Crypto finance seen shift from CeFi to DeFi after major collapses: CoinGecko

by · March 10, 2023

Digital asset investment companies poured $2.7 billion into decentralized finance projects in 2022, up 190% from 2021, while investment in centralized finance projects went the other way – falling 73% to $4.3 billion over the same time frame.

The staggering increase in DeFi funding was despite total crypto funding figures falling from $31.92 billion in 2021 to $18.25 billion in 2022 as the market shifted from bull to bear.

According to a March 1 report from CoinGecko, citing data from DefiLlama, the numbers “potentially point to DeFi as the new high-growth area of ​​the crypto industry.” The report says the decline in funding for CeFi may point to the sector “reaching a degree of saturation.”

Funding amount by sector in the cryptocurrency market between 2018-2022. Source: CoinGecko

The nearly threefold increase in DeFi investment is also a staggering 65-fold increase from 2020, at the start of the last bull run.

According to CoinGecko, the largest DeFi funding of 2022 came from Luna Foundation Guard’s (LFG) $1 billion 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 Kan.

Ethereum-native decentralized exchange (DEX) Uniswap and Ethereum staking protocol Lido Finance raised $164 million and $94 million, respectively.

Meanwhile, FTX and FTX US were the biggest recipients of CeFi funding, having raised $800 million in January – accounting for 18.6% of CeFi funding in 2022 alone. However, the crypto exchanges collapsed just 10 months later and filed for bankruptcy.

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, the chief investment officer of Australian fund manager Apollo Crypto, says his firm is looking at four specific sectors in crypto lately:

The first is “NFTfi”, which he said comes from the combination of DeFi and NFTs. These are NFT projects that use DeFi to implement various trading strategies to, among other things, earn passive income, or long or short trading NFT projects.

The second and third are on-chain derivative platforms and decentralized stablecoins, which Andersson believes have come about due to the collapse of FTX and recent regulatory actions:

“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. All seeing record volume/TVL. Decentralized stablecoins such as LUSD/LQTY have also benefited from the current regulatory environment .”

The fourth vertical Andersson cited was Ethereum-based layer-2 networks. “2023 is set to be the year of L2s, and Ethereum L2s in particular,” he said.

The investment manager explained that tier-2 tokens like Optimism (OP) have been performing well lately, especially in light of the testnet launch of “Base,” which was created by Coinbase and is powered by Optimism.

GMX, SNX, LYRA, LQTY and OP are all investments of Apollo Crypto.

Related: Venture Capital Funding: A Beginner’s Guide to VC Funding in the Crypto Space

Last month, cryptocurrency analyst Miles Deutscher predicted in a Feb. 19 tweet to his 301,700 followers that zero-knowledge rollup tokens, floating staking derivative tokens, artificial intelligence (AI) tokens, perpetual DEX tokens, “real yield”- tokens, GambleFi tokens. decentralized stackcoins and Chinese coins will perform well in 2023 on the back of heavy funding:

However, venture capital funding in the crypto space has declined over the past three consecutive quarters amid tough market conditions.