Trend

Blockchain should emerge stronger amidst Disruption and caution

Blockchain technology has the potential to change the way we conduct business, manage our money, preserve data, and generally engage with the world. However, the collapse of FTX and Terra highlight shortcomings in the industry and fragility present in certain areas of the ecosystem.

As the fall of FTX unfolded in 2022, blockchain technology faced scrutiny and proved vulnerable to the opportunists who present themselves across innovation cycles.

While blockchain and crypto may face some headline reputational and regulatory risk, we believe core blockchain technologies will persevere through the noise and emerge more secure. Sophisticated investors with a deep understanding of the sector should be well-positioned to take advantage of a leaner, less noisy environment. As Max Webster of Hivemind Ventures noted, “with interest rates rising and the tide going out, it’s become increasingly obvious who’s been swimming naked.” In a year of cautious persistence, overvalued crypto and public securities were repriced, separating the winners in the field and highlighting those who will continue setting new standards.

Ethereum

The large spike in centralized exchange (CEX) outflows amid the recent high-profile blow-ups initiated a flight to quality and self-custody. Smart contracting platforms like Ethereum are open, transparent, and do not rely on traditional financial intermediaries, thereby reducing counterparty risk. Key players like Ethereum are poised to play an important role in 2023 and beyond, as they have the potential to supplant centralized corporate structures in favor of more decentralized communities.

15.8M+

ETH now staked

13%

Total supply

7M

Staked in 2022

215K+

Validators growing

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Optimism

1000%+

Growth in active developer teams in 2022

460%+

Growth in API
consumption YTD

Arbitrum

795%

Growth in active developer teams in 2022

125%

Growth in API
consumption

Uniswap

Decentralized exchanges (DEXs) such as Uniswap are exchanges that are owned and operated by their participants, rather than a centralized entity.

Uniswap’s liquid decentralized exchange allows market participants to swap tokens with smart contracts without a centralized third party running an order book. Since Uniswap is built with smart contracts, code and on-chain transactions cannot be manipulated. DEXs cannot fall victim to the type of fraud and amended logs that centralized companies are at risk of.

Stablecoins

90% of global central banks are considering the potential use of central bank digital currencies (CBDCs).

Stablecoins — crypto assets pegged to a fiat currency — are a revolutionary technology that capitalize on this trend. They are widely used for lending, trading, and payments. USDC, for example, is a stablecoin that moves at a fast speed and lives natively on the internet. USDC transcends borders and banking hours while providing security since it is backed by cash and short-dated US treasuries, making it a compelling technological advancement. As of December 1, 2022, $43 billion worth of USDC is in currency.

Nftfi

NFT lending and borrowing protocols, like NFTfi, saw strong growth in 2022.

Borrow volume peaked in the second quarter of 2022, while other platforms in the space continue to see attractive growth and increased activity levels. NFTfi plans to build other financial tools that may offer NFT ETFs and fractional NFTs prospectively.

“Using our new tokenization platform, we arranged a €100 million two-year digital bond for the European Investment Bank with two other banks, all based on a private blockchain. Typically, a bond sale like this takes about five days to settle. Ours settled in 60 seconds. By reducing settlement times, we are lowering costs for issuers, investors, and regulators. Using blockchain, we can extend these benefits more broadly in fixed-income markets and across other asset classes.”

David Solomon, Goldman Sachs

Looking ahead

Web3 and blockchain founders, investors, and proponents want a web that democratizes access and opportunity.

While still in the early stages of a transition, a remaking of business models and a shift of data ownership from companies to users will continue to change how we interact with the internet in the future. This transition is exciting and full of promise, but its complexities also raise many questions. Still, the shift is happening, as evidenced by the astounding level of developer, investor, and consumer activity. Unlike what occurred during prior downturns in the sector, Blockchain is more than a buzzword — it represents the next major technological and social shift in our society.