The Block: The Block Research’s Analysts: 2023 Predictions

Consensus predictions

• Overall macro environment will continue to put downward pressure on high-risk assets like crypto. However, sideways action over the next year is more likely than a severe slide down.
• Many projects that have been unable to hit the product-market fit will be slowly abandoned courtesy of a lack of funding and demand.
• M&A activity will increase as companies with grim financial standing will seek to be acquired.
• Venture funding will slow down dramatically in 2023, especially during the year’s first half.
• Crypto prices will remain correlated to the monetary policies of central banks.
• The gap between the market caps of Bitcoin and Ethereum will continue to shrink, but “flippening” will not occur in 2023.
• The main narrative in 2023 will shift towards Ethereum layer-2 scaling solutions. TVL for L2s will increase (at least in ETH value), with zk-rollups outperforming optimistic rollups in relative growth. Major L2s like StarkNet, zkSync, and Arbitrum will launch their tokens.
• Modular blockchains like Celestia will see increased attention and could outperform the alternative monolithic blockchains of the previous cycle.
• The fall of centralized crypto entities in the last year will cause regulations to intensify for centralized entities, with Binance becoming the center of attention. Coinbase will benefit from the FUD around Binance.
• DEXs will post the strongest fundamental growth metrics relative to other DeFi use cases.
• The decentralized social ecosystem on Web3 will experience rapid growth as investments and activity in this subsector increase.
• Driven by the accelerating adoption of NFTs among traditional brands, more users will be onboarded to NFTs. In addition, NFTs will continue to serve as a vessel for crypto’s integration with arts and culture.
• Opensea’s market share will further decrease, and the marketplace will lose its monopoly status.

Larry Cermak

General-purpose zk-rollups will finally launch in 2023 and actually become as usable as Ethereum. Arbitrum, Starknet, zkSync and Scroll all release native tokens in 2023, and there will be a recurring discussion about the value accrual of L2 tokens against ETH itself as rollups manage to suck up most of the smart contract activity away from the base layer. There will be fierce competition between Polygon zkEVM, Starknet, zkSync and Scroll. While there initially will be a lack of demand for these scaling protocols, they will play a huge role as the next wave of retail arrives in the future. Polygon gets a huge head start as it successfully switches its PoS chain to a fully functioning zkEVM chain.

While there is still a lot of VC capital on the sidelines yet to be allocated, due diligence will actually be taken seriously for the first time in years with a focus on product market fit. Valuations for seed rounds will go back to near $10M. A lot of projects, especially those building on alt L1s, will simply run out of money and close down operations. We will see a lot of projects switch from L1s to different L2s to improve their chances of getting activity or simply better prospects of prolonging runways. Devs and operatooors will no longer be automatically paid $300k+ and we continue to see talent exodus for crypto “visitors.”

Token economics will be fundamentally rebuilt for lots of projects. Paying out large amounts of tokens as incentives will no longer make sense when there is not a lot of new demand coming in. Axie, Stepn and others won’t be able to rely on ponzinomics to deliver value anymore.

Ethereum won’t flip Bitcoin yet and no other coin will flip Ethereum. Ethereum outperforms Bitcoin in 2023, though. Crypto prices will continue to behave like tech stocks and be fully correlated to the monetary policies of central banks, primarily the Fed. When we start to see hints of decreasing interest rates in the short term, crypto will surge the hardest. But that might not happen in 2023. Until it does, prices of majors will stay roughly the same with next to no volatility. Gambling itch will be scratched by some tokens or NFTs that go up multiples.

OpenSea will continue to lose its monopoly status and its abusive approach to enforcing royalties will fail. Because of its insanely strong position for both spot and futures trading, Binance will become the focus of regulations globally, just like Libra once was. Coinbase and other U.S.-based regulated exchanges will likely benefit. Genesis will file for Chapter 11 and Gemini will face pressure due to its Earn program. GBTC and ETHE will not be dissolved.

SBF will not see a day in prison in 2023 and will continue to plead not guilty. U.S. regulators will use the FTX collapse to change how the crypto industry is governed, similarly to how Lehman and Enron affected policy worldwide. New legislation similar to the Sarbanes-Oxley Act will be drafted to avoid FTX-like situations happening in the future.

