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Decentralized Finance (DeFi)

Disrupting the traditional financial system using blockchain

Overview

Decentralized Finance or DeFi comprises peer-to-peer financial services that use blockchain technology and eliminate intermediaries such as banks that make up the traditional financial system (TradFi). It has several advantages over TradFi, such as faster transactions, greater transparency, and streamlined cross-border transactions, among others. 

The Ethereum blockchain is home to the most number of DeFi projects, contributing to nearly 55% of the total value locked (TVL) in DeFi as of May 2022. Developments in blockchain technology have allowed for the creation of decentralized apps using smart contracts, which have, in turn, enabled DeFi. However, a high volume of activity has strained Ethereum, resulting in slower processing times and steep transaction fees. Planned upgrades to the chain, along with new blockchains emerging with innovative processes and interchain compatibility, are set to bring about more efficiencies in the space.

The search for high yields is the primary driving factor for this sector, as investors seek to generate returns that have consistently outperformed traditional investments like treasuries. In addition, a sizable underbanked population and difficulties faced by SMEs in obtaining credit are likely to drive demand for credit through DeFi applications.

What's driving this industry?
Market Sizing

The US protocol revenue for DeFi projects could reach USD 16.2 billion–30.5 billion by 2026

Conservative case

USD 16.2 Bn

Base case

USD 20.3 Bn

Expansion case

USD 30.5 Bn

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Market Mapping


Most startups in the DeFi space operate in the borrowing and lending segment, while much of the incumbent activity is seen in the marketplaces and wallets segments. The incumbents are mostly established cryptocurrency exchanges as most DeFi projects also operate in the same blockchains as major cryptocurrencies. These incumbents mostly have internally developed solutions to expand their existing marketplace and wallet offerings to support DeFi protocols, enabling access to tokens from DeFi projects such as Compound, from the borrowing and lending segment.

While limited, the infrastructure segment is also seeing activity from traditional banks, as they experiment with blockchain technology in their own internal processes or to trial DeFi projects. Another notable incumbent is the Ethereum Foundation (a non-profit dedicated to supporting the Ethereum blockchain), home to the most number of DeFi projects. Startups in the infrastructure segment have garnered the most funding as Ethereum-challengers emerge, offering high performance at a lower cost.

Most disruptors operate as decentralized autonomous organizations (DAOs), a non-hierarchical governance structure where holders of the DeFi project’s native token are able to vote on strategic and operational matters of the DAO. Further, given the relatively young age of the disruptors (and the industry itself), most DeFi startups are at an early/seed stage.

Incumbents
Growth
Early
Seed
Pre-Seed
Borrowing and Lending
?
Decentralized Insurance
?
Investment Platforms
?
DeFi Marketplaces
?
DeFi Wallets
?
Financial NFTs
?
Infrastructure
?
Technologies
Technologies
Technologies
Technologies
Technologies
Technologies
Technologies
Coinbase
Binance
Crypto.com
BlockFi
Celsius Network
Anchorage Digital
1inch Network
KuCoin
dYdX
MakerDAO
Aave
Wellfield Technologies
Lido Finance
Euler XYZ
Compound
Solend
Balancer Labs
Ondo Finance
Badger DAO
Anchor Protocol
Liquity
iZUMI Finance
Apricot Finance
Idle DAO
Yearn Finance
SushiSwap
Inverse Finance
Alpaca Finance
Delta One
Giddy
Masa Finance
Backd
Rigor
Opium Network
Drops
Zefi
Alta Finance
Astaria
JellyFi
Nexus Mutual
InsurAce Protocol
Black Insurance
Etherisc
Insure
Neptune Mutual
Amulet
Opium Network
Uno Re
Armor Fi
Backed
Coinbase
Binance
FTX
MakerDAO
Swarm Fund
Securitize
Polymath Network
Synthetix
Oasis Pro Markets
Centrifuge
Opyn
RealT
Parcl
Opium Network
Alta Finance
Uno Re
Coinbase
Binance
Crypto.com
FTX
Kraken
Robinhood
BlockFi
Celsius Network
Anchorage Digital
1inch Network
KuCoin
Bancor
dYdX
Eidoo
Uniswap
Wellfield Technologies
Serum
Phantom Wallet
Balancer Labs
Orderly
BitKeep
iZUMI Finance
SushiSwap
Curve
Alpaca Finance
FNDZ
Coinbase
Binance
Crypto.com
Robinhood
ConsenSys
BlockFi
Celsius Network
1inch Network
KuCoin
Eidoo
Wellfield Technologies
Phantom Wallet
Argent
BitKeep
XDEFI Wallet
Giddy
Centrifuge
Solv Protocol
Drops
Zefi
JellyFi
Ethereum Foundation
Coinbase
Binance
Crypto.com
JPMorgan
ING
ConsenSys
Near Protocol
Solana
Polkadot
Starkware
Algorand
KuCoin
0x Labs
Fantom
Uniswap
Distrix0x
Tron Foundation
Waves Platform
Celo
Compound
Chainlink
Skolem Technologies
Orderly
Connext
Instadapp
Tezos
Vybe Network
Idle DAO
Etherisc
Elrond

