The Rising Interest of Venture Capital Firms within the DeFI Space
The word “Venture Capital” is commonly associated with the Startup World or the Stock Market but rarely mentioned in the DeFI Space. Venture Capital interest within the DeFI Space has been growing ever since the pandemic and reached new height during the current Bitcoin Rally. Let us explore the rising interest of venture capital within the DeFI Space and will it have a great impact to shape up the outlook for 2024.
DeFI = The Fastest Growing Industry
DeFI is a new concept for everybody who grew up in the Pre — 2010s as the world was expanding rapidly due to the Internet. The world was going through a turmoil of the Great Depression in 2008 and the aftermath was hard to recover for some of the community. Trust in the current system was at an all time low and with that also came the introduction of Bitcoin Whitepaper upon the aim of solving the issue that are currently present in our Traditional Finance System.
It’s also confusing to assume that the 2008 Great Depression happened after a sustained period of growth for the economy where inflation levels were relatively low and the stock market was booming. The last major crash that happened was in the 1990s to early 2000s where the popularity of the internet was at its peak which resulted in the Dot Com Bubble. The Traditional Finance and Banking Space are always in the lookout for technological breakthroughs that will grow in value overtime.
In 2001 there was the internet and now there is DeFI that has been the topic of main interest for the TradFI Space. Bitcoin and other Digital assets were meant to be a solution to the current traditional finance space but as the interest grew, it became the fastest growing asset in the world. DeFI has also been the fastest growing industry with more than 400 million users in less than a decade and this will peak a lot of interest from Venture Capital and Investment Banking Firms.
What is a Venture Capital you may ask? Venture Capital or “VC ‘’ as it used to be referred to are generally private equity firms/institutions that provide financing and investing services to startup companies and small businesses which are believed to have long-term growth potential. Venture Capital generally comes from well off investors, banks or other financial institutions that can provide the resource dedicated to helping these firms grow.
With this understanding, most communities generally confuse them with Banks which also provide Financing services but VC provide more support than just financial aid. Financial aid on VC firms are generally tied with a part ownership in the startup/company they invested in and in return the companies will also receive technical and managerial expertise that could help grow the company to be financially sustainable over the long run.
Venture Capital has evolved from its origin at the end of the second world war to a trillion dollar industry in 2023 supporting the growth of many innovative ideas. It made its way to the DeFI Space around the mid 2010s as the number of DeFI firms and projects started to grow exponentially around the 2013 Bitcoin Boom. More aspiring projects such as Ethereum and Tether begin to emerge around 2014 and with interest within the community at an all time high, VC Firms start to take notice.
In the early days of the DeFI Space, everybody was skeptical about the prospect of Bitcoin and other Digital assets in the long run. This skepticism obviously didn’t last very long as soon each of them started to realize the potential of the DeFI Space. One of these skeptics is obviously Larry FInk, CEO of Blackrock who at one point labeled Bitcoin as “an index for money laundering” but recently pushed for a Bitcoin Spot ETF filed with the SEC.
The Bitcoin ETF has been a popular topic with other VC and Investment Banking firms such as ArkInvest, Fidelity and Franklin Templeton joining the race for approval by the SEC. Amongst all this, Blockchain & Crypto project investment from VC continue to pick up in the Q3 of 2023 totalling to $1,93B with 376 deals secured. This represents a phenomenal increase from its 2019 figures although still fall short of the record high 2021 and 2022 figures.
There has been a rise of Venture Capital Institutions within the DeFI Space with A16Z Crypto, Binance Labs and Blockchain Capital amongst the top. The latter Blockchain Capital also managed to secure the biggest raise throughout 2023 at more than $588 Million for its 2 seeding rounds while Coinbase Ventures managed to secure the most crypto investments at 355 projects. Most of the VC funded DeFI Project within Q3 2023 are based in the USA (34.5%),followed by the United Arab Emirates (23.5%), United Kingdom (9.5%), and Singapore (6.2%).
In the competitive tech space, DeFI is facing tough competition from AI Startups to gain the interest of the VC especially after the major collapse in 2022. As DeFI starts to stabilize itself from the volatility within the market, it should remain a prospective space for anybody to join in the long run. With this rise in interest in the ETF and blockchain project, will we see the amount of investment return to its record high figures?
More to come in 2024?
2024 is shaping up to be an interesting year for the DeFI Space as we are on a momentum not quite seen before amidst a very strange year in 2023. Optimism is high for 2024 as predictions go through the roof but regulations continue to shake up the happenings of the DeFI Space on a daily basis. DeFI space is still the fastest growing industry amongst its short year of existence but it still remains a maturing market filled with a lot of uncertainty.
With the Bitcoin rally going strong and the halving event near the corner, we should see this momentum continue which in then should peak the interest of VCs. Learning from the history of the past halving in 2020, we can expect a similar momentum to carry on and with that the number of DeFI projects should continue to increase. This should attract more VC funding to return to its previous high figures as the momentum continues to grow.
There has also been a growing trend of adopting DeFI into our real life activities such as the tokenization of real world assets and this should provide a real use case for digital assets that would increase its sustainability. Long term sustainability is obviously an important key for VC to consider its investments within the DeFI Space as the firms are committed to projects for the long term potential and as the market stabilizes, this should be a good sign.
All in All, VC investments within the DeFI Space have continued to show progress as the space continues to recover from the events of last year. There are signs that 2024 should present itself as a good year for the DeFI Space but it’s a long road back to recovery. As long as the DeFI Space continues to foster innovative ideas paired with long term sustainability, VC investments should be back to its record breaking figures of 2021.
We in Nagaya Technologies Pte. Ltd believe that innovations and ideas within the DeFI Space should be nurtured to take shape. That is why we decided to innovate the original idea laid out by the other digital assets before us and introduce a hybrid concept. Nagaya is the world’s first hybrid digital asset that is partially backed by Gold to protect its intrinsic value and subsidiary projects to allow its value to grow sustainably over time. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at nagaya.io
Or you can talk to us at t.me/nagayaofficial
