The decentralized finance (DeFi) sector has continued to attract considerable interest in 2022 in terms of funding and user growth despite the broader cryptocurrency industry reeling from an extended bear market.
According to information shared with Finbold by Hashkey Capital, a Singapore-based leading Asia’s crypto fund, the DeFi space in 2022 attracted capital from venture capitalists who pumped money into different protocols. In general, the DeFi industry partly benefited from the $14 billion that was channeled toward 725 cryptocurrency projects.
At the same time, in 2022, DeFi users recorded an average growth of 44% quarter-over-quarter. Indeed, the growth rate highlights the DeFi potential to record increased adoption considering the sector hit the milestone of five million user wallets.
Furthermore, Ethereum (ETH) extended its dominance of the DeFi sector with more than half of the activity at 58%.
The potential is highlighted by the fact that at the peak of DeFi growth, the Total Locked Value (TVL) accounted for about 1.2% of the total assets under management by the United States’ top 20 banks. Indeed, as of October 2022, the DeFi sector had $50 billion in assets with 4.8 million customers.
The report further indicates that the DeFi sector has the potential to take on the traditional financial industry. Notably, the researchers pointed out that DeFi has an advantage over the traditional sector due to ease of access.
Role of DeFi amid centralized crypto platforms collapse
Notably, the impressive DeFi growth comes as several centralized crypto platforms collapse. For instance, the FTX crypto exchange collapse partly dented investor trust in the crypto sector with the incident marred with fraud allegations.
“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.
Additionally, institutional investors began warming up to decentralized finance products in 2022. Notable institutions in the space include the Huntingdon Valley Bank, a Pennsylvania Chartered Bank that secured loan approval in MakerDAO with an initial debt ceiling of $100 million. Furthermore, banking giant J.P. Morgan also completed a pilot transaction on the Aave protocol.
Moving into 2023, there remains uncertainty that the DeFi space will replicate the gains recorded in 2022. In this line, HashKey Capital report said focus will be on how the general economy performs. In this case, DeFi players will monitor how macroeconomic factors play out before getting involved with volatile digital assets.