6 Narratives to Keep an Eye on in 2023 During Crypto Recovery

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The tighter monetary environment resulting from a stronger US dollar has been disastrous for the valuation of major crypto assets such as BTC (BTC-USD). Whether or not the cryptocurrency regains liquidity in 2023 will determine the degree of recovery in the overall valuation. We believe that the weakening of the US dollar combined with the continued softening of US bond yields should be the basis for an institutional re-embrace of crypto assets.

Even US Treasuries, considered risk-free returns, could be sold as persistently high-interest rates erode consumer confidence. Fears of an impending economic downturn will force investors to sell Treasuries to obtain cash. This is an opportunity for cryptocurrencies. The story of digital cash will be reactivated. Over time, a reduction in global liquidity could slow economic recovery and trigger a debt crisis.

With the arrival of 2023, crypto’s dedication to bearishness may be coming to an end. As institutional liquidity runs out, cryptocurrencies will return to the gambling tables of the ancient whales. Technological innovation in the cryptocurrency space will become the main narrative driving the recovery in late 2023. Following are the potential opportunities that we believe can re-establish industry confidence in 2023.

Layer2 will expand the Ethereum application ecosystem

Layer 2, as a mainstream scaling scheme for Ethereum, has two major advantages. Firstly, it can improve the processing power of Ethereum and solve the problem of congestion on the mainnet. Second, it can reduce transaction fees and make many applications practical in the real world. There are now a growing number of Layer 2 solutions, such as Arbitrum, Optimism, etc. They can interact with the Ethereum mainnet to meet different application scenarios and solve different needs.

For one thing, Ethereum’s current processing capacity is extremely limited, which means it needs a lot of Layer 2 solutions to scale by executing transactions at Layer 2. For another, with the rapid growth of on-chain new use cases, more diverse requirements will emerge for the execution layer. Therefore, we believe that as one of the key trends for crypto in 2023, there will be a large number of specialized Layer2 solutions to interact with the Ethereum mainnet.

dune

According to Dune Data, as of January 5, 2023, the total value on Ethereum Layer 2 scaling solution Abitrum reached 2,091,981 ETH, and the number of users participating in bridged transactions was 511,711. In terms of other L2 cross-chain bridges, the total value on Optimism, zkSync, and StarkNet is 457,648 ETH, 198,389 ETH, and 9,462 ETH, respectively. Nevertheless, there are still many important problems to be solved in Layer 2, such as block speed, security, reliability, etc. Through continuous technological improvement and innovation in 2023, Layer2 is expected to play a greater role.

Decentralized stablecoins will skyrocket in value

Decentralized stablecoins not only have the characteristics of a “non-sovereign currency”, but also have use cases that can be associated with various activities in real life. In an increasingly turbulent world economy like today, decentralized stablecoins with better collateralization, pegging mechanisms, and ability to capture value have become the users’ choice in addition to fiat-backed stablecoins and stablecoins backed by other hyper-collateralized digital currencies. Will go

Historically, there have been two high levels of decentralized stablecoins. The first was the wealth myth of algorithmic stablecoins led by Empty Set Dollar and Basis Cash from late 2020 to early 2021, and the second was the fever about public chain stablecoins in a double-wheeled model powered by Terra and UST. These two bursts of enthusiasm directly ignited the DeFi craze.

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We expect that with the continued advancement of regulation and technology, decentralized stablecoins will be able to continue to act as a catalyst for a bull market. In 2023, decentralized stablecoins launched by major DeFi ecosystems such as AAVE and Curve will support more real use cases. And it is expected that more and more decentralized exchanges (DEXs) will join the competition of decentralized stablecoins to provide users with convenient, reliable and secure financial services. This portion of the market gap will continue to be taken by DeFi protocols with solid trading volumes.

Ethereum Liquid Staking Derivatives Will Prosper

With Ethereum consensus shifting from a PoW to a PoS mechanism, the ETH supply mechanism has shifted to a net contraction. We strongly believe that the future of Ethereum is one to look forward to, and that Ether (ETH-USD) staking will provide the best risk-reward opportunity. Specifically, with the increase in Liquid staking activity and the arrival of the Ethereum Shanghai upgrade, ETH staking withdrawals will be enabled. This means that Ethereum’s liquid staking derivatives ecosystem will be further enriched.

