Observer’s DeFi Dozen: The Hottest DeFi Companies of 2022
Observer and CoinDesk studied market capitalization, valuation based on venture investment and more to identify the hottest DeFi companies of 2022. Here they are.
The idea of “centrality” is, for historically understandable reasons, crucial to the development of economic stability and growth. These days, almost every country or economic bloc has a “central” bank, to ensure uniformity of things like money supply and interest rates. Stock and bond exchanges are “centralized” to ensure, among other things, that there aren’t people setting up shop to sell the same financial instruments at a different price (this practice was routine in the 19th century).
Yet we are living through a revolution of decentralized finance (DeFi), in which trillions of dollars in annual transactions take place in channels that are not controlled by any one entity, in part because a significant number of the transactions are across national borders. The potential power of this movement became profoundly clear when the government of Ukraine opened itself up for cryptocurrency contributions following Russia’s horrific invasion—and $100 million worth of crypto contributions zapped through in a matter of days. While cryptocurrency won’t overthrow the Russian Army, the idea of delivering emergency aid directly across borders, with no chance to be intercepted by warlords or corrupt governments, has an obvious appeal.
The Observer has sought to capture this energy in our first annual DeFi Dozen, a nonranked list of the most powerful and influential entities fueling this revolution. They are remaking not only the world of finance, but everything we think about the creation of value. Indeed, calling this a list of a dozen “companies” is a misnomer; several of these entities are not structured as companies at all. They are more like globally scattered choirs that have consented to sing from the same songbook—yet together their voices can shatter glass.
The size of the DeFi market fluctuates because even the largest coins and tokens shift dramatically in value, but many 2022 estimates put the total value locked in DeFi protocols at over $100 billion. The players on this list are responsible for a huge chunk of that. Also worth noting: not one of the entities on the DeFi Dozen is more than ten years old.
How did we choose this list? To the greatest extent possible, we based it on available data: market capitalization, valuation based on venture investment, Github search results, mentions on CoinDesk. At the same time, these dozen entities do very different things, and so a single yardstick can’t be applied, but almost every entity on this list is a market leader in at least one way that fuels the DeFi economy.
You may notice the absence of Bitcoin from this list. It’s almost certainly true that without Bitcoin’s birth in 2008, none of the entries on The DeFi Dozen would exist, not in anything like their current form. But we want the list to reflect as much as possible the principle of decentralization. Arguably Bitcoin has transformed into a highly concentrated asset, both in mining (0.1% of all Bitcoin miners control half of all mining capacity) and ownership (1% of Bitcoin owners control 27% of its supply).
The Observer is very grateful to our editorial partner CoinDesk for guidance on creating this list.
The Global Exchange: FTX
- Launched: 2019
- HQ: The Bahamas
Something like ten percent of the cryptocurrency traded every day around the globe takes place on FTX. The company has hired Tom Brady and Naomi Osaka to promote to the masses. And yet, founder Sam Bankman-Fried, who just turned 30, tells the Observer that he wasn’t sure the company would pan out. “I was one of the most bullish internally on FTX—and thought there was an 80% chance it would fail to get traction,” he said.
In addition to the company’s success, Bankman-Fried has emerged as a thought leader in the crypto/DeFi space. In December, he testified before the House Financial Services Committee, emerging as a credible advocate of federal regulation, preferably under a single, unified regulatory regime. “The discussion was productive and bipartisan, and it was great to be able to talk directly with policymakers,” he told the Observer.
FTX is also serious about growing crypto internationally. It recently announced a partnership with Nairobi-based AZA Finance to expand crypto’s presence in Africa, and became the first exchange to obtain a crypto license in Dubai.
The Accelerator: Lightning Labs
- Founded: 2016
- HQ: San Francisco
One of the longstanding complaints about Bitcoin is that it is too slow to handle the volume of transactions that currently exists, much less will exist in the future. A single Bitcoin transaction can take 10 minutes or more to show up on the shared ledger. Lightning Labs set out to fix that problem—not all at once, but through a series of technical innovations that make Bitcoin transactions not just faster, but easier and more secure. The need for Lightning Labs has been obvious in the crypto community for years; Bitcoin evangelist Jack Dorsey was an early investor.
