DFG 2022 Overview: Is It The Bottom of “Crypto Winter”?

DFG Official
6 min readDec 31, 2022

Standing at the end of year 2022, let’s think about a question: How do you describe this year? In this article, DFG will bring you back to 2022 and see what exactly happened in the past year.

The Endurance of One Most Brutal Winter

2022 is a year when the crypto industry enters a deep bear market amid a double whammy of internal and external troubles: The industry, once valued at roughly $2.3 trillion at the beginning of the year, now sits at around $900 billion, shrinking by 64%. In addition, Galaxy Digital Research saw a dramatic crypto investment drop from $11 billion in Q1 to less than $6 billion in Q3. Seventeen of crypto’s wealthiest investors and founders have collectively lost an estimated $116 billion in personal wealth since March, making 2022 a brutal winter for crypto markets.

In 2022, the global inflation rate soared and many countries tightened monetary policies to raise interest rates, resulting in a rapid decrease in market liquidity. PitchBook data shows that American VC institutions’ capital declined by more than 50%, from $92.5 billion in Q4 2021 to $43 billion in Q3 2022.​​ And professional investors are extremely bearish about the global economy’s growth.

Source: Freepik

Liquidity in the crypto market was falling off quickly. The entire DeFi TVL has dropped by 78.1% since December 2021. The market cap is currently $840 billion, down from a historical highest of $3 trillion last year. There are two leading causes for this cold winter:

  1. The US Federal raised rates seven times and by a total of 425 bps since March, and now stands at a targeted range of between 4.25% and 4.5%, or the highest level in 15 years. Central banks in Europe including the UK joined the US Federal Reserve to raise aggressive interest rate hikes, which triggered a global liquidity crisis.
  2. A year of scandals, including the demise of Terra, the bankruptcy of 3AC, and the collapse of FTX accelerated the market’s downturn and prompted many regulatory authorities in the United States to demand tighter regulation of the crypto sector. DFG has not been impacted by these occurrences since we constantly manage swiftly changing risks and insist on a long-term investment strategy.
Source: Freepik

There is also no denying that 2022 is a year when the developments of blockchain and Web3 applications — across all industries — are still forcefully ongoing!

  • We saw projects like Arbitrum and Optimism as the two most popular Layer 2 rollups on Ethereum, echoing Ethereum’s Layer 2 ecosystem successfully taking over spillover users and funds from Ethereum with $4.3 billion in TVL.
  • We saw that Ethereum merged, revealing the era of PoS and roughly reducing the annual ETH circulation by more than 90%. When the supply becomes deflationary in the long run, the value of which will go up from now on.
  • We saw Polkadot and Cosmos multi-chain networks have steadily made progress and have successively released milestone updates in terms of technology, laying a good foundation for cross-chain mass adoption and interoperability.
  • We saw Meta brought a new Layer 1 narrative — buzzworthy projects Aptos and Sui raised over $600 million in total. They attracted a lot of established investment institutions, which marked the rise of the Move Language.
  • We saw traditional social applications like Twitter had announced their entry into the crypto payment market, which is expected to usher in a new Social-Fi paradigm in the future.

DFG Sustained Bullish Throughout The Year

Though 2022 is extremely difficult for the crypto market, DFG has remained firmly bullish on Web3 and actively deployed capital in various tracks.

Layer 1 Protocol

In October, DFG participated in a $18.2 million seed round funding for Shardeum. This sharding Layer 1 creatively uses a high-performance consensus algorithm combining Proof-of-Quorum (PoQ) and Proof-of-Stake (PoS). The mainnet is set to go live in 1H 2023, bringing revolutionary dynamic sharding capabilities and up to 100,000+ TPS in the future.

Infrastructure

DFG focused on both crypto hardware and software applications. In January, DFG joined in a $6 million funding round for NGRAVE, a hardware wallet that aims to raise $15 million at a $60 million valuation in December, led by Binance Labs. As a blockchain security provider, NGRAVE offers a user-friendly end-to-end solution with a pocket-size touchscreen, high-end materials, better battery capacity, 100% offline key generation, and firmware updates with the highest security certificate EAL 7.

Software

As a returning investor, DFG keeps holding full faith in Chainsafe’s future, who provides in-game marketplace solutions, Web3 application storage solutions, as well as software engineering, consulting & auditing services valued at hundreds of millions of dollars.

Polkadot Ecosystem

DFG has continued to bet on the Polkadot ecosystem this year. We were involved in the Astar Network Strategic Round this year. Astar is a Parachain in the Polkadot ecosystem, and its unique DApp Staking system has attracted over 50 dApps with over 500,000 community members.

In addition, we have invested in Moonbeam-based multi-chain project DAM Finance, which plans to rapidly expand its innovative stablecoin application to the whole chain ecosystem. Earlier in December, DAM just released the testnet, paving the way to launch its solutions on the mainnet next year to unlock support for a broader range of assets such as collateral that generates yield.

Another initiative in which we have recently shown interest and funding is Ternoa. The brilliant and innovative team aims to build a next-generation blockchain NFT framework empowering everyone to build Web3. Back to days ago, they just launched a brand-new NFT marketplace that brought rental NFT to reality.

DFG’s new-added portfolios in the Polkadot ecosystem this year also include the one-stop DeFi platform ArthSwap, crypto wallet SubWallet, and privacy computing project zCloak Network.

In addition, DFG always focused on the potential Web3 massive adoption, like NFT & GameFi project Apeiron, virtual identity network NFT3, wireless broadband platform Airwaive, etc., trying to discover the traffic entrance of the next Internet generation.

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THE BEST IS Yet TO COME

Even if the industry may not show immediate signs of a full recovery; Web3 has emerged as the innovation forefront for entrepreneurs and builders under blockchain and crypto technology massive adoption.

As we head into 2023, a long road lies ahead: the crypto market has to restore trust and confidence before turning points in blockchain infrastructure, cross-chain interoperability, SocialFi, and NFT liquidity solutions appear. This makes us believe a rebound is just around the corner.

Sources:

https://www.forbes.com/sites/johnhyatt/2022/12/24/these-crypto-founders-and-bitcoin-moguls-lost-116-billion-in-2022/

https://pitchbook.com/news/articles/venture-capital-trends-Q3-2022?ref=hackernoon.com

https://defillama.com/

https://www.coingecko.com/en/global-charts

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