The Disruptors


Most startups in the DeFi space are involved in the borrowing and lending segment, and are built on an existing blockchain such as Ethereum. The blockchain landscape and cryptocurrencies, in general, have seen phenomenal growth during the last two years. The DeFi sphere has been no different. Around 40% of the key startups in this space were established after 2020, with nearly 90% of them being founded during the last five years. 

Crypto-backed borrowing and lending platform for institutional investors Anchorage Digital is the largest funded disruptor in this space, having closed its Series D round of USD 350 million in December 2021. However, companies in the infrastructure space have raked in the highest total funding, with Ethereum-challenger blockchain Solana leading the pack with over USD 335 million in funding as of May 2022. 

While established investors such as Andreessen Horowitz have amassed a notable portfolio in this space, most DeFi projects, given their DAO structure, also see significant retail participation in their coin offerings, in some cases attracting thousands of investors for a single offering.

Borrowing and Lending

?

Disruptors

?
Funding in USD Millions
BlockFi
1256
Celsius Network
864
Anchorage Digital
487
1inch Network
190
KuCoin
170
Lido Finance
143
dYdX
87
MakerDAO
80
Aave
49
Euler XYZ
41
Compound
33
Solend
33
Balancer Labs
32
Ondo Finance
24
Badger DAO
21
Anchor Protocol
20
Liquity
8
iZUMI Finance
6
Apricot Finance
4
Yearn Finance
Unknown
SushiSwap
Unknown
Wellfield Technologies
Unknown
Inverse Finance
Unknown
Alta Finance
Unknown
Alpaca Finance
Unknown
Watchlist
?
Delta One
Astaria
Giddy
JellyFi
Masa Finance
Backd
Rigor
Opium Network
Idle DAO
Drops
Zefi

Decentralized Insurance

?

Disruptors

?
Funding in USD Millions
Neptune Mutual
10
InsurAce Protocol
4
Nexus Mutual
3
Insure
Unknown
Watchlist
?
Amulet
Opium Network
Black Insurance
Etherisc
Uno Re
Armor Fi
Backed

Investment Platforms

?

Disruptors

?
Funding in USD Millions
Securitize
100
MakerDAO
80
Polymath Network
59
Synthetix
46
Oasis Pro Markets
27
Centrifuge
12
Parcl
11
Opyn
9
Swarm Fund
6
Alta Finance
Unknown
RealT
Unknown
Watchlist
?
Opium Network
Uno Re

DeFi Marketplaces

?

Disruptors

?
Funding in USD Millions
BlockFi
1256
Celsius Network
864
Anchorage Digital
487
1inch Network
190
KuCoin
170
Bancor
152
Serum
120
Phantom Wallet
118
dYdX
87
Balancer Labs
32
Eidoo
28
Orderly
20
BitKeep
15
Uniswap
11
iZUMI Finance
6
SushiSwap
Unknown
Wellfield Technologies
Unknown
Alpaca Finance
Unknown
Curve
Unknown
Watchlist
?
FNDZ

DeFi Wallets

?

Disruptors

?
Funding in USD Millions
BlockFi
1256
Celsius Network
864
1inch Network
190
KuCoin
170
Phantom Wallet
118
Argent
56
Eidoo
28
BitKeep
15
XDEFI Wallet
13
Wellfield Technologies
Unknown
Watchlist
?
Giddy

Financial NFTs

?

Disruptors

?
Funding in USD Millions
Centrifuge
12
Solv Protocol
5
Watchlist
?
JellyFi
Drops
Zefi

Infrastructure

?

