2022 was quite the year for crypto. It saw incredible innovation and greater adoption. This progress was accompanied by some major growing pains, including major hacks and scams amid an overall bear market. The unexpected developments that took place towards the year’s end, such as a trend towards the removal of creator royalties and FTX’s collapse, will reshape the space in the year to come, requiring users and projects to adapt to a changing landscape. Considering all that the space has lived through in 2022, here are the biggest predictions for crypto in 2023.
NFT adoption is likely to continue with a focus on tech standards and utility
NFTs could become more widely adopted as technological standards and as utility-based primitives, leaving behind the highly speculative age of the PFP, collections of 10K or 1 of 1s.
In October 2022, many major marketplaces such as LooksRare and MagicEden began to make creator royalties optional or remove them entirely, meaning creators would lose a major source of revenue. Given royalties are a large part of what draws and keeps creators in Web3, this can threaten the use case of NFTs as art. New technological standards are likely to arise to solve the problem of royalties, but in the meantime, NFT technology will filter into other industries.
Even prior to the royalty debate, as the market became saturated with countless collections lacking clear utility, it became clear that the use cases for NFT primitives would expand. Where in 2022 we saw NFTs become more widely used in entertainment, gaming and sports, 2023 is likely to usher NFTs into DeFi. DeFi projects already see the need for tokenized data when it comes to security, convenience and transaction speed — and NFTs are the optimal solution. DeFi-oriented NFTs will demonstrate that the fundamental technology carries all types of data securely, further extending its use cases to include medical records, legal records and copyright documents.
Another place NFTs found a home last year was with major brands. In 2023, more traditional brands and creators may enter Web3, pursuing tangible utility for their NFTs. By backing NFTs with physical products, brands can diversify and augment their products to offer unique perks to customers, which can help them reach new audiences, increase their overall presence and drive revenue.
NFTs will continue to power the metaverse, a strategic point of entry for luxury brands
The metaverse has proven to be a strategic avenue for brands to further showcase their newest collections, increase community engagement and launch virtual events such as Nike’s .Swoosh or Burberry’s Minecraft collaboration.
Metaverse-based activations enable users to experience the runway virtually or have their characters wear new pieces within a game. Community experiences power fan collaboration on next-gen virtual creations, increasing loyalty and retention. Luxury brands can make themselves more accessible and extend their reach to audiences globally by hosting shows in the metaverse, rather than at a single physical event.
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Government guidance and regulation are more likely to occur as the tech advances
The SEC has already launched probes into Ripple and Yuga Labs over potential securities violations. Major companies in the space will continue to fall under the scrutiny of the SEC this year as the technology becomes more widely utilized by businesses and individuals. The Terra/Luna debacle and FTX insolvency are two major events that have added regulatory pressure to lawmakers, further ensuring regulation will remain top of mind in 2023.
This year, regulators are likely to assess the merits of algorithmic stablecoins and the asset backings of reserve-based stablecoins like USDT. Regulation will seek to determine whether these controversial assets are positioned enough — either via technology or assets — to justify being marketed as tied to the dollar.
Greater commercial and institutional adoption of DeFi
DeFi could become more widely adopted by retail investors in 2023, once they have regained confidence in the crypto space. While the FTX debacle has left many investors and businesses gunshy and skeptical of crypto overall, it only further proves crypto’s overarching narrative that the space needs greater decentralization. This could usher investors away from centralized exchanges and lenders towards DeFi alternatives.
Once these hurdles have been overcome, retail investors can find more tangible use cases through lending and borrowing against on-chain collateral or engaging in derivatives activities powered by trustless smart contracts. Institutions could also move into the DeFi space, providing lending and market-making initiatives while selecting the most secure partners to do so.
The combination of increased retail and institutional participation in DeFi will result in tight network effects. More retail usage will increase the volume of assets, which will lead to more opportunities for institutions to provide liquidity, in turn making it easier for retail investors to onboard without execution risks, ultimately increasing retail usage and creating a positive cycle.
Along with new trends come challenges
Security and reliability are keys to success in NFTs and Web3. To combat malicious actors, hackers and scammers, companies must prioritize robust infrastructure and hardened security. Success and growth are underpinned by trust. If consumer trust dwindles due to hacks and scams, projects and companies may find themselves facing tough roads ahead.
While security is paramount, consumer education is vital for any project or company pursuing business strategies in Web3 and NFTs. Given that the conversations around NFTs are currently mired in doubt and fear, projects must invest more in educational tools for their communities through publishing blogs or hosting webinars and Twitter Spaces to mitigate this uncertainty.
Finally, despite regulation in Web3 posing many challenges for the ecosystem, 2023’s regulatory focus could actually positively resolve much of the “gray zone” that exists today for digital assets like Bitcoin and Ethereum. It could make it easier for institutions to onboard their clients, businesses to take custody and accept payment of crypto, and for brands to engage in Web3 initiatives. The regulatory tailwinds will serve as a significant catalyst for continued growth in this nascent industry.
Anthony Georgiades is the co-founder of Pastel Network.
This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.