10 predictions for crypto in 2023

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This has been a particularly tumultuous year for the crypto market, with many decentralized and centralized entities failing or struggling to stay afloat. It feels like we are in the final stages of the bear market, with bad actors and practices being purged in a process that is both dramatic and necessary for the entire system to mature. Despite this, the Web3 technologies emerging from this crypto winter will change everything.

Web3 represents the next evolution of information exchange, with similarities to the transformation of a largely agricultural society into a more industrial one. It is an IT fabric designed to put people at the center and prioritize privacy. Blockchain technology will bring a new way of interacting with the internet and will fundamentally change the way we interact with each other. As we head into the future, here are some predictions for what we can expect to see on the other side, in 2023.

1) Crypto VC funding will continue to decline in the first half of 2023, but that’s not necessarily a bad thing; rather, it normalizes to a rational point. Investors don’t want to catch a falling knife, so they are waiting for things to bottom out while considering broader macroeconomic concerns and the risk of a global recession. At the same time, new settlement (Layer 1/2), interoperability (Layer 0/bridge), lending and trading protocols will continue to be funded to fill the gap resulting from changes resulting from recent hacks, cash shortages and regulatory changes. and trade collapses.

Related: The Federal Reserve’s Pursuit of an Inverted Wealth Effect Is Undermining Crypto

2) In 2023, Web3’s initial anarchist philosophy that rejected the need for big brands will disappear. Participants will finally realize that when there is no outside money from the big brands, all you have is a token whose only value comes from the dollars of users and speculators. Instead, the projects will encompass big brands and the advertising, marketing and sponsorship dollars they bring in so that the dream of Web3 (token representing micro-equity) can be realized by dividing significant outside capital among real users. . Web2 brands such as Nike, Starbucks, and Meta will continue to experiment with Web3, emphasizing non-fungible tokens (NFTs) as the preferred format, and emphasizing customer acquisition and engagement instead. than on monetization.

3) People will realize that the way many thought about community in Web3 is bullshit. Community was often just a nice word used mostly to describe a group of speculators in a Discord sharing a common dream of quick riches who abandon the project once the growth carousel stops moving. While it continues to see exceptions to the rule, such as strong and engaged decentralized finance communities, as well as online and offline decentralized autonomous organizations like LinksDAO, what is well realized in 2023 is that the whole Web3 ideal of project/community fit was often just project/speculator fit. We therefore cannot afford to ignore the fundamentals of product/market fit.

4) As Web3 application development costs go down and user acquisition costs go up, the focus will be on quality and discovery. Web3 will have its App Store and AdMob moments, which will help developers and users find each other more efficiently. L1s and portfolios will initially compete for this position, but a new player will likely take over. Breakout Web3 apps in 2023 will look more like the top-downloaded, highest-grossing apps from the early days of simple mobile user experience and graphics with intuitive yet innovative engagement and monetization mechanisms like Angry Birds in 2009.

5) The current trend of gaming stability and durability resulting in some ways from the bumps of Axie Infinity will spawn a wave of products with built-in stability but that don’t have the dynamic expanding and slowing nature of the most crypto speculation. This will create a flat and muted player experience, which resembles a copied version of existing Web2 video games. Over time, game developers will relearn that market speculation is part of the fun and try to incorporate it in a healthy and responsible way.

6) Web3 will continue to offer a strong niche, with applications that are functionally clones of existing companies, but with some core blockchain components. These applications will carve out a market niche of users who want the same traditional commodity offering but have some affinity for Web3, similar to many early Internet companies (such as Amazon as an online bookstore) or mobile phones (such as Robinhood as a mobile stock trader). They will differentiate largely on marketing and experience rather than the core product offering. A few of them will take lunar bets on a truly revolutionary innovation, à la Amazon.

7) To address compliance costs and overhead, blockchain applications will increasingly rely on existing large-cap tokens to power token-bound mechanisms. Ethereum will continue to delay its roadmap into 2023, but once it finally ships sharding to reduce gas fees, alternative L1s will see a sharp drop in interest.

8) Stablecoins will find more use cases outside of crypto capital markets, leading to more mainstream adoption primarily among businesses and innovation within Web3. Governments and private blockchain research and development will continue, with some announcing centralized public infrastructure like central bank digital currencies or market infrastructure.

Related: The Outcome of SBF Lawsuits Could Determine How the IRS Treats Your FTX Losses

9) The culture wars around crypto will heat up towards the end of 2023, leading into the US election cycle. The ups and downs will continue, with accidental hacks (like Wormhole), overly aggressive risk exposure (like Terra), and outright fraud (like SafeMoon). More politicians will take tough stances on crypto. However, the US government will continue to waver on regulation, to the detriment of the domestic industry. Any regulations that emerge will be patchwork and could still allow risky projects to slip through the cracks.

10) As builders grow in the bear market, there will be a time in 2023 when new growth areas begin to emerge beyond existing mainstream narratives like NFT profile picture projects, game projects to win, alternative L1s, etc. The new narratives will propel the next cycle and hopefully these new frameworks will lead to real utility and consumer adoption, attracting many hundreds of millions of new crypto users/wallets.

The uncertainties of the future also represent opportunities, and those who are able to adapt quickly will benefit if significant changes occur.

Mahesh Vellanki is managing partner of SuperLayer and co-founder of Rally. He previously served as a director at Redpoint Ventures after working for Citi as an investment banker.

This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are the sole authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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