Steven Zheng

Overall macro environment will continue to put downward pressure on high-risk assets like crypto. However, if I can get the generous benefit of imagining crypto as an uncorrelated asset class, I believe the market will see the bottom forming on a second NFT wave that would be multiples higher than the one that peaked in 2022. We will break the last ATH NFT trading volume of $5B in 2023. Volume will be primarily driven by gaming projects, with many tier-1 crypto games finally opening up public access to their games after raising funds and selling NFTs all throughout the 2021-2022 bull market. A crypto game coin will break into the top 20 market cap. The second wave of NFT PFP projects will be driven by the last cycle’s third/low-tier projects that are focused on entry-level luxury appeal instead of highbrow luxury (see Seiko vs. Rolex). The beneficiary of the mass appeal wave might be Polygon, which has spent the last bull market setting the base for a potential influx of new retail users and acquiring smart engineers for zk scaling tech. Polygon will be the third largest app layer (behind BNB Chain and Ethereum) by the end of 2023 in both economic activity and market cap terms. I think people underestimate the demand and ecosystem development that will spring forth from the dYdX Chain, which also might jumpstart the Cosmos ecosystem.

In terms of negative events, I think a layer-2 rollup will experience an exploit resulting from centralized sequencers. Funds might not be lost, but users will get a shocking reminder of the size of funds at risk in still centralized solutions. Another algo-stablecoin will fail.

John Dantoni

The macro-environment will fare poorly with high-risk assets like digital assets. We may not have reached a final bottom in the prices of cryptocurrencies. However, sideways action over the next year is more likely than a severe slide down. 2023 will be a crucial year for developers and building, as less attention will be on hype, narratives, and prices. Layer-2s will continue gaining traction, and some will launch native tokens, including Arbitrum and StarkNet. 

New narratives for the next cycle, including Web3 Social Networks, will begin to form. Investment and activity in this sub-sector will grow in interest, with Lens Protocol and Farcaster experiencing the most growth early on.

Venture funding in the blockchain sector will slow down dramatically in 2023, especially during the year’s first half. During the first half, we will see months where <$1 billion is invested, which will be the first time for the sector since February 2021. By the end of the year, roughly $13.5 billion will be invested in blockchain companies, equating to approximately a 58% decline YoY in private funding.

Projects from the categories of Crypto Financial Services, Infrastructure, and Trading/Brokerage will be the least affected by the volatility in market conditions. As a result, these categories will still attract interest and investment as investors look to find the next foundational companies and projects. 

On the contrary, categories viewed as further out the risk curve and more likely to be pre-product and or at a seed stage level, like Decentralized Finance (DeFi), NFTs/Gaming, and Web3, might see their amount raised and terms continue to reprice to a $10 to $15 million valuation range and be more favorable for investors.

At a mid to later stage, companies will need help raising at favorable terms. As a result, we will likely see an influx of firms that may need to conduct a down round and raise at a valuation lower than their previous. 

Another option for companies in poor financial standing will be to seek a purchaser in the M&A market. Similar to what occurred after the 2017 cycle, we will see increased M&A activity and further consolidation of cryptocurrency companies. 

The fallout of Alameda Research, FTX, FTX US, Voyager Digital, Celsius, BlockFi, and potentially other lenders will make 2023 a central year for companies that offer institutional infrastructure for digital assets. 

Market share will be up for grabs for new lenders and market makers. We will also see a reversal of the prominent trend in 2021, where every crypto-financial company was looking to build a complete prime brokerage offering. Instead, 2022 has shown the need for certain services to be segregated and the risks and fallout that can occur when provided by a single counterparty. 

Lars Hoffmann

On the macro side, China’s sudden reopening coupled with stimulus as well as a slowing pace of FED rate hikes elevates global macro risk appetite towards the summer months, with crypto benefiting greatly from it. The fall and winter months are more difficult, with focus shifting back onto Europe’s unsolved energy crisis. However, the upcoming BTC halving in March 2024 keeps industry optimism at overall high levels.

Fallout from FTX and Alameda continues to reverberate throughout the industry for much of H1. Many smaller projects that kept (parts of) their treasury on FTX will fade out and quietly shut down. The Bahamas are mostly done as a jurisdiction for crypto companies. In H2, the focus will shift back to the upcoming regulatory wave as western lawmakers seize on the FTX insolvency to push through much harsher reporting and deanonymizing requirements without really addressing many of the issues that led to the FTX insolvency in the first place – centralization. DeFi will be heavily and negatively impacted by this in western jurisdictions.

