10 predictions for cryptocurrencies in 2023

This year has been a particularly tumultuous one for the cryptocurrency market, with many decentralized and centralized entities failing or struggling to stay afloat. We appear to be in the final stages of the bear market, with bad actors and practices being purged in a process that is both dramatic and necessary for the maturity of the entire system. Nonetheless, the Web3 technologies emerging from this crypto winter will change everything.

Web3 represents the next evolution of information exchange, with similarities to the transformation from a predominantly agricultural society to a more industrial one. It is an information fabric designed to put humans at the center and prioritize privacy. Blockchain technology will create a new way to interact with the internet and fundamentally change the way we interact with each other. As we move into the future, here are some predictions about what we can expect to see on the other side in 2023.

1) Crypto venture capital funding will continue to decline throughout the first half of 2023, but that’s not necessarily a bad thing; rather, it is normalizing to a point that is rational. Investors don’t want to catch a falling knife, so they’re waiting for things to bottom out while also weighing broader macroeconomic concerns and the risk of a global recession. At the same time, new settlement (layer 1s/2s), interoperability (layer 0/bridge), lending and trading protocols will continue to be funded to fill the gap resulting from changes resulting from recent hacks, treasury shortages, regulatory changes and the exchange collapses.

Related: The Federal Reserve’s pursuit of a “reverse wealth effect” is undermining cryptocurrencies

2) In 2023, Web3’s initial anarchist ethos that rejected the need for big brands will disappear. Participants will finally understand that when there is no external money from big brands, all you have is a token whose only value comes from user and speculator dollars. Instead, projects will embrace big brands and the advertising, marketing and sponsorship dollars they bring in so that the dream of Web3 (token representing micro-equity) can be realized by dividing significant external capital among actual users. Web2 brands – such as Nike, Starbucks and Meta – will continue to experiment in Web3, with a continued focus on non-fungible tokens (NFTs) as the preferred format, and with an emphasis on customer acquisition and engagement over monetization.

3) People will realize that the way many thought about the community in Web3 is bullshit. “Community” was often just a nice word mostly used to describe “a bunch of speculators on Discord who share a common dream of quick-rich-quick who walk away from the project once the growth carousel stops moving.” While we will continue to see exceptions to the rule – such as strong and engaged decentralized financial communities, as well as decentralized online-to-offline autonomous organizations such as LinksDAO – what we will realize in 2023 is that the entire Web3 ideal of project/community fit was often just a project /speculator fit. Thus, we cannot afford to ignore the fundamentals of effective product/market fit.

4) As Web3 app development costs decrease and user acquisition costs increase, there will be an emphasis on quality and discovery. Web3 will have its App Store and AdMob moments, which will help developers and users find each other more efficiently. L1 and wallets will initially compete for this position, but a new player will likely take over. Breakout Web3 apps in 2023 will look more like the top-grossing, most-downloaded apps in the early days of mobile: simple user experience and graphics with intuitive yet innovative engagement and monetization mechanisms, like Angry Birds in 2009.

5) The current trend towards “stability” and “sustainability” in gaming – somehow resulting from the Axie Infinity bumps – will spawn a wave of products with built-in stability but lacking the dynamic boom-and-bust nature of most part of cryptocurrency speculation. This will create a flat and quiet player experience that feels just like a copied version of existing Web2 video games. Over time, game developers will relearn that market speculation is part of the fun and try to incorporate it in healthy and responsible ways.

6) Web3 will continue to offer a solid niche, with apps that are functionally clones of existing companies, but with some basic blockchain components. These apps will carve out a niche of users who want the same traditional offering of basic products but have an affinity for Web3, similar to many early Internet companies (such as Amazon as a web bookstore) or mobile companies (such as Robinhood as a bookstore). mobile stockbroker). They will differentiate widely on marketing and experience rather than core product offering. Some of them will take lunar bets on a truly revolutionary innovation, such as Amazon.

7) To meet compliance costs and overheads, blockchain apps will increasingly rely on existing large-cap tokens to power token-related mechanisms. Ethereum will continue to delay its roadmap into 2023, but once it finally ships sharding to reduce gas tariffs, alternative L1s will see a big decline in interest.

8) Stablecoins will find more use cases outside of crypto capital markets, which will drive more widespread adoption, primarily among businesses, and innovation within Web3. Governments and private blockchain research and development will continue, with some announcing centralized public infrastructure such as central bank digital currencies or market infrastructure.

Related: The outcome of the SBF charge could determine how the IRS treats your FTX losses

9) The culture wars around cryptocurrencies will heat up in late 2023, leading up to the US election cycle. The booms and busts will continue, with accidental hacks (like Wormhole), overly aggressive risk exposure (like Terra), and outright fraud (like SafeMoon). More politicians will take strong positions on cryptocurrencies. However, the US government will continue to be indecisive about regulation, to the detriment of domestic industry. Any regulations that emerge will be a patchwork and could still allow risky projects to slip through the cracks.

10) As builders develop through the bear market, there will be a point in 2023 where new growth areas will start to emerge beyond the existing prevailing narratives such as NFT profile picture projects, money-making projects, alternative L1s , etc. The new narratives will propel the next cycle, and hopefully these new frameworks will drive real utility and consumer adoption, bringing in several hundred million new users/crypto wallets.

The uncertainties of the future also represent opportunities, and those who are able to adapt quickly will benefit if significant changes occur.

Mahesh Vellanki is the managing partner of SuperLayer and co-founder of Rally. He previously served as a principal at Redpoint Ventures after working for Citi as an investment banker.

This article is for general informational purposes only and is not intended to be and should not be relied upon as investment or legal advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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