Trends in the DeFi and Crypto Market.
DeFi is one of today’s most exciting advancements in financial technology, providing the potential to be an alternative financial hub of excellent security, transparency, data integrity, and accessibility.
The past few years can be viewed as the first cycle for DeFi. Just like how the internet took some time to bloom and was even considered a fad before it achieved mass adoption, DeFi is expected to take multiple cycles of innovation and failure before it has the chance to become the transformative technology it envisioned to be.
This bear market is thus an excellent opportunity for the need to remove as much of the fluff and hype that came due to the starting boom of DeFi and observe which trends stay. Patiently researching during a bear market can offer more precise insights into trends for long-term DeFi investors who are serious about the space and believe it will continue developing for many years.
DeFi Trends to Observe in 2023
With so many exciting things in 2022 and prior, 2023 will be just as exciting, if not more. Here are some of the up-and-coming trends to watch.
The Revival of DEXs
Decentralized apps (dApps) are apps that are built on top of blockchains that are usually transparent, autonomous, permissionless, and non-custodial, meaning it does not hold control of users’ funds. Decentralized exchanges (DEXs) are dApps which are a crucial part of DeFi and are where most of the trading happens.
It is in contrast to centralized exchange (CEX) applications which are usually permission and custodial, meaning that the CEX holds the funds and manages them on behalf of the users.
Unfortunately, in 2022, several centralized exchanges (CEXs), including Sam Bankman Fried’s FTX, shut down. Many users became worried about the lack of transparency and control on these centralized platforms and hoped to retain their funds on CEXes.
It has resulted in a revival of DEXs, and they have huge growth potential because they are the natural alternative for users leaving centralized exchanges. Although DEXs can be more complicated and demand more care from the typical user as they have to secure their private keys, they give users total control over their funds rather than handing them over to a business.
In 2022, liquidity mechanics like GMX’s GLP token and GNS’s DAI vaults acting as the counterparty liquidity, as well as Perp v2 and Rage Trade, leveraging on top of Uniswap v3’s concentrated liquidity mechanics to improve the liquidity and trading experience.
Uniswap is still the leading DEX by TVL, and its market cap has held up better than ETH in 2022. After their license for Uniswap v3 runs out in April of 2023, Uniswap v4 could come out with even more cool features, which could be a turning point for the DEX space.
Decentralized Derivatives and Options
With the revival of DEXs comes increased interest in blockchain derivatives. Derivatives are known to be one of the largest markets in the world in terms of notional value and volume. CEXs’ derivative book is currently sitting at over $1 trillion, according to CoinGecko.
Real-World Assets on the Blockchain
By migrating real-world assets (RWA) onto the blockchain, they have helped to unlock significant sums of liquidity and utility that were otherwise impossible or difficult to do in the real world.
Even though blockchains have the potential to make things more open and liquid, tokenizing physical assets have yet to be very successful. One reason could be that there is a legacy market for the vast majority of real-world assets that, while complicated, is “good enough” and has been around for a long time.
Defi trends of 2023
Crypto’s most enormous task for the year is to stabilize the market for investors, using features in the traditional market. From regulation to insurance and new forms of assets, 2023 will explore the middle ground between decentralization and regulatory systems.
Integration of traditional finance
Decentralized finance is integrating traditional finance in new ways. Blockchain protocols now allow real-world assets, like corporate credit and mortgages, to transfer into crypto assets.
Monetizing blockchain gaming
In-game purchase is an exciting frontier for non-fungible tokens (NFTs). Finextra says over 1 billion users are already winning, trading, buying, and selling in-game assets.
Advances in DEX and AMM
Decentralized exchanges saw massive success in early 2021, with over $60 billion in trading volume. As DEXs grow, keeping these exchanges cost and time efficient is challenging. Growth has been catalyzed using automated market makers, or AMMs. At the end of 2020, Consensys reported that 93% of all DEXs use AMMs to improve market liquidity.
Governance tokens
More and more, DeFi platforms are offering their governance tokens. These operate differently from native tokens, giving voting power to the decentralized autonomous organizations (DAOs) holders. These social tokens allow investors to govern how the Defi protocol of their platform develops over time.
Crypto exchanges expanding
There are over 20,000 digital currencies currently in existence, but only a fraction are available on exchange platforms. Coinbase, the largest centralized exchange network, offers around 450 currencies to trade, and the second largest, Kraken, offers 160. One area for advancement in 2023 will be the diversification of coin offerings on large-scale exchanges.
Anticipate DeFi trends
The new year has great potential for change in the crypto world. As new users gain interest in decentralized technology and its financial products, defi projects align more with traditional finance models.
The challenge lies in making asset management safe and accessible while maintaining the blockchain network’s core values.
An excellent opportunity for DeFi investors to patiently research the current market and find what is on offer for more precise insights into long-term trends.
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