Privacy continues to be a strongly advocated topic by many industry participants, yet it is ultimately given up by most as push comes to shove. Alternative privacy solutions for crypto natives continue to be developed and actually thrive in their respective niches.

After mostly cautious and strong-handed regulation in 2017/2018, Asia continues to open up much more toward crypto. South Korea and Japan are starting to get serious about crypto in terms of sensible regulation. The migration of industry natives towards crypto-friendly jurisdictions continues and takes note of these developments.

Eden Au

Arbitrum and StarkNet will launch their native tokens, and they will both be top-10 in TVL by EOY 2023. Polygon will increase its NFT market share as it onboards more traditional brands. The Cosmos ecosystem will have increasing organic usage due to multiple sidechain development (e.g., dYdX, Berachain), native stablecoin support (e.g., USDC, IST), and the launch of Celestia. At least one notable rollup will implement upgrades to decentralize its sequencing process.

The withdrawal of staked ether will be enabled in H1 2023, and subsequently, Coinbase’s cbETH will double its market share in Ethereum liquid staking, and the asset will be widely accepted as collateral by major DeFi protocols. Structured products will gain momentum as crypto natives increasingly favor the “real yield” narrative, and it can help bootstrap liquidity for on-chain derivatives products. However, privacy-focused applications will fail to gain meaningful traction amid increasing regulatory pressure. 

The adoption of Euro-based stablecoin will grow steadily as the European Union finalizes the legislation of MiCA. USDC will surpass USDT and become the largest stablecoin by market cap, but Tether will still be significant and will not collapse in 2023. While it is still too early for non-stablecoin tokenized real-world asset (RWA) protocols to blossom, more RWA protocols will attempt to lay the groundwork.

The gap between Bitcoin’s and Ethereum’s market caps will continue to shrink, but “flippening” will not occur in 2023. No spot Bitcoin ETF will be approved. The YoY return of COIN will be positive. A new set of crypto-friendly first-world jurisdictions will slowly emerge, including the United Kingdom and Hong Kong, as they will seek to enact more reasonable regulations to attract talent.

Andrew Cahill

BTC will remain the largest asset by market cap by year-end, but ETH will outperform in terms of price. SOL will outperform relative to other alternative layer-1s, but will fail to regain its all-time high. Layer-2 scaling solutions will continue to see increased developer and user adoption, but their native tokens will underperform relative to BTC and ETH. 

There will be fewer hacks of interoperability protocols/bridges as development teams learn from 2022’s exploits. Adoption of interoperability protocols will remain low due to subdued activity on layer-1 networks. 

Despite DeFi operating smoothly throughout 2022’s market mayhem, growth will remain subdued throughout 2023. DEXes will post the strongest fundamental growth metrics relative to other DeFi use cases. NFTs and Gaming will remain the top sectors in terms of venture funding received during the year. Stablecoins will have another strong year and surpass $250 billion in circulation. USDC will increase its market share as transparency becomes an increasingly important consideration.

Greg Lim

With the period of easy money over, the ability to raise both equity and debt financing across crypto and the broader market make the 2023 outlook quite grim. Firms will need to remain more conscious of spending and we will likely see continued layoffs and headcount reductions. To note will be the increased regulation following FTX’s fraud. With rates continuing to increase to combat inflation, it is likely that investors will seek to lend to the U.S. government and continue with risk-off strategies. The wide spreads of the past cycle will likely decline as incumbent wall street veteran firms continue building out their digital asset teams and strategies. U.S. housing market will likely see mass corrections in mid-2023 resulting in further liquidations as investors back away from crypto as legacy physical asset prices decline. 

George Calle

In 2023, firms exposed to the crypto industry will face continued pressure. More miners will declare bankruptcy or restructure as they face debt payments that become increasingly more expensive than the machines and/or BTC treasuries used to secure the loans. Large energy providers will become acquirers of equipment given natural synergies (mining with excess supply) and balance sheets that are uncorrelated to recent crypto market downturn.

2023 will also yield lower volatility than 2021-2022, resulting in fewer opportunities for traders to make easy profits. This new market paradigm will reward those who scrupulously track forced sellers or find parts of the ecosystem that are still over-levered, with a potential silver lining of creating more demand in the crypto options market as traders look to position around events or generally hedge exposure. A significant portion of 2021-2022 vintage funds will close due to poor performance, causing liquidation cascades in H1 and H2 2023, albeit smaller than those experienced in 2022. Seemingly ‘safe’ strategies and holdings will be tested. For example, due to the amount of funds involved in liquid staking, certain liquid staking derivative discounts to ETH could drop to sub 90% due to either on-chain deleveraging (see Lido’s own thread on circular staking) and as funds just generally require liquidity. Unlike (potentially permanently) closed-end products like GBTC, expect LSDs to be arbitraged back to 1:1 as Shanghai approaches at some point in 2023.

