Financial technology (Fintech) companies are increasingly considering a strategic shift away from traditional lending services, drawn by the higher efficiency, accessibility, and lower fees offered by decentralized finance (DeFi) alternatives.

Decentralized Lending: A Growing Attractor

Decentralized lending protocols utilize smart contracts to facilitate direct peer-to-peer crypto lending/borrowing, bypassing numerous intermediaries entirely. This “permissionless” model allows for users to access services without extensive application processes.

“Fintechs have realized that integrating DeFi is a strategic move. If they don’t do it, they will lag behind others because fintechs are competing on the UX and the product they give to users,” explained Merline Egalite, Co-founder of Morpho, the second-largest decentralized lending protocol, during an interview at EthCC 2025.

Further elaborating, Egalite noted the superior interest rates DeFi offers, stating, “Fintechs are realizing that DeFi can provide a higher rate,” adding that such adoption can ultimately help financial institutions “provide the best financial products,” enhancing their lending and trading offerings.

Egalite projects that DeFi alternatives will inspire a significant majority of global Fintech firms to migrate within the next three years.

Morpho stands as a major player in the DeFi lending landscape, boasting over $5.5 billion in TVL distributed across 20 blockchains, ranking second behind AAVE’s dominant $31 billion TVL market share.

Bypassing Traditional Barriers

The purely permissionless nature of DeFi lending presents a compelling alternative for both users and Fintech providers, offering a means to bypass the complex restrictions often imposed by traditional banking systems.

Egalite highlighted this advantage, explaining that Fintechs relying on traditional banking rails face ongoing risks of losing licenses or API access: “So are you hooked by large banks? In DeFi, you don’t fear that because there are no intermediaries. You just trust the code itself.”

He believes this transition is becoming inevitable: “While fintech firms already recognize these advantages, regulated yield-bearing products may inspire even more financial institutions to explore DeFi lending in the future.”

DeFi lending protocols recently reached an all-time high TVL mark, with the market sitting at approximately $66.7 billion, according to DeFiLlama data.

AAVE continues its dominant position with $31.7 billion, representing roughly 47% of the total lending market. Morpho follows closely with $5.5 billion, capturing approximately 8.2%.

This surge follows a period of decline that began in 2022, a time when several prominent centralized finance (CeFi) lenders reportedly filed for bankruptcy as cryptocurrency valuations crashed.