Three DeFi Instruments Financial Firms Have Their Eye on Despite the Crypto Winter

By Anton Chashchin, Managing Partner of Bitfrost

Anton Chashchin

In the midst of a crypto winter, with $2.25 trillion lost across the market in the last few months alone, many institutional investors are actively taking profits in an attempt to keep at least some part of their assets, while others are laying low so as not to lose more on the fall of the market.  

Yet regardless of the downturn, the applications of blockchain technology continue to grow in sophistication. One such area is DeFi (Decentralised Finance), which is the term given to the reimagining of financial services into being Peer-to-Peer and blockchain-operated. The overall value of assets deposited in DeFi transactions grew from $601m at the beginning of 2020 to $166b in 2022, according to blockchain data provider Amberdata.  

However, unlike what we have seen before, this rise hasnt been driven mainly by retail investors but instead has been led by institutional investors who have either recently joined or are strengthening their presence in DeFi because they understand that the digital asset will remain with us for a long time to come. As this trend has continued throughout the crisis, a few instruments are drawing particular attention. 

1. The metaverse 

Virtual reality, mixed reality, augmented reality and other similar technologies have been around for a long time, but Decentraland and other companies in the crypto ecosystem are now fundamentally changing how we think about the metaverse. Prophecy Market Insights predicts that the global metaverse market accounted for $337.23 million in 2020, and is predicted to reach $1,003.06 million by 2030, with a compound annual growth rate of 11.50% in the interim. 

Following the mainstreaming of the metaverse across a range of media platforms, institutional investors have now begun entering the market, which holds enormous high-growth potential thanks to the crypto-decentralised core structure that underpins it. Venture capital firm Andreessen Horowitz (a16z), for example, recently launched a $600M fund focused on metaverse games. 

2. NFTs 

Non-fungible tokens (NFTs) present a new frontier of promising investment opportunities for investors, asset managers and creators by commodifying previously non-tradable assets. A Finders panel of fintech experts recently predicted that the NFT market cap will reach $26 billion by the end of 2022, and balloon to $146 billion by 2025.  

Though the current narrative around NFTs often focuses squarely on art and collectibles, legacy institutions like Christies and Sothebys entering the space at speed have further energised the market, giving it credence as an asset class and inspiring confidence among both retail and institutional investors who were previously watching with intrigue from the sidelines.  

For example, a number of prominent Silicon Valley crypto VCs recently backed a new upstart NFT fund led by Andrew Jiang and Todd Goldberg. The $30 million fund Curated is devoted to buying and holding NFT artwork, including popular blue-chip NFTs like CryptoPunks, Art Blocks and Bored Apes, as well as singular NFT works from popular artists. 

Beyond a buzzword or trend, the expansive, decentralised ecosystem of NFTs has the potential to carry immense value for the institutional investment industry. And though the full scope of the utility of tokenization is in its infancy, the adoption of NFTs will likely impact all aspects of our economy in the years to come. 

3. Crypto wallets  

With the evolution of Web 3 ecosystems, in tandem with growing institutional interest, the question of digital user identification is increasingly being raised among DeFi developers.  

Far-sighted institutional investors are already paying attention to promising projects related to crypto wallets, which will become the key to being present in the metaverse, used as an entry into games, to help build collections of non-fungible tokens (NFTs), and enable business transactions. Crypto wallets will operate independently of crypto exchanges and be connected to everything that users and companies are already doing online.  

A time to stay vigilant  

Given the recent volatility in digital assets, it’s natural to be sceptical about future opportunities in the DeFi space. But it would be irresponsible to ignore their inherent value. 

With crypto regulatory work intensifying and the very real possibility of a long crypto winter, every institutional investor should at the very least be maintaining an observant position. More active institutional crypto advocates will benefit from a significant head start once the frost finally starts to thaw.