Disruptors

?
Funding in USD Millions
Near Protocol
534
Solana
336
Polkadot
294
Starkware
273
Algorand
188
KuCoin
170
Waves Platform
142
0x Labs
109
Celo
67
Fantom
40
Compound
33
Chainlink
32
Orderly
20
Skolem Technologies
20
Connext
16
Instadapp
12
Uniswap
11
Tezos
10
Distrix0x
9
Vybe Network
3
Elrond
2
Tron Foundation
Unknown
Watchlist
?
Idle DAO
Etherisc

BlockFi

BlockFi offers a US-regulated borrowing and lending platform that allows users to take out USD loans collateralized by cryptoassets. In addition, the company also offers personalized yield aggregation solutions for users that commit at least USD 3 million in loaned cryptoassets on the platform as well as a dedicated wallet for users to buy, sell, and store crypto. Notably, its yield aggregation product offers a designated client relationship manager that provides users access to negotiated crypto interest rates, competitive trading costs, term or open loan structure, and customizable term length. 

As of June 2022, the company served over a million users from over 350 institutions around the globe. 

Funding and financials

In August 2021, the company was in talks to raise USD 500 million in Series E funding at a valuation of USD 5 billion. As a result of the crypto market crash in June 2022, The company was reportedly looking to raise funding in June 2022 with Bain Capital Ventures being tipped to lead the round. The expected valuation for this round was around USD 1 billion, which was only 20% of the expected valuation from an earlier Series E negotiation in August 2021. This was largely due to the drop in the crypto market during the first half of 2022 and overall depressed markets during the same period.

In June 2022, BlockFi signed a term sheet with FTX to secure USD 250 million as a revolving line of credit. The funding was intended to be contractually subordinate to all client balances across all account types including BlockFi Interest Account, BlockFi Personalized Yield, and BlockFi Loan collateral. It will be primarily used to support BlockFi's balance sheet as required.

Segment:
Borrowing and Lending
Total funding:
USD 1.3 billion
Competitors:
Aave, Anchorage, Celsius, 1inch, Compound
Disruptor Funding History

Borrowing and Lending:

BlockFi
Celsius Network
Anchorage Digital
1inch Network
KuCoin
Lido Finance
dYdX
MakerDAO
Aave
Euler XYZ
Compound
Solend
Balancer Labs
Ondo Finance
Badger DAO
Anchor Protocol
Liquity
iZUMI Finance
Apricot Finance
Delta One
Astaria
Giddy
JellyFi
Masa Finance
Backd
Rigor
Opium Network
Idle DAO
Drops

Decentralized Insurance:

Neptune Mutual
InsurAce Protocol
Nexus Mutual
Amulet
Opium Network
Black Insurance
Etherisc

Investment Platforms:

Securitize
MakerDAO
Polymath Network
Synthetix
Oasis Pro Markets
Centrifuge
Parcl
Opyn
Swarm Fund
Opium Network

Incumbents


Cryptocurrency exchanges see DeFi as a natural extension of their offerings; traditional banks still testing the waters 

As most DeFi projects are based on the same blockchain as popular cryptocurrencies (such as Ethereum), established cryptocurrency exchanges such as Coinbase and Binance can expand their offerings to cover DeFi-related projects with relative ease. These exchanges are using their existing marketplace offerings to allow users to swap DeFi-related tokens, hold them using the same wallets as their crypto, and even provide direct access to deposit their tokens into yield-generating tokens like DAI from MakerDAO.

Traditional banks are yet to fully break into this space, as they are restricted by their internal compliance measures and an overall risk-averse approach to innovation. However, large international banks (such as JPMorgan and ING) are taking steps like experimenting with blockchain in their internal processes, working on building the infrastructure to develop apps on top of it, and testing peer-to-peer DeFi protocols in regulatory sandboxes.

In-house development

Acquisition

Partnerships

Investments

Ethereum Foundation
check
Coinbase
check
check
check
check
Binance
check
Crypto.com
check
check
FTX
check
check
Kraken
check
check
JPMorgan
check
check
check
ING
check
Robinhood
check
ConsenSys
check
check
Ethereum Foundation

The Ethereum Foundation is a non-profit organization that is dedicated to supporting the Ethereum blockchain and related services. 

The Ethereum blockchain was launched in 2015 and it introduced the ability to create and deploy smart contracts on the chain and create decentralized apps, including those for the DeFi sector. The main Ethereum blockchain uses the proof-of-work consensus mechanism and as of December 2021, was home to more than 300 DeFi projects, accounting for over USD 160 million in total value locked (TVL). At the time, the chain carried out approximately 13 transactions per second.

A significant update to Ethereum was set to launch in mid-2022. Dubbed as Ethereum 2.0 (AKA the merge), the upgrade would see the blockchain move to a proof-of-stake consensus mechanism, which is significantly faster and can carry out up to 100,000 transactions per second. In June 2022, Ethereum developers activated the merge on the Ropsten test network.

Notable Investors


No investor data is available

Funding data are powered by Crunchbase
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