Digital asset investment firms poured $2.7 billion into decentralized finance projects in 2022, a 190% increase from 2021, while investments in centralized finance projects did the opposite falling 73% to $4.3 billion over the same period.
The astounding growth in DeFi funding comes despite the overall cryptocurrency funding figure dropping from $31.92 billion in 2021 to $18.25 billion in 2022 as the market turns from a bull market to a bear market.
According to a March 1 report from CoinGecko citing data from DefiLlama, the numbers “could indicate that DeFi is the new high-growth segment of the crypto industry.” The report said that the reduction in funding for CeFi could indicate that the industry “has reached a certain degree of saturation." DeFi investments have nearly tripled, a staggering 65x compared to 2020, when the last bull market began.
According to CoinGecko, the largest DeFi funding of 2022 will come from the Luna Foundation Guard (LFG) sale of $1 billion in LUNA tokens in February 2022, which will take place between Terra Luna Classic (LUNC) and TerraClassicUSD (USTC) in May.
Ethereum-native decentralized exchange (DEX) Uniswap and ethereum staking protocol Lido Finance raised $164 million and $94 million, respectively. Meanwhile, FTX and FTX US are the largest recipients of CeFi funding, raising $800 million in January accounting for 18.6% of CeFi funding in 2022 alone. However, the cryptocurrency exchange collapsed and filed for bankruptcy after only 10 months.
Other areas of investment included 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 Australian asset fund manager Apollo Crypto, said his firm has recently been researching four specific areas within cryptocurrencies.
The first one is "NFTfi", which he said is the result of the combination of DeFi and NFT. These are NFT projects that use DeFi to implement various trading strategies to earn passive income, or long or short trade NFT projects, etc. The second and third are on-chain derivative platforms and decentralized stablecoins, which Andersson sees as a result of the FTX debacle and recent regulatory actions: “Given the FTX debacle and regulatory moves, we’re seeing renewed interest in on-chain derivatives platforms like GMX, SNX, and LYRA. All seeing record volume/TVL. Decentralization like LUSD/LQTY Stablecoins also benefit from the current regulatory environment. The fourth vertical that Andersson cites is layer 2 networking based on Ethereum. “2023 will be the year of L2, especially Ethereum L2,” he said.
Layer 2 tokens such as Optimism (OP) have performed well recently, especially considering the launch of the “Base” testnet created by Coinbase and powered by Optimism, the chief investment officer explained. GMX, SNX, LYRA, LQTY, and OP are all Apollo Crypto investments. Last month, cryptocurrency analyst Miles Deutscher predicted in a Feb. 19 tweet to his 301,700 followers that zero-knowledge rollup tokens, liquid collateralized derivative tokens, artificial intelligence (AI) tokens, permanent DEX tokens , “Real Yield” tokens, GambleFi tokens, decentralized stablecoins and Chinese tokens will do well in 2023, backed by massive funding. However, venture capital funding in the crypto space has declined for the past three consecutive quarters amid tough market conditions.
