Crypto Lending: Why DeFi is Beating Traditional Loans

Crypto holders are getting better deals on loans than people taking out mortgages or car loans. This is because of something called DeFi, or decentralized finance. DeFi lets people use their crypto as collateral to get loans, and the interest rates are lower than what you'd get from a bank. DeFi has been growing fast. In the second quarter of 2025, DeFi lending apps made up about 59% of the crypto-collateralized lending market. This is up from 54% in the first quarter. Most of this growth is coming from people moving away from centralized finance (CeFi) exchanges. DeFi has become more popular than CeFi for a few reasons. One is transparency. In DeFi, everything is run by open, audited smart contracts. This means there's no secretive CEO making decisions behind the scenes. Another reason is that DeFi has programmatic risk controls, which make it more attractive than CeFi. DeFi is also more efficient than CeFi. In DeFi, collateral, borrow limits, and liquidations are all visible on-chain and enforced by smart contracts. This visibility proved its value after the failures and restructurings of several CeFi lenders. However, DeFi isn't without its risks. There's still the risk of bugs or vulnerabilities in protocol code being exploited by attackers. Unlike in traditional finance, there's no FDIC insurance or readily available recourse when a DeFi contract is hacked. This means that funds can disappear irreversibly. Despite these risks, long-term holders of DeFi tokens like Pancake Swap have been rewarded greatly. Despite being well below its 2021 peak, CAKE has returned over 500% to investors compared over five years. That's not only beating its CeFi rivals, it has given investors better returns than Bitcoin and Ethereum.