After the boom year 2021, the crypto world was brought down to earth in 2022. Hundreds of tokens lost more than 95% of their market capitalization and many projects failed. Still, there are some bright spots – these five developments could have growth potential in 2023.
1. DeFi Adoption
The collapse of crypto exchange FTX has once again shown why blindly trusting centralized crypto companies can be so dangerous. The debris of this event will likely occupy the crypto world for months, if not years. But there is also light at the end of the tunnel.
Decentralized finance (DeFi) has already seen and is expected to see even more adoption following the FTX debacle in 2023. Since November 4, 2022 alone, investors have withdrawn over $4.7 billion from crypto exchanges, or nearly 12% of all stablecoin holdings held on crypto exchanges.
In short, the principles and structures of DeFi platforms do not lead to the same centralization and risks that led to the demise of FTX. Given the failure of FTX and other centralized crypto companies, the case for DeFi in 2023 is stronger than ever.
You can find out what DeFi trends investors can expect in 2023 and which projects could benefit from them in the January issue of BTC-ECHO magazine.
2. Crypto Game
The crypto gaming sector faced some harsh realities over the year after soaring in 2021. Former crypto gaming pioneers like Axie Infinity (AXS) or Stepn (GMT) saw a massive drop in the numbers of players. Many play-to-earn game models have proven unsustainable and not a single crypto game has managed to break into the mainstream – could that change in 2023?
According to investment bank Drake Star Partners, investors invested more than $3.4 billion in NFT and blockchain game companies in 2022. Crypto game companies are thus responsible for around 40% of all investments. in private equity in the gaming sector.
It is therefore within the realm of possibility that these investments bear fruit in the coming year. And with several triple-A crypto games like Illuvium (ILV), Guild of Guardians (GOG), and Ember Sword (EMBER) due to release soon, there’s a good chance that one of these games will manage to attract more players. . to get excited about yourself.
3. Layer 2 of Ethereum
Due to the bear market, Ethereum transaction costs have fallen sharply. Currently, a simple ETH transaction costs less than $1, while a token swap on Uniswap costs around $3. Although transactions on the Ethereum mainchain are currently significantly cheaper than a year ago, they are still too high for most users and applications.
The situation is different with Ethereum scaling solutions such as Optimism, ImmutableX, StarkWare, Polygon or Arbitrum. Transactions there are usually only pennies and their ecosystem has grown beautifully in the last 12 months alone. According to this Patrick Dynamo, Harvard graduate and DeFi expert the two scaling solutions Arbitrum and Optimism now process the same number of transactions as the Ethereum mainchain alone – and the trend is on the rise.
In 2023, the number of transactions settling ETH-L2 could continue to increase. With the Ethereum Shanghai upgrade and the EIP-4844 it contains, proto-thanksharding is due to be introduced in the first or second quarter of the new year. The upgrade will further scale the Ethereum mainchain and further reduce transaction fees on Layer 2 networks.
It is therefore likely that layer 2 networks will continue to grow in importance in the crypto year 2023, as a multitude of new projects and users could move there. In particular, decentralized applications in the social media, gaming, and metaverse industries that prioritize fast and cheap transactions will keep a close eye on Layer 2s and may deploy their products there.
Many are unhappy with the companies behind social media platforms. Elon Musk’s Twitter in particular currently illustrates this trend very well. Users are turning their back on the platform and switching to Web 3 social media platforms like Lens or Minds – but what exactly are decentralized social media platforms?
Decentralized social networks use blockchain networks to create censorship-resistant platforms that prioritize the free expression of opinions and the protection of user data. They therefore differ from traditional social media platforms primarily in that they operate on separate servers or nodes, as opposed to centralized servers over which a single entity has control.
They also often use NFTs and crypto tokens as innovative methods for content monetization and reputation systems.
On decentralized social media platforms such as Lens or Minds, users are given an on-chain reputation, which can indicate, among other things, how trustworthy a user is or whether there is a real person or a bot behind a specific account.
It is true that decentralized social media platforms are still tiny compared to Instagram, WhatsApp and Co. Nevertheless, the gradual scaling of blockchain networks such as Ethereum, coupled with increasingly dissatisfied users of the platforms conventional social media, could mean decentralized social media in the year 2023 grows.
5. Cosmos ecosystem
Another area of the crypto industry that could grow in the new year is the Cosmos ecosystem. Compared to smart contract platforms like Ethereum or Cardano, Cosmos is not a single blockchain but a network of interconnected blockchain networks.
The big advantage of this ecosystem is that each blockchain or decentralized application in the Cosmos ecosystem can be designed individually and tokens can be exchanged between the different protocols without often insecure blockchain bridges.
Why is Cosmos interesting for developers?
Cosmos is therefore primarily of interest to developers in the crypto space for two reasons. On the one hand, because developers can create more adaptable decentralized applications. For decentralized app developers, it allows them to customize their products in ways that other smart contract platforms cannot support.
On the other hand, because they can still communicate with other blockchain networks securely without having to depend on blockchain bridges. For hackers, blockchain bridges have been one of the most lucrative attack vectors in the entire crypto industry since the start of 2020, so they were able to steal US$2.5 billion from them. Given this fact, the Cosmos ecosystem offers developers benefits that other blockchain networks currently cannot.
This is why 2023 could be bullish for Cosmos (ATOM).
However, a major problem for many projects in the Cosmos ecosystem is that they themselves have to ensure that their applications are sufficiently secure and decentralized so as not to fall victim to 51% or similar attacks. This is not the case on other Layer 1 networks like Ethereum or Layer 2 scaling solutions. The downside is that Cosmos projects often have to spend a lot of money to run them- even staking validators, which they could otherwise use to develop their project.
However, this problem could be solved in 2023. With the so-called interchain security model, it could be possible for Cosmos ecosystem projects to outsource their security authority to CosmosHub (ATOM) at low cost. When exactly the upgrade will go live and whether it really works is unclear yet.
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