We should also be prepared to see more innovation and drama in the stablecoin market, but developments will come from increasingly bifurcated areas. Specifically, DeFi developers will create censorship-resistant products that creatively integrate into protocols, while policy-minded actors will more fervently explore regulatory-compliant payment tools. Language around a stablecoin backed by Fed reserves or a stablecoin carrying deposit insurance will be discussed in congress but not even included in any bill that hits the floor. CBDC researchers will largely abandon ‘direct CBDC’ models trialed in 2017-2022 and propose more integrated solutions that grant commercial banks the ability to re-issue or ‘wrap’ tokenized central bank reserves or commercial bank liabilities as stablecoins with additional properties before distributing to retail clients. These stablecoins will likely carry much of the same governance as CBDCs, or at the very least, would be subject to similar oversight. Regulators will also become just more generally interested in stablecoins as it resembles a new digital version of the euro-dollar market amid growing concerns about competing currency systems (China) and global economic fragmentation. Tether’s backing issues will become a major talking point on Capitol Hill, maybe even causing a short-term minor depeg like in 2018, but Tether will not collapse. However, a top 10 by market cap stablecoin (either already existing or new) will collapse in 2023.

Despite opportunities for a more regulated crypto-dollar market, regulatory pressure will be a largely negative tailwind. Rather than providing clarity or guidance, the current regime of ‘regulation by enforcement only’ will continue if not strengthened. As a result, bank custody projects will be largely shelved (along with any other bank initiatives). However, expect at least one large traditional market maker to announce the opening of a crypto desk as the market consolidates.

Simon Cousaert

While in 2021, the battle between different L1s was strong, user traction has since declined strongly and most non-Ethereum smart contract chains will keep declining in terms of user adoption and TVL. 

Scalability technology will increase in adoption and user interest, similar to we are already seeing for optimistic rollups, Optimism and Arbitrum. Together with newer zk-rollups like zkSync and Starknet, layer-2s will lead a narrative that reinforces the declining trend on non-Ethereum layer-1s.

An exception to that dynamic could be upcoming modular blockchain technology, such as Celestia and Fuel. I expect to see experimentation with regard to rollup tech, not only on Ethereum but on modular blockchains too.

The Ethereum community will start thinking about staking and re-staking mechanisms to increase security of decentralized services. Eigenlayer is currently at the forefront of these ideas. If all goes well, Ethereum’s Shangai upgrade will happen in 2023, allowing users to withdraw staked ETH. The combination of liquid (staking) dynamics will force users to think about how staked assets can benefit the ecosystem.

Abraham Eid 

2023 will see a larger shift in focus from infrastructure-driven development to application-based. In turn, there are likely to be hurdles climbed from the existing user-experience challenges that have played a part in the plateau of user activity. EIPs that enable account abstraction such as 4337 should create a noticeably smoother experience for users from a wallet action standpoint, which will likely spur growth over time, and aid in one of the existing challenges facing dapps from a mainstream adoption standpoint. 

An increased focus on use cases that truly take advantage of design spaces that couldn’t quite exist previously due to expensive block space on L1s is likely to occur, as well as interoperability solutions across different l2s likely to improve in part due to oracles providing a messaging bus that has more risk mitigation features than the existing bridging approach. This has already seen some experimentation with projects like LayerZero, but further maturity in 2023 with this technical approach will allow for a truly robust interoperability solution. 

There exists a high probability that regulators will look and potentially enact new legislation around certain existing practices in the cryptocurrency space, namely in the DeFi sub-sector. With precedent already set in 2022 through the arrest of Tornado Cash developer Alexey Pertsev, it is likely we see clearer guidance around the usage of mixers and the consequences of partaking in a mixing service. Although the US treasury placed sanctions on Tornado Cash as a software protocol and further addressed consequences for all addresses having ever interacted with it, there is likely to be a more sweeping bill to codify the rule set around mixers. Also likely to experience more investigation and scrutiny is the existing MEV space, which will likely cause more dapps to consider design features centered around mitigating MEV. 

