This week we continue discussing the outlook for 2023. Particularly, we focus on the application layer, covering recent developments for stablecoins, decentralized finance (DeFi) and non-fungible tokens (NFTs).
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Bitcoin fees continue to decline despite price, transactions and active addresses climbing
- Weekly fees on Ethereum reached a three month high with DeFi and NFT activity picking up in 2023
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation under regular circumstances
- Exchange flows for both Bitcoin and Ether settled down, recording their lowest outflows since the FTX debacle as CEX-related fears ease
2023 Outlook — Stablecoins, DeFi & NFTs
Stablecoins — Dollar-pegged tokens had a strong 2022. Even though the aggregate market cap of the largest four stablecoins declined slightly, their transaction volume reached new highs.
Broader Adoption — Both the number of addresses holding stablecoins and their number of transactions climbed in 2023
- A total of $7.75T in volume took place just on Ethereum in 2022, with the aggregate across chains likely around the $10T mark
- In comparison, Visa, the largest credit network, handled $14.1T in 2022
- Interestingly, we have seen USDC dominate across DeFi, surpassing USDT in transaction volumes on Ethereum, although Tether has a significantly higher market share when it comes to centralized exchange volume
Outlook — Stablecoins and the entities behind them could be poised to continue their momentum into 2023
- In late 2022, Stripe, which has nearly 20% market share of online payments, added support for USDC payments for freelancers
- Inflation, both in the developing and developed world, remain at elevated levels, which make the ability to easily hold dollars more attractive
- Companies behind stablecoins, such as Circle, are bringing record profits as the interest rate they earn from treasury bills on dollar deposits is high and expected to continue increasing in 2023
DeFi — Following FTX’s collapse, crypto has seen a renaissance towards its original ethos. As the industry relearns the “not your keys, not your crypto” adage, DeFi has emerged as an attractive alternative. Due to its non-custodial and transparent nature, the decentralized finance space is likely to perform relatively better than its centralized counterparts.
DeFi’s Moment to Shine? DeFi applications are on a prime spot to gain adoption
- Decentralized exchanges have held a relatively high market share and could continue to grow as layer 2s become cheaper and more accessible. With fees as low as 0.01% for stablecoins or 0.05% for regular tokens, could this be the year that Uniswap surpasses Coinbase?
- Lending on centralized crypto markets is nearly frozen as Genesis, BlockFi and Celsius have collapsed. Will Aave and other lending protocols be able to take advantage of this despite their overcollateralization requirements?
- Will 2023 finally be the year that derivatives on DeFi take off? The upcoming launches of dYdX Chain for perpetual swaps and Ribbon’s Aevo for options appear as promising alternatives to keep an eye out for this year
New Use-Cases — Builders are coming into the space and bring new applications into the DeFi world
- Real estate derivatives marketplace Parcl launched recently on Solana
- Treasury-bill-backed stablecoins will be launching soon from Ondo Finance, allowing holders to earn bond returns on-chain
- Many protocols are also approaching lending protocols and DEXs from new perspectives, aiming to compete with the established players
NFTs — non-fungible tokens are likely to continue expanding in 2023 — perhaps even without the people realizing they are holding them.
Volumes Down, Users Up (And Likely to Accelerate) — NFT volumes are still down 90%, but the number of transactions and holders have continue to increase
- The number of daily NFT sales recently neared its all-time high 140k transfers
- Reddit’s avatar marketplace has brought in over 4 million addresses into NFTs, all without even mentioning the word NFT in their platform
- Similarly, Starbucks upcoming Odyssey program will allow users of its loyalty programs to earn journey stamps, which are NFTs that unlock benefits
- Instagram has also been testing the capability for creators to sell NFTs directly from their platform
- Overall, these releases alone are likely to drastically increase the number of people holding NFTs, expanding the market along with it
NFTs Expansion- New and existing NFT collections are seeking to expand what is possible for crypto
- Bored Ape Yacht Club (BAYC) has been developing their metaverse, Otherside, and is counting with experienced new hires from Activision and other large companies to lead these initiatives
- The teams behind Azuki and Doodles closed off 2022 raising $30M and $54M, respectively, to build out their roadmaps
- Pudgy Penguins, one of the few collections to hit new highs on ETH terms in 2022, has been pursuing more real-world involvement through themed toys and books
- Gaming-related NFTs such as those from Axie Infinity could also re-emerge as crypto-native and tier 1 gaming developers alike experiment with the space
Ultimately, there are a myriad of use-cases for blockchain applications that could lead to broader crypto adoption in 2023. While decreasing market prices may push speculators away from volatile crypto-assets, stablecoins are an increasingly resilient alternative. Those who shy away from centralized crypto services are likely to find solace in DeFi’s non-custodial solutions, especially as use-cases within the space continue to grow. Finally, NFTs are expected to be crypto’s “trojan horse”, as household brands and platforms will introduce millions to these tokens perhaps without them even knowing what the term NFT stands for.
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