Digital asset investment firms increased their funding of decentralized finance (DeFi) projects in 2022 by 190%, while investments into centralized finance (CeFi) projects fell 73%
A recent report from CoinGecko, citing data from DefiLlama, “potentially points to DeFi as the new high growth area for the crypto industry,” showing a clear stagnation of funding the centralized finance (CeFi) projects.
Decentralized finance (DeFi) refers to financial solutions based on distributed ledger technology (DLT) and empowering individuals with peer-to-peer digital payment systems such as decentralised exchanges (DEXs). Centralized finance (CeFi), on the other hand, is a process where users can acquire loans, earn interest, and trade cryptocurrencies only using a centralized institution.
The research found that various digital asset investment firms poured $2.7 billion into DeFi projects in 2022, a staggering 190% growth compared to 2021, while investments into CeFi projects went the other way — falling 73% to land at $4.3 billion within a year.
The shift of trends was observed on the general background of overall crypto funding decline. The relevant figure fell from $31.92 billion in 2021 to $18.25 billion in 2022, closely following the market shift from bull to bear. Moreover, VC funding in the crypto space has been steadily falling over the last three consecutive quarters, because of the overall economic instability which prompts investors to look for safety nets instead of risky high-growth opportunities.
According to the report, the top three largest DeFi funding rounds in 2022 came from:
- Luna Foundation Guard’s (LFG) $1 billion sale of LUNA tokens three months before the catastrophic collapse of Terra Luna Classic (LUNC) and TerraClassicUSD (USTC);
- Ethereum-native decentralized exchange (DEX) Uniswap raising $164 million;
- Ethereum staking protocol Lido Finance that raised $94 million.
At the same time, now bankrupt FTX and FTX US were the largest recipients of CeFi funding, accounting for 18.6% of CeFi funding in 2022, with an $800 million fundraise registered last January.
Meanwhile, investments in blockchain infrastructure and blockchain technology companies have remained robust and strong over the last five years, raising $2.8 billion and $2.7 billion, respectively, in 2022.