Crypto-collateralized loans fell 16.78% to $56.16B in Q2, Galaxy Research reports. DeFi lending dropped to $21.94B from $47.13B in April. Aave holds 47.7% of active DeFi loans.
Crypto lending is slowing down, and not just a little.
Total crypto-collateralized loans fell 16.78% in the second quarter, shedding $11.33 billion to reach $56.16 billion, according to Galaxy Research. The current figure is 40% below the peak of $78.69 billion, a retreat that spans both centralized and decentralized platforms.
DeFi lending tells the same story from a different angle. Outstanding loan amounts stood at $21.94 billion in July, down from $47.13 billion in April. That is a sharp drop, though less severe than the 80% crash DeFi lending suffered in 2025.
Borrowing is declining in stages, not all at once. The sector is deleveraging through reduced credit demand rather than widespread forced liquidations, Galaxy Research said. The $200 million rsETH exploit in the quarter did not trigger a cascade of margin calls, which suggests the system is shedding risk in an orderly way.
Where stablecoins go
The lending contraction becomes clearer when you look at how stablecoins move through crypto markets. Despite fewer outstanding loans, stablecoins have processed an estimated $41.7 trillion in adjusted transfers on exchanges this year through the third quarter, with USD Coin (USDC) leading the way.
Much of that volume is tied to lending and liquidity operations, not payments. Flash loans account for roughly 65% of all USDC volume on Ethereum (ETH), according to the Galaxy report. On Coinbase's Base network, 68.91% of stablecoin activity comes from DEX liquidity rebalancing, and another 23.11% comes from flash loans.
Falling loan balances do not mean the lending infrastructure sits idle. Stablecoins keep circulating through short-term borrowing and liquidity strategies even as longer-term leverage contracts shrink.
Concentration on Aave
The question is whether the activity that remains translates into borrowers taking on more credit. Active DeFi loans total $23.6 billion, showing meaningful demand persists despite the broader contraction.
Nearly half of that sits on Aave (AAVE). The protocol holds $11.2 billion in outstanding loans, or 47.7% of the DeFi total, Galaxy Research data show. That concentration means a headline recovery in lending activity could still hinge on a single protocol's momentum.
Average monthly lending on Aave has climbed back to $10.3 billion, according to Token Terminal data, the first time it has reached that level since the downturn began. Still, that improvement alone does not confirm broader participation. If borrower numbers rise alongside outstanding credit, lending demand is widening. With 47.7% of active loans on one platform, the recovery looks concentrated rather than broad.
More on crypto market dynamics in our crypto market analysis.
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