Key Takeaways

• The DeFi lending market is undergoing multiple innovations and developments, including economic model optimization, technological integration, and compliance efforts. These advancements aim to expand the user base and scale for both borrowers and lenders, address the low capital efficiency caused by over-collateralization, and drive maturity and evolution in the DeFi lending field.
• Modular lending design enhances system flexibility and scalability by breaking down complex systems into independent, interchangeable modules. Protocols like Morpho, Euler V2, and Vesper are active explorers in this direction, increasing system flexibility and innovation through modular design, which helps mitigate single-point dependency risks and low capital efficiency.
• The tokenization of real-world assets (RWA) is a key innovation driver in this market cycle, bringing real-world assets such as real estate and art into the DeFi space, expanding the lending market’s scale and influence. Protocols like Centrifuge, Huma Finance, and Flux Finance are actively exploring and implementing in this area.
• Unsecured credit loans represent a significant innovation direction in the DeFi lending market. Despite numerous challenges, protocols like TrueFi and Clearpool are pioneering business models that expand pure credit loans by integrating banking transaction records, third-party credit rating data, and comprehensive credit assessments extending from flash loans.
• AI (artificial intelligence) shows great potential in DeFi lending, particularly in areas like automated trading, risk management, trading efficiency, and user experience enhancement. Protocols like MakerDAO and dForce have begun exploring AI applications, signaling a promising future for integrating AI and DeFi.
• Leading protocols such as Aave, MakerDAO (Spark), and Compound dominate the market with strong network effects, brand influence, and continuously evolving technology. They serve as industry benchmarks and leaders, while protocols in the following tier focus on modular lending, RWA integration, developing interest-free and unsecured loans, and incorporating AI technologies in an effort to open new market avenues.

As the crypto market gradually recovers, the long-quiet DeFi sector is once again coming into focus. DeFi lending is drawing attention for its stable net income model amid intense competition. Recent data shows that the total value locked (TVL) in the lending sector has rebounded more significantly than DeFi as a whole, highlighting this area’s strong growth momentum and solid market foundation.

Although the share of DeFi’s overall market capitalization and TVL within the global cryptocurrency market has fluctuated without a clear trend, leading lending protocols such as Aave continue to dominate. By continuously innovating and forming partnerships, these protocols are solidifying their market positions. Additionally, sub-sectors like modular lending, pure credit lending, and RWA (real-world asset) lending are injecting new vitality and potential, indicating limitless future prospects for the lending space.

Given the lending sector’s crucial role in the DeFi ecosystem and its potential for continued growth, this report aims to provide an in-depth analysis of the competitive landscape, key events, innovative forces, and success factors. By examining market data, technical features, and development trends of lending projects, this report seeks to present readers with a comprehensive, in-depth framework for analyzing the lending sector, enabling a better grasp of market dynamics and future trends.

Please note that the DeFi projects mentioned in this report are intended to illustrate relevant concepts and do not constitute official endorsement or recommendation by Gate.io. Readers are advised to conduct their own research for a thorough evaluation of each project and its potential risks. Furthermore, this report does not delve deeply into other DeFi sectors or concepts that overlap with or are related to DeFi lending, such as restaking (e.g., Eigenlayer), liquid staking (e.g., Lido), or DEXs (e.g., Curve Finance), as these are independent segments within DeFi and should not overshadow the focus.

Overview of The Competitive Landscape in the DeFi Lending Market

Principles and Processes of DeFi Lending

To understand future trends in the DeFi lending market, it’s essential to grasp its basic principles and development history. In this section, we’ll provide a concise overview of this field.

In simple terms, DeFi lending is a blockchain-based financial system that operates without traditional intermediaries like banks. It enables people to borrow and lend cryptocurrency directly in a peer-to-peer manner.

The typical DeFi lending market operates as follows:

• Smart Contract Deployment: The core of all DeFi lending activities is smart contracts, which are code that automatically execute preset rules. Borrowers and lenders interact directly with these smart contracts to deposit or withdraw funds. Each DeFi lending protocol has its own smart contract framework to ensure the security and transparency of every transaction.
• Collateral Deposit: The DeFi lending market generally uses an over-collateralization model, where borrowers must first deposit digital assets (like ETH or DAI) as collateral in a designated smart contract address. This deposit allows them to borrow an amount up to a set percentage of the collateral’s value (typically 70%). This model reduces default risk, as if a borrower fails to repay on time, the smart contract automatically liquidates the collateral to repay the debt.
• Creation of Liquidity Pools: Beyond the traditional peer-to-peer (P2P) model, many DeFi lending platforms also use a liquidity pool mechanism. Lenders can deposit funds into a pool, and the smart contract automatically matches them with qualified borrowers based on market demand. This approach improves capital efficiency and provides more earning opportunities for lenders.
• Interest Rate Calculation and Distribution: Unlike traditional fixed-rate lending, DeFi platforms typically use algorithms to automatically adjust market interest rates to maintain a balance of supply and demand. When demand for a particular token exceeds supply, the lending rate for that token increases, and vice versa. This mechanism helps maintain market stability while allowing for more flexible pricing strategies for participants.
• Triggering of Liquidation Mechanisms: The smart contract automatically initiates a liquidation process if a borrower’s collateral ratio falls below a preset safety threshold. This means that part or all of the collateral is sold, and the proceeds are used first to repay the outstanding loan principal and interest. The liquidation process is fully automated, avoiding uncertainties from manual intervention.

In contrast to DeFi lending, CeFi (centralized finance) lending does not rely entirely on smart contracts to execute lending processes. Instead, it resembles traditional financial institutions, where users interact with trusted intermediaries.

Source: tangem

In conclusion, the revenue of lending protocols comes from interest, liquidation gains, and service fees, which are distributed among the protocol itself, liquidity providers (LPs), and secondary market supporters. Initially, projects may attract LPs and borrowers with high interest rates, but in later stages, they focus more on stabilizing token prices, using secondary market operations and interest rate adjustments to maintain market stability. The protocol must balance the interests of all parties to achieve an optimal outcome.

Throughout the lending chain, interest, liquidation fees, and service fees constitute the protocol’s revenue, which must be fairly distributed among the protocol, liquidity providers, and secondary market participants, reflecting a process of multi-party negotiation and optimization.

