As per a report by Hashkey Capital, a renowned Asian crypto fund based in Singapore, the Defi market attracted venture capitalists in 2022 who invested in a variety of systems. They invested $14 billion that helped 725 crypto projects in the Defi sector in several ways.
The Hashkey capital report was authored by senior research manager Henrique Centieiro and its research team led by research director Jupiter Zheng . The report also includes comments by Scarlett Xiao, a senior research analyst at Hashkey Capital.
Despite the larger cryptocurrency industry suffering from an extended bad market, author Henrique Centieiro claims that the decentralized finance (Defi) sector has continued to draw significant interest in 2022 in terms of funding and user growth.
The Haskey Capital report says that Defi’s massive growth in 2022 resulted in more use cases for individuals who require Defi to have access to fundamental financial systems in nations where traditional banking is not widely available to the general populace. According to the author, several reasons are at play, including supply-chain interruptions, inflation, financial constraints, pressure in some nations (particularly in Africa), the Russian-Ukrainian War, and Russian sanctions.
The following thesis is based on the report:
1. The number of cryptocurrency users continues to increase quickly, and numerous organizations—including Reddit, Twitter, and Instagram—are promoting widespread adoption of cryptocurrencies among their vast user bases by integrating blockchain technology and launching or preparing to launch their cryptocurrency wallets.
2. Defi is creating a new financial infrastructure from scratch by bootstrapping and coding financial products as smart contracts, so the odds of success and potential multiples on the investment are “clearly positive.”
3. With 58% of the activity, Ethereum (ETH) increased its influence on the Defi market.
4. Due to its accessibility, it has the potential to compete with the traditional financial sector.
5. Defi applications offer unprecedented network effects due to their connectivity and scalability. Smart contracts, for instance, can link and automate interactions with one another. Additionally, all financial products can readily connect, communicate, pay, and provide collateral for one another.
Defi is referred to as an “asymmetric opportunity” in the report since it is a “strong rival” to traditional finance and can potentially replace many of those services.
The report said that Defi could be called a “blue ocean market” because:
“Although it will take a share from existing TradFi, Defi it’s creating its own uncontested market space by providing distinguished services, capturing new demand, and rather than competing with traditional banks, Defi adds value innovation and attracts non-customers by creating new demand.”
The report repeatedly emphasizes that Defi will taking over traditional finance for several reasons, like DeFi’s fast-building ecosystem and its composable and open-source model.
It’s noteworthy that the tremendous Defi growth coincides with the demise of various centralized crypto platforms. For instance, the collapse of the FTX cryptocurrency exchange, which is clouded by fraud charges, has weakened investor confidence in the cryptocurrency industry.
“Many centralized financial systems failed this year; the market realized that Defi, which is entirely on-chain based and extremely transparent, might be the answer to the innovation dilemma of non-compliant financials,” said Jupiter Zheng, Research Director at HashKey Capital.
In 2022, institutional investors also became more open to decentralized finance solutions. The Huntingdon Valley Bank, a Pennsylvania Chartered Bank with loan approval in MakerDAO with an initial debt ceiling of $100 million, is one of the notable organizations in the sector. In addition, J.P. Morgan, a well-known financial institution, also finished a test transaction using the Aave protocol.
There is still doubt that the Defi space will have the same growth in 2023 as it had in 2022. The HashKey Capital study stated that the performance of the whole economy would be the main emphasis. In this scenario, Defi players will keep an eye on how macroeconomic conditions develop before investing in speculative digital assets.