Currently, only around 14% of the ETH supply is at stake. In contrast, most other Layer1 public chains have staking rates in excess of 40%. Liquid Staking Derivatives (LSD) services and product forms will become more diverse if more people choose to stake ETH following the Shanghai upgrade. Under the premise of maintaining staking yield, LSD is expected to be deployed in more DeFi protocols and generate more income.

dune

Although Lido Finance currently holds the dominant position in ETH liquid staking, with the innovation of other protocols and the increased creation of DeFi, potential competitors such as Rocket Pool, StakeWise, Frax Finance and Stadar Labs still have the opportunity to capture more market share. is an opportunity. Without a doubt, Ethereum is still far ahead of other Layer 1s in terms of block space demand and fee revenue growth, so it will be one of the surest opportunities in 2023.

NFTs will have more use cases

Non-fungible tokens (NFTs) come with brand value and fashionable genes. These characteristics make companies and celebrities willing to combine intellectual property (IP) with NFTs, and NFTs have gradually become a promotional tool for companies and celebrities to upgrade their brands and manage their fan base. has become a way of Gucci, LV, Adidas, Nike, Starbucks, Messi, C Ronaldo and Trump, to name a few, have all tried NFT marketing. It can be predicted that NFTs will become more popular among the new generation of consumers in 2023.

NFTs are also receiving more and more attention in some emerging tech sectors. Take artificial intelligence as an example. NFTs have the potential to bring a range of new opportunities. In the future, we may use NFTs and AI to accelerate the speed of art creation, while at the same time lowering the threshold for ordinary users to create art. Furthermore, with the advancement of NFT technology, there may be more new use cases in the future. For example, in the field of virtual reality, NFTs can be used for data storage and asset transfer in various virtual realities, which will greatly improve their security and transaction efficiency.

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Hence, from 2023 and onwards, NFT technology can be expected to play a bigger role in more and more sectors. We anticipate that NFTFi will be the next growth point, especially with the support of Layer2 solutions. Also, the NFTFi concept will become a source of inspiration for the next generation of crypto derivatives. Second, high-performance special-purpose public chains and DAOs with high community stickiness will further erode Opensea’s market share. Music, AI and other new NFT forms will appear unexpectedly and attract more attention. And NFT projects that tap into the untapped subculture will be worth the attention.

GameFi will grow and become more professional

From the P2E model driven by Axie to the M2E model ignited by StepN and then the follow-up innovations of the various X2E models, GameFi has been driven to grow, making it the most preferred Web3 track among capitals in the past two years. , The continued emergence of GameFi projects and various game incubators is also driving the commercialization and scaling-up of Web3 games.

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In 2023, the GameFi model will continue to evolve. We expect the X-to-Earn (X2E) model innovation to further diversify. More projects will be incubated. As more game developers join in, the Web3 game industry will further expand and grow. As technology advances and the content of games becomes more diverse, more consumers will be involved and the games industry becomes more mature.

In addition, new game experiences are worth looking forward to, such as augmented and virtual reality, which will make the game more realistic and interesting. Furthermore, it can be expected that blockchain games will integrate the GameFi model and NFTs into more game genres in Web2, including MMORPG, FPS, and MOBA.

New identification systems created by DID, SBT, or similar will appear

Currently, a lot of projects are working to create a digital identity for Web3. Such work will also be a cornerstone for rebuilding user confidence in the next cycle. Several technologies already exist such as Decentralized Identifiers (DIDs) and Soulbound Tokens (SBTs) that can be used to describe the image, reputation and social relationships of individuals in a decentralized manner. They can be used to build the Web3 identity and credit system and facilitate the creation of a decentralized society.

The Web3 Credit System will form the basis of a new financial system where various financial services can be performed, from payments and loans to wealth management and insurance, etc., without relying on traditional financial institutions. We believe the segments below are worth keeping an eye on.

• Identity Management Tools: Wallets and domain name projects should be given priority. Both ramp up significantly to a wider range of users.

• Social Networks: Open and transparent play-to-invest social platforms, interest-based social networks and games in the metaverse, and dating applications that focus on providing immersive experiences and privacy are some of the types of web3 social networking that have unique There are sales places.

• Credential Issuance Tools/Platforms: Credential projects with high added value deserve attention, especially digital state and membership DAOs.

vitalik.eth

While 2023 will be nothing short of changes, it will also be the year that sets the stage for the next bull cycle. We expect the market to bottom out in Q1 2023 and start showing an upward trend from the middle of the year. Liquidity conditions may change significantly and the US dollar may weaken. With better liquidity, the crypto market will enter a benign phase and start laying the foundation for a bigger bull run in 2024.

In conclusion, despite being in the current bearish cycle, the Web3 industry has great potential for the future. Be sure to pay attention to related cryptos and tokens to gain exposure to the growing innovations of the space.