DeFi Lending TVL Surges Past DEXs as Investors Chase Sustainable Yield: VC Insight

DeFi Lending Outpaces DEXs as Sustainable Yield Becomes Investor Priority

The decentralized finance (DeFi) landscape is shifting as lending protocols soar to new highs in total value locked (TVL), while decentralized exchanges (DEXs) continue to decline. This trend highlights a growing investor preference for more stable and sustainable yields.

DeFi lending has become the leading vertical in the sector, with $53.6 billion locked—representing 43% of the $124.6 billion total TVL across all DeFi platforms. This figure has even overtaken liquid staking, further cementing its dominance.

Aave, the largest multichain lending protocol, currently holds $25 billion—almost half the entire DeFi lending market.

Change in crypto lending protocol TVL since 2019. Source: DeFiLlama

In contrast, DEXs like Uniswap, once the crown jewel of DeFi, have seen their TVL shrink dramatically. From a peak of $85.3 billion in November 2021, DEXs now account for just $21.5 billion in locked value.

Henrik Andersson, founder of crypto venture fund Apollo Capital, attributes the shift to the inherent sustainability of DeFi lending models. “Lending is arguably the only sustainable way to produce yield in DeFi,” he told Cointelegraph, citing the diminishing profitability of DEX liquidity pools due to impermanent loss.

Uniswap v3’s design, while more capital efficient than its predecessor, allows liquidity providers to generate similar returns with less capital—further reducing TVL figures. Additionally, the rise of intent-based swaps, a newer mechanism for cross-chain trades, often draws liquidity from centralized exchanges, pulling value away from on-chain DEXs.

In comparison, lending platforms like Aave and Compound offer predictable, algorithmically managed returns. For instance, lending ETH or USDT on Aave currently yields 1.86% and 3.17% APY, respectively—modest but sustainable rates when compared to the often volatile and temporary rewards in DEX liquidity pools.

Change in market share between centralized and decentralized crypto lending protocols between Q3 2018 and Q4 2024. Source: Galaxy Digital

DeFi Lending Dominates Post-CeFi Collapse

The decline of centralized finance (CeFi) lenders like Celsius, BlockFi, Genesis, and Voyager triggered a major contraction in the crypto lending market, with TVL falling by 78% from its 2022 peak, according to Galaxy Digital.

However, DeFi lending protocols led the recovery. Between Q4 2022 and Q4 2024, DeFi open borrows rose by nearly 960%, according to Galaxy’s April report. DeFi lending now accounts for around 65% of the total crypto lending market and has continued to gain share from centralized counterparts every quarter since late 2022.

Galaxy attributes this resurgence to the resilience of decentralized lending models—namely their algorithmic management, overcollateralization, and transparent, supply-and-demand-based interest rates. The firm expects further growth in the sector, driven by institutional adoption and clearer regulatory frameworks.

With DEXs struggling to retain liquidity and CeFi trust shattered, DeFi lending protocols appear to be carving out a durable foundation for the next phase of crypto finance.