2022 was quite a year for cryptocurrencies. It saw incredible innovation and increased adoption. This progress was accompanied by some major growing pains, including major hacks and scams amid an overall bear market. Unexpected developments that took place towards the end of the year, such as the trend towards the elimination of creator royalties and the collapse of FTX, will reshape the space in the coming year, requiring users and projects to adapt to a changing landscape. Taking into account everything the space has experienced in 2022, these are the biggest predictions for cryptocurrencies in 2023.
NFT adoption is likely to continue with a focus on technology standards and utility
NFTs could be more widely adopted as technology standards and as utility-based primitives, leaving behind the highly speculative age of PFP, 10K or 1-for-1 collections.
In October 2022, many major marketplaces, such as LooksRare and MagicEden, began making creator royalties optional or eliminating them altogether, meaning creators would lose out on an important source of revenue. Since royalties are a big part of what attracts and keeps creators on Web3, this may threaten the use case for NFTs as art. New technology standards are likely to emerge to solve the royalty problem, but in the meantime, NFT technology will trickle down to other industries.
Even before the royalty debate, as the market became saturated with countless collections that lacked clear utility, it became clear that the use cases for NFT primitives would expand. While 2022 saw NFTs more widely used in entertainment, gaming, and sports, 2023 is likely to introduce NFTs to DeFi. DeFi projects already see the need for tokenized data when it comes to security, convenience, and transaction speed, and NFTs are the optimal solution. DeFi-oriented NFTs will demonstrate that the foundational technology transports all types of data securely, further expanding its use cases to include medical records, legal records, and copyright documents.
Another place NFTs found a home last year was with major brands. In 2023, more traditional brands and creators can jump on Web3, looking for tangible utility for their NFTs. By supporting NFTs with physical products, brands can diversify and scale their products to offer unique benefits to customers, which can help them reach new audiences, increase their overall presence, and drive revenue.
NFTs will continue to power the metaverse, a strategic entry point for luxury brands
The metaverse has proven to be a strategic avenue for brands to further showcase their newest collections, increase community engagement, and launch virtual events like Nike’s .Swoosh or Burberry’s Minecraft collaboration.
Metaverse-based activations allow users to experience the runway virtually or have their characters wear new parts within a game. Community experiences empower fan collaboration on next-generation virtual creations, increasing loyalty and retention. Luxury brands can become more accessible and extend their reach to audiences globally by hosting shows in the metaverse, rather than a single physical event.
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Government guidance and regulation is more likely to occur as technology advances
The SEC has already launched investigations into Ripple and Yuga Labs over possible securities violations. Major companies in the space will continue to come under SEC scrutiny this year as the technology becomes more widely used by companies and individuals. The Terra/Luna debacle and FTX insolvency are two major events that have added regulatory pressure to lawmakers, further ensuring that regulation remains a priority in 2023.
This year, regulators are likely to evaluate the merits of algorithmic stablecoins and the asset backs of reserve-based stablecoins like USDT. The regulation will seek to determine whether these controversial assets are sufficiently positioned, either through technology or assets, to justify their trading as dollar-pegged.
Increased commercial and institutional adoption of DeFi
DeFi could be more widely adopted by retail investors in 2023, once they have regained confidence in the crypto space. While the FTX debacle has left many investors and companies wary and skeptical of crypto in general, it only further proves the mainstream crypto narrative that the space needs more decentralization. This could drive investors away from centralized exchanges and lenders towards DeFi alternatives.
Once these hurdles have been cleared, retail investors may find more tangible use cases through lending and lending against on-chain collateral or engaging in trustless smart contract-powered derivatives activities. Institutions could also enter the DeFi space, providing lending and market making initiatives while selecting the safest partners to do so.
The combination of increased retail and institutional participation in DeFi will result in tight network effects. Higher retail usage will increase the volume of assets, leading to more opportunities for institutions to provide liquidity, which in turn will make it easier for retail investors to onboard without execution risk, ultimately increasing retail usage and creating a positive cycle.
Along with new trends come challenges.
Security and reliability are keys to success in NFT and Web3. To combat malicious actors, hackers, and fraudsters, businesses must prioritize robust infrastructure and hardened security. Success and growth are backed by trust. If consumer confidence declines due to hacks and scams, projects and companies may face rocky roads.
While security is paramount, consumer education is vital for any project or company looking for business strategies in Web3 and NFT. With the NFT conversations currently mired in doubt and fear, projects need to invest more in educational tools for their communities through blogging or hosting webinars and Twitter Spaces to mitigate this uncertainty.
Finally, even though regulation in Web3 presents many challenges for the ecosystem, the 2023 regulatory approach 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 clients, for companies to take custody and accept crypto payment, and for brands to participate in Web3 initiatives. Regulatory tailwinds will serve as a significant catalyst for continued growth in this nascent industry.
Anthony Georgiades is the co-founder of the Pastel Network.
This article was published via the Cointelegraph Innovation Circle, a vetted organization of top executives and industry experts in blockchain technology who are building the future through the power of connections, collaboration, and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.
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