Development Stages of The DeFi Lending Market

In summary, the development of this field can be divided into three phases:

1. Exploration Phase (2017–2018): This was the early stage of the DeFi ecosystem, marked by the emergence of protocols like MakerDAO and Compound. The ICO boom also spurred the creation of early DeFi protocols that provided smart contract-based crypto asset lending services, laying the foundation for DeFi lending.
2. Explosive Growth Phase (2019–2020): The DeFi ecosystem entered a rapid growth period, and on-chain lending diversified and innovated. More DeFi projects entered the market, with lending protocols continuously innovating and optimizing risk management, interest rate models, and governance mechanisms, offering users more diverse and flexible financial services.
3. Expansion Phase (2021 to present): Confronted with challenges like Ethereum network congestion and rising transaction fees, DeFi lending protocols began exploring cross-chain and multi-chain solutions to improve efficiency and reduce costs. As demand from traditional finance and the real economy grew, lending protocols also started bringing real-world assets (RWA) on-chain to expand the scale and impact of the lending market. The DeFi lending market in this stage is evolving toward greater maturity, efficiency, and diversification, which is a key focus of this report.

Below is a timeline of significant milestones in DeFi Lending, highlighting key events and shifts in the field:

• March 2013: Danish entrepreneur Rune Christensen presented the vision for MakerDAO on Reddit, formally launching the protocol in December 2014. This is considered the first DeFi lending protocol.
• December 2017: MakerDAO launched Single-Collateral DAI (SCD), initially supporting only ETH as collateral. Multi-Collateral DAI (MCD) followed in 2019.
• September 2018: Robert Leshner and Geoffrey Hayes introduced the Compound Finance protocol, launching V2 the following year with an innovative tokenized lending position model.
• January 2020: Aave launched V1, introducing flash loans, followed by the bZx attack in February.
• March 2020: After two years, DeFi’s TVL (Total Value Locked) surpassed $1 billion but was halved by the March 12 (“Black Thursday”) event, before quickly recovering within three months.
• May 2020: Compound launched liquidity mining, kicking off “DeFi Summer.”
• April 2021: MakerDAO enabled its first real-world asset (RWA)-backed loan for DAI, marking the world’s first RWA-based DeFi loan. In collaboration with Centrifuge, New Silver used MakerDAO as a credit tool in Centrifuge Tinlake’s fix-and-flip loan pool.
• December 2021: Deposits in the DeFi lending market peaked at $90 billion.
• Summer 2022: The Terra-Luna ecosystem collapsed, triggering a bear market. Anchor and other DeFi lending protocols faced mass liquidations, and TVL plummeted from over $200 billion to about $60 billion. Major CeFi lending projects (e.g., BlockFi, Celsius, Babel Finance) also went bankrupt.
• March 2023: An Argentine hacker stole nearly $200 million in cryptocurrency from Euler Finance, marking the largest theft in DeFi lending history. The funds were returned within three weeks. That same month, USDC de-pegged, causing MakerDAO’s PSM to become a major exit point for USDC, sparking community concerns.
• May 2023: MakerDAO launched “The Endgame,” aimed at improving efficiency, resilience, and engagement, utilizing AI tools to support governance. Spark Protocol, a general-purpose lending protocol, also launched this month.
• November 2023: Aave Companies rebranded to Avara, introducing new ventures, including stablecoin GHO, social protocol Lens, and institutional lending platform Aave Arc, while expanding into areas like crypto wallets and gaming.
• August 2024: The emergence of new lending markets like Base and Scroll reignited activity in DeFi lending. Aave’s weekly active borrowers reached 40,000, surpassing previous highs from late 2022, with weekly depositors also nearing peak levels.
• September 2024: MakerDAO rebranded to Sky, transitioning toward compliance and a subDAO model.

Market Development Landscape

Key Data and Metrics

With the crypto market’s overall recovery, the current competitive landscape in DeFi shows a stable yet dynamic outlook.

From a blockchain network perspective, the total value locked (TVL) across all networks rose steadily at the start of the year, reaching a peak of $37 billion, and has since remained high, stabilizing around $30 billion. Ethereum continues to lead, dominating the sector. Out of 412 DeFi lending protocols, 111 support the Ethereum network, with a TVL of $16.027 billion, maintaining a share of over 50%. Following Ethereum, the Tron chain holds $4.951 billion, Solana $1.896 billion, and BNB Chain $1.869 billion. Emerging networks like Arbitrum, Base, Sui, Aptos, and TON still represent a small share but show notable growth trends.

Source: DefiLlama

From the perspective of user engagement, the average monthly de-duplicated user count in the DeFi sector has steadily increased from 2.55 million at the beginning of 2023 to a new high of 21.64 million in September this year, significantly surpassing the level of the previous bull market and far outpacing the overall market growth trend.

Source: @rchen8

In terms of market share for application protocols, leading protocols such as Aave, JustLend, MakerDAO (Spark), and Compound—foundational players from before the last bull market—have not only withstood market challenges but also continually strengthened their positions through ongoing market evolution. These protocols, leveraging strong network effects, powerful brand influence, and continuously updated technological capabilities, command nearly 70% of the market share, setting industry standards and acting as leaders. They demonstrate outstanding performance and innovation in areas like token utility, liquidity management, stablecoin issuance, and risk management, making them difficult for competitors to easily replace in a short period.

Source: Gate.io Research, token terminal

Close behind is the modular lending protocol Morpho, which has a significant advantage in supporting multiple assets and capital efficiency, with a TVL of $1.2 billion. Additionally, the non-EVM protocol Kamino Lend has also grown rapidly due to the high demand for interactions on the Solana chain. These emerging protocols each have their unique features, which we will highlight in detail later.

The Four Giants of DeFi Lending

According to DefiLlama, the current total TVL (Total Value Locked) in the DeFi lending market is $30.6 billion. Aave, JustLend, Spark (formerly MakerDAO), and Compound hold respective shares of 35.9%, 18.4%, 7.5%, and 6.3%, accounting for 70% of the total TVL.

Source: DefiLlama

Aave

Aave is the largest DeFi lending protocol by scale, ranking third among DeFi projects overall. It has maintained a leading position due to core features like its lending pools, aToken model, innovative interest rate mechanism, and flash loans.

• Supported Blockchains: Initially launched on Ethereum, it later expanded to multiple EVM-compatible chains.
• TVL (Total Value Locked): $11.2 billion.
• Project Positioning: Aave is positioned as an innovative DeFi lending protocol based on Ethereum, offering unique services like uncollateralized loans and flash loans.
• Operating Mechanism: Users can deposit assets as collateral to borrow other assets, while lenders can earn interest. The protocol takes some interest to maintain the DAO and support contributors. The reserve factor, which varies from 10% to 35% depending on asset risk, determines the percentage collected.
• Advantages: Aave features a security module and offers new lending functionalities, such as rate switching (allowing borrowers to switch between variable and stable rates), collateral swaps (enabling borrowers to swap their collateral for another asset), and flash loans.

JustLend

JustLend is the official lending platform launched by TRON in 2020, and its TVL (Total Value Locked) briefly surpassed Aave to rank first in the sector.

