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Pantera partners' top 6 crypto industry predictions for 2023

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The crypto industry has evolved from crisis to crisis, and this time will be no exception. The industry will enter 2023 with the strength and durability shown in 2022.

Title: The 2023 Predictions

Paul Veradittakit is a partner at Pantera Capital

aididiaojp.eth, Foresight News

2022 will undoubtedly be a year of highs and lows for the crypto industry. After a bull market in 2021, we kicked off 2022 with expectations of a market correction, with bitcoin and Ethereum down about 20% and 31%, respectively, in January alone. Macro factors such as Fed rate hikes, high inflation, job cuts and a general slowdown in economic growth have created a great deal of uncertainty. Difficult market conditions have largely been a source of panic for much of the year, but that hasn't stopped the crypto industry from making many incredible technological advances. DeFi improvements such as Compound v3 and the development of the ZK ecosystem continue. Institutional adoption of cryptocurrencies has also accelerated, with brands like Disney, Starbucks, Adidas and others quietly embracing Web3. Big banks are also showing increasing interest in the sector: Fidelity has launched an encrypted service for investors, BlackRock has partnered with Coinbase to offer encrypted access to its institutional clients, and Goldman Sachs is creating new encrypted data services.

An industry highlight of the year was the Ethereum merger in September, which saw the blockchain transition from proof-of-work to proof of equity, reducing Ethereum's energy usage by about 99.9 percent. Second, many great engineers continue to build in Bear City, and some strong projects stand out. The industry is also learning lessons from each of the disasters of 2022, however hard it is at the moment. In light of these events, many projects and even the entire cryptocurrency market have shown their resilience. The crypto industry has evolved from crisis to crisis, and this time will be no exception. The industry will enter 2023 with the strength and durability shown in 2022.

Here are my top six crypto predictions for 2023:

DeFi will continue to grow during the CeFi integration

The past year has exposed many problems with the centralised financial CeFi, while the DeFi has generally worked well. Given the multiple CeFi crashes in 2022, I would expect CeFi companies in the industry to gradually consolidate into highly regulated players similar to Coinbase and Bitstamp.

DeFi trading volumes have soared in the period since the FTX crash, with volumes up 68 per cent from October to November to $97bn, illustrating how managing assets through secure smart contracts enables users to better understand liquidity and control their investments.

By 2023, I believe we will see the growth of more sophisticated and interesting applications by DeFi. Some exciting examples are GMX, a decentralized permanent exchange, and 1inch Pro, a compliance platform that connects TradFi (traditional finance) to DeFi. Use cases such as self-managed wallets, synthetic assets and prediction markets will attract more attention next year.

The real strength of the industry lies in its infrastructure, which supports transactions in a trust-free and efficient way. These features will dramatically accelerate DeFi adoption and growth in 2023, especially given CeFi's struggles this year.

We'll see a lot of zero-knowledge adoption and use cases

With privacy issues at the forefront of the crypto industry, zero-knowledge technology has been particularly noticeable this year. The zero-knowledge technique is essentially to use the prover, verifier and mathematical algorithm to prove something without disclosing the underlying information about the proof. The application is significant for the industry because blockchain is inherently transparent, and it also allows for more interaction on the chain in a private way. Zero-knowledge proofs are also very lightweight, making on-chain interactions more scalable and efficient.

With the emergence of projects such as Succinct Labs, Risczero, and Espresso Systems, we have seen a proliferation of use cases for zero-knowledge proof, EVM, and Rollups. Zero-knowledge techniques are particularly useful in encrypting identities in the vertical domain. With zkps, users can prove their identity on the chain without disclosing sensitive data. In a recent article, Ethereum co-founder Vitalik Buterin also pointed out that zero-knowledge technology is very important for solving on-chain information problems, a category of "real problems that need to be solved."

ZK technology is also valuable for cross-chain Bridges, enabling the transfer of message and token assets while ensuring security and correctness through a concise proof mechanism. It also has exciting use cases in the TradFi system, such as credit scores and taxes.

Institutions will increasingly link up financial assets

A real world asset RWA represents a claim on the underlying asset and usually has a claim on the asset that generates income. So far, the emergence of this category has unlocked a lot of liquidity and utility, and 2023 could bring even more assets represented on the chain in an accessible way.

Stablecoins are arguably the most popular real-world asset application on the market today, accounting for three of the top seven tokens by market capitalization. Circle's USDC and Maker's DAI have been market-approved stablecoins and have barely budged throughout the bear market.

