Digital asset investment firms invested $2.7 billion in decentralized finance projects in 2022, 190% more than in 2021, while investments in centralized finance projects went the other way, falling 73% to $4.3 billion in the same period.
The staggering rise in DeFi funding came despite global cryptocurrency funding numbers falling from $31.92 billion in 2021 to $18.25 billion in 2022, as the market turned from bullish to bearish.
According to a March 1 report by CoinGecko, citing data from DefiLlama, the numbers “potentially point to DeFi as the new high-growth area for the crypto industry.” The report says that the decrease in financing to CeFi could indicate that the sector “is reaching a degree of saturation.”
The increase in investment in DeFi, which has nearly tripled, is also a staggering 65-fold since 2020, at the start of the last bull market.
According to CoinGecko, the largest DeFi funding in 2022 came from the $1 billion Luna Foundation Guard (LFG) sale of LUNA tokens in February 2022, which came about three months before the catastrophic collapse of Terra Luna. Classic (LUNC) and TerraClassicUSD (USTC) in May.
Native Ethereum decentralized exchange (DEX) Uniswap and Ethereum staking protocol Lido Finance raised $164 million and $94 million, respectively.
Meanwhile, FTX and FTX US were the largest recipients of CeFi funding, having raised $800 million in January, representing 18.6% of CeFi funding in 2022 alone. However, the exchanges went belly up just 10 months later. and declared bankruptcy.
Other areas of investment were blockchain infrastructure and blockchain technology companies, which raised $2.8 billion and $2.7 billion, respectively, a trend that has remained strong over the past five years, CoinGecko said.
Henrik Andersson, chief investment officer at Australia-based fund manager Apollo Crypto, says his company is looking at four specific sectors within cryptocurrencies of late:
The first is “NFTfi”, which he said results from the combination of DeFi and NFT. These are NFT projects that use DeFi to apply various trading strategies in order to earn passive income, or long-term or short-term trading NFT projects, among other things.
I haven’t bought any NFTFI token
Just waiting for @nftperp to launch a token.
Anything perp derivatives outperforms other categories
wen launch pic.twitter.com/yaW6HNkIGN
— DeFI Saint (@TheDeFISaint) February 17, 2023
The second and third are on-chain derivatives platforms and decentralized stablecoins, which Andersson believes have sprung up due to the FTX collapse and recent regulatory moves:
“In light of the FTX debacle and regulatory moves, we have seen renewed interest in on-chain derivatives platforms such as GMX, SNX, and LYRA. Decentralized stablecoins such as LUSD/LQTY have also benefited from the current regulatory environment”.
despues de @LiquityProtocol listed on Binance, combined with the recent crackdown by the SEC against Centralized Stablecoins has put some spotlight on this narrative.
Let’s check it out of TOP 15 Decentralized Stablecoins pic.twitter.com/XWJvWpaT4l
— HC-Capital (@hc_capital) March 5, 2023
The fourth key point cited by Andersson was layer 2 networks based on Ethereum. “2023 will be the year of L2 and in particular Ethereum-based L2,” he said.
The chief investment officer explained that Layer 2 tokens such as Optimism (OP) have been doing well of late, particularly in light of the launch of the “Base” testnet, created by Coinbase and powered by Optimism.
GMX, SNX, LYRA, LQTY and OP are investments of Apollo Crypto.
Last month, cryptocurrency analyst Miles Deutscher predicted in a Feb. 19 tweet to his 301,700 followers that zero-knowledge tokens, liquid staking-derived tokens, artificial intelligence (AI) tokens, perpetual tokens of DEX, “real yield” tokens, GambleFi tokens, decentralized stablecoins, and Chinese coins would all perform well in 2023 thanks to strong funding:
To make the biggest gains in crypto, you need to position yourself in the strongest narratives.
Some of the trends outlined in this thread still have potential to generate 50x opportunities.
: 8 crypto narratives I’m eyeing right now.
— Miles Deutscher (@milesdeutscher) February 18, 2023
However, VC funding in the cryptocurrency sector has declined for the past three consecutive quarters amid difficult market conditions.
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