• Supported Blockchains: Primarily supports the TRON blockchain.
• TVL: $5.8 billion.
• Project Positioning: JustLend aims to provide safe and transparent lending services within the TRON ecosystem.
• Operating Mechanism: Users can deposit assets as collateral and borrow other assets, with the platform automatically executing lending rules via smart contracts.
• Advantages: Its deep integration within the TRON ecosystem and relatively low transaction fees are key factors in attracting users.

MakerDAO（Spark）

MakerDAO offers stable asset and lending services through its stablecoin DAI and decentralized lending protocol. Its SubDAO, Spark, launched last year, further diversifying its lending products and enhancing market competitiveness.

• Supported Blockchains: Ethereum, Gnosis Chain.
• TVL: $2.2 billion.
• Project Positioning: MakerDAO focuses on the creation and lending of the DAI stablecoin.
• Operating Mechanism: Users generate DAI by collateralizing assets, and the platform maintains DAI’s stability through smart contracts.
• Advantages: As the pioneer of decentralized stablecoins, it holds a first-mover advantage and remains the largest decentralized stablecoin project, now pivoting towards regulatory-compliant real-world assets (RWA). DAI’s stability and broad acceptance in DeFi are core strengths of MakerDAO.

Compound

Compound, an early DeFi lending platform, introduced liquidity mining, sparking the “DeFi Summer” of 2020.

• Supported Blockchains: Primarily operates on Ethereum, with plans to expand to other chains.
• TVL: $1.9 billion.
• Project Positioning: Compound aims to offer an open lending market where lending rates are automatically adjusted by algorithms.
• Operating Mechanism: Users deposit assets as collateral, and the platform uses algorithms to match lenders and borrowers.
• Advantages: As an early mover in lending, Compound enjoys a first-mover advantage. Its automatic interest rate adjustment mechanism and solid market strategy enhance its competitiveness in the DeFi space.

Market Disruptors

The appeal of the DeFi market lies in its openness and innovation, encouraging numerous major protocols and emerging players beyond the top protocols to actively seek breakthroughs and growth. Examples include Morpho, which uses a modular lending architecture; Radiant, supporting cross-chain lending; and Huma Finance, which is exploring Real-World Assets (RWA) and credit-based lending.

With the overall recovery trend in the cryptocurrency market, users’ demand for financial activities like lending and liquidity provision is steadily increasing, offering unprecedented growth opportunities for the DeFi sector. Emerging protocols and new approaches are proliferating, introducing novel and more efficient lending mechanisms and financial products aimed at meeting diverse user needs and challenging the existing landscape.

In the third section, we will share case studies highlighting these disruptors and their innovative approaches.

Development Trends in the DeFi Lending Market

The growth of the DeFi lending market is driven not only by its inherent technological and profit incentives but also largely by the overall sentiment in the crypto market, with Bitcoin price cycles being the most direct influence.

Bitcoin impacts the DeFi ecosystem in multiple ways, including directly affecting the total value locked (TVL) in DeFi, influencing overall market sentiment and investor confidence, driving DeFi ecosystem growth and innovation, and indirectly affecting the prices of related protocol tokens.

The following chart shows that DeFi Lending TVL closely follows Bitcoin’s price fluctuations. Despite Bitcoin reaching new highs this year, the TVL in the DeFi Lending sector has not yet achieved new peaks, as trading sentiment and demand in the market remain subdued.

Source: Gate Research

Leading protocols like Aave are increasingly resembling traditional commercial banks. This is not a criticism of stagnation; rather, it’s the expected shift from a period of rapid, chaotic expansion to a more stable and cautious path following the last explosive phase of DeFi innovation.

As illustrated in the chart below, the MCAP/TVL (Market Capitalization to Total Value Locked) ratio for Aave, COMP, and MKR has followed a parabolic rise-and-fall pattern. During the peak of DeFi enthusiasm, investors flocked to buy tokens, driven more by speculation than by actual returns on locked assets. After this initial hype, the MCAP/TVL ratio settled into a relatively stable range of 0.1-0.2. Despite the ups and downs of the 2022 bear market and the 2023 bull market, this ratio has shown a trend toward convergence, indicating relative stability.

Source: DefiLlama, Gate Research

Overall, the persistently low MCAP/TVL ratio for these top protocols reflects a closer alignment between protocol market value and platform-locked value, with less market speculation. This can generally be seen as a positive sign, suggesting higher intrinsic value.

Notably, the RWA (Real-World Assets) trend in June 2023 led to a surge in MAKER, which temporarily spiked this ratio, highlighting the importance of market appeal and strategic marketing for crypto protocols, as the market does not always reward pure technical innovation.

In addition to the influence of overall crypto market sentiment, the future of DeFi lending protocols can be explored through three core dimensions: economic model optimization, integration of technological innovation, and regulatory compliance. These directions are intertwined, collectively aiming to expand the user base of borrowers and lenders, address low capital utilization due to over-collateralization, and drive maturity and evolution in the DeFi lending space.

Economic Model Optimization: Enhancing Efficiency and Incentives

Optimizing the economic model of DeFi lending protocols is key to boosting the overall appeal of the ecosystem. The main objective here is to balance protocol revenue, liquidity provider (LP) benefits, and total value locked (TVL) to achieve mutual benefit. Specific strategies include:

• Adjusting Interest Rate Models: Protocols can ensure cost-effectiveness for borrowers while offering LPs attractive returns by dynamically adjusting lending rates in response to market supply and demand. For instance, the Liquity protocol allows users to borrow LUSD without ongoing interest fees, instead balancing operational costs and risks with a one-time borrowing fee.
• Optimizing Collateral Liquidation Mechanisms: Designing more efficient and transparent liquidation processes minimizes losses during liquidation while protecting LPs from excessive risk exposure.
• Introducing Diverse Collateral Options: Expanding collateral types to include new assets like BRC20 Ordinals and real-world assets (RWA) broadens the asset pool in the lending market, attracting a wider range of investors and borrowers. For example, protocols like Dova Protocol, Shell Finance, and Liquidium allow users to use BRC20 assets as collateral to access loans.
• Improving Protocol Token Utility: Enhancing incentives for governance tokens and treasury management—such as fee discounts, airdrop rewards, revenue sharing/buybacks—fosters a sense of engagement and ownership among token holders, supporting long-term protocol stability. For instance, at the end of July 2024, Aave proposed a fee switch to return a portion of net excess revenue to key users, which helped boost both AAVE’s token price and TVL.

