As you probably already know by now, I’m a huge DeFi fan. I’ve been writing and teaching and YouTubing, and public speaking about it for a while.
Should you be bullish on DeFi? Are DeFi tokens a good investment?
In this article, I will give you my 6 DeFi predictions for 2023. What’s going to happen in the DeFi world? Is DeFi a strategic bet? What DeFi sectors will grow the most? And what layer 1s and 2s can benefit the most from it? Finally, most important, how can YOU benefit from it?
Let’s dive in!
1. DeFi adoption will accelerate
In 2021, the number of DeFi wallets grew over 100% QoQ, while the growth in 2022 slew down to 44% QoQ growth. As of Dec. 2022, only approx. 6.6 million wallets have interacted with DeFi applications. A small percentage of over 300 million crypto wallets.
Now the thing is that we are about to see an explosion in retail wallets and consequently, millions of people will be onboarded to DeFi. Reddit users created over 3 million crypto wallets to get their Reddit avatar NFT. Instagram is launching its NFT wallet, potentially reaching 2 billion users. Twitter is also rumored to integrate a crypto wallet, reaching an additional 300 million users.
More people with crypto wallets means more people will be closer to using DeFi applications.
2. Better UX/UI in DeFi = even more adoption
2022 was a battlefield for DeFi. Most DeFi applications lost over 60% of their TVL and had to innovate to maintain their users. 2022 was also a year of building, where developers kept a strong focus on improving existing DeFi dApps.
All the tier 1 DeFi apps are way easier to use than any home banking application and we have reached the point where most grandmas are able to use a DEX or a Lending Protocol.
This is going to be one of the adoption drivers in 2023.
Finally, Ethereum’s EIP-4337, account abstraction, and proto-danksharding will also improve user experience, scalability, and privacy.
DeFi applications like the DEX Uniswap are super ultra-simple to use.
3. NFTs in DeFi: unlocking multi-billion dollar liquidity
Although the NFT volume has dropped significantly since late 2021, it’s a market that continues to be a multi-billion market cap.: the top 6 NFT collections alone are worth over $2 billion.
Although still nascent, one of the fastest-growing spaces in DeFi in 2023 will be the convergence of NFTs and DeFi. DeFi applications allow users to unlock NFT liquidity and get loans collateralized with NFTs. NFTs and DeFi together can help accelerate the tokenization of real-world assets.
How easy would it be to get a loan if you can borrow against real-life collaterals?
This market didn’t slow down in 2022, and it might very well be one of the sections championing the DeFi growth in 2023. Keep an eye on projects such as NFTfi, BendDAO, Lena, JPEG’d, Arcade, X2Y2, Drops and Pine. You can also check the growth of the NFT lending sector in this dashboard created by Impossible Finance.
4. Ethereum recursiveness will snowball with DeFi
The Ethereum Merge gave Ethereum lower emissions and the EIP1559 has implemented the fee burning. This translates into a recursive effect between the Ethereum network (where 60% of all DeFi activity happens) and the DeFi applications. As you probably know by know, more activity on the Ethereum network translates into a deflationary Ethereum.
This means that:
More DeFi activity = Deflationary Ethereum = Higher Ethereum prices = more DeFi activity = Deflationary Ethereum = Higher Ethereum prices = more DeFi activity = Deflationary Ethereum = Higher Ethereum prices…
As you can see in the chart above, the more activity there’s in the Ethereum network, the lower the supply (i.e., deflationary Ethereum), which in the long term (ceteris paribus) will lead to higher ETH prices.
5. Real institutional adoption for DeFi
I have worked in a traditional bank before, and I can tell you that pretty much all the tier-1 banks are experimenting or doing some POC with DeFi. This includes conservative banks like HSBC, J.P. Morgan, DBS Bank, ING, and others.
2023 will also be a year where we will see a growing involvement of traditional finance in DeFi. The existing infrastructure (including crypto custodians) allows institutions to interact with DeFi applications while being accommodating to regulatory-compliance requirements.
Here are some headlines that show that institutions are looking into DeFi:
- Singapore Starts Two New Token Pilots With Standard Chartered, HSBC and Others — The two new pilots will focus on using DeFi in trade finance and wealth management.
- Singapore’s DBS Explains How Big Banks Can Implement DeFi, Too — Project Guardian involved Ethereum scaling system Polygon, DeFi lending platform Aave and decentralized exchange Uniswap.
- JPMorgan executes first DeFi trade on public blockchain
- DeFi More Disruptive to Banks Than Bitcoin, Says ING
- MakerDAO Opens $100M DAI Loan to Huntingdon Valley Bank
6. DeFi summer 2.0
With the DeFi drivers that I mentioned above, plus more favorable macroeconomics, will greatly boost DeFi activity. Many market participants are simply waiting to get involved in the crypto and DeFi space. If the world economy sees real signs of recovery in 2023, DeFi-related projects, tokens, and cryptos might strongly outperform all the other asset classes. This time, DeFi applications are more mature, have been battle tested, have better UX/UI, more use cases and more users.
It seems that we are brewing what’s needed for the DeFi summer 2.0!
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