DeFi lending has been cut in half from its 2025 peak after a rough stretch of hacks, lower token prices and users pulling money out of on-chain lending markets.
Galaxy Research, the research arm of crypto financial services firm Galaxy Digital, said in a Q1 2026 report that open loans on DeFi lending protocols fell nearly 14% during the quarter to $28.2 billion.
The drop became even sharper after the quarter ended, with Galaxy Research saying DeFi borrows fell from a record $47.1 billion on Sept. 19, 2025, to about $23.3 billion on May 1, a decline of around 50.6%.
- The rewards for taking DeFi lending risk also looked less attractive as Galaxy Research said average stablecoin borrowing rates fell during Q1 while benchmark USDC lending rates outside DeFi stayed flat at 3.5%.
Stablecoin borrow APR on Ethereum-based lending protocols. Source: Galaxy Research
- That left DeFi lending less obviously rewarding compared with safer cash options, especially with the Federal Reserve keeping its target rate at 3.5% to 3.75% in March and FDIC rate caps for some insured bank products sitting above 4% to 5% in May.
Aave, one of the biggest DeFi lending protocols, also saw heavy withdrawals during the stress around the KelpDAO and Drift exploits. Users pulled more than 25,400 Bitcoin-based assets (e.g. wrapped Bitcoin) and more than 943,000 WETH (wrapped Ethereum) from the protocol.
- The wider crypto lending market also got smaller as total crypto-collateralized lending fell 5.1% in Q1 to $67.4 billion, leaving it 14.3% below its Q3 2025 high of $78.6 billion.