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.
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.