VC Pantera Firm’s 2023 Crypto Predictions Say The Future Is DeFi

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Crypto-focused venture capital firm Pantera Capital, which has approximately $3.8 billion in assets under management, has summarized its predictions for 2023, and the future is decentralized finance (DeFi).

The bear market that emerged early last year was compounded by a wave of headline-grabbing exploits and bankruptcies, including the implosion of multi-billion dollar centralized exchange FTX and the filing last week by crypto lender Genesis, a sister company to CoinDesks.

Pantera has managed blockchain funds for three previous crypto winters, Pantera CEO and co-chief investment officer Dan Morehead noted in the front of his letter to investors, titled The Year Ahead.

Everyone has experienced so-called catastrophic events. For example, when Mt. Gox fell, it had a much larger 85% market share than FTX today, Morehead continued. The blockchain will change the world. It will certainly survive these problems.

Crypto Market Outlook 2023

Looking ahead, I think it seems pretty obvious that the historical arc of global financial rails will eventually evolve into blockchain-based systems using smart contracts. The real questions are how to get there and what needs to happen to get there, Pantera co-chief investment officer Joey Krug wrote in a section of the letter.

He noted that scalability systems have brought transaction fees on the Ethereum blockchain down to less than 10 cents. He expects future Ethereum upgrades and protocol extensions for Layer 2 scalability systems to further lower transaction fees to around 1 cent, which would help decentralized exchanges compete with larger centralized exchanges.

Krug sees the end state of crypto as a world where the average person will have apps on their phone that give them access to DeFi, where they can engage in financial transactions without banks/brokers, with lower fees, global liquidity and 24/7 operational markets. However, Krug wrote, reaching this end state requires solutions to a number of current issues that fall into two categories: increasing liquidity in DeFi and making DeFi easier to use, especially for those new to crypto.

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Regarding liquidity, Krug said it was important to get more institutional capital into DeFi in the form of more federally or state-regulated custodians that directly support the use of Ethereum. . Another method would be to aggregate liquidity across multiple chains, layer 2s, and liquidity pools across those chains, which would allow apps to essentially seek out the best price and execution after users submit a trade. Such aggregation, however, would require building secure cross-chain bridges, which might seem like a lofty goal after the wave of such bridge exploits in 2022.

Regarding usability issues in DeFi, Krug said they have improved, but there is still room for improvement with crypto wallets in particular. Simplified user experience, or UX, design, elimination of trading fees that must be paid in ether (ETH) regardless of the asset being traded, and better fiat on-ramps are all listed as significant improvements.

Pantera Capital General Partner Paul Veradittakit outlined his 2023 forecast in a CoinDesk post in December and predicted increased investment in DeFi, Ethereum scalability technology, and non-fungible tokens (NFTs).

Read more: Crypto funding plummeted in 2022, but VC chief sees areas of opportunity for 2023

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