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| By Beth Canova |
After a turbulent year, the markets were relatively quiet over the holidays, allowing 2022 to end on a somewhat positive note.
That’s because while prices may be down, crypto has never been fundamentally stronger.
That’s primarily due to the development, innovation and spike in adoption we saw in the decentralized finance sector, giving us a glimpse into the future of finance.
Just look at the significant evolution decentralized exchanges have experienced since their primitive start in 2014.
Back then, using decentralized platforms for exchanging tokens was quite complicated, inefficient and might even have been ahead of its time.
This perception toward DEXes changed in 2018 with the Automated Market Making genius of Uniswap (UNI, Tech/Adoption Grade “B”), which would later set the standard for most DEXes that exist today. In fact, Uniswap still stands out as a key innovator among DEXes.
From just $860 million in trade volume in April 2020, total DEX volume skyrocketed and reached an all-time high of $200+ billion in trade volume in about a year.
Today, Uniswap alone manages volumes of over $3 billion on quiet days!
And this growth will become more and more evident once the bull market returns.
Of course, the effects of the ongoing bear market are hard, causing a drop in trading volumes on DEXes across the board since the peaks.
Still, the combined daily trade volume of the top 100 DEXes show an impressive growth over the last two to three years.
And they’ve also revealed an important strength: their smart contracts.
When centralized finance crypto giants were falling one by one in 2022 due to contagion and poor risk management practices — starting with Celsius Network (CEL, Tech/Adoption Grade “C”) and ending with FTX — the world of DeFi remained mostly untouched.
That’s because even as CeFi platforms were falling and defaulting on their debts, DeFi platforms had no problem getting paid.
That’s the magic of having strong smart contracts on a network that can’t be censored. The code automatically ensures funds locked in a contract go where it’s supposed to.
This means that DeFi always gets paid first. There’s no possibility of nepotism, misuse of funds or some manager getting impressed with someone’s wealth and loaning money on empty promises without proper risk management practices.
DeFi wins due to pure automated code and thousands of liquidity providers behind it from all over the world who earn on its use.
And while DEXes continue to represent a steep learning curve for beginners and face regulatory challenges, they’re making huge progress and will continue improving in the future.
Hence, DeFi platforms are thriving. Some are even evolving into perpetual trading venues and insurance platforms, presenting a serious challenge to traditional ways of doing finance.
These platforms are challenging commercial banks, central banks, insurance companies, the way the stocks and bonds are issued and so on.
And traditional finance is aware the gauntlet has been thrown.
That’s why we have seen some of these web2 financial services trying to break into web3 in 2022, as their tactic of last resort.
For example, Visa (V) has just started exploring web3 to boost its user experience. It wants to enhance payment flexibility using web3, especially when it comes to autopayments.
And the push goes beyond DeFi.
A year ago, we saw Meta Platforms (META) CEO Mark Zuckerberg hastily announcing his plans of evolving the world’s largest social network into a metaverse after decentralized versions of virtual worlds, such as Polkacity (POLC, Unrated), started popping up.
Meanwhile, 2022’s non-fungible token boom also didn’t go unnoticed, and growth is likely to continue.
Instagram has just started rolling out its support for NFTs on the Ethereum (ETH, Tech/Adoption Grade “B”) and Polygon (MATIC, Tech/Adoption Grade “B+”) networks. The technology of NFTs allows users to sell and buy art displayed on the platform with a way to make the provenance and ownership of these digital assets work.
And that’s not all. Various other web3 sectors are starting to attract web2 crew that want to modernize their businesses.
For example, traditional gaming companies started jumping like crazy into the play-to-earn gaming space this year.
That’s why gaming guilds, such as Yield Guild Games (YGG, Unrated), stand to gain the most from the future boom.
But innovation isn’t limited to the web3 space.
That’s why we’ve seen crypto money being invested in the purchase of web2 social network Twitter, as infrastructure for serious future marketing efforts is being prepared … which is going to positively impact the entire crypto space.
Meanwhile, underlying infrastructure continues to evolve. The push for interchain operability is shaping up to be a big part of the conversation in crypto.
Notable projects like Cosmos’ (ATOM, Tech/Adoption Grade “C+”) Internet of Blockchains — which offers flexibility and security for developers — and THORChain (RUNE, Tech/Adoption Grade “C+”), which is working to build a network that connects all these systems in a truly permissionless system, have already made significant headway.
Crypto has always been a volatile, risky and unpredictable space, with its substantial share of ups and downs.
That’s fundamentally unlikely to change in 2023.
But through it all, the crypto community has remained determined and driven by a passion for decentralization and the belief in the innovative power of blockchain technology to bring freedom to their communities.
And that determination is still running at full steam. We expect the developments in DeFi, the metaverse, NFTs, web3 and interchain operability to continue this year.
So, trust your instincts, focus on the intrinsic value of projects and let that guide your investment decisions.
And, of course, check here daily for the latest market moves and development breakdowns.
We look forward to another exciting year with you!
Best,
Beth Canova
