Decentralized finance (DeFi) projects from 2017 to 2020 have collected $1 billion in funding, including $197 million in 2020 alone. That is noted in the report “Cutting through the hype of decentralized finance,” compiled by international asset manager Blockchain Valley Ventures.
The acronym DeFi indicates technologies, incentives, and market design aimed at improving the availability and efficiency of financial services through disintermediation from banks, brokers, and other financial intermediaries.
To date, as the report noted, projects in this area have been funded by a mix of tokens and equity, with the former predominant in 2017. Thereafter, venture capital played the lion’s share, contributing 61% of total funding last December. Funds prefer to invest in applications in loans and derivatives. As the sector matures and more projects are launched, investment in DeFi is expected to accelerate in 2021, with a more balanced mix of venture capital and tokens.
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Geographically, between 2018 and Q1 2021, the largest funding to DeFi came from North America and Apac (80% of the total) and only 20% from Europe
However, Europe, along with Asia, surpassed North America in 2020 and Q1 2021. While projects in DeFi in the West have been funded predominantly by U.S. investors, a new generation of Asian venture capitalists is behind many success stories in DeFi. Funds tend to invest together in many projects and collaborate on the most promising ones. The most active funds by the number of projects include Three Arrows Capital, Hashed (both funding 10 projects), and Alameda Research (8 projects funded). In terms of invested capital, Parafi (131 million), Three Arrows Capital (122 million) and Andreessen Horowitz (88 million) dominate. The 10 most funded projects in DeFi raised $561 million, but generated a market capitalization of $17 billion, a multiple of 30 times. Average multiples in 2020 were 2.7 times, with a record 46.6 times for projects in decentralized exchange (DEX).
In 2020-2021, decentralized finance has become mainstream, so much so that its market capitalization reached $90 billion at the end of April 2021, which nevertheless corresponds to only 7% of Bitcoin and Ethereum’s total capitalization of $1.3 trillion, 76% of which is from bitcoin, galvanized last April by the listing on the Nasdaq Private Market of the U.S. cryptocurrency exchange Coinbase, with a valuation of $100 billion. Moreover, active wallets in DeFi, which are the most important drivers of token appreciation, account for only 5% of those in bitcoin and Ethereum. These comparisons give an idea of the embryonic state of DeFi, compared to bitcoin and Ethereum.
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