difficult to separate on-chain and off-chain exposures.
With the increase in DeFi activity, this sector’s lending dominance on CeFi sites reached a new all-time high of 62.71% at the end of Q3 2025, up from 59.83% in Q2 2025 and higher than the previous high of 61.99% in Q4 2024.
Meanwhile, the crypto-collateralized portion of the Collateral Debt Position (CDP) stablecoin supply fell $658 million, or 7.4%, quarter-over-quarter, although the report again noted possible double-counting involving CeFi entities minting CDP stablecoins to fund loans to off-chain borrowers.
Overall, total cryptocurrency-backed loans increased by $20.46 billion in the third quarter, reaching a new all-time high of $73.59 billion. At the end of the quarter, DeFi lending applications accounted for 55.7% of the market, up 588 basis points from Q2 2025. During the same period, CeFi sites held 33.12%, down 36 basis points, while CDP-backed stablecoin supply accounted for 11.18%, down 547 basis points.
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Together, DeFi lending apps and CDP stablecoins gave on-chain lending sites a market share of 66.88%, slightly above the previous all-time high of 66.86% set in Q4 2024. The report also highlighted that DeFi lending remained resilient despite volatile market conditions, as outstanding borrowings reached a daily high of $43.82 billion on October 7 before declining by only 11.55% to $38.76 billion. before October 31.
Key industry movements
In the fourth quarter, however, major players invested in strengthening the lending ecosystem. For example, in October, Ripple partnered with Immunefi to strengthen the security of the proposed XRPL lending protocol and launched a global “Attackathon” that invited elite Web3 security researchers to test the system before an upcoming validator vote.
In November, ecosystem expansion continued as leading stablecoin issuer Tether made a strategic investment in Ledn, a Bitcoin-backed lending platform, with the aim of building self-custody, financial resilience and broader institutional adoption.
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