Simply put, Lightning is a “Layer 2” protocol that allows transactions to be settled off of the blockchain, thereby speeding up the process. An estimated 100,000 people are using the Lightning Network, and other cryptocurrencies have adopted it as well. Lightning has also introduced ways to increase Bitcoin liquidity for users, which saves time and reduces transaction fees. Lightning’s ultimate vision? One billion Bitcoin users.
The Brand Name: Coinbase
- Founded: 2012
- HQ: Dispersed (formerly San Francisco)
While of course Coinbase itself is not really a DeFi company, it is nonetheless by a very wide margin the channel through which most Americans who invest in crypto find their way there. Brian Armstrong and his team have executed brilliantly on their vision to take cryptocurrency into the mainstream. About $3 billion a day is traded and the platform supports nearly 90 million users worldwide.
Coinbase’s first year as a public company has not been especially pleasant (in a market when most fintech stocks have suffered), but it still has a market capitalization of about $45 billion, which as of late March is about four times as high as Robinhood (another company considered for this list).
The NFT Whale: OpenSea
- Founded: 2017
- HQ: New York City
When NFTs shot into public consciousness in early 2021, even people who understood what they were wouldn’t necessarily have known how to create one, buy one or sell one.
Among the dozens of sites where people can mint and trade NFTs, OpenSea immediately established itself as the market leader. Consider: In February 2021, according to data compiled by Dune Analytics, just over 41,000 NFTs sold on OpenSea. A year later, the monthly tally was more than 2.1 million—5000% growth in a single year, although March witnessed a steep decline.
OpenSea recently raised $300 million in a Series C round led by the VC firms Paradigm and Coatue. This investment values the exchange at $13.3 billion, compared to the $1.5 billion valuation it had in July.
The Challenger: Ethereum
- Founded: 2015
- HQ: Zug, Switzerland
Although several prominent rivals have emerged in recent years, Ethereum remains the developers’ darling; a late March Github search for Ethereum shows some 48,000 repository results, over 20 times more than coins like Cardano.
Almost no one outside the Ethereum inner circle could have predicted how big the protocol would become, or how quickly. Last year, Ethereum settled over $11.6 trillion in transactions, far surpassing Bitcoin—and Visa.
A big test for Ethereum will come this summer, as the network moves to a proof-of-stake model, designed to make transactions faster and more energy-efficient.
The Wallet: ConsenSys
- Founded: 2014
- HQ: Brooklyn
ConsenSys has done a number of different things in its lifetime, but arguably its crowning achievement took place in 2021, as the NFT market took off. In a matter of months, MetaMask became the wallet for NFTs and other Ethereal transactions. In July 2020, about 500,000 people a month used ConsenSys’s MetaMask; a year later, it was ten million. The number today is well over 20 million.
ConsenSys makes other products, including the development platforms Infura and Truffle. But MetaMask is definitely driving the business. In mid-March ConsenSys raised a $400 million venture round valuing the company at over $7 billion, more than twice the valuation of its November 2021 Series C.
The Stabilizer: Tether
- Founded: 2014
- HQ: Hong Kong
The explosive growth in stablecoins has been a boon for some and a headache for others. The concept of a digital currency pegged to a real-world currency (such as the US dollar) has become extremely useful in recent years, particularly for those who want to trade one cryptocurrency for another without converting into fiat money. Tether is the largest stablecoin by value (although USD Coin threatens to overtake it).
Tether has been embroiled in numerous battles with regulators, and the record is strong that it has not always lived up to its promise to back all its stablecoin with US dollars on a 1:1 basis. And US officials, including Treasury Secretary Janet Yellen, have made it clear that stablecoin regulation is coming. But that shouldn’t threaten Tether; if anything, regulation will likely encourage more investment in Tether and other stablecoins pegged to the US dollar. If, however, the US government were to commit to a central bank digital currency, that might eliminate a lot of stablecoins’ utility.