The on-chain community has already shown demand for RWA: for example, MakerDAO decided to invest $500 million worth of DAI in US Treasury and corporate bonds in mid-2022.

Goldfinch is an off-chain mortgage provider with an active loan value of about $100 million. Jia allows business owners to access blockchain-based loans and generates substantial earnings for real-world businesses and asset-backed liquidity providers. I expect 2023 to see growth in interesting applications of RWA, such as quicken Loans and real estate. In line with real world asset trends, I would also like to see a large number of startups focused on bringing TradFi institutions into the crypto space in a regulatory manner.

More companies are entering the blockchain data space

Arguably, the wealth of open source data is one of the best features of blockchain, as it allows for in-depth analysis of on-chain activities. Leveraging this data in an efficient and responsible manner is an integral part of extending the blockchain dapp and its use cases. The data reveals a wealth of information about how blockchain is being used, emerging trends, user behavior and the flow of money on the chain.

Blockchain analytics platforms like Nansen will continue to play a key role for services that analyze behavior on the chain through wallet activity. Companies like nxyz are also solving the block chain problem by offering data apis with no rate limits. Established in 2022, we Definitive provide user-accessible tools and analytics for both on-chain and off-chain activities. Even as these companies grow, blockchain data remains largely untapped, and I expect the industry to see significant growth in 2023. To understand where cryptocurrencies are going next, we need to refine our level of state data analysis.

The developer tool stack will continue to grow

The developer tool stack will continue to grow as blockchain engineers increasingly seek simple and effective ways to deploy Web3 projects.

Developer tools eliminate many repetitive and tedious parts of the job and encourage more engineers to try to create on-chain protocols. Over the past year, companies like Alchemy and Tenderly have been particularly important players in the industry.

Despite the bear market, developers are experimenting with on-chain applications more than ever. Alchemy recently said the number of engineers using its platform had quadrupled since the start of the year. In September 2022, the number of monthly verified smart contracts increased 2.6 times year-on-year. An impressive 36% of smart contracts were also deployed and validated in 2022.

As more and more web3 developers participate in the ecosystem, it is critical to provide them with reliable tools as they begin to build. Cross-chain tools are particularly important because they provide composable software that makes it easy to start projects on multiple chains. As the backbone of many encryption projects, developer tools will continue to grow in 2023 as more encryption use cases emerge and more engineers seek to enter the industry.

NFT's that provide value to holders, such as games and identities, will continue to grow

Utility NFT such as in-game NFT, identity tokens and token membership communities, software and events will grow in 2023. This year, we've seen the industry start to evolve technologically and creatively, but it's still a long way from becoming mainstream. While the digital art industry is undoubtedly a huge vertical, the use of NFT to allow specific privileges has the potential to disrupt many existing industries.

So far, we've seen some exciting applications and developments of these ideas. The PROOF Collective allows its NFT holders access to future PROOF airdrops (one of which is the popular Moonbirds NFT project) and access to PROOF community programs, such as live events and private Discord. Vitalik has also published an integrity document for soul bound tokens (NFT's that hold on-chain identity information), and several projects have already adopted this document. Gaming transactions also surged in 2022, at one point accounting for more than half of all blockchain activity. In addition, NFT began to explore the entertainment sector, especially in the fan economy.

Legacy companies have been exploring the adoption of NFT at an increasing rate. Some highlights: Tiffany released a line of pendants for CryptoPunk holders; Instagram announced the inclusion of NFT on its platform; Nike bought the meta-universe fashion company RTFKT. In addition, Royal has redefined music revenue streams and ownership by allowing fans to invest directly in songs. Sports players such as Cristiano Ronaldo have launched related NFT series to increase fan engagement and potentially receive other future benefits.

By 2023, I'm excited to see the idea of industry disruption and practical NFT fleshed out. Crypto applications as well as traditional companies may start to try more to use NFT to bring value to their owners.

summary

Despite some painful hacks and CeFi crashes, the crypto industry as a whole made tremendous technological advances in 2022. Even in the harsh winter of encryption, Web3's influence is felt around the world, and the technology is clearly here to stay. Our job as an industry is to make this technology available, reliable and safe for users everywhere, to usher in an era of financial transparency, reliability and autonomy. Web3 continues to redefine how we think about money, ownership (physical and digital assets), identity, and community. I'm excited to see what 2023 brings as we continue to accelerate the adoption of Web3 on the Internet.