7 Predictions About the Crypto Lending Landscape in 2024

As bitcoin begins another ascent upwards, competition among existing crypto lenders will continue apace. That means more innovation in lending products and offerings, as new market entrants from traditional finance and crypto look to take a piece of this high-demand industry as well as risks. Much of the market turmoil during the last bear market was caused by bankruptcies and business failures of overextended or otherwise shady crypto lenders.

This post is part of CoinDesk’s “Crypto 2024” predictions package. Mauricio is the co-founder of Ledn.

But the rebirth of the crypto lending market will also bring exciting opportunities for end users and investors alike, and drive continued changes to the digital lending ecosystem as we currently know it. Here are my seven key things to consider for the year ahead:

As more users enter the space, old and new companies alike will try to fill the void left by now-defunct crypto lenders like Genesis, Voyager, BlockFi and Celsius. They will try to sell customers the same promises of high returns with little transparency or risk management, as previous failed lenders did. There will be more fly-by-night opportunists trying to enter the market and trying to capture share.

As prices soar, don’t forget to ask the right questions! Was the lender able to navigate 2022 without hiccups? Are they “new” to the space? Investors should carefully understand how yield is generated, demand proof that the lender is accounting for client assets properly, and closely examine their risk management policies and track records. If you’re not getting clear disclosures or answers — beware!

Bitcoin (BTC) and ether (ETH) spot trading and derivatives volumes will shift from unregulated venues to regulated ones. Until now, a material share of the trading volume in crypto was processed through unregulated platforms that many times did not conduct KYC know your customer checks like decentralized exchanges and P2P markets. With the introduction of regulatory clarity and the emergence of spot bitcoin ETFs, a lot of this volume will now shift to regulated venues as traditional finance participants get the necessary clarity to become active in these markets.

Said differently, spot volume will move from decentralized exchanges like Uniswap to venues like Coinbase and Kraken while derivatives volumes like options and futures will move from overseas exchanges like Binance and ByBit to the Chicago Mercantile Exchange and the New York Stock Exchange for ETFs.

The approval of spot bitcoin ETFs will lead to a massive expansion in the bitcoin lending markets, as traditional finance and crypto market-makers alike will be able to arbitrage price differences between various investment vehicles as well as spot BTC prices. Until recently, some of the larger TradFi market makers had not participated in crypto or bitcoin because the arbitrage opportunities necessitated them getting involved in unregulated venues.

With spot bitcoin ETFs available in places like Nasdaq, bitcoin derivative products in the Chicago Mercantile Exchange and spot bitcoin in regulated exchanges like Coinbase and Kraken, institutions now have all the tools they need to make markets. They will need one more thing — physical bitcoin inventory.

Those of us who actively participate in the bitcoin lending markets are already starting to see this effect. This evolution will not only enhance the attractiveness of bitcoin lending as an investment option, but also legitimize and contribute to the overall stability of the digital asset market.

We are likely to see a resurgence of crypto debit cards thanks to increasing regulatory clarity and the continued efforts of reputable and well-established industry players. Specifically, Visa, Mastercard and Circle have been investing relentlessly in solutions that are increasingly more integrated with crypto platforms and digital assets.

These solutions blur the lines between digital assets and traditional payment rails, allowing users to spend their holdings directly without the need to convert into fiat currency.

As the bull market gains momentum, the escalating transaction fees will likely fuel the growth of layer 2 solutions and more efficient blockchains (as it usually does during bull market cycles). Innovations like Lightning Network for Bitcoin and scaling solutions like Polygon for Ethereum are prime examples of technologies designed to enable faster and cheaper transactions.

High-throughput blockchains like Tron and Solana will also grow in popularity. I expect these ecosystems to mature and gain wider acceptance. This evolution will create a lot of opportunity both in terms of future product innovation and investment.

The stablecoin market will grow significantly, I project that the total supply could surpass $250 billion. Tether, in particular, is expected to maintain dominance, controlling over 50% of the market share due to its widespread adoption across the globe. The growth of this market reflects the increasing demand for digital assets that combine the benefits of cryptocurrency with the stability of the U.S. dollar.

Governments will try to compete with these with their own central bank digital currencies, but I don’t expect CDBCs to get the “warm welcome” governments want. Several attempts have already been rejected by citizens in places like Nigeria and the Bahamas, and I expect this to be a trend that continues.

This bull cycle will be markedly different from its predecessors, primarily due to the anticipated increase in oversight in previously unregulated markets like decentralized exchanges and lending platforms. Financial regulators worldwide are fully aware of the growing significance and volumes flowing through platforms that do not know who their customers are. Many of these platforms have fully centralized operating teams and will fall victim to regulatory requirements.

In practice, all of this will result in authorities making an example from a few DeFi projects. This aggressive stance will likely create “DeFi martyrs” who will bear the brunt of this crackdown. Once these nomially “decentralized” platforms have to start conducting KYC and following regulations, the volume will dry up by moving to fully regulated venues or truly unregulated venues.

This next bull run is not just about financial growth and innovation; it’s also about the industry’s maturation. Block by block, we are building the future of finance.