Crypto finance goes from CeFi to DeFi after major collapses

Virtual asset investment companies have invested more than $2.7 billion in decentralized financial enterprises in 2022. Investments have increased by 190% since 2021, while investments in centralized financial projects have declined, falling by a staggering 73% to $4.3 billion in a corresponding time frame. The exponential rise in DeFi funding can be seen even as crypto funding figures have plunged to $18.25 billion in 2022 from $31.92 billion in 2021, and the market charts have fallen into a full-blown bear run.

According to the report, the numbers prove that decentralized finance is the new high development and growth area for the crypto space. The report also suggested that a drop in centralized financing projects was seen due to a possible saturation in the sector.

The nearly three-fold increase in DeFi investment is also a massive 65-fold increase from 2020, which is when the crypto market bullrun began. The largest DeFi contribution to the monumental funding reserve amassed was provided by Luna Foundation Guard’s (LFG) sale of $1 billion of Luna tokens in February 2022. This was provided three months before the unceremonious fall of the Terra Luna Classic (LUNC) and TerraClassicUSD (USTC) in May.

Ethereum-native decentralized exchange (DEX) Uniswap raised $165 million in a Series B funding round that saw companies like Polychain Capital invest in the firm to expand its business into other domains. Another Ethereum staking protocol Lido Finance also raised $94 million with lead investor Andreessen Horowitz.

FTX and FTX US, on the other hand, were the biggest recipients of CeFi, having raised $800 million in January and contributing 18.6% of the total CeFi funding in 2022 alone. The crypto exchange infamously collapsed ten months later and filed for bankruptcy.

Alternative investment regions include blockchain networks and blockchain technology firms, which collectively raised $2.8 billion and $2.7 billion, respectively.

According to Henrik Andersson, Chief Investment Officer for an Australia-based capital fund manager Apollo Crypto, there are four major sectors in the crypto industry. The first is the merger of NFT and Defi called NFTfi. The second and third are on-chain derivative platforms and decentralized stablecoins, which have become more popular due to the fall of FTX and recent regulatory implementations. The fourth sector according to Andersson is the Ethereum-based layer-2 networks.

Andersson went on to explain that tier-2 tokens like Optimism (OP) have shown great promise so far, especially with the testnet launch of “Base,” which was designed by Coinbase and backed by Optimism.

Previously, cryptocurrency analyst Miles Deutscher also estimated that zero-knowledge rollup tokens, floating stake derivative tokens and perpetual DEX tokens would perform well in 2023 due to heavy support from funds.

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