Theme 3: DeFi in 2022

2022 Snapshots Theme 3: DeFi in 2022

▪ The landscape of DeFi is set to become more diverse as concepts from traditional finance are reinvented in DeFi.

▪ Given the disruptive nature of DeFi, partial regulation is a likely outcome in 2022, which will lead to a middle ground between DeFi and CeFi.

▪ DeFi innovations such as DeFi 2.0, DeFi 3.0 with NFT integration, GameFi, will help onboard more users.

96bn

DeFi Total Value Locked (US$, 17/1/2022)

8trn

Global finance services industry market value (US$, 3Q21)

Core thesis

Decentralized Finance (DeFi) replicate a broad spectrum of existing financial services without centralized intermediaries. DeFi is developing rapidly at the intersection of Blockchain technology, digital assets, and financial services as an alternative to the legacy financial infrastructure.

Significance and Disruptive Impacts

DeFi has the potential to make financial services and tools accessible to large segments of the population at lower cost and with higher efficiency. Given its disruptive potential, regulators have been eying DeFi, which may result in a parallel DeFi industry that ‘live’ within the regulatory framework of traditional finance, which satisfies KYC and AML requirements. Innovations in DeFi that aim to improve the original DeFi protocols include DeFi 2.0, better UX via integrations with GameFi, and DeFi 3.0 with NFT integration.

Expectation for 2022

1. DeFi is becoming more diverse and sophisticated DeFi innovations, including centralized and decentralized stablecoins, DeFi 2.0, will empower the unbanked. (See Interview with Alex Kent, TPS Capital and Interview with Kevin Loo, New Vision)

2. Regulated DeFi? Regulators are eying the DeFi sector in the name of investor protection against counterparty and cybersecurity risks. (See Interview with Kevin Loo, New Vision)

3. Finding a middle ground for DeFi and CeFi to co-exist The urge to find a middle ground for DeFi and CeFi may result in a blended open financial ecosystem. The appeal of the scale and size of the institutional market will likely drive specific DeFi platforms to adopt institutional-friendly processes. (See Interview with Sudhu Arumugam, CoinFLEX, Interview with Bowie Lau, True Global Ventures)

+650%

Increase in total DeFi market cap (YE 2021 compared to Jan 2021) 4. Next-gen DeFi protocols to boost adoption Next-gen DeFi protocols with better integration and UX will boost adoption. For example, DeFi 3.0 with NFT integration: staking, lending and more comprehensive financial applications expanding into NFT-based assets (See Interview with Annabelle Huang, Amber Group)