Aave & Morpho Stage Lending Renaissance in January – Defying October’s Crypto Crash

DeFi lending just pulled off a Lazarus act. Forget the October graveyard—January's numbers are screaming recovery, led by two familiar names.

The Comeback Trail

No one expected a bounce this fast. The sector took a brutal hit last fall, with liquidity evaporating and confidence shattered. Yet here we are, watching the rebuild in real-time. It's not a slow crawl back; it's a strategic resurgence, proving that decentralized finance's core mechanisms can withstand a stress test that would make traditional bankers sweat.

Architects of the Rebound

Aave isn't just holding ground—it's expanding it. The protocol's multi-chain dominance and relentless innovation in interest-bearing assets have turned it into a magnet for returning capital. Meanwhile, Morpho's meta-layer approach is the quiet disruptor. By optimizing capital efficiency on top of existing pools, it's not just participating in the recovery; it's accelerating it, offering yields that make the paltry returns in TradFi look like a bad joke.

What's Fueling the Fire?

This isn't blind optimism. It's a calculated return of smart money. Institutional players, having done their post-crash homework, are re-entering with clearer risk frameworks. Retail, lured by the siren song of compounding yields again, is following. The underlying tech—the immutable smart contracts and transparent ledgers—didn't fail. Market psychology did. Now that the fear has subsided, the fundamentals are shining through.

The takeaway? DeFi lending isn't just alive; it's evolving, getting stronger with each cycle. While Wall Street fiddles with paperwork and settlement delays, these protocols are executing flawless, global transactions 24/7. One cynical observer might note that the 'recovery' is just the latest chapter in crypto's perpetual boom-bust narrative—but try telling that to the users earning real yield while their banks offer apology rates. The revolution wasn't televised; it was collateralized.

Total ecosystem lending grew in the past three weeks, after months of sliding following the liquidation event on October 11, 2025. DeFi lending did not see dramatic liquidations, as the ETH collateral levels were set much lower. Despite this, the worsened market sentiment prevented lending from expanding. 

Aave and Morpho lead lending expansion

Aave and Morpho retained the biggest share of DeFi lending due to their economic models. AAVE relied on its legacy status and high liquidity in key vaults, while Morpho expanded due to curated lending pool managers. 

Aave has also grown its dominance from 8% to over 28% in the past two years, even growing during the bear market. 

In early 2026, active loans expanded to $36.6B, up $2.1B from December’s levels. This is the highest monthly growth since the drawdown began in October. Aave contributed $1.1B to the growth for the past month, while Morpho expanded its lending by $450M, based on TokenTerminal data. 

Total liquidatable ETH lending has grown to $2.2B, after spending months at around $1B. Most of the loans on Aave, Sky Protocol and other platforms are liquidatable at levels under $1,800 per ETH, with only a small share of loans above $3,000.

Ethereum remains the main lending venue

The ethereum ecosystem remains the main lending venue, gaining support as ETH returned above $3,000. While Solana-based lending is growing, the pace and baseline levels are still much lower compared to Ethereum’s influence.

Based on DeFiLlama data, lending protocols lock in $66.91B, with a slow recovery for the past few weeks. Lending growth is not yet exponential, but points to expanding influence for the top protocols. 

Lending also creates over $28M in weekly fees, boosting Ethereum’s economy. Ethereum increased its value locked to over $72B, up from $64B in November. A recovery of DeFi may also translate into stronger ETH gains. 

In 2026, the Ethereum ecosystem may also get a boost from treasury company deposits, including staking and liquid staking. The newly issued tokens may be used within the Ethereum ecosystem, depending on the treasury company’s risk appetite. 

Lending has already displaced DEX trading as the top Ethereum activity, with liquid staking coming in second. Loan activity signals both demand for passive income and demand for additional liquidity. 

For now, the market is not yet fully recovered, but DeFi activity serves as a signal for an eventual ETH recovery.

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