Institutional appetite for Decentralized Finance increasing
Decrypt • November 08, 2022
Institutional investors' appetites are turning to a broader set of crypto assets. Previously, institutional investors and High Networth Individuals foray into the digital asset space was primarily focused on Bitcoin. Now, the same investor group is attracted to more sophisticated crypto assets and moving towards other web3.0 assets such as Ethereum, other ‘Alternative Layer-1s’, and decentralized applications, undeterred by the collapse of projects like Terra Luna earlier in the year.
This trend is supported by analysing the data of the digital asset investment products sector as whole, showcasing a mild negative sentiment towards Bitcoin, with a third consecutive weekly outflow of $15M, while Ethereum investment products are positive in all three weeks.
Uncertainty about regulatory frameworks for alternative coins, unproven security models and different monetary policies make ‘altcoins’ a higher risk investment than Bitcoin, where regulatory clarity is achieved in most jurisdictions and the security model has stood the test of time. However, it does appear that institutions are realizing there is more than only Bitcoin in web3 with DeFi and are allocating their capital accordingly. This is not without risks as smart contracts for DeFi are more complicated and feature-rich, have a higher attack surface, and are a lot more experimental in nature compared to Bitcoin. These properties also mean that higher returns are a real possibility, however the same holds for lower returns.