From a more high-level perspective, although 2023 will likely see less focus on quantitative tightening through Central Bank rate hikes, the second-order effects of this contraction will continue to be felt throughout 2023. This will cause cryptocurrency valuations to likely stay within ranges below prior all-time highs and speculation as a whole is likely to remain muted in comparison to the time period prior to the second half of 2022. This will likely spur greater focus on longer-term design decisions for the space. 

Wendy Hirata

With all the incidents in 2022, trust in CEX and CeFi lending services is at an all-time low. Many market participants are searching for risk management, operational transparency and market expertise, which were overlooked in bull markets. Until proper measures are put in place and trust is rebuilt, institutional investors will be hesitant to take on a more aggressive position – they will continue to look for defensive / low-risk capital management strategies. Crypto financial services will have to release more structured products with principal protection to satisfy these needs and maintain their current level of operations. More institutional investors will look into staking as a safer source of yield, especially with more developments and releases of enterprise-grade liquid staking protocols in 2023. The rapid growth of cbETH and rETH this year showed that there is room for growth within the liquid staking sector, and it would be possible to see a new enterprise-grade protocol, such as Liquid Collective, take some market share away from Lido.

Kevin Peng

In 2023, L1 networks will continue to adapt to the evolving demands of the market. Cross-chain technologies such as bridges and IBC will further mature as new app-chains gain increasing relevance and usage. Crypto-based applications will become more user-friendly than ever as teams vie for mainstream attention and organic demand. 

With the ongoing fallout from FTX and other institutions that collapsed in 2022, many projects will be slowly abandoned as the realities of a lack of funding and demand finally catches up with those that have not been able to achieve product-market fit. DeFi exchanges and lending protocols will have an interesting opportunity to capture additional market share with trust shaken in their centralized counterparts. NFTs will continue to serve as a vessel for crypto’s integration with arts and culture, as will games that find compelling and creative use cases for NFTs and fungible crypto assets. Although it is unlikely that a game built on the blockchain or heavily utilizing crypto mechanisms will rise to the level of popularity as the leading video game titles, the crypto gaming industry will grow larger overall and produce a few high-quality titles with modest but active user bases. 

Meanwhile, scaling solutions in the form of rollups will begin to see adoption that threatens monolithic blockchains and their ecosystems. Ethereum will remain the de facto settlement layer for DeFi and NFTs, while L1 networks that are primarily focused on execution optimization will need to heavily incentivize usage in order to remain competitive. 2022 was a year of reckoning for the crypto industry, but 2023 will be a critical year where developers turn their focus back to fundamental scaling and UX improvements, paving the way for greater acceptance among traditional finance institutions and eventual revitalization of the industry in 2024. 

Erina Azmi

Four crypto predictions for 2023. Firstly, the social ecosystem on Web3 is expected to experience rapid growth, so secure your favorite names and domains before they’re taken by others. Some platforms may introduce tokens to enhance the user experience. 

Secondly, as regulatory frameworks surrounding crypto become more established, privacy coins are expected to see increased adoption, depending on whether they are viewed as progressive or regressive policies.

Thirdly, on-chain games are expected to stimulate the creation of a new genre and revitalize the Web3 gaming market. While current offerings in the Web3 gaming space may be lacking in innovation (e.g., same old gameplay and experience), on-chain games have the potential to attract forward-thinking game developers and drive change within both crypto and gaming industries. 

Lastly, keep an eye on GHO and crvUSD, as they might flip DAI in terms of market capitalization. The shift could have significant implications for investors and market participants.

Saurabh Deshpande

Correlation between TradFi and crypto will remain high during the downturns as both markets share increasingly common participants, but crypto will likely bottom before TradFi. While the equities may see another downturn due to a worse-than-expected earnings cycle, crypto prices more or less remain stable. Less hawkish FED will benefit crypto ~H1 2023. 

ETH will not flip BTC in 2023; no other L1 will flip ETH. Arbitrum and Starknet will launch tokens and be among the top few L2s (by TVL). The total TVL of L2s will cross $20bn. The Solana ecosystem will likely be revived.

Binance will gain legitimacy from regulators outside the US. DEX/CEX volume ratio will likely grow to ~25%. OpenSea’s market share will fall to ~25%. 1-3 good blockchain-based game/s (basically a game that players enjoy) will be launched (playable). 

Metamask will lose share to the likes of Phantom and Argent as account abstraction starts taking some shape.