Technological Innovation and Integration: Enhancing Completeness, Efficiency, and Security

Technological innovation is a key driver for the advancement of DeFi lending protocols. Integrating new technologies can significantly improve the robustness, execution efficiency, and security of on-chain lending:

• Decentralized Insurance: Provides on-chain insurance services for lending transactions, reducing the risk of fund loss due to defaults or market fluctuations, thereby boosting user confidence.
• AI Optimization Services: AI technology can contribute to risk management, automated trading, credit assessment, and optimizing user experience, providing data support for lending decisions to help users and platforms make smarter choices. For example, the DeFi protocol NOYA enables AI agents to manage liquidity across multiple blockchains safely and accurately, using advanced technologies like Zero-Knowledge Machine Learning (ZKML) to support functions such as liquidity allocation, leverage management, and loan interest rate optimization.
• Decentralized Identity (DID): Builds a blockchain-based identity verification system that automatically evaluates users’ creditworthiness via smart contracts, enabling the possibility of unsecured credit lending. For example, Aave’s Lens Protocol aims to establish an on-chain credit evaluation system using social data.
• Modular Lending: By introducing modular design, different functions within lending protocols (such as risk assessment, fund pool management, and lending execution) are separated into modules, facilitating rapid iteration and upgrades while enhancing system flexibility and innovation potential.

Real-World Use Cases: Business Partnerships and Ecosystem Development

Following the rapid expansion of DeFi in 2020, the DeFi lending market has begun to converge, with future trends likely to focus on incremental innovations rather than disruptive breakthroughs. As Electric Capital partner Ken Deeter notes, functions across protocols like Aave, Morpho Labs, Silo Finance, Euler Labs, Kamino, and Fraxlend are increasingly converging, and cyclical lending is becoming ubiquitous, making use cases, partnerships, and ecosystem development central to future growth.

Integrating more real-world assets and building compliant lending systems for qualified investors could be critical avenues for transformation:

• Regulatory Compliance: A compliant lending system requires users to undergo KYC/AML verification to ensure legal sources of funds, prevent illicit money from entering the DeFi lending market, and ensure lending protocols adhere to local regulations. For example, in early September 2024, MakerDAO transitioned to SKY, adding a freeze function to the stablecoin USDS to support regulatory requirements. However, this move faced criticism from the community as overly accommodating regulatory demands, which some feel contradicts the permissionless and censorship-resistant spirit of crypto—highlighting a current dilemma.
• Real-World Assets (RWA): Assets like stablecoins, treasury bonds, and reinsurance are poised to become pillars of on-chain economic activity, offering avenues for lending market expansion. For instance, MakerDAO’s RWA initiatives include MIP21, which supports RWA as collateral for lending, using Centrifuge Tinlake as the underlying infrastructure and generally charging a 4% stability fee. MIP65, another component, enables USDC acquisition through the PSM module, with strategic investments managed by Monetalis, including multiple purchases of U.S. treasury bonds. Similarly, the lending protocol Teller uses smart contracts audited by Sherlock and has insurance coverage of up to $2.2 million.

Innovation Cases

In this section, we present some innovative cases of DeFi lending protocols under the new trends mentioned above.

Modular Lending: Flexible, Efficient, Customizable Risk Exposure, Unlocking More Use Cases

Modular design enhances system flexibility and scalability by breaking complex systems into independent, interchangeable modules. In blockchain, modular systems typically comprise four main layers: data availability, consensus, execution, and settlement. Each layer handles specific functions, addressing blockchain scalability and security issues through decoupling and recombination.

Modular lending applies this concept to blockchain-based lending, dividing the process into separate modules that communicate via standardized interfaces. These modules handle functions like liquidity management, interest rate setting, risk assessment, and liquidation. This structure enables seamless integration of functions, risk parameters, collateral, and assets. It allows independent development, deployment, and upgrading of each module, mitigating single-point dependency risks and capital inefficiency while expanding on-chain lending use cases.

Several projects are actively exploring modular lending, including Morpho, Euler V2, Vesper, and Gearbox. Other protocols like Aave v4, Compound, MakerDAO, Ajna, and Starport also incorporate modular design concepts to varying degrees. For instance, MakerDAO is transitioning towards a more decentralized SubDAO model, while Aave’s protocol uses multiple smart contracts to manage lending, collateral, liquidation, and other functions.

Morpho

Morpho Labs is one of the earliest protocols to explore the concept of modular lending, aiming to become an aggregated liquidity layer for passive lenders through modular design and frictionless transaction mechanisms. From 2022 to 2023, Morpho launched an optimizer focused on improving lending and supply rates of underlying protocols (Compound V2, Aave V2, and Aave V3) through peer-to-peer user matching.

Source: morpho.org

A major highlight of Morpho is that it builds a layer on top of existing DeFi lending protocols, optimizing liquidity supply, interest rate mechanisms, etc., by introducing additional modules. An automated matching mechanism implemented by smart contracts aims to provide more competitive interest rates while maintaining a high degree of flexibility and customizability.

Source: docs.morpho.org

Morpho Labs’ two core products are Morpho Blue and Meta Morpho:

• Morpho Blue: Launched in 2023, Morpho Blue enables minimized deployment of crypto assets and independent lending markets on the Ethereum Virtual Machine. It uses a dual license (BUSL-1.1 and GPLv2), offering a trustless base layer for users to create independent markets. These markets comprise loan assets, collateral assets, liquidation loan-to-value (LLTV), oracles, and interest rate models (IRM). Once set, these market parameters remain permanent and unchangeable.
• Meta Morpho: This independent meta-protocol creates Meta Morpho Vaults (lending vaults) based on Morpho Blue. It aims to achieve seamless integration and interoperability across various DeFi platforms and protocols. Meta Morpho offers cross-platform integration, enhanced interoperability, automated management, and liquidity aggregation, streamlining collaboration between different DeFi protocols.

Morpho has carved out its niche in the DeFi landscape through its modular design, efficient low-cost lending mechanism, improved user experience, innovative products, and secure trading environment. The ecosystem currently boasts over 200 projects with a Total Value Locked (TVL) of $1.2 billion. However, it’s worth noting that Morpho’s TVL and protocol fees have been declining since early 2024, indicating some weakness in business growth. This trend warrants continued observation.

Source: DefiLlama

Euler V2

Euler V2, a modular lending protocol, is an upgraded version relaunched by Euler Finance in September 2023 following a flash loan crisis earlier that year.

According to the official website, Euler V2 introduces two key features: the Euler Vault Kit (EVK) and the Ethereum Vault Connector (EVC). The EVK enables users to create custom lending vaults, while the EVC allows these vaults to serve as collateral for other vaults.

Source: euler.finance

The Euler Vault Kit (EVK) is a versatile toolkit that empowers users to create and manage bespoke vault systems. With the EVK, users can deposit assets into vaults and customize strategies and rules to suit their specific needs.

Features:

1. Custom strategies: Users can set lending rates, liquidation rules, etc., based on risk preferences.
2. Multi-asset support: Supports the deposit and management of multiple crypto assets.
3. Flexible management: Users can adjust vault settings to adapt to market changes.
4. High security: Ensures asset security through smart contracts and decentralized technology.

