Crypto lending has undergone a seismic transformation since the collapses of 2022 and 2023. In its April 2025 report, Galaxy Research offers a comprehensive analysis of how the ecosystem has evolved – from the fall of centralized lenders to the resilience of decentralized protocols and the rise of new models. It also explores the changing regulatory landscape, institutional re-entry, and the growing importance of stablecoins like Tether (USDT).
______________________
Five Key Takeaways
Crypto Lending is Shrinking but Maturing
Decentralized Lending is More Resilient – but Not Risk-Free
Demand for Stablecoin and Real-World Asset (RWA) Lending is Growing
Regulation Will Define the Next Phase of Crypto Lending
The Future Lies in Hybrid Models and Institutional Onboarding
______________________
The Collapse of Centralized Crypto Lenders
The credit crisis of 2022–2023 triggered the downfall of major centralized crypto lenders like Celsius, BlockFi, and Genesis. These institutions were undone by under-collateralized loans, interconnected counterparty risk, and inadequate transparency. Losses totaled over $10 billion, decimating user confidence and triggering regulatory scrutiny.
The collapse catalyzed a shift: risk management and collateral discipline are now central to lending practices, and borrowers face stricter requirements and due diligence.
Tether’s Expanding Role in Crypto Lending
Tether (USDT), the largest stablecoin by market cap, has cemented itself as a dominant force in crypto lending – and its influence continues to grow.
[TECH] STABLECOINS | ‘We Have 400 Million Users in Emerging Markets – We’re Basically Pushing Dollar Hegemony, Selling U.S Debt Outside the U.S,’ Says Tether CEO: Tether is currently the 17th largest.. https://t.co/B9NgyF7CeK via @BitcoinKE
— Top Kenyan Blogs (@Blogs_Kenya) March 9, 2025
The Galaxy report highlights several critical dynamics related to Tether’s evolving role:
Dominance in Stablecoin Loans: USDT is the most used stablecoin in over-the-counter (OTC) and on-chain lending transactions, especially in emerging markets and offshore platforms. Its liquidity and ubiquity make it a default asset for loans, collateral, and settlements.
Tether’s Own Lending Program: Notably, Tether has also acted as a lender. In 2023, it resumed issuing secured loans denominated in USDT, citing market demand. Although controversial due to prior transparency concerns, the company claims these loans are fully collateralized and managed with risk controls.
Balance Sheet Impact: Tether’s Q1 2025 attestations show strong profits largely driven by interest on U.S. Treasury holdings, but also include lending revenues. Galaxy notes that the company has increasingly positioned itself not just as a stablecoin issuer but as a shadow bank within the crypto ecosystem.
Opacity and Controversy: Despite these moves, Galaxy and others highlight persistent concerns about Tether’s lack of public loan-level disclosures and the concentration risk posed by its own lending activities. Calls for greater transparency and third-party audits continue to surround USDT.
Global Liquidity Role: In jurisdictions with unstable currencies or limited access to USD banking, USDT serves as a de facto dollar substitute. This utility has made it indispensable in global crypto lending, especially where regulatory arbitrage drives offshore activity.
Tether’s role in lending illustrates both the pragmatic utility and regulatory complexity of stablecoins in a maturing market. Its continued dominance will depend on its ability to reassure both regulators and institutional counterparties.
DeFi: Resilience with Caution
DeFi lending protocols like Aave, Compound, and MakerDAO emerged relatively unscathed from the chaos that felled their centralized counterparts. Their automated, overcollateralized structures allowed them to liquidate bad loans without insolvency. However, DeFi is not a panacea.
Smart contract exploits, governance attacks, and oracle risks remain threats. Liquidity is still fragmented, and capital efficiency is low. Nonetheless, institutional interest in DeFi is rising, particularly with the emergence of permissioned DeFi, which blends on-chain automation with KYC controls.
Institutional Crypto Lending: The Next Generation
Prime brokers and institutional lenders have begun re-entering the market, offering secure custody, real-time collateral monitoring, and legal enforceability. Firms like Coinbase Prime, FalconX, and Anchorage are building lending products with regulatory compliance and transparency baked in.
These hybrid models may define the next phase of lending – offering the performance and efficiency of DeFi alongside the trust and oversight of TradFi.
Real-World Assets and Stablecoins Take Center Stage
Stablecoins now anchor most lending activity, providing price stability and minimizing liquidation risks. While USDC remains popular in U.S. regulated markets, Tether continues to dominate globally. Their role as settlement assets and lending currencies is likely to grow, especially with rising interest in real-world asset (RWA) tokenization.
Protocols like Maple, Goldfinch, and Centrifuge are integrating off-chain assets—like invoices, real estate, and treasuries—into lending pools. This could expand credit markets, though legal enforceability and counterparty risks remain hurdles.
MILESTONE: GoldFinch Finance Crosses $100M in Active Uncollateralized DeFi Loans in Africa . Goldfinch’s loans have grown consistently since December 2021 (Dune) Goldfinch finance, a lending service that leverages DeFi to provide loans to businesses…
— Nathan (@shanzi73338680) October 20, 2022
Regulation: The Unwritten Future
Uncertainty looms over crypto lending’s regulatory status. The U.S. has taken enforcement actions but lacks a unified framework. The EU’s MiCA regulation and Singapore’s forward-looking policies may serve as templates. Meanwhile, pressure mounts for stablecoin regulation – especially around issuers like Tether, whose activities increasingly resemble those of traditional financial institutions.
Galaxy predicts that regulatory clarity – particularly on disclosures, capital reserves, and consumer protections—will be the linchpin for sustainable growth.
A Market Reborn
The crypto lending market in 2025 is smaller, more cautious, but also fundamentally healthier. While scars from past failures remain, the new landscape features improved underwriting, stronger transparency, and broader institutional interest. Stablecoins – particularly Tether – and real-world asset integration are shaping new use cases.
The industry’s next phase will likely be driven by hybrid models that combine the programmability of DeFi with the trust architecture of TradFi. Crypto lending isn’t over – it’s evolving.
Follow us on X for the latest posts and updates
Join and interact with our Telegram community
_________________________________________
_________________________________________