Rebecca Stevens

In 2023, we see a strong push for Coinbase coming out of the FTX collapse and it gains market share but still remains second to Binance. DEXs also see volumes grow significantly, especially ahead of any significant regulatory pushback. It’s unlikely we will see anything too meaningful actually pushed out on the U.S. side, but the looming threat could still dampen things further into the year. The concentration of volumes in only a handful of CEXs also pushes a DEX-centered narrative. While this has historically been true, the concerns brought about by FTX will allow this to gain traction as a DEX use case.

We see the ratio of spot to derivatives volumes fall through the year as the traditional markets become more accepting of crypto, but the perceived risks of trading spot hold people back. Both futures and options see volumes and open interest increase in terms of the underlying asset through the year, especially on more traditional exchanges like CME.

A handful more notable brands and celebrities try their hands at NFTs which brings in a few retail users. However, most of these projects won’t stick and more meaningful adoption will come through projects developed by crypto-native teams. Well-thought-out projects will capture users who already use crypto, but the user experience needs to excel and potentially minimize crypto aspects (like the Reddit NFTs) in order to see a surge of retail users.

Edvinas Rupkus

H1 of 2023 will not be overly eventful as FTX contagion will start to unravel, forcing some of the funds to close shops or go through restructuring. It will also bring a stricter tone for western crypto legislation; however, nothing of serious note will get passed. 

The main narrative in 2023 will shift towards ETH Layer-2 scaling solutions. Specifically, one of them attracting a big market share and another one suffering from a major technical flaw. However, the effectiveness of Layer-2 applications won’t be tested yet as ETH will easily be able to handle all of its traffic. 

Non-BTC/ETH chains will continue to lose relevance as the market stays in “safe havens” through global political instability and inflation unraveling. Nevertheless, I expect the situation on both fronts to show signs of life in H2 of 2023 or by the end of the year, bringing a more “exciting” crypto market as customers’ appetite for risk increases.

There will be long-awaited NFT games, and other rather innovative SocialFi applications entering the market. However, frugal macro timing will have these projects experiencing “pump-and-dump” scenarios, where the applications’ attractiveness is still, unfortunately, heavily swayed by its underlying token’s price action. 

Afif Bandak

Appchain thesis strengthens with more apps launching as Cosmos and Ethereum L2 chains. ZK chains scale up and start to get some traction. Rollups make significant technological improvements in scalability and performance, but sequencers remain centralized.  

Proto-danksharding and staked ETH withdrawals fail to materialize in 2023. 

Macro headwinds persist but lighten in H2. Industry washout continues as many projects run out of funds and momentum. COIN outperforms most cryptos. BTC outperforms most peers in 2023; potential for a tailwind from gold.

Regulatory response to past year’s events brings turbulence, but clarity ultimately leans bullish with productive conversations happening. On-chain exchanges fill the void left by FTX. Renewed push from new institutional player(s) into stablecoins/payments. 

Arnold Toh

Ethereum’s market capitalization will overtake Bitcoin’s in 2023, owing to demand from increased adoption in Layer 2s and Ethereum’s disinflationary model. This could happen even as both ETH and BTC prices fall.

Layer 2 ecosystems will see pockets of growth, led mostly by Arbitrum, StarkNet and zkSync’s potential airdrop. Polygon will likely see some correlation in TVL growth as well, depending on the success of its zkEVM efforts.

GameFi and P2E will simply phase out in favor of games with actual use cases for blockchain technology. The likely contenders are trading card games, more notably Gods Unchained and their potential mobile version, or Parallel Alpha, which has released a significant amount of content around their game and its lore.

SocialFi will see a pump-and-dump hype cycle and a handful of protocols will emerge to provide some decentralized alternatives to the existing social media frameworks today. Notable protocols include Lens and Farcaster, though some hyped protocols like So-Col may eventually be strong contenders as well.

Jae Oh Song

Due to recent market events, regulation will intensify for centralized entities. This may lead to customers’ continued preference to self-custody their assets until sufficient credibility is built back. Such a trend may bolster the growth of existing decentralized exchanges such as (dYdX and Uniswap). Governments may prepare regulatory schemes targeting these decentralized entities; however, such an attempt would not have an immediate impact due to lengthy regulatory processes and consensus.

