It was incredibly difficult to predict what the future crypto market will bring investors in 2022, if it were to serve as a template. The crypto market saw a dramatic drop in its global capitalization from $2.2 trillion down to $797 billion. The market saw the market capitalizations of the two largest cryptocurrencies, BTC, and ETH, drop by 64%, 67% and 67% respectively. This was in addition to the slide in the alt markets.
These price drops combined with the collapse of the FTX exchange were not something many expected. The FTX disaster isn’t over yet, as some venture funds and crypto projects have kept treasury accounts.
That said, if 2022 was indeed messy, then 2023 has to offer something more positive, but growth is likely to be slow in the first quarter – if not the first half – of the year.
Will 2023 follow the same trend?
After the events of 2022, there will be an adjustment period, settling and refocusing. This will lead to months of nervous reflection before market change.
It is unlikely that the macroeconomic environment will change much in the near future. The so-called “crypto winter” will persist at least for a while. However, there will be some changes. It remains to be determined if it will be investor-led, or corporately-led.
It is clear that the market matures and investors have more confidence. Therefore, it should not surprise that risk-taking investors move earlier than usual in the year. This may seem counterintuitive. As you’ll see below, forecasts for NFTs and DeFi are also available.
Defi in 2023
Liquidity and retail use
DeFi will continue to struggle in the face of falling trading volume, liquidity and other issues. This is why liquidity incentives and bootstrapping of services are important. Since the inception of DeFi, methods for obtaining passive liquidity have evolved from traditional liquidity mining reward mechanisms to more modern concepts like protocol-owned liquidity. This problem remains and must be resolved in the new year for DeFi’s success as a scalable alternative.
Token rewards have proved an unsustainable incentive for trading and market making, often leading to wash trading or “farm-dumping” of platform assets. Most retail users don’t have the time or ability necessary to efficiently execute and manage their positions. Retail investors may be discouraged from investing in the DeFi market because of this complexity.
2023 should see a move to more structured product offerings. IceCreamMan, a founding member and project manager of JONES, was my interview. He is a Layer 2 protocol arbitrum project. During the discussion about their structured offerings, he said, “for example, jUSDC is a delta-gamma neutral stablecoin vault, earning blue chip yields via lending to other Jones structured products in a safe, transparent way, enforced through smart contracts.” And while this highlights the inherent complexities of the DeFi market to the retail user, it also shows that there are a lot of people trying to simplify the process and make the space (and its benefits) more accessible to the retail user.
Regulatory Issues and Attracting Institutional Use
A lot of institutions are wary of decentralized distributed leger technologies because of regulation’s uncertainty at the end of 2022. The idea of ‘permissioned DeFi’ could just provide the solution to help institutions overcome regulatory pains.
J.P. Morgan (and DBS Bank) conducted foreign bond transactions using the Polygon blockchain in November 2022. This new scheme also supported on chain verifiable credentials. This is an example of a bank that tokenized its deposits on a public Blockchain. I anticipate seeing more government-led initiatives (if not supported by the government) that explore DeFi adoption in partnership and collaborate with industry leaders.
Though ‘permissioned DeFi’ is not decentralized by nature, it remains to be seen just how far institutions will go towards pursuing customers’ interests and the amount of power, if any at all, they are willing to relinquish in the pursuit of decentralization and decentralized finance. It is likely that there will be tension among users who choose true crypto-native platforms, such as XGo – to help bridge and support a customer’s DeFi experience and traditional financial institutions trying to leverage DeFi’s benefits for its customer base.
NFTs for 2023
The convergence of gaming, metaverse, NFTs
NFT profile photo projects have had a tendency to move to interoperable, metaverse integration as a sector. This trend has been evident in 2022 and is expected to continue into 2023.
Otherdeed, Cooltopia, and Spacedoodles are committing large amounts of energy and funding from their parent collection’s treasuries and still only represent the tip of the coming gamification iceberg. This raises the question of whether it will act as a catalyst for mass adoption. Even if it does, it is still unclear if the upcoming metaverse(s), if any, will be truly decentralized.
A new wave of products will be born out of the current trend towards stability in Web3 games and sustainability, many of which are a result of Axie Infinity’s Pay-to–Earn model.
The early ecosystems in 2023 could be overreacting, and are designed to protect themselves from the volatile boom-and-bust nature crypto speculation. The risk is that a muted, homogeneous player experience could be created, which can feel like a replica of traditional video games.
Even still, we’ve yet to see a metaverse come close to the likes of Minecraft. Tokenomics, gamification, exposure to speculation, and tokenomics will all need to be used responsibly in the next year. Platforms that create games using NFTs or cryptocurrency will see mass adoption without having that feature be their main selling point. These technologies should be used by gamers without them even knowing.
What’s more, a battle is poised as we move into 2023. Two approaches are emerging in Web3 game development. One is crypto companies moving into gaming, the other is gaming companies moving into cryptocurrency. Limit Break is the new company led by Gabriel Leydon, former CEO of Machine Zone (the company which had Mariah Carey, Kate Upton and Arnold Schwarzenegger all over TV screens). Limit Break is building Web3 Massively Multiplayer Online gaming.
Leydon said: “People talk about Web3 gaming like a futuristic inevitability,” before adding, “it’s not. It requires people to properly design and build it”. Limit Break intends to incorporate Web3 elements into the “free-to-play” gaming model, another stark difference to the crypto-native-first approach of 2022. The truth is that only 5% of mobile gamers actually pay anything. This means that mass adoption will be possible if these individuals are included.
As I am a stakeholder in both projects, I look forward to seeing how the NFT-first $450m raised by Yuga Labs (coupled with stunts from Eminem and Snoop Dogg) squares up to the Gaming-first $200m dollars raised by Limit Break (coupled with it’s announced $6.5m SuperBowl advert in 2023).
With all the above, it’s difficult to predict what 2023 will look like. However, one thing is certain: it will be interesting and different. It is certain that 2023 will be exciting with a positive outlook and a clear roadmap for the entire space. Will DeFi be able to challenge the mainstream and can blockchain-based gaming attract the masses? Stay tuned for the answers to many of crypto’s big questions this year.
Digi516 A long-time crypto researcher, and NFT enthusiast. After a career in data/business analysis and counter fraud, they have 6 years’ trading experience and more than 4 years of active community management. They currently serve as the head for listings and community at XGo.
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