The Ethereum Vault Connector (EVC) aims to connect EVKs on Ethereum, enabling seamless transfer of assets and strategies between different DeFi protocols.

Features:

1. Unified interoperability layer: Allows asset transfer between different vaults, increasing liquidity.
2. Strategy sharing: Share and apply the same strategies across different vaults.
3. Automated management: Automate asset transfer and strategy application through smart contracts.
4. Enhanced liquidity: Improve the liquidity of the entire DeFi ecosystem by connecting different vaults.

As of the writing date, the protocol’s TVL has reached $4.53 million. After suffering from the FTX collapse and hacker attacks, the protocol is recovering with difficulty.

Vesper

Vesper is a multi-chain DeFi lending protocol with asset pools and strategies adopting a modular design, allowing for flexible strategy combinations and deployments. This design enables users to choose appropriate strategies based on different risk preferences and yield targets.

Each Vesper pool has three main modules: Collateral, Strategy, and Action.

• The Collateral module handles the deposit and withdrawal of funds, reflecting the contract calls needed to transfer deposits to places that can generate yields.
• The Strategy module deploys capital to generate yields, which can be simple or complex depending on the type of pool.
• The Action module decides when to claim yields, and whether to transfer these yields to the Strategy module for redeployment to further generate yields, or return them to the Collateral module for withdrawal.

Source: vesper.finance

Vesper’s design allows developers to create any number of yield-generating strategies and seamlessly combine these strategies or replace existing strategies to continuously capture emerging high-yield opportunities. After depositing funds, users do not need to take any action to manage these pools, and there are no limits on how often the backend can be swapped or how many strategies can be combined in one pool.

Vesper’s modular multi-pool approach also allows developers to run multiple strategies in parallel by queuing them into the same pool. This not only optimizes yields but also allows pool architects to evaluate the performance of new strategies before deciding how much capital to allocate.

Overall, Morpho, Euler V2, and Vesper all demonstrate modularity, flexibility, and customizability in their designs, optimizing user experience and capital efficiency, with a particular focus on risk management, differing only in details. Euler V2 emphasizes modularity, security, and flexibility, supporting multiple asset types and enhancing security through rigorous audits and bounty activities. Morpho, on the other hand, addresses the issue of liquidity fragmentation through Meta Morpho vaults to enhance lenders’ liquidity conditions. At the same time, Vesper achieves automated yield generation and strategy adjustment through modular design, creating continuous yield opportunities for users.

Real World Assets (RWA): Expanding Real-World Adoption with Significant Potential

According to on-chain data from OurNetwork and rwa.xyz, driven by institutional interest and integration with DeFi, the market size of RWA tokenization has exceeded $10 billion. A report by Boston Consulting Group predicts that the market size of tokenized assets will reach a staggering $16 trillion by 2030.

In the DeFi Lending sector, the trend of exploring Real World Assets (RWA) is increasingly prominent, with several positive developments:

1. Continuous expansion of asset classes, with growing interest in tokenizing new assets such as intellectual property, carbon credits, and artwork. NFTs are particularly favored as ownership certificates.
2. Increased institutional participation, with major financial institutions enhancing liquidity and reducing transaction costs through RWA tokenization, while demand for clearer regulatory frameworks increases.
3. Deepening integration with traditional finance (TradFi), with the rise of hybrid finance (HyFi) models and cross-chain solutions promoting RWA liquidity and market coverage.
4. Strengthening of transparency and security through oracles providing accurate data and security upgrades for smart contracts and insurance products.
5. Enhanced financial inclusivity in emerging markets and advancement of global standardization efforts, aiming to facilitate the integration of emerging markets into global capital markets and promote global standards through RWA tokenization.

However, from the current development situation, Real World Assets (RWA) remain a controversial category of projects. Firstly, they have off-chain components that may rely on single entities and face strong regulation, which doesn’t fully align with DeFi’s decentralized characteristics.

Additionally, except for U.S. Treasury bonds, which can adapt to large-scale applications, other assets like real estate and artwork are non-standardized products that originally lacked liquidity and still face liquidity shortages and valuation challenges on-chain.

Currently, besides Aave, Compound, and MakerDAO attempting to enter the RWA sector, some DeFi lending protocols specifically rooted in RWA financing businesses are also emerging, such as Centrifuge (the earliest to engage in asset tokenization), Huma Finance (focused on cross-border financing), and Flux Finance launched by the RWA leading protocol Ondo Finance. We will introduce these in detail below.

Centrifuge

Founded in 2017, Centrifuge aims to become the financial infrastructure for the RWA market, providing decentralized financing channels for real-world assets through blockchain and smart contract technology.

Tinlake is Centrifuge’s investment application, acting as an open market for real-world asset pools. For borrowers, they can tokenize assets (loans, streaming royalties, artwork, or any other securitized assets that match their business) through asset originators and invest these tokens into asset pools created by Tinlake, using physical assets as collateral to obtain stablecoins DAI or USDC invested by on-chain investors. For investors, Tinlake effectively segments the risks and returns of physical collateral in a structured manner to meet the needs of different investors.

Source: Centrifuge

According to official explanations, when Tinlake assets default, the on-chain technical process will adjust the TIN cancellation schedule and reprice NFT assets. Through a waterfall fund allocation mechanism, junior shares (TIN) will first bear losses to protect senior shares (DROP). Off-chain, defaulted assets are managed through special services, market disposal, or liquidation actions, with proceeds distributed to token holders.

According to statistics from rwa.xyz, as of the date of writing, Centrifuge has generated 9 overdue payments totaling $87.13 million. Official data shows that the platform’s total financing has reached $646 million, with 1,531 types of assets tokenized, and TVL growing 18% year-on-year.

Centrifuge completed Series A financing this year and has engaged in business cooperation with Credbull and others. Credbull has become the latest asset manager, tokenizing and launching private credit funds on Centrifuge, further promoting the integration of crypto finance and physical assets.

In summary, although Centrifuge has generated some overdue loans, its business exploration in RWA covers multiple aspects including technical implementation, business models, compliance, ecosystem cooperation, and market position. It remains the most successful on-chain lending protocol combining RWA.

Huma Finance

Huma V1 is an income-backed lending protocol. It allows businesses and individuals to borrow against future income by connecting them with global investors on-chain.

The protocol is equipped with common credit facilities such as revolving credit lines and accounts receivable factoring, as well as decentralized signal processors and evaluation agents, which are key infrastructures integrated with income sources for credit underwriting and ongoing risk management.

Huma V2 protocol builds on the V1 protocol. In addition to revolving credit lines and accounts receivable factoring, it also adds support for accounts receivable-backed credit lines. Moreover, V2’s modular design allows for the addition of more functional modules to adapt to various use cases.