Web 3.0 social networking protocols (e.g., Lens Protocol, Bluesky Social) will develop further to obtain market share from existing social networking services. Initially, users will participate in these protocols based on speculation of potential token airdrops, which won’t likely be happening until Q4 2023 or afterward. These protocols would have to develop additional crypto-friendly features that can appeal to non-crypto native populations as users are very sticky in moving to other platforms.

Options market may see growth due to higher demand to hedge crypto exposures during uncertain market conditions. Aside from the institutional demand, we may see an increase in retail demand in the options market as the volatility within the assets decreases. Existing option vault protocols may develop other options strategy vaults aside from covered calls to attend to the retail demand.

Hiroki Kotabe

L2s keep gaining traction. Arbitrum will launch its token which will outrank Optimism’s token and outperform the overall crypto market. TVL for L2s in general will increase (at least in ETH value), with ZK rollups outperforming optimistic rollups in relative growth. Major ZK rollups like StarkNet and zkSync will launch/sell their tokens too, which will also outperform the overall market. Polygon will benefit from all of this by association.

People will become more confident that Ethereum is scalable by virtue of L2 tech, which also improves user experience by making transactions cheaper and faster. Ethereum dapps integrating L2 tech will see their user bases and activity grow. While this may create upward price pressure on ETH (and away from other L1s), the structural shift in activity from Ethereum to various scaling solutions may create downward price pressure on ETH (and toward scaling solutions). That said, extra attention on scaling solutions may come with bad actors exploiting current design weaknesses (e.g., rollup sequencer centralization), which would throw a wrench in their progress.

A few other predictions: Ethereum will delay shipping sharding to 2024 and will focus on MEV issues this year.Celestia launches its token, and modularity becomes a hot (hotter) topic. Wintermute launches a derivatives exchange that outsources the storage of customer funds to trusted custodians.

Hayden Booms

BTC will bottom in Q1 2023 below $12k as the 4-year market cycle continues despite continued macroeconomic concerns as public sentiment begins to fear the Fed has an over-tightened economic policy. The BTC lows will be retested later in the cycle with at least a 75% retrace in price.

The Ethereum Shanghai upgrade that enables users to unlock their staked ETH will be delayed until Q4 2023 and will function as a sell-the-rumor buy-the-news liquidity event. Public sentiment will fear an ETH selloff as staked ETH unlocks, causing the price of ETH to fall into the Shanghai upgrade. However, after the Shanghai upgrade, the ETH price will begin to trend upward as there will no longer be the looming fear of further sell pressure. This liquidity event will mark the retest of the cyclical bottom for ETH.

Fidelity’s timely launch of BTC and ETH trading for retail clients in Q4 2022 will bolster consumer confidence and help Fidelity capture a meaningful percentage of BTC and ETH trading volume in the United States in 2023. Retail investors that have seen Bitcoin perform for two cycles but have not participated in the crypto markets will finally feel comfortable enough to invest in crypto on Fidelity’s platform. Generation X investors will be reassured of their financial security through Fidelity’s reputation and enjoy the same simple user interface they are accustomed to when managing their legacy investment portfolios without the anxiety that arises from self-custody. Fidelity will also enable BTC and ETH withdrawals in H2 2023.

The relaunch of Arbitrum Odyssey and the airdrop of the Arbitrum token will kick off another “airdrop season” as many projects that have been waiting through the bear market to airdrop their token will finally proceed with their plans that have been delayed far too long. The most notable airdrops will be Arbitrum, Celestia, LayerZero, StarkNet, zkSync, and nftperp.

CoinGecko began allowing users to purchase airdrop allocations for projects they have partnered with in 2022, such as Access Protocol. CoinGecko will continue to allow users to purchase small airdrop allocations for various projects they partner with in 2023. This will cause CoinMarketCap to follow suit and offer airdrop allocations to users who collect CoinMarketCap’s Diamonds. These small allocations will end up paying Candy and Diamond collectors relatively handsomely, considering all users had to do was pay attention and participate in these rewards programs.

Carlos Guzman

Overall crypto price levels will continue to depend primarily on macro conditions and will continue to be correlated with other risk assets. A possibly weak earnings season could push equities lower and would see crypto follow suit amid fears of recession. Crypto-specific market circumstances will also put downward pressure on prices throughout H1 2023 as bearish sentiment prevails and credit contagion from the FTX/Alameda collapse finishes making its way through the ecosystem. On the flipside, if inflation begins to buckle in the second half of the year, we might see large moves in crypto prices toward the upside.

