Investors say DeFi startups must experiment with new use cases, and create solutions.
Although the crypto industry has had its share of bumps in the road, venture capitalists remain bullish and continue to view decentralized finance (DeFi), a promising opportunity.
TechCrunch surveyed six crypto-focused investors About the future of crypto adoption, the sentiment towards DeFi and how investors and founders are shifting their focus to that sector.
According to DeFiLlama, the total value locked (TVL), on DeFi protocols has dropped 77% from its December 2021 highs of $180 billion to $41 billion Wednesday. data. But that hasn’t stopped founders, developers and investors from diving into the space.
“While TVL as a metric certainly has its flaws, we think it’s still a decent measure of activity in the sector,” said Michael Anderson, co-founder of Framework Ventures. “As TVL increases, we also think it’s possible that total market cap could follow.”
Paul Veradittakit was general partner at Pantera. “Naturally, we expect that in the next five years, as DeFi matures and begins catering to (as well as capturing share from) its TradFi counterparts, the TVL metric could easily surpass the $500 billion mark.”
Five of the five investors surveyed stated that DeFi is the focus of 20% to 50% of all crypto-related pitches. With all these DeFi startups launching and pitching to investors, it’s hard to determine what it takes to stand out.
“As venture investors, we’re looking to back innovators who are not afraid to experiment and create new products,” Veradittakit said.
Alex Marinier, founder of New Form Capital, says that DeFi’s growth is not just dependent on rising use cases. “It will also be influenced by developments in infrastructure, regulation and financial innovation.”
In general, DeFi primitives like automated market makers and lending protocols are “established and crowded,” said David Gan, founder and general partner of OP Crypto. “Founders need to go back and think about the true use cases and pain points for non-crypto/nontechnical users, and then build solutions and user experiences.”
Marinier stated that founders should emphasize unique technology and the clear benefits for a particular use case. “Too many projects are simply positioning themselves as ‘X protocol, but on Y chain,’ without offering anything truly innovative or novel.”
Projects that connect or strategize with institutional players are also attractive to investors. Anderson stated that DeFi is growing and its products must be able to accommodate institutions.
Institutional players could be scared by this, unfortunately. market-changing events In 2022, like LUNA/Terra ecosystem exploding Crypto exchange in May FTX collapsing November. Anderson stated that these investors won’t be returning for several years.
“As a result, we’re focusing more on projects that are thinking about addressing new, more institutional users and markets,” Anderson added.
Gan agreed: “We’re investing in the building blocks for institutional adoption, projects that fill the gap in the completeness of DeFi and protocols geared towards non-crypto users.”