DECIL Insights — Issue #3, crypto 2022, market outlook, HOT DeFi verticles, blockchain regulation, and more (Dec. 2022)
Crypto 2022 in review and 2023 market outlook, what's hot in DeFi, regulation, crypto events, learning resources, and SustainaDAO Non-Fungible Talk.
We just ended one of the wildest years for cryptocurrency. A brutally bearish market, financially catastrophic meltdowns, a high-profile indictment, and macro ugliness and uncertainty have all been witnessed recently. Last year’s damage was caused by old-school issues rather than new crypto ones: fraud, abuse of leverage, embezzlement, and co-mingling of related entities. None of this is new; it has simply taken the form of an emerging asset class, emphasizing the necessity for decentralized mechanisms that keep out fraudsters. Additionally, we have observed a great deal of constructive experimentation, usage with product-market fit, powerful corporate migration, and ongoing adoption.
Crypto Market
There’s a lot of speculation now as to whether Genesis may be the next crypto behemoth to file for bankruptcy. Kraken has announced it is laying off roughly 30% of its workforce, 1,100 employees, citing a bearish outlook on ’23. Circle appears to be weathering the storm quite well and just shared high-level Q3 results of $274M in revenue, $43M in Net income, and ~$400M on balance. There will be many companies and projects that don’t make it out of this cycle. However, we expect the best projects to emerge from this market into category leaders.
One of the most dependable hedges against quantitative easing in the world is still unquestionably BTC. Although this year’s increased interest rates and quantitative tightening caused capital flows to exit the asset class, future money printing may be significant to service the US government’s growing debt (by 2026, interest payments may surpass defense spending). Assuming institutional acceptance of the asset class does not decrease, the money sponge effect from bitcoin and its derivative tokens might be significant. Despite everything, the market is still looking upbeat following the bankruptcy of FTX.
Fidelity announced they were bringing fee-free crypto trading to their $4.5 trillion platform. Reddit recently had what we would consider being a successful launch of its NFT profile picture product. Nearly 3 million users created wallets, called “Vaults,” and claimed or purchased NFTs, referred to only as “Digital Collectibles” or “Avatars.” Trump released a collection of 45,000 NFTs priced at $99, and according to several news outlets, they have sold out. Man Group Plc, one of the largest public hedge funds in the world, is now marketing a new crypto hedge fund despite the chaos.
Decentralized Finance
Decentralized finance has continued to work largely unencumbered. While centralized lenders like Celsius and BlockFi faltered and then failed, decentralized lenders like Aave and Compound carried on business as usual. Both Celsius and FTX were forced to pay down their positions in these protocols before they paid the centralized creditors, specifically because the smart contracts pay no mind to reputation and would have programmatically liquidated their collateral. While recent events may push back adoption timelines, the robustness of open and transparent financial systems have us continuing to believe that the future of finance will likely look like a series of centralized front ends running on decentralized global backend infrastructure.
Sentiment towards unregulated centralized exchanges has plummeted. 2022 served as a masterclass on why decentralization is important. Centralized exchanges custody of customers’ cryptocurrencies and provide opportunities for unethical practices, thus proving the increased need for DeFi. DeFi would not have allowed FTX to conceal its insolvency because open immutable blockchains remove opacity and the potential theft of customer funds in the first place because DeFi requires self-custody of assets. A massive influx of users has pulled money from crypto exchanges and turned to noncustodial alternatives to trade funds. Uniswap flipped Coinbase to become the second-largest platform for trading Ethereum after Binance.
Some popular verticals within DeFi are:
Self-custody solutions: The importance of self-custody wallets is one salient lesson that will manage to climb out of the crypto chaos of ’22. Visa just joined the self-custody wallet news-making with a paper published on Monday about a collaboration with Ethereum wallets for autopay. Telegram’s founder and CEO Pavel Durov also announced that the company would begin building “non-custodial wallets” and “decentralized exchanges” that would let millions of users safely trade their crypto, saying “This is the way we can fix the wrongs caused by excessive centralization, which let down hundreds of thousands of cryptocurrency users.”
Simple asset management: Increasingly, we live in a multi-chain world where the demand to have diverse capabilities all riding on top of one asset management platform is likely to grow.