Source: huma.finance

Huma V2’s lending model includes the following components:

1. Huma Pools: Composed of a series of smart contracts, supporting different tier policies, fee managers, and maturity managers to adapt to different scenarios.
2. Evaluation Agents: Responsible for borrowers’ credit assessment, recording evaluation results, and executing management operations for approved credits.
3. Tokenization: Enables borrowers to bring accounts receivable performance on-chain, increasing transparency. Evaluation agents review tokenized receivables in accounts receivable-backed credit lines and receivables financing scenarios.
4. Huma DApp/SDK: This interface allows different pool participants to interact with the Huma protocol, such as borrowers withdrawing funds and making payments, and lenders depositing and withdrawing.

In simple terms, Huma Finance’s business model revolves around payments, providing liquidity and application layer integration through its PayFi Stack. Its lending business brings new narratives and development directions to the DeFi field through its innovative PayFi concept and technical architecture.

Huma Finance completed a $38 million financing this year, planning to use these funds to expand its payment financing (PayFi) platform to the Solana blockchain and Stellar’s Soroban smart contract network. Additionally, Huma Finance is merging with Arf, a liquidity and settlement platform focused on cross-border payments, to increase the adoption of tokenized assets, and expects to achieve $10 billion in payment financing transactions next year.

As of the writing date, the protocol has achieved $950 million in financing payments with a credit default rate of 0.

Source: DefiLlama

Flux Finance

Flux Finance is a DeFi lending protocol developed by Ondo Finance and managed by Ondo DAO. As a fork of Compound V2, Flux is specifically designed to support the tokenization of real-world assets (RWA).

Flux’s operation process is simple: all users need to go through KYC/AML procedures, those lending stablecoins can earn returns, while borrowers can stake OUSG (a tokenized U.S. Treasury bond issued by Ondo Finance) as collateral. After lending stablecoins, lenders receive fTokens, representing their right to recover stablecoins with interest, and these tokens can be transferred without restrictions.

Source: fluxfinance.com

Overall, DeFi lending protocols represented by Flux Finance, which primarily focus on U.S. Treasury bonds, have advantages in RWA by promoting the integration of traditional financial assets with DeFi, providing compliance and security, and enhancing asset liquidity.

It’s worth noting that as the Federal Reserve enters an interest rate cut cycle, the pattern of U.S. Treasury bonds as a risk-free yield source for DeFi may be disrupted, and carry trades are expected to unfold on a large scale. For instance, MakerDAO’s DAI issuance has already significantly decreased.

As of the writing date, the protocol has a supply pool of $8.61 million and $3.66 million in loans.

Source: DefiLlama

Interest Rate Innovation: Zero Interest, Fixed Rate, and Custom Rate

Typically, most lending protocols dynamically adjust interest rates based on factors such as the utilization rate of underlying assets, changes in U.S. Treasury yields, and market expectations. For example, in the Compound protocol, when the utilization rate of the underlying asset increases, both deposit and loan rates increase, thereby suppressing the burden on existing borrowers and the demand from new borrowers.

To address this situation, services offering fixed rates, zero-interest loans, and even custom interest rates have emerged. Fixed rates are self-explanatory, while zero-interest loans usually refer to lending protocols that do not charge interest or cover costs through other mechanisms (such as charging one-time fees, using staked assets for investment gains, or subsidizing through protocol governance token distribution), thus providing borrowers with loans at near-zero interest rates.

Currently, Ethereum-based lending protocols Liquity and Alchemix have actively explored this direction.

Liquity

Launched in 2021, Liquity is an on-chain lending protocol for ETH. V1 focuses on zero-interest loans and a governance-free model, while V2 emphasizes custom interest rates and prioritizes the interests of long-term stakers.

Liquity V1
On Liquity V1, borrowers need to use ETH as collateral to borrow LUSD, a stablecoin issued by the Liquity platform, with a minimum collateral ratio of 110%.
Although it’s a zero-interest loan, borrowers need to pay an upfront “borrowing fee” of at least 0.5%, plus a refundable deposit of 200 LUSD (about $200) to cover gas fees in case of liquidation.
Depositors can deposit LUSD into the stability pool to proportionally receive ETH from liquidations and earn an annual percentage yield of about 40-60% as an incentive.
Additionally, the protocol operates entirely on algorithms and a fixed monetary policy, so it doesn’t use community governance.

Liquity V2
As the first fully decentralized stablecoin, Liquity V1 pushed the boundaries of capital efficiency and decentralization. However, in an environment of high stablecoin interest rates and a large amount of ETH shifting towards liquid (re)staking, LUSD faced high selling pressure and a surge in redemptions, limiting Liquity’s business development. As a result, the project team developed V2, which will launch in 2024.
In the plan, Liquity V2 will improve the borrowing experience and cater to a broader market demand by introducing more supported assets and allowing borrowers to customize their risk tolerance through innovative mechanisms.

Source: Liquity

Specifically, V2 has the following features:

• User-defined interest rates: A major innovation of V2 is allowing borrowers to set their own interest rates, enabling them to decide their borrowing costs and balance risk and efficiency according to their preferences.
• Introduction of new collateral types: In addition to ETH, Liquity V2 introduces LST as collateral. This allows borrowers to leverage while maintaining their staking yields for more liquidity or leverage.
• BOLD profit opportunities: A large portion of the interest generated by the protocol flows to BOLD stability pool depositors and liquidity providers. This ensures BOLD continues to provide real yields and is transmitted through sustainable income generated by the protocol itself.
• Independent lending markets: Liquity V2 provides independent lending markets and stability pools for each collateral type. This helps each lending market set its own interest rates while segmenting risks to better meet users’ different needs.
• Multiple Trove functionality: To enhance user convenience, multiple Troves can now be managed from a single address.
• Capital efficiency: Liquity V2 can operate without a recovery mode. This ensures borrowers benefit from consistently high LTVs, allowing leverage up to 11x without exposing the system to systemic stress.

Overall, Liquity V2, like V1, adheres to the principles of code transparency, fixed protocol, and immutable/non-upgradeable contracts, and demonstrates certain competitive advantages.

Source: Liquity，Gate Research

As of the writing date, Liquity V1’s TVL reached $323 million, with LUSD supply reaching $65.5 million. However, looking at TVL and monthly active users, there has been a downward trend this year.

Source: token terminal

Alchemi

Alchemix is a pioneering DeFi platform and community DAO that enables users to unlock the potential of their assets through self-repaying, zero-interest, non-liquidation loans.

In simple terms, users can deposit supported assets into the platform and earn deposit interest. Through this process, users can obtain credit-like convenience, borrowing up to 50% of their asset value. The interest generated by the initial deposit automatically repays any outstanding debt, without the need for monthly repayments. Moreover, this innovative same-asset lending mechanism ensures there is no liquidation risk, providing users with a worry-free and seamless DeFi experience.

