by Lior Lamesh, CEO and Co-Founder gk8
In the cryptosphere, if 2021 was the “Roaring 20s,” 2022 felt a little too much like the subprime mortgage crisis of 2008. Between Terra, FTX, and the massive price drop of bitcoin, this past year has been more of a free fall than a roller coaster for crypto — and there’s still no end in sight.
Despite the turbulent times, the most important thing that the crypto winter gifted to the industry was the opportunity to do some serious soul searching. Amid the uncertainty, the industry will surely continue its maturation and emerge from the bear market wiser and more resilient. Here are the five biggest trends we expect to see in 2023.
#1 Value Vibes
“You know what message you’re sending to the world with these sweatpants? You’re telling the world: ‘I’ve given up. I can’t compete in normal society. I’m miserable, so I’m going to be comfortable. I can.'” – Jerry Seinfeld
Tech moguls flipped Jerry’s famous seinfeld Line on its head over the past decade, setting the new, ultra-casual precedent for what a high-status CEO should look like. What was remarkable about this change was not in the style itself. In fact, it was a lot about the message he sent to the founders and the culture he cultivated in crypto and tech.
This is all about to change in 2023, especially in crypto. There’s simply no question at this point that VCs would think twice before betting on a founder clad in an old T-shirt and shorts who plays videogames mid-meeting. This new year will bring a return of savvy, effective and serious founders who worry more about building groundbreaking products than being charismatic media darlings. VCs will come back to invest based on merit rather than vibes.
Expect to see CEOs whose products grab more headlines than them. It’s not that technical geniuses don’t exist, it’s just that they’ll need more than wit and charm to win over users and investors. This maturation process will go hand in hand with other anticipated trends, and its importance will come from restoring public confidence in an industry that has lacked it.
#2 regulation is coming
It’s no surprise that regulations are coming. It’s been a widely discussed topic within the industry for years, and this year was at the center of all the chaos. However, if so far regulators appear reluctant to act, the events of the past year leave no doubt that they will accelerate their efforts in the year ahead.
For example, market in crypto assets (MiCA) regulations, which may serve as the gold standard for further crypto regulation in Europe, may have prevented some of the events of the past year. But these were recently approved by the Council of the European Union and, if approved by regulators, are expected to go into effect only in 2024 and beyond.
More surprising is the support for regulation coming from staunch crypto advocates, including the Coinbase CEO. Brian Armstrong and Binance CEO, Zhao (CZ). Industry leaders are expected to be more vocal in advocating for regulations that aim to address problems of trust and transparency without stifling innovation.
With regulation so desperately needed, even the most staunch defenders of decentralization would agree that proof-of-reserve audits would be a good starting point.
#3 No, the FTX debacle will not keep institutions away from crypto
Industry observers have compared the collapse of SBF’s FTX to the collapse of Lehman Brothers in 2008. It may be in the sense that FTX was a monster and its collapse may have prompted effective regulation, but the comparison mostly ends there. As the world decides to end crypto as we know it, crypto founders are shrugging their shoulders and continuing to create and build their products. Institutions will continue to buy crypto. In fact, they may increase their allocation ahead of the next bull cycle – yes, there will be one.
So far, crypto-native companies have virtually monopolized the market, while more traditional financial institutions have sought, discovered, and strategized. However, over the past several years, banks and other financial institutions have slowly warmed to cryptocurrencies, realizing that they are missing out on revenue-generating opportunities. Despite the bearish market, banks are still interested in providing crypto services to their customers. Morgan Stanley and Goldman Sachs Both among top five investors in blockchain-based firms, and Goldman Sachs plans millions more investment,
Furthermore, given the lack of trust and transparency among more crypto-native institutions, retail investors may be tempted to open the arms of traditional financial institutions for these same services. expect announcements from additional supporters who used 2022 as time to build out their infrastructure or get new abilities To get a jump on the next boom market.
Over time, with more financial institutions entering the crypto space, expect to see the growth of new blockchain-based investment vehicles and a boom in retail investors diversifying their investment portfolios and IRAs with digital assets. .
#4 DeFi will reign supreme
Until now, centralized exchanges played an important role in the cryptosphere by serving as an easy entry point, but their lack of transparency and sometimes questionable activities make them hard to trust. Decentralized finance (DeFi) applications, on the other hand, have proven time and time again that decentralized, automated “smart contracts” impose terms and conditions indiscriminately on their user base.
This is already playing out in front of us, with DeFi applications and protocols, in many cases, coming out stronger and more coherent as the industry continues to suffer. As more and more financial institutions seek to provide crypto services, they will turn to DeFi to help fill that demand. And as they do, more and more retail investors will also choose DeFi because of what differentiates it from their centralized counterparts.
Still, DeFi is not without risk as 2022 has proven time and time again. DeFi protocols have been increasingly targeted by hackers and resourceful crypto criminals. The past year was filled with cyber attacks against everything from bridges to networks and wallets to platforms. To facilitate adoption, dApp programmers and DeFi platforms will need to create smart contracts that do not allow superpowers to gain access to admin keys or external oracles to make decisions. This will take decentralization out of DeFi.
Also, something that is often overlooked is that DeFi programmers often make sure they have left an admin key for themselves. In almost all smart contracts, the administrator key allows programmers to control the code after deployment. These admin keys include permissions for functionalities that no one else has, creating another ‘single point of failure’. Anyone with access to the admin key has control over the protocol.
#5 Self custody
Last but not least, self-custody is expected to play a more pronounced role in the industry. With the anticipated increase in DeFi activity, more institutional crypto holders will realize that controlling their own digital assets is the best route to secure and control their crypto. Self custody solutions empower institutions to take ownership of their private keys while giving them the flexibility to do what they want and when they want with their crypto.
The fact that actors like the Binance CEO, Paxful CEO, and our partners at ConsenSys all urge self-custody is not without comment. In fact, CZ called self-custody a ‘basic human right’:
The events of 2022 taught us all that institutional investors cannot hand over their private keys to third parties. While for retail investors, self-custody may be a fundamental human right, for institutional investors it is a fiduciary responsibility.
With the industry clearing a long overdue backlog, iconic projects and institutions will be using this period of soul searching to return to the drawing board and innovate. Like the more than decade-long tech boom following the subprime mortgage crisis of 2008-2009, the crypto industry is due for a similar rebound.
All five of these anticipated trends are at least partially generated by the brutal conditions of the current crypto winter, but will also help the industry emerge stronger. The ongoing cleanup will contribute directly to the changing trend of CEO styles. Increasing regulations and the realization that the collapse of FTX was not as impactful as initially thought would lead financial institutions to believe that they have a role to play within the industry, and that DeFi—as long as it is true DeFi—and self-custody provide tangible Solutions to enable the industry to function better, helping to improve the reputation, trust and transparency of crypto.
About the Author:
Lior Lamesh is its co-founder and CEO gk8, a company that provides both traditional and crypto-native institutions with an end-to-end platform for managing blockchain-based assets, including custody, DeFi, staking, NFTs, CBDCs, and token support. After honing his cyber skills in Israel’s elite cyber team reporting directly to the Prime Minister’s Office, Lior led the company from its inception to one of the most impressive acquisitions of 2021. Forbes to feature in its prestigious ‘Forbes 30 Under 30’ list.
The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.