The crypto market's resurgence, spearheaded by firms like Tether, Galaxy, and Ledn, isn't a victory cry for deregulation. It's a blaring alarm demanding responsible regulation. Think of it like this: a toddler learns to walk, stumbles, falls, and then gets back up. Do you pull all the safety supports and just turn them loose? Or do you offer some steering, guard rails, and a safe space to experiment, fail, and build skills with a bottom-up approach. Crypto is that toddler right now.
CeFi Rise Signals Market Maturity?
The numbers don't lie. CeFi lending has exploded to $11.2 billion. Remarkably, Tether, galaxy and ledn rule this market, commanding an amazing 88.6% and capturing 27% of the whole crypto lending market. The entire crypto lending market is estimated to be $36.5 billion at the end of Q4 2024. Though that represents a 43% decline from its peak in Q4 2021, it has jumped 157% since reaching a bottom in Q3 2023. This concentration of power is not inherently bad, but it does require a higher level of scrutiny. That’s the good news — it allows for fewer points of possible systemic failure, but much larger consequences if one of these behemoths do break down.
The recent 2022-23 crypto winter underscored the dangers of unregulated CeFi lending. Remember Celsius, Voyager, and BlockFi? Their bankruptcies weren't just isolated incidents. They were symptoms of a larger disease: a lack of transparency, reckless risk management, and a void of regulatory oversight. We cannot afford to repeat those mistakes.
You could make the case that DeFi’s comparative strength throughout that time should be seen as evidence that decentralized, non-custodial systems are the way to go. While DeFi proved incredible resiliency, spare me the love songs. DeFi is not without its vulnerabilities – hacks, exploits and rug pulls still run amok in the space. Permissionless governance, a popular feature of DeFi, can lead to decreased accountability and increased room for bad actors.
Remember 2008's Lessons About Oversight?
The emergence of CeFi looks strikingly similar to the run-up of the 2008 financial crisis. Creative new financial instruments were celebrated, the associated risks were brushed under the rug, and regulators were AWOL. The result? A global economic meltdown. Are we really that desperate to make the same mistakes all over again? History doesn't repeat, but it often rhymes.
Tether has been very clear and is currently in discussions with a “Big Four” accounting firm to complete an audit. This is all good news, though the timeline and the firm’s identity remains up in the air. This decision is further evidence of an increasing understanding of the lack of legitimacy. Making this point even more clearly are their expected $13 billion profits for 2024. Let’s not confuse a penny with a pound. That’s why an independent audit, performed by a top-tier firm, open to full public scrutiny, is necessary, not just desirable.
Look, I get the libertarian ethos that drives a lot of this crypto space. Their laudable pursuit of financial freedom and independence. Because true freedom is not just the absence of rules. It’s about ensuring that the rules are fair, protecting the rights of the individual while at the same time providing an ordered society. Anarchy isn't freedom; it's chaos.
Innovation Needs Responsible Guardrails Now!
The success of Tether, Galaxy and Ledn should not be read as an exoneration of the “Wild West” approach to regulation. Rather, this should be viewed as an indicator that the market is reaching an age of maturity and is seeking more stability and accountability. The return of CeFi lending provides another, more hopeful opportunity for regulation. We need to tackle this emerging challenge with care and pragmatism.
This isn’t about quashing innovation through draconian measures. It’s really about setting standards for transparency, capital adequacy and risk management. It’s about ensuring all investors are protected equally against market abuse, fraud and manipulation. This isn’t an attack on crypto, it’s about making sure that crypto firms can’t evade accountability.
We need to create a regulatory environment that promotes innovation but minimizes risk. The intent here isn’t to murder crypto, it’s to give it the room and regulatory guidance it needs to mature into a responsible and well-understood asset class. So let’s make crypto an example of how an industry can thrive, not just survive. The other option is yet another preventable disaster that destroys lives, spawns distrust, drains bank accounts, and regresses the industry a decade or more. The choice is ours.