The core smart contract responsible for managing user accounts in Alchemix is called Alchemists, which accepts yield-bearing assets denominated in ETH and stablecoins as collateral, while adopting diversified yield farming strategies to generate returns.

Source: alchemix-finance

As of the writing date, Alchemix’s TVL reached $31.21 million. Similarly affected by ETH’s price performance this year, TVL and monthly active users have not been particularly outstanding this year.

Source: token terminal

Unsecured Credit Loans

Unsecured lending is a significant innovation in the DeFi space. During the DeFi Summer of 2020, as demand for unsecured loans increased and competition in the DeFi lending market intensified, Aave was the first to introduce credit delegation, allowing users to delegate their credit limit to trusted parties. Simultaneously, Aave launched Flash Loans, enabling users to borrow any amount of assets without collateral from designated smart contract pools, with the condition that the principal and interest must be repaid within the same transaction (one block).

However, by the bear market of 2022, many CeFi institutions experienced cascading liquidations due to credit loans backed by their reputations as the market continuously declined. Numerous CeFi lending institutions collapsed in succession, and many DeFi lending protocols also saw their credit loan businesses stagnate due to ongoing business contraction.

It’s evident that these early pure credit loans were more of a packaged concept, far from unsecured loans in reality, and faced risks such as continuous liquidation and flash loan attacks in extreme cases. However, considering the significant influence of unsecured lending in traditional finance and the trend toward optimizing capital efficiency, decentralized unsecured lending still has enormous growth and innovation potential.

Today, models like Cream Finance’s early Iron Bank, which provided unsecured loan services to whitelisted partners, are no longer novel. As unsecured loan protocols can now use bank transaction records, third-party credit rating data, and potentially future decentralized identity (DID) digital identities through fine screening, algorithmic automatic scoring, or community review, competitors in this field such as TrueFi, Clearpool, Maple Finance, and Huma Finance have gradually developed business models for pure credit loans based on comprehensive credit analysis.

However, we must face reality: in the DeFi space, the pawnshop model of over-collateralized loans may still be the preferred choice in the long term due to its relative ease of asset recovery in a decentralized environment. Therefore, widely promoting the credit loan model to a broader population will continue to face numerous challenges and obstacles in the long run.

TrueFi

TrueFi, developed by TrueToken, the company behind the stablecoin TUSD, offers an unsecured credit loan service that combines DAO governance with collective wisdom algorithms.

TrueFi’s credit loan business operates through a DAO model, where TRU token holders vote on loan approvals while considering the platform’s pool risk parameters. This mechanism ensures that lending decisions are based not only on data algorithms but also incorporate collective wisdom. Borrowers are primarily reputable crypto trading companies.

TrueFi’s Lines of Credit (or ALOCs) provide borrowers with flexible financing options while offering lenders opportunities for high-liquidity capital deployment. Interest rates are dynamically adjusted based on pool utilization, incentivizing lenders to provide capital when pool utilization is high, while borrowers maintain optimal liquidity ratios. Each credit line has a maturity date, before which borrowers can withdraw funds at any time, and after which all principal and interest must be repaid.

To create a credit line, users need to collaborate with the TrueFi DAO, submitting proposals containing basic parameters (such as underlying tokens, protocol fees, interest rate curves, etc.), which are deployed after voting approval. In terms of fees, credit lines pay protocol fees to the TrueFi DAO treasury, quoted annually and accrued block by block.

Source: truefi.io

For default cases, TrueFi plans to hire lawyers through TrustToken to initiate debt collection lawsuits against borrowers. However, due to the borrowers being primarily strictly vetted institutions, no litigation cases have occurred yet. In fact, since its launch in November 2020, TrueFi has issued over $1.7 billion in loans to more than 30 borrowers and paid over $40 million in interest to protocol participants, with no instances of late payments or bad debts.

This year, TrueFi launched the Trinity protocol on the Base chain. Trinity uses TRI tokens, which are USD-based and backed by collateral assets. This move marks TrueFi’s expansion into Real World Assets (RWA).

TrueFi’s current TVL has reached $34.21 million as of the writing date, with cumulative loans of $1.74 billion.

Clearpool

Clearpool focuses on providing short-term capital raising solutions for institutions without the need for collateral, and offers risk-adjusted yields to DeFi lenders through a permissionless single-borrower pool model.

Clearpool’s innovation lies in its introduction of the Prime module for real-world asset private credit, providing borrowers who meet credit assessments through strict KYC and AML due diligence with the ability to initiate pools with customized terms.

Specifically, the platform collaborates with Credora, utilizing zero-knowledge technology for real-time risk calculations to ensure the privacy and security of borrower credit assessments. Institutional borrowers must pass KYC and AML verifications and sign legal agreements, after which Credora assesses their credit risk and lending capacity.

Source: Credora

Through the Prime business, once an institution is certified and pays liquidity fees, liquidity pools on Clearpool are opened, allowing lenders to finance the pool with USDC. Pool utilization rate is an important indicator for measuring risk appetite and interest levels, with high utilization meaning borrowers have withdrawn more funds, reducing the funds available for lenders to withdraw, while borrowers need to pay higher interest.

When pool utilization exceeds 95%, borrowers cannot withdraw more liquidity, but interest continues to accrue. If utilization continues to rise above 99%, borrowers have 5 days to lower utilization below 95%, otherwise an auction process is triggered, allowing participants to bid on the pool’s total debt. After the auction ends, all lenders can vote to decide whether to accept the winning bid.

Institutional borrowers will face legal charges and related risks if they fail to repay their debt within the 5-day grace period. Clearpool provides notification features to alert lenders when pool utilization reaches specific thresholds, helping to manage risk.

Similarly, Clearpool also began expanding into RWA business in 2024. In April, Clearpool launched Credit Vaults for institutional unsecured loans on Avalanche, exclusively hosting Clearpool’s first RWA pool on Avalanche. Additionally, in July, Clearpool launched Credit Vaults on Base, allowing borrowers to set their own parameters, including interest rates, repayment schedules, and KYC requirements, providing them with greater control and customization options.

As of the writing date, since its launch in March 2022, Clearpool’s current TVL has reached $69.93 million, with cumulative loans of $622 million. The borrower pool has attracted 21 institutional members, including Wall Street giant Jane Street, publicly listed companies Banxa and Flow Traders, and crypto market maker Wintermute.

Source: DefiLlama

Omnichain Lending

As competition in DeFi intensifies, cross-chain technology has become a standard feature in lending protocols. Cross-chain technology aims to break down barriers between blockchains, allowing assets and data to flow seamlessly to better meet on-chain lending demands across different networks.

