Why 2023 could be the year of the crypto underdog

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The 2023 Super Bowl is just under a month away, and if you remember anything from last year’s game, the amount of multimillion-dollar crypto ads signaled the industry was on its way. to become mainstream. Suffice it to say that the rest of the year would not be so prosperous. While it seems unlikely that we’ll see more flashy, celebrity-filled ads for crypto platforms on our screens in February, that doesn’t mean crypto is a dead industry.

Everyone likes to root for the underdog, but there are a few variables that investors, institutions, and entrepreneurs need to consider before moving full speed ahead on a particular blockchain niche. Blockchain is in a much different position than it was a year ago, and external factors, such as incoming regulation and broader market trends, play a significant role in which projects will get or deserve a substantial support.

Related: 5 things to expect from crypto in 2023

A miracle is not enough

This time last year, the crypto bull run was dominated by easily public-digestible projects like big exchanges, NFTs, Web3, and some DeFi. Typically, large-scale projects were led by a scholar-looking leader, a mega-corporation with unlimited cash flow, or both.

While a personality cult can undoubtedly attract new audiences and sell them on a product, the increased attention becomes a double-edged sword once times get tough. Once the crypto winter kicked in, skeptics likely felt vindicated watching the more founder-centric dramatic falls.

But any entrepreneur knows that failed projects don’t necessarily dictate the future of an entire industry. Now is the time to get creative and turn to some interesting crypto uses that have so far slipped under the radar, perhaps for all the wrong reasons. So if everyone has seemingly learned their lesson about investing in projects based solely on charisma (or lack thereof), should we turn to projects that work in tandem with new technological developments?

The recent mainstream fascination with AI, driven by OpenAI’s near-miraculous generative AI model, ChatGPT, could be an indicator for the next steps in crypto. Some startups are already banking on its potential to transform entire industries with their poise and skilled prose. But despite the obvious progress and user-friendliness of AI, it may not be ready for significant widespread implementation in cryptography.

Related: Microsoft invests billions in OpenAI, creator of ChatGPT

Most proposals to merge AI with crypto involve accessibility and fraud prevention. AI could help create a better user experience, while machine learning’s propensity for patterns can flag unusual or risky transactions before they turn catastrophic.

So far, AI has not proven vital to industry-wide efforts to contain and manage risk. Companies like Spool, for example, are already creating comprehensive DeFi tools for individual and institutional investors to easily create diversified risk-rated portfolios for DeFi returns.

The merging of new technologies with crypto platforms should be encouraged, but it cannot be considered a safety net or a substitute for due diligence on the part of the investor. And we certainly shouldn’t add AI to products for the sake of adding AI.

Play by new rules

After a year or two of mostly superficial scrutiny, it looks like governments are getting back to being the parent in the room with crypto legislation. The next 12 months will likely build exponentially on 2022 regulatory developments from the European Union, Brazil and the United Kingdom, with the entire G20 committing to creating a year of political consensus at the end of the year.

But the question of how to regulate crypto isn’t any easier to navigate, and every country seems to have its interpretation of what that entails. Even the United States has its own competing priorities for pushing the legislation forward. Debates over how to classify digital assets with the SEC, tougher sanctions thanks to the prosecution of cybercrime, and the drive to create its own central bank digital currency have put U.S. crypto policy at an impasse.

Nonetheless, there is a clear signal that tighter regulation will play a much bigger role than it did at this time last year. Crypto purists may scoff at regulators spoiling the fun and insist that crypto can regulate itself, but the amount of scandals and crummy developments don’t work in their favor.

If individual investors or small crypto VCs are scared off by tight regulation and supervision after seeing the industry’s recklessness over the past two years, they should never have felt welcome in the first place. Transparent and decentralized blockchain projects have ways of self-governing, just look at any effective DAO. But establishing clear guidelines could potentially set back institutions and major VCs that slowed investment during the crypto winter.

Many blockchain-focused and crypto-native VCs have no problem staying close to the regulatory pulse and doing their due diligence to avoid the hype cycle. They are also out of step with the turbulent crypto market. For example, Digital Finance Group (DFG) is going full steam ahead with its unwavering support for projects it sees as Web3 pioneers. One of the most notable blockchains the company supports, Polkadot, has performed relatively well in 2022 despite market conditions, according to its annual Polkadot report.

Reputable influencers and institutions imploring investors to do their own research might be right. And with a new crypto playbook on the horizon, perhaps it’s time to internalize that lesson and reassess what the blockchain industry should aspire to.

We likely won’t see crypto as a whole return to Super Bowl status anytime soon. But a change in the projects and aspects of this industry that investors and developers champion could help rebuild its reputation and operations. Instead of retreading old territory, perhaps it’s time to look at the crypto developments pushed to the sidelines. Although they are less glamorous, they could be the key to securing a future for blockchain.

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