While investments in centralized finance projects plummeted down 73% to $4.3 billion in 2022, decentralized finance investments saw a nearly three-fold increase in funding. It turns out that DeFi projects brought $2.7 billion in 2022, up 190% from 2021.
Despite the global crypto funding number dropping from $31.92 billion in 2021 to $18.25 billion in 2022 as the market turned bearish, DeFi financing increased substantially.
Data from DefiLlama, in conjunction with a March 1 study from CoinGecko, highlighted that the increase is "possibly pointing to DeFi as the future high growth sector for the crypto business." According to the research, the drop in CeFi financing may indicate that the industry has "reached a level of saturation."
The nearly three-fold growth in DeFi investments is even more notable when comparing the data with the start of the last bull run in 2020. It turns out that since 2020, DeFi investments skyrocketed to a 65-fold amount increase.
According to CoinGecko, the Luna Foundation Guard's (LFG) $1 billion sale of LUNA tokens in February 2022, which occurred around three months before the collapse of Terra Luna Classic (LUNC) and TerraClassicUSD (USTC) in May, provided the majority of the DeFi financing in 2022.
Lido Finance, an Ethereum staking protocol, and Uniswap, an Ethereum-native decentralized exchange (DEX), raised $94 million and $164 million, respectively.
The biggest CeFi fund recipients were FTX and FTX US, which raised $800 million in January and accounted for 18.6% of CeFi funding in 2022 alone. However, the cryptocurrency exchanges filed for bankruptcy and collapsed just 10 months later.
According to CoinGecko, other investment opportunities included blockchain infrastructure and blockchain technology companies, which raised $2.8 billion and $2.7 billion, respectively. This trend has been going on for the past five years.
Future developments of the crypto sector?
One of the key fields in blockchain technology would be merging DeFi and NFT projects. According to Henrik Andersson, the chief investment officer of Australian asset fund manager Apollo Crypto, these NFT projects, which include long or short-trade NFT projects, leverage DeFi to perform various trading strategies to generate passive income.
The second and third are decentralized stablecoins and on-chain derivative platforms, which Andersson attributes to FTX's failure and current regulatory action.
“In the light of the FTX debacle and regulatory movements, we have seen renewed interest for on-chain derivatives platforms, such as GMX, SNX, and LYRA. All seeing record volume/TVL. Decentralized stablecoins such as LUSD/LQTY have also gained from the current regulatory environment.” Anderson wrote.
The fourth trend Andersson cited was Ethereum-based layer-2 networks, such as Optimism (OP), which was developed by Coinbase and is powered by Optimism. “2023 is set to be the year for L2s, and in particular Ethereum L2s,” Anderson concluded.