How does the DeFi lending market react to investors' sell-off?

Cryptocurrency prices have experienced a significant correction since the beginning of October 2025, after Bitcoin reached a new all-time high (ATH). Alongside the market decline, decentralized lending activity has also contracted considerably.

Divergent Trends Between Aave and Nexo Amid Market Plunge

On-chain data analytics platform CryptoQuant has highlighted the stark difference between decentralized and centralized lending activities during the recent volatile period in the cryptocurrency market.

According to CryptoQuant, lending on decentralized finance (DeFi) platforms like Aave has sharply decreased. Specifically, the total value of stablecoins such as USDT and USDC borrowed weekly on Aave peaked at $6.2 billion in early August 2025, but by the end of November, it had fallen by 69% to just $1.9 billion.

This decline clearly reflects investors’ cautious sentiment amid the downward trend, with demand for leverage and risk appetite significantly reduced. During bullish market phases, investors often leverage to amplify gains. Conversely, during corrections, fears of liquidation increase as collateral values drop, prompting traders to repay debts or avoid new borrowing to minimize risks.

Cryptocurrency Market: DeFi Leverage Analysis | Source: CryptoQuantAlthough new borrowing activity has waned, Aave maintains a loan balance of up to $16.3 billion, indicating stability in its core lending book.

In contrast, Nexo – a centralized lending platform – has shown a recovery in new borrowing activity despite the market downturn. Data indicates weekly retail credit withdrawals decreased from $34 million in mid-July to $8.8 million in mid-November. However, as cryptocurrency prices continued to fall, withdrawal amounts surged to $23 million (up 155% week-over-week), reflecting a behavioral shift: instead of panic selling assets, investors increasingly prefer borrowing against their crypto collateral.

Cryptocurrency Prices and Total Value Locked (TVL) in DeFi Continue to Decline

The total value locked (TVL) in DeFi continues its downward trend. According to DeFiLlama, the entire sector’s TVL currently stands at approximately $117.9 billion, down 1.9% in the past 24 hours.

TVL measures the total value of assets (denominated in USD) locked in DeFi protocols for activities such as lending, staking, and trading. This metric helps investors assess market health and performance; typically, rising TVL indicates increasing value in major cryptocurrencies.

The sharp decline in DeFi TVL coincides with a prolonged correction in cryptocurrency prices starting from late October. Bitcoin, the largest cryptocurrency, peaked above $126,000 in early October 2025 but then fell sharply, losing about 30% of its value over the last two months of the year. Currently, BTC trades around $87,000, while the total cryptocurrency market capitalization has decreased to $2.96 trillion.

Evernorth CEO Predicts Institutional DeFi Boom in 2026

In a recent social media post on X, Asheesh Birla – CEO of Evernorth, a digital asset management firm for XRP – forecasted that 2026 will witness an explosion in institutional DeFi.

“2026 could mark the beginning of the institutional DeFi era,” Birla stated.

This prediction is based on advancements in legal frameworks and increasing corporate demand for the cryptocurrency market. Birla emphasized that companies will integrate DeFi protocols with artificial intelligence (AI) to automate operational processes, thereby optimizing global cash management, improving payment efficiency, and enhancing liquidity in the coming year.

Additionally, he foresees the emergence of local stablecoins and on-chain foreign exchange (FX) markets, opening opportunities to compete with the traditional $9.6 trillion FX market.

Birla also believes that NFTs will evolve into access tokens by 2026, serving sports teams, entertainment industries, and brands to enhance both online and offline experiences.

According to Birla, the cryptocurrency market is maturing, moving beyond hype to address real-world issues. He expects digital assets to become a driving force in everyday finance by 2026, with organizations leading the way.