2022 has been quite a year for crypto. It saw incredible innovation and greater adoption. This progress has been accompanied by some major growing pains, including major hacks and scams amid a general bear market. The unexpected developments that took place towards the end of the year, such as a trend to scrap author royalties and the collapse of FTX, will reshape the space in the coming year, requiring users and projects to adapt to a changing landscape. Considering what space has been through in 2022, here are the biggest predictions for crypto in 2023.
NFT adoption is likely to continue, with a focus on technical standards and utility
NFTs could become more widespread as technological standards and as utility-based primitives, leaving behind the highly speculative age of PFP, collections of 10,000 or 1 by 1.
In October 2022, many major marketplaces such as LooksRare and MagicEden began making creator royalties optional or eliminated altogether, meaning creators would lose a key revenue stream. Given that royalties are a large part of what attracts and keeps creators in Web3, this may threaten the use case of NFTs as art. New technological standards are likely to emerge to solve the royalty issue, but in the meantime, NFT technology will seep into other industries.
Even before the royalty debate, when the market became saturated with countless collections with no clear benefit, it was clear that the use cases for NFT primitives would increase. While in 2022 we saw NFTs becoming more prevalent in entertainment, gaming and sports, in 2023 NFTs are likely to be introduced in DeFi. DeFi projects are already seeing the need for tokenized data when it comes to security, convenience and transaction speed – and NFTs are the optimal solution. DeFi-focused NFTs will demonstrate that the underlying technology securely transports all types of data, further expanding their use cases to include medical records, legal acts, and copyright documents.
Another place NFTs have found a home over the last year has been in big brands. In 2023, more traditional brands and developers could jump into Web3 to gain tangible value for their NFTs. By supporting NFTs with physical products, brands can diversify and expand their products to provide customers with unique benefits that can help them reach new audiences, increase their overall exposure, and increase sales.
NFTs will continue to power the Metaverse, a strategic entry point for luxury brands
The Metaverse has proven to be a strategic way for brands to further showcase their latest collections, increase community engagement and launch virtual events like Nike’s .Swoosh or Burberry’s Minecraft collaboration.
Metaverse-based activations allow users to virtually experience the runway or have their characters wear new parts within a game. The community sees power fans collaborating on next-gen virtual creations, increasing loyalty and retention. Luxury brands can make themselves more accessible and expand their reach to global audiences by hosting shows in the Metaverse rather than a single physical event.
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Government guidelines and regulations are more likely to materialize as technology advances
The SEC has already opened investigations into Ripple and Yuga Labs for possible securities breaches. Big companies in this space will continue to come under SEC scrutiny this year as the technology becomes more widely adopted by companies and individuals. The Terra/Luna debacle and the FTX bankruptcy are two major events that have increased the regulatory pressure on lawmakers and further ensure regulation remains at the forefront in 2023.
This year, regulators are likely to evaluate the merits of algorithmic stablecoins and the wealth preservation of reserve-based stablecoins like USDT. Regulation will seek to determine whether these controversial assets are sufficiently positioned — either via technology or assets — to justify marketing them as dollar-pegged.
Greater commercial and institutional adoption of DeFi
DeFi could be more widely adopted by retail investors in 2023 once they regain confidence in the crypto space. While the FTX debacle has left many investors and companies overall timid and skeptical about crypto, it only further proves crypto’s overarching narrative that the space needs more decentralization. This could lead investors away from centralized exchanges and lenders and towards DeFi alternatives.
Once these hurdles are overcome, retail investors can find more concrete use cases by lending and borrowing against on-chain collateral or engaging in derivative activities based on trusted smart contracts. Institutions could also enter the DeFi space, offering lending and market-making initiatives while choosing the safest partners.
The combination of increased retail and institutional participation in DeFi will result in tight network effects. Greater retail usage will increase the volume of assets, which will lead to more opportunities for institutions to provide liquidity, which in turn will facilitate retail investor entry without execution risks, ultimately increasing retail usage and creating a virtuous cycle.
With new trends come challenges
Security and reliability are keys to success in NFTs and Web3. To combat malicious actors, hackers, and fraudsters, organizations must prioritize robust infrastructure and hardened security. Success and growth are based on trust. When consumer confidence dwindles due to hacks and scams, projects and businesses may face hard roads.
While security is paramount, consumer education is critical for any project or company pursuing business strategies in Web3 and NFTs. With doubts and fears currently dominating the conversations about NFTs, projects need to invest more in educational tools for their communities by publishing blogs or hosting webinars and Twitter Spaces to mitigate this uncertainty.
Finally, while regulation on the Web3 brings many challenges to the ecosystem, the regulatory focus of 2023 could actually positively resolve much of the “grey area” that exists today for digital assets like Bitcoin and Ethereum. It could make it easier for institutions to onboard their customers, businesses to hold cryptos and accept payments, and brands to get involved in Web3 initiatives. The regulatory tailwind will serve as a significant catalyst for further growth in this emerging industry.
Anthony Georgiades is co-founder of Pastel Network.
This article was published by the Cointelegraph Innovation Circle, a vetted organization of blockchain technology industry executives and experts who are shaping the future through the power of connection, collaboration, and thought leadership. The opinions expressed do not necessarily reflect those of Cointelegraph.
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