Mobile DeFi experiences: There is exciting growth in networks utilizing crypto-economic incentives to fund the global expansion of physical infrastructure networks. Among this class of use cases, Helium seems to be the easiest to digest. Their recent deal to partner with T-Mobile to launch a 5G wireless network is a valuable example of real products interacting with blockchain networks.
Improved non-custodial on-ramp and off-ramp solutions: Stripe announced a fiat-to-crypto onramp. PayPal also announced a plan for Metamask integration and is talking a big game beyond commerce to ‘web3 experiences’ in the wallet. People have been talking about using crypto payment rails for commerce since the advent of Bitcoin in 2009. For most of the last 13 years, virtually all businesses that were focused on crypto payments have failed. With the rise of elegant key management solutions such as Web3 Auth, the maturation of high-performance blockchains, the proliferation of stablecoins, and general awareness of crypto around the world, It seems the market is finally ready for crypto payments.
Regulation
The FTX situation has also made it abundantly clear that regulation is needed and that change will occur. Robust regulation is appropriate for centralized financial service providers. If the US had more explicit regulatory frameworks, perhaps exchanges like FTX would be onshore rather than offshore. Regulatory clarity would help bolster and strengthen the space.
The regulation of decentralized systems is harder and not as easily defined. The vulnerability is that whatever language is proposed may seek to limit DeFi and generally the realm of the decentralized projects more so than it is effective at keeping centralized actors in line. The reality is that the systemic collapses of the past year have stemmed from centralized organizations overleveraging or misleading the public. Hopefully, the sympathetic ears on Capitol Hill are familiar with the differences between Uniswap and FTX, which would prevent an overcorrection from forcing innovation even more offshore.
In recent news, the CFTC, in a court filing, reaffirmed ETH’s status as a commodity. Elizabeth Warren has introduced a bill taking quite a hostile stance toward crypto. It’s another wave in the regulatory talk on our way to something eventually cresting into more legislation. Brazil’s Congress passed a bill that would regulate the use of cryptocurrency as a means of payment throughout the country. This could be a boost of adoption for South America. It falls short of deeming it legal tender, but it does provide a framework to work with and requires corporate clients to separate user funds to avoid an FTX-like situation.
2023 Major Crypto Events
ETHDenver
February 24 — March 5, Denver, US
https://www.ethdenver.com/
ETHDenver is a Community-Owned Innovation Festival. With the genesis of SporkDAO in June of 2021, ETHDenver became the first event DAO in the world. All event proceeds are used to #BUIDL value for the community and to realize the decentralized future.
NFT LA
March 20–23, Los Angeles, CA
https://www.nftla.live
NFT LA is an independently organized experience put on by the Edge of NFT podcast, a sibling brand under The Edge Of Company — a multifaceted tech, media, and events company that’s committed to empowering, building, and co-creating the Web3 and NFT community.
Consensus
April 26–28 • Austin, Texas
https://consensus.coindesk.com/
Consensus is the world’s largest, longest-running, and most influential gathering that brings together all sides of the cryptocurrency, blockchain, and Web3 community. Since its inception in 2015, Consensus has served as grounds for calibration, collaboration, and resolution for thousands of professionals and builders from around the world, forging the future of finance and the new digital economy.
Learning Resources
Masterclass
https://www.masterclass.com/classes/crypto-and-the-blockchain
MasterClass is the streaming platform that makes it possible for anyone to watch or listen to hundreds of video lessons taught by the world’s best. Whether it be in business and leadership, photography, cooking, writing, acting, music, sports, and more, MasterClass delivers a world-class online learning experience. It recently offered a class on crypto. You can learn the basics — or dive deep into the issues — with noted experts and skeptics.
Learnweb3
LearnWeb3 is an education platform to onboard developers to Web3. It uses Soulbound Tokens (SBTs) to record study progress so employers can filter applications based on SBTs owned by developers. With over 50,000 active students taking the courses, LearnWeb3 is building the largest web3 developer community, first and foremost, through free, holistic, high-quality developer education.
Our recent podcast
Jason Li, the Co-Founder of MPCVault, talks about DeFi security and new-generation security products. Listen to this episode.
Felix Hartmann, the Managing Partner of Hartmann Capital, talks about effective Metaverse and Crypto investment during market turmoil. Listen to this episode.
Stevie Cline and Ian Kar, Co-GPs of Vol1 Ventures, talk about blockchain legal compliance and financial inclusivity. Listen to this episode.