Three DeFi instruments financial firms are eyeing despite the crypto winter

By Anton Chashchin, managing partner at Bitfrost

In the midst of a crypto winter, with $2.25 trillion lost across the market in the past few months alone, many institutional investors are actively taking profits in an effort to keep at least some of their holdings, while others are laying low to avoid losing more on the market’s fall.

Yet, regardless of the slowdown, the use of blockchain technology continues to grow in sophistication. One such area is DeFi (Decentralised Finance), which is the term for the transformation of financial services to be Peer-to-Peer and blockchain-operated. The total value of assets deposited in DeFi transactions grew from $601 million in early 2020 to $166 billion in 2022, according to blockchain data provider Amberdata.

However, unlike what we have seen before, this rise has not been driven mainly by retail investors, but has instead been led by institutional investors who have either recently joined or are strengthening their presence in DeFi because they understand that the digital asset will remain with us for a long time to come. As this trend has continued throughout the crisis, a few measures attract particular attention.

1. The Metaverse

Virtual reality, mixed reality, augmented reality and other similar technologies have been around for a long time, but Decentraland and other companies in the crypto ecosystem are now fundamentally changing how we think about the metaverse. Prophecy Market Insights forecasts that the global metaverse market accounted for $337.23 million in 2020, and is predicted to reach $1,003.06 million by 2030, with a CAGR of 11.50% in the meantime.

Following the mainstreaming of the metaverse across a number of media platforms, institutional investors have now begun entering the market, which has enormous high-growth potential thanks to the crypto-decentralized core structure that underpins it. Venture capital firm Andreessen Horowitz (a16z), for example, recently launched a $600 million fund focused on metaverse games.

2. NFTs

Non-fungible tokens (NFTs) present a new frontier of promising investment opportunities for investors, asset managers and creators by branding previously non-tradable assets. A Finder’s panel of fintech experts recently predicted that the market value of NFTs will reach $26 billion by the end of 2022, increasing to $146 billion by 2025.

Although the current narrative around NFTs often focuses simply on art and collectibles, legacy institutions such as Christie’s and Sotheby’s entering the space at a rapid pace have further energized the market, giving it credibility as an asset class and inspiring confidence among both private and institutional investors who were previously watching with intrigue from the sidelines.

For example, a number of prominent Silicon Valley crypto VCs recently backed a new upstart NFT fund led by Andrew Jiang and Todd Goldberg. The $30 million fund – Curated – is devoted to buying and holding NFT artworks, including popular “blue-chip NFTs” such as CryptoPunks, Art Blocks and Bored Apes, as well as individual NFT works from popular artists.

Beyond a buzzword or trend, the expansive, decentralized ecosystem of NFTs has the potential to be of immense value to the institutional investment industry. And while the full extent of the utility of tokenization is in its infancy, the use of NFTs is likely to impact every aspect of our economy for years to come.

3. Crypto wallets

With the development of Web 3 ecosystems, in step with increasing institutional interest, the issue of digital user identification is increasingly being raised among DeFi developers.

Forward-looking institutional investors are already aware of promising projects related to crypto-wallets, which will become the key to being present in the metaverse, used as an entry to games, to help build collections of non-fungible tokens (NFT), and enable business transactions. Crypto wallets will work independently of crypto exchanges and be connected to everything that users and companies already do online.

A time to be vigilant

Given the recent volatility in digital assets, it is natural to be skeptical about future opportunities in the DeFi space. But it would be irresponsible to ignore their intrinsic value.

With the intensification of crypto regulatory efforts and the real possibility of a long crypto winter, any institutional investor should at least maintain an observant position. More active institutional crypto advocates will benefit from a significant head start when the frost finally begins to thaw.