Currently, in addition to MakerDAO, Compound, and Aave expanding beyond Ethereum, many protocols have quickly adopted multi-chain lending support through cross-chain protocols like LayerZero and Wormhole, with Radiant leading in business scale.

Radiant

Radiant is a decentralized cross-chain lending protocol based on LayerZero, aimed at creating an omnichain money market. It allows users to deposit assets on different blockchains and borrow supported assets across chains, addressing the challenge of fragmented liquidity worth billions across chains.

From a cross-chain technology perspective, Radiant V1 uses Stargate’s cross-chain routing mechanism to facilitate lending operations across supported chains (such as Arbitrum and BSC). Users can deposit assets on Arbitrum and borrow directly on BSC or other chains without actually transferring assets from one chain to another.

The V2 version builds on V1 with various optimizations and upgrades, adding Zap customization for nearly every component and refining token utility and reward distribution rules.

Source: RADIANT

The upcoming V3 and V4 versions will fully integrate LayerZero services, enabling support for more EVM chains and a frictionless cross-chain collateral experience.

As of the time of writing, Radiant’s TVL (Total Value Locked) has reached $52.7 million, with cumulative revenue of $35.5 million. The borrower pool has attracted 21 institutional members, including Wall Street giant Jane Street, publicly listed company Banxa, Flow Traders, and crypto market maker Wintermute.

Aave V3

The Aave V3 version introduces three innovative features: Efficient Mode (E-mode), Isolation Mode, and Portal, with the new “Portal” feature significantly enhancing its cross-chain lending capability.

This feature allows users to move assets seamlessly between different blockchain networks within the Aave ecosystem. Specifically, users can provide liquidity on one network (e.g., deposit assets on Ethereum) and transfer them across chains by burning A Tokens (representing user-deposited assets) on that network and re-minting them on another (e.g., BSC).

Source: Aave

To enable this function, Aave V3 relies on third-party cross-chain bridge protocols like Hashflow/Wormhole and Stargate, which have been whitelisted through Aave’s governance voting. This mechanism ensures the safety and feasibility of cross-chain operations but also introduces third-party security assumptions, requiring users to trust the security of these bridge protocols.

Aave V3’s cross-chain lending feature aims to address liquidity fragmentation, enabling users to lend and borrow more flexibly across different chains, thereby improving capital efficiency and the ecosystem’s overall effectiveness.

As shown in the chart below, since its launch in March 2022, despite stagnant business volume during that year’s bear market, V3 has steadily grown since 2023, with substantial migration from V2. TVL and protocol fees on V3 have steadily increased, highlighting the enduring competitiveness of an established protocol compared to the higher volatility of newer protocols.

Source: DeFiLlama

AI-Driven

The fusion of AI and blockchain will be a game-changer, especially in enhancing data ownership, increasing transparency, promoting data tokenization, improving community governance, and reducing energy consumption.

According to research by Spherical, the rapidly growing AI blockchain industry is projected to soar to $980.7 million by 2030, with a compound annual growth rate of 24.06%.

In the DeFi lending market specifically, integrating AI technology can enable automated trading, optimize risk management, improve transaction efficiency, and enhance user experience. For example, AI can assess borrowers’ repayment potential and credit rating by analyzing big data from wallet histories and transaction patterns, helping platforms make more precise business decisions.

Source: INC4

For instance, in MakerDAO’s Endgame roadmap released in 2023, AI governance tools (GAIT) were proposed to assist in management. The roadmap outlines that in Stage 3, after the launch of SubDAOs, MakerDAO will focus on refining and optimizing its governance protocol. This includes introducing AI tools for governance monitoring and productivity improvements, aiming to boost the efficiency and flexibility of governance processes and improve proposal review and approval processes.

Additionally, the omnichain Web3 financial protocol dForce has adopted AI-driven operations. This protocol explicitly states its use of AI algorithms and machine learning to analyze large datasets, automate decision-making processes, and optimize intent-based transaction aggregation, liquidity pools, interest rate policies, and transaction automation.

Overall, the integration of AI in the DeFi lending market is still in its early stages, with no widespread cases of fully AI-driven business operations yet. Given that AI can enhance risk assessment and management decision processes, the fusion of these technologies is expected to yield positive developments in the future.

Summary and Perspective

The core value of DeFi lies in its permissionless, open nature, empowered by smart contract technology, which enables asset exchanges, lending, and other operations to be executed efficiently on a global scale without the need for trust, reshaping traditional financial markets. Along this journey, innovation in technology, marketing, and product development has undoubtedly driven the industry’s continuous iteration and evolution.

In 2024, the DeFi lending market is showing a vibrant and diversified landscape as the broader crypto market recovers. Currently, the total market cap of protocol tokens in the DeFi lending sector has reached $5.67 billion, with TVL (Total Value Locked) rebounding to $31.2 billion. These figures reflect not only the market’s recognition of the DeFi lending model but also its pivotal role in reshaping the financial market structure.

At the same time, the DeFi lending sector is undergoing profound changes, including platform transformations, convergence of functionalities and competitive differentiation, the rise of cross-chain solutions, the adoption of Layer 2 scalability solutions, the application of AI, and the exploration of real-world asset tokenization.

However, it is important to note that since 2024, the U.S. SEC has intensified its enforcement actions in the DeFi space, meaning the DeFi lending market, while continually innovating, still faces external regulatory risks.

Though DeFi lending may not see the explosive growth of the 2020 DeFi Summer again in the short term, the ongoing emergence of micro-innovations has become a key force driving the industry forward. Emerging protocols like Morpho, Radiant, and Wing Finance are introducing novel and efficient lending mechanisms and financial products to meet diverse user needs, challenging the dominance of established players like Aave, MakerDAO, and Compound.

In particular, unsecured lending remains a field with substantial potential for value and innovation despite its challenges. We look forward to more reliable solutions and pioneering efforts that can gradually overcome existing obstacles, paving the way for new developments in the unsecured lending market and driving it to become a significant direction of innovation within DeFi.

In conclusion, the DeFi lending sector is at a critical juncture filled with opportunities and challenges. With continuous technological advancements, growing market demand, and deepening industry innovation, there is every reason to believe that the DeFi lending market will maintain strong growth in line with overall market developments. We can expect more advanced DeFi lending solutions, and the integration of RWA (Real-World Assets) and AI has the potential to provide users with more efficient, convenient, and secure liquidity solutions, contributing to an optimistic narrative for the next bull market.

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  This paper is based on the author’s independent research and analytical judgment, and is for reference only. It does not constitute any investment advice. Any information mentioned in this article should not be viewed as a recommendation or endorsement of any specific project or strategy. The market carries risks, and investment requires caution. Gate.io assumes no responsibility for readers’ use of this article or any consequences arising therefrom.