The 800-Pound Gorilla: Yuga Labs
- Founded: 2021
- HQ: Dispersed
This month witnessed the NFT world’s largest merger, in which Yuga Labs bought the intellectual property of CryptoPunks and Meebits. But way before that—well, a few months before—Yuga Labs had captured NFT culture with the creation of the Bored Ape Yacht Club. The founders’ identity was not publicly known until Buzzfeed published two names in February.
Bored Ape artworks became cult collectors items, and helped fuel 2021’s red-hot NFT market. In recent weeks, the company was involved in the launch of ApeCoin, which immediately hit a $12 billion market capitalization. In late March, a long-anticipated Andreessen Horowitz investment in Yuga was announced a $450 million stake that values the company at $4 billion.
The Collective: MakerDAO
- Founded: 2015
- HQ: Denmark
In important ways, MakerDAO embodies one of the most complete visions for DeFi that anyone has implemented so far. (And like so many other DeFi pioneers, it is built on the Ethereum blockchain.)
The magic of MakerDAO is that it allows users to collateralize certain cryptocurrency holdings in order to get loans in the form of a dollar-pegged stablecoin (DAI). It is also governed by the community of token holders, rather than by a group of engineers or business engineers. In 2020, MakerDAO became the first DeFi protocol to hit the $1 billion mark in total value locked into its smart contracts. Today that figure is around $16 billion, which puts Maker at the top of the chart by far. Early on, Andreessen Horowitz invested in MakerDAO and took control of 6% of the total MakerDAO token supply.
The Speedster: Avalanche/Ava Labs
- Founded: 2018
- HQ: Brooklyn
Avalanche, a platform is developed by Ava Labs, is widely considered one of the most promising alternatives to the Ethereum blockchain. It bills itself as “blazingly fast, low cost, and eco-friendly.” How fast? According to Avalanche, the platform can achieve “transactional finality” in less than two seconds, compared to six minutes for Ethereum and 60 minutes for Bitcoin.
The coin associated with Avalanche, AVAX, launched in 2020 and quickly entered the top ten crypto coins by market capitalization. Look for expansion into the world of gaming and the metaverse, which can obviously benefit from increased speed.
The Moonshot: Terra Luna
- Founded: Token launched in 2019
- HQ: Seoul
Terra Luna is a classic DeFi one-two punch: a platform/protocol that pays for itself by selling two tokens—in the case of LUNA, the largest DeFi token by market capitalization as of late March, with a market cap of $34 billion. One aspect that sets the Terra network apart is that it is built on Cosmos SDK, a platform that allows for a high degree of customization.
While some crypto (such as Bitcoin) have a fixed number coins that will ever exist, and others add new coins as they see fit, Terra’s algorithm creates new coins at exactly the rate of demand, which stabilizes value without anyone needing to be in charge.
The Maverick: Uniswap
- Founded: 2018
- HQ: New York
Like Coinbase and FTX, Uniswap is an exchange over which cryptocurrency is traded, but unlike those Super Bowl advertising behemoths, Uniswap is genuinely decentralized. Traders deal directly with one another, rather than going through a broker-dealer. That has created some friction, since traders are not required to disclose their identities. But it has also been wildly popular; there are days when trading volume on Uniswap has been higher than on Coinbase. Moreover, Uniswap operates on open-source software that can be adapted to create other exchanges.
Uniswap was founded by engineer Hayden Adams, a few months after he’d been laid off from his first post-college job. Early investors included Andreessen Horowitz and Union Square Ventures.
Join a Video Discussion on the DeFi Dozen on March 29
Join Observer and CoinDesk for a discussion with James Ledbetter, Observer Executive Editor, Lisa Carmen Wang Founder, Bad Bitch Empire and Joe Lautzenhiser Editorial Researcher and Strategist, CoinDesk
