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Undoubtedly, 2022 was a rather depressing year for the world of crypto and DeFi in general. Scams, hacks, rug pulls and other illicit activities have crippled the industry’s trust significantly. Market sentiment for cryptocurrencies has been significantly low compared to the previous two years. This has also hampered the progressions made by blockchain and DeFi protocols.
As we are heading into the new year, it’s important to look at some of the key projections for the industry in 2023, and understand how the market might evolve or transform in the new year.
Not everything has been grim and negative in 2022. We have seen blockchain adoption grow across all industries. Specifically, the Banking industry has increased its blockchain market share to 29.7% compared to 11% in the previous year. Last month, one of the biggest organisations in the Banking and Financial Services industry, JPMorgan carried out its first blockchain transaction using the Polygon network. Citigroup has also increased their blockchain investment this year.
The adjusted TVL (total value locked) on DeFi protocols has also increased from $60 billion to $142 billion this year. In 2021, Ethereum was the major blockchain network for any existing and emerging DeFi projects. Although Ethereum’s dominance remained in 2022, the market share for other competing blockchains such as Solana and Polygon has also increased this year.
From Celcius to FTX exchange, the current industry has been rattled with scams and hacks this year. In the recent FTX collapse alone, more than $1 billion in user funds have been lost. Major crypto investment platforms such as BlockFi have also filed for bankruptcy due to the lack of funds available to accommodate user withdrawals.
The continued success of these events in 2023 has inevitably raised concerns about more regulations in the Industry. Binance CEO CZ has already provided a statement supporting the need for more regulatory supervision for centralized exchanges. US President Joe Biden, along with other G20 countries is pushing for a comprehensive regulatory framework for digital assets and transactions. These movements and current market scenarios hint that we will see a lot more regulations being applied to crypto and DeFi marketing in 2023.
The continuous failure of centralized exchanges this year has shown that transparency and control are the most critical aspects of this industry. Many users have learned the hard way that trusting centralized exchanges with their funds is not a good idea.
Although DEXs are often complex and require more due diligence from the average user, such platforms offer complete transparency and control. Users don’t need to surrender their funds to a corporation, rather they have full visibility of how their assets are being stored or invested within the platform. Therefore, 2023 can potentially be a breakout year for DEXs, and we might also see more innovative functions coming into DEX applications and platforms.
After the monumental failure of Terra LUNA and its UST stablecoin, the market has become extremely cautious about stablecoins that don’t have sufficient audit mechanisms in place to validate their assets and maintain their dollar peg. Several tier-2 stablecoins have already failed in 2022 due to the lack of user interaction and adoption. Such scrutiny will potentially continue in 2023, as the entry of new stablecoins in the market is likely to remain low. The market will potentially continue to be dominated by USDC and Tether.
In terms of growth and scalability, ETH is on track for outperforming BTC in 2023. In September this year, the long-awaited Ethereum merge finally took place, changing the network’s consensus model to Proof-of-Stake (PoS) from the power-hungry mining-based Proof-of-Work (PoW) framework. This has not only made the popular blockchain more sustainable, but it has also significantly lowered ETH token supply.
This will reflect positively on ETH in 2023, and the network’s wider adaptability will potentially pave the way for Ethereum to outperform Bitcoin.
Overall, 2023 is set to be an important year for DeFi, blockchain, and cryptocurrencies. As market sentiment continues to remain low, the community will be hoping for an uplift heading into the new year.
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