Centralized crypto lending is predominantly supported by Tether, according to recent findings

Cryptocurrency Lending Sector Analysis by Galaxy Digital Points to Tether as Central Player in Key Roles

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2025 September 3 . 6:46 AM

3 min read

Centralized crypto lending market dominance: Tether accounts for approximately 73%, according to a... — Centralized crypto lending market dominance: Tether accounts for approximately 73%, according to a recent report

Centralized crypto lending is predominantly supported by Tether, according to recent findings

Centralized Crypto Lending: Tether Remains a Key Player Amidst Shifting Landscape

The world of centralized crypto lending continues to evolve, with Tether (USDT) remaining a dominant force in the market. A recent report from Galaxy Digital has shed light on the current risks and trends within this sector.

Market Fragility and Leverage Risks

Centralized exchanges (CEXs) have shown systemic vulnerabilities, particularly in their capacity to adjust leverage and collateral requirements abruptly. Such actions have led to dramatic price drops and cascading liquidations, as seen with large USDT spot and futures sell orders triggering significant losses and depleting insurance funds. This underscores the potential for centralized platforms managing large Tether positions to amplify market instability through opaque leverage controls and concentrated liquidity risk.

Shifts to DeFi Lending

Decentralized finance (DeFi) lending platforms are gaining prominence over traditional centralized finance (CeFi) lending venues. By Q2 2025, DeFi lending held about 60% dominance compared to CeFi, reflecting growing user trust and demand for transparency. Despite this shift, CeFi lending still relies heavily on crypto-collateralized debt positions (CDPs) involving stablecoins like USDT. Overall crypto-collateralized lending expanded robustly, reaching $53.09 billion in Q2 2025.

Regulatory and Compliance Risks

Regulatory frameworks, such as the 2025 GENIUS Act, aim to clarify stablecoin issuance and crypto oversight but face criticism for potential weakening of investor protections and regulatory gaps between the SEC and CFTC. Traditional finance stakeholders entering crypto markets must navigate this evolving landscape, facing demands for enhanced KYC, AML, and transaction monitoring to combat fraud, money laundering, and cybercrime exposure highlighted by FinCEN and OFSI reports.

Role of Traditional Finance Players

Financial institutions are urged to enhance due diligence and compliance efforts related to crypto counterparts, including those handling Tether and other stablecoins. FinCEN notably warns about cybercrime risks in crypto kiosks and convertible virtual currency providers, emphasizing operational and reputational risks for banks tied to crypto lending and exchange platforms.

New Players in the Market

Cantor Fitzgerald, led by the current US Commerce Secretary Howard Lutnick, plans to enter the crypto lending market with $2 billion of financing initially, potentially making it one of the larger players.

Key Statistics

The top three centralized lenders in the market are Tether, Galaxy, and Ledn, with a combined share of 88.6%.
Tether is the dominant player in the centralized cryptocurrency lending market, holding around 73% of the market.
The total market for centralized crypto loans outstanding at the end of 2024 was $9.9 billion.
Tether's reserves include several risky or volatile assets, including almost $8 billion in bitcoin.
Tether's stablecoin report for the end of 2024 shows its reserves include a secured lending balance of $8.2 billion.

The data source for this information is Galaxy, and the graphic is from Ledger Insights. It's important to note that the figures exclude crypto collateralized products (CDP) - stablecoins backed by crypto. Additionally, many countries introducing stablecoin legislation prevent stablecoin issuers from participating in lending. The Securities and Exchange Act Rule 121 (SAB 121) has indirectly blocked traditional finance (TradFi) players from involvement in lending due to the need for custody.

In summary, centralized crypto lending involving Tether remains vulnerable to leverage-induced shocks, market manipulation, and regulatory uncertainties. Meanwhile, traditional finance players face significant compliance challenges as they engage with or support this sector amidst a migration towards DeFi alternatives and increasing calls for regulatory clarity and investor protection measures.