Apollo Crypto

"NFTfi,” on-chain derivative platforms, decentralized stablecoins and Ethereum L2s are four investment opportunities being looked at closely by one crypto investment firm.

Digital asset investment firms poured $2.7 billion into decentralized finance projects in 2022, up 190% from 2021, while investments into centralized finance projects went the other way — falling 73% to $4.3 billion over the same timeframe.

The staggering rise in DeFi funding was despite overall crypto funding figures falling from $31.92 billion in 2021 to $18.25 billion in 2022 as the market shifted from bull to bear.

According to a March 1 report from CoinGecko, citing data from DefiLlama, the figures “potentially points to DeFi as the new high growth area for the crypto industry.” The report says that the decrease in funding toward CeFi could point to the sector “reaching a degree of saturation.”

The near three-fold increase in DeFi investment is also a staggering 65-fold increase from 2020, at the start of the last bull run.

According to CoinGecko, the largest DeFi funding in 2022 came from Luna Foundation Guard’s (LFG) $1 billion sale of LUNA tokens in February 2022, which came about three months before the catastrophic collapse of Terra Luna Classic (LUNC) and TerraClassicUSD (USTC) in May.

Ethereum-native decentralized exchange (DEX) Uniswap and Ethereum staking protocol Lido Finance raised $164 million and $94 million, respectively.

Meanwhile, FTX and FTX US were the largest recipients of CeFi funding, having raised $800 million in January — accounting for 18.6% of CeFi funding in 2022 alone. The crypto exchanges, however, collapsed only 10 months later and filed for bankruptcy.

Other areas of investments included blockchain infrastructure and blockchain technology companies, which raised $2.8 billion and $2.7 billion, respectively, a trend that has remained strong over the last five years, said CoinGecko.

Henrik Andersson, the chief investment officer of Australia-based asset fund manager Apollo Crypto, says his firm is looking at four specific sectors within crypto as of late:

The first is “NFTfi,” which he said results from the combination of DeFi and NFTs. These are NFT projects that use DeFi to implement various trading strategies to earn passive income, or long or short-trade NFT projects, among other things.

I haven't bought any NFTFI token

Just waiting for @nftperp to launch a token.

Anything perp derivatives outperforms other categories

Wen launch pic.twitter.com/yaW6HNkIGN

— DeFI Saint (@TheDeFISaint) February 17, 2023

The second and third are on-chain derivative platforms and decentralized stablecoins, which Andersson believes have come about due to the collapse of FTX and recent regulatory action:

“In the light of the FTX debacle and regulatory movements, we have seen renewed interest for on-chain derivatives platforms, such as GMX, SNX and LYRA. All seeing record volume/TVL.Decentralised stablecoins such as LUSD/LQTY has also gained from the current regulatory environment.”

After @LiquityProtocol listed on Binance, combined with the recent crackdown by the SEC against Centralized Stablecoins has put some spotlight on this narrative.

Let's check it out of TOP 15 Decentralized Stablecoins pic.twitter.com/XWJvWpaT4l

— HC - Capital (@hc_capital) March 5, 2023

The fourth vertical Andersson cited was Ethereum-based layer-2 networks. “2023 is set to be the year for L2s, and in particular Ethereum L2s,” he said.

The chief investment officer explained that layer-2 tokens such as Optimism (OP) have performed well of late, particularly in light of the testnet launch of “Base,” which was created by Coinbase and is powered by Optimism.

GMX, SNX, LYRA, LQTY and OP are all investments of Apollo Crypto.

Related: Venture capital financing: A beginner’s guide to VC funding in the crypto space

Last month, cryptocurrency analyst Miles Deutscher predicted in a Feb. 19 tweet to his 301,700 followers that zero-knowledge rollup tokens, liquid staking derivative tokens, artificial intelligence (AI) tokens, perpetual DEX tokens, “real yield” tokens, GambleFi tokens, decentralized stablecoins and Chinese coins would perform well in 2023 on the back of heavy funding:

To make the biggest gains in crypto, you need to position yourself in the strongest narratives.

Some of the trends outlined in this thread still have potential to generate 50x opportunities.

: 8 crypto narratives I'm eyeing right now.

— Miles Deutscher (@milesdeutscher) February 18, 2023

Venture capital funding in the crypto space has, however, fallen over the last three consecutive quarters, amid tough market conditions.