DeFi Predictions 2023: How Will Crypto and Blockchain Evolve?

Undoubtedly, 2022 was a pretty depressing year for the world of crypto and DeFi in general. Fraud, hacks, carpet pulling and other illegal activities have significantly eroded industry confidence. Market sentiment for cryptocurrencies has been significantly low compared to the previous two years. This has also hampered the progressions made by blockchain and DeFi protocols.

As we enter the new year, it is important to look at some of the key projections for the industry in 2023 and understand how the market may evolve or transform in the new year.

The positive from 2022

It hasn’t all been doom and gloom in 2022. We’ve seen blockchain adoption grow across all industries. Specifically, the banking industry has increased its blockchain market share to 29.7% compared to 11% the previous year. Last month, one of the largest organizations in the banking and finance industry, JPMorgan conducted its first blockchain transaction using the Polygon network. Citigroup has also increased its blockchain investment this year.

The adjusted TVL (total value locked) on DeFi protocols has also increased from $60 billion to $142 billion this year. In 2021, Ethereum was the largest blockchain network for all existing and new DeFi projects. Although Ethereum’s dominance remained in 2022, the market share of other competing blockchains such as Solana and Polygon have also increased this year.

Top DeFi and Crypto Predictions for 2023

Regulation is inevitable

From Celcius to FTX exchanges, the current industry has been rattled with scams and hacks this year. In the recent FTX collapse alone, more than $1 billion in user funds have been lost. Major crypto investment platforms such as BlockFi have also filed for bankruptcy due to a lack of funds available to accommodate user withdrawals.

The continued success of these events in 2023 has inevitably raised concerns for more regulation in the industry. Binance CEO CZ has already issued a statement supporting the need for more regulatory oversight for centralized exchanges. US President Joe Biden, along with other G20 countries, is pushing for a comprehensive regulatory framework for digital assets and transactions. These movements and current market scenarios suggest that we will see much more regulation applied to crypto and DeFi marketing in 2023.

Decentralized exchanges (DEX) will gain traction

The continuous failure of centralized exchanges this year has shown that transparency and control are the most critical aspects of this industry. Many users have learned the hard way that trusting centralized exchanges with their money is not a good idea.

Although DEXs are often complex and require more due diligence from the average user, such platforms offer complete transparency and control. Users do not have to hand over their money to a company, rather they have full control over how their assets are stored or invested in the platform. Therefore, 2023 could potentially be a breakout year for DEXs, and we may also see more innovative features entering DEX applications and platforms.

Stablecoins will be investigated

After the monumental failure of Terra LUNA and its UST stablecoin, the market has become extremely wary of stablecoins that do not have adequate auditing mechanisms in place to validate their assets and maintain the dollar peg. Several tier-2 stablecoins have already failed in 2022 due to lack of user interaction and adoption. Such scrutiny will potentially continue into 2023, as the entry of new stablecoins into the market is likely to remain low. The market will potentially still be dominated by USDC and Tether.

Ethereum Will Surpass Bitcoin?

In terms of growth and scalability, ETH is on track to surpass BTC in 2023. In September of this year, the long-awaited Ethereum merger finally took place, changing the network’s consensus model to Proof-of-Stake (PoS) from power-hungry mining-based Proof -of-Work (PoW) framework. This has not only made the popular blockchain more sustainable, but it has also significantly reduced the ETH token supply.

This will reflect positively on ETH in 2023, and the wider adaptability of the network will potentially pave the way for Ethereum to overtake Bitcoin.

Overall, 2023 is set to be an important year for DeFi, blockchain and cryptocurrencies. As market sentiment continues to be low, society will be hoping for a lift heading into the new year.