The need to increase transparency and adhere to established rules will be crucial.
Original title: " M-Ventures Partner Leo Zhao's Speech on 2023 Trends and Opportunities in Web3 "
Written by: Andy Watson
Compile: Blockchain Knight
In a recent presentation, Leo Zhao, venture partner at global crypto exchange M-Ventures, spoke about the various opportunities and prospects that the crypto market may offer institutions in 2023 .
Leo explored several core issues: how blockchain Layer2 solutions and zero-knowledge proof technologies mature, Crypto's mainstream adoption status, transparency and regulatory compliance, current market review.
And he mentioned the scandals of LUNA and FTX, and believed that the current shortcomings lie in the significant decline of Crypto market value and Defi TVL and the decrease of Crypto developer activities.
At the same time, he also believes that venture capital has been investing in this industry. The merger of Ethereum and the prosperity of L2 TVL have brought value-added to the market, and NFT has also received mainstream attention.
To summarize the current state of the crypto market in 2022, he compared last year's events to the box office movie "The Good, Bad, and the Ugly."
In his assessment, the movie best sums up what happened last year. From record-high inflation, to the Fed’s continued interest rate hikes, and to the impact of rising funds rates on capital markets, it ultimately contributed to last year’s severe decline.
Typically, financial markets tend to deleverage quickly when the “big tide” of regulation recedes, as was evident last year, he noted. When the cracks start to widen, most companies find themselves swimming naked .
In the case of Terra and LUNA, the situation is even more serious. At their peak, they were valued at $40 billion and $20 billion, respectively.
They crashed and people, including exposed institutions, lost money. In FTX's case, they raised $2 billion just to take $8 billion of much-needed liquidity out of the empty Crypto market.
These quick, disruptive sequels have pierced investors' trust in the industry. Confidence can only be restored through concrete, sincere action.
With liquidity currently low , investors are proceeding with caution . Relevant data show that the total market value of Crypto has dropped from the peak of 3 trillion US dollars in 2021 to about 800 billion US dollars, a drop of 73%.
On the other hand, across all blockchains, the total value locked (TVL) via DeFi protocols shrank from $218 billion to $54 billion, a drop of 75%.
Reflecting widespread concerns, developer activity on Ethereum Virtual Machine (EVM) and non-EVM blockchains also contracted sharply.
However, this is a big exception. Deep-pocketed Crypto venture capitalists are doubling down on their bets despite the market’s free fall.
They seem to be digging up valuable items. Bear markets are the best time to invest in history .
The impact of the Ethereum merger is also evident. The merger was historic for Ethereum, and its effects are still felt today. ETH is gradually becoming the ultrasonic currency.
In the 97 days since the upgrade, only 2,000 ETH have been added to circulation, instead of 1.1 million, worth $1.2 billion, possibly sold by miners.
What did Crypto have to overcome?
1. Infrastructure constraints;
2. Poor user interface and experience;
3. Opacity and compliance.
To address these challenges and create opportunities, the problem must first be described in detail. Zhao expects that the three main issues mentioned above will be satisfactorily resolved.
He said that the current misunderstanding in the Crypto and blockchain scenarios is to assume that the infrastructure only encapsulates Layer1 and Layer2 platforms. In his view, the centralization element of the blockchain must be addressed first .
He cites GitHub, a repository where TornadoCash code can be easily reviewed. Additionally, there are cross-chain bridges that are constantly being targeted, costing the protocol millions of dollars.
Unlike Web2, where navigation and interaction are smooth, working with blockchain-based solutions is scary for the average non-technical person.
On average, even storing seeds and seed phrases can be scary for the average user.
Zhao also took issue with centralized institutions, saying there should be more transparency and a clearer regulatory framework to foster adoption.
Trends and opportunities for 2023
L2 and ZK technologies for scaling blockchains are maturing: 1. TVL is rising for Ethereum's popular L2s (like Arbitrum and Optimism); 2. ZK; 3. Other modular blockchain solutions.
Mainstream application: 1. Non-functional testing of everything. People no longer need to ask "what is NFT", but "what kind of NFT should I emulate?" Games, social and music; 2. MPC wallet and smart contract wallet; 3. Web2 user migration.
Transparency and compliance: 1. CEX must now be more transparent, otherwise it will be replaced by DeFi; 2. Crypto asset supervision is clearer; 3. Hong Kong market.
To streamline the process, the following trends and opportunities are likely to emerge in 2023 and beyond, Zhao said:
First, he noted that solutions at scale are maturing and being adopted. While TVL has fallen in USD terms, more and more people seem to be locking their assets in DeFi protocols, as the number rose from 250,000 to almost 4 million ETH.
At this rate, he predicts that there will be more activity migrating from the mainnet to the second layer, as more interesting opportunities emerge from the second layer as a service for specific applications.
Zhao also said that developers will also look to release more reliable bridges and aggregators.
In addition to L2, ZK Rollup solutions are catching up, especially zkSync and StarkWare have deployed solutions.
As the industry booms, Zhao sees opportunities in ZKP hardware , personal data marketplaces, and zk-powered cross-chain bridges .
NFT usage may decline in 2022, but Zhao believes the segment will thrive in 2023.
The data shows that the number of Lens Profile users is on the rise. The Lens Protocol is a permissionless, composable, decentralized social graph.
All these social graphs are NFTs, which means that developers can integrate all your social activities.
Depending on how the Lens protocol is designed, the technology could revolutionize the way social apps are built, with major implications for music and gaming as well.
Web3 dApps, especially wallets, may have better designs in 2023.
Just like platforms like Google and Facebook have social recovery, logins, and semi-custodial control over accounts, Web3 users will have the possibility to invite users to co-manage accounts via email, etc.
There will also be a paradigm shift in the gaming industry. While traditional desktop and mobile games generate $90 billion in annual revenue, P2E blockchain games are still being developed and are in the era of "web" games.
They are taking off as the infrastructure for P2E and blockchain games is developed, including better distribution, transactions, and engines.
Finally, in 2023, the need for increased transparency and adherence to established rules will be paramount .
If centralized institutions fail to comply, their market share could be eaten away by innovative DeFi protocols being launched on the blockchain, offering a higher level of transparency.
As this trend takes hold, more governments will be required to provide a clearer regulatory framework for crypto and blockchain adoption by the next billion users.
Summarize
In his conclusion, Zhao recommends that developers pick these opportunities and take advantage of them. He urges Crypto Venture Capitalists to keep investing in the solid ideas above, as they will ultimately light up the future and provide a better financial world.
