Crypto Lending: Why DeFi is Beating Traditional Loans

Crypto as Collateral

Crypto holders are securing better loan deals than those taking out mortgages or car loans. This is due to DeFi, or decentralized finance, which allows people to use their crypto as collateral for loans at lower interest rates than traditional banks.

DeFi Market Growth

DeFi has seen rapid expansion. In Q2 2025, DeFi lending apps constituted 59% of the crypto-collateralized lending market, up from 54% in Q1. This growth is largely driven by users shifting from centralized finance (CeFi) exchanges.

Why DeFi Over CeFi?

• Transparency: DeFi operates on open, audited smart contracts, eliminating hidden decision-making.
• Programmatic Risk Controls: DeFi offers enhanced risk management features.
• Efficiency: Collateral, borrow limits, and liquidations are visible on-chain and enforced by smart contracts, a stark contrast to the failures seen in CeFi lenders.

Risks of DeFi

Despite its advantages, DeFi carries risks:

• Code Vulnerabilities: Bugs or exploits in protocol code can lead to irreversible losses.
• Lack of Insurance: Unlike traditional finance, DeFi lacks FDIC insurance or recourse options.

Rewards for DeFi Token Holders

Long-term holders of DeFi tokens like Pancake Swap (CAKE) have seen significant returns. Although CAKE is below its 2021 peak, it has delivered over 500% returns in five years, outperforming Bitcoin, Ethereum, and CeFi rivals.