A fair number of projects funded throughout the market exuberance of 2020 and 2021 will likely shut down given a more difficult fundraising environment and lack of product-market fit. However, we will continue to see high-quality projects being funded as well-capitalized VC funds continue to deploy. Overall private funding levels for 2023 will be lower than 2021 and 2022 but higher than 2020 and prior years.

We’ll likely see substantial demand and adoption of dollar-pegged stablecoins globally, particularly in developing countries, driven by global inflation and its particularly deleterious effects on weaker currencies. Projects that offer easy-to-use savings products allowing individuals to purchase stablecoins with fiat should see strong adoption.

Congress will likely be more active, swifter and more rigorous in passing crypto-related regulations than it has been in previous years, possibly resulting in regulations that are significantly less friendly to the industry than hoped.

ETH will gain on BTC in market cap dominance driven by reduced issuance, fee-burning and the ‘ultra-sound money’ narrative. However, ETH will not yet flip BTC in 2023. ETH will start to gain enhanced ‘moneyness’ and a monetary premium, in part by becoming the de facto reserve asset across L2s. The “ETH-killer” narratives will subside in 2023 and L2 competition will become the main focus of attention. 

Optimistic rollups will see increased numbers of users and transactions as activity continues to migrate there and away from EVM-compatible L1s. ZK rollups will be slower to gain adoption but will start gaining steam in the latter-half of the year as zkEVMs start onboarding popular apps. App-specific rollups functioning as L2s or L3s will challenge L1 app chains and will garner attention among institutional players interested in deploying their own blockchains. 

2023 will mark the beginning of a Cambrian explosion of zk-related apps across privacy, identity and bridging, among other things. There will be a large industry focus on developing credible forms of zk-compliance as privacy-related applications draw regulatory scrutiny. 

We’ll see substantial growth in the ‘real-world asset’ (RWA) sector in DeFi throughout the year. As crypto-native DeFi yields remain suppressed due to falling prices, decreased interest in liquidity mining and the demise of large market makers, RWAs will represent an attractive source of yield given the high interest rate environment across traditional fixed-income assets. 

Thomas Bialek

Driven by accelerating adoption of NFTs among traditional brands, more users will be onboarded to NFTs in 2023 than in all the previous years combined. To this effect, NFTs will be disguised as seamlessly integrated digital collectibles that overcome the technology’s image crisis.

Despite the increasing adoption of NFTs, a major bull run will fail to materialize, even though individual sub-sectors will experience an isolated renaissance. Dynamic crypto art, in particular, will thrive as artists create more and more artworks that would not be feasible without the unique properties of blockchain technology.

Generative art grails will decouple even more from the rest of the NFT market in terms of price performance. In the blue-chip PFP segment, many of the remaining survivors will vanish from the scene while market power becomes increasingly monopolized.

As progress on the gaming front accelerates and gaming and NFTs converge, the gaming vertical will pick up steam again as a new narrative is fleshed out, resulting in a revitalization of interest.

NFT projects and marketplaces will explore new systems for attracting and retaining users, as the short-lived nature of cookie-cutter token incentives becomes obvious. The ongoing war on creator royalties will spark a lot of experimentation with regard to new (and old) revenue streams for NFT projects.

NFT-native brands will expand their efforts to bridge the gap between the physical and digital realms by fostering more brand activations in the physical world. The web3 social domain will hit its critical mass and become more widely adopted.

Mohamed Ayadi

The crypto (and traditional markets) winter continues through the first half of 2023 as the US enters a minor recession and Europe experiences a more severe one.

Fear and uncertainty in crypto remain high around centralized exchanges until one of the larger exchanges gets a proper audit from a large auditing firm. This will cause DEXes and Perpetual/Options protocols to continue seeing more adoption (like GMX), with new ones launching innovative features. However, trading futures in DeFi will always remain a ‘power’ user thing. 

H2 2023 will see Ethereum layer-2s battling it out for market share with the launch of L2 zk-rollups. This takes attention away from Ethereum, specifically ETHER, which will cause Ethereum to lose value compared to Bitcoin (ETH/BTC pair), especially as it approaches the staked ETH unlocks.

The layer-2 battle will heat up with the Arbitrum token launch and lots of new events to capture user adoption and will end up revealing how some Layer-2s are way ahead in development than others, especially when it comes to decentralization. This will be a key factor in determining the winner of the battle for market share (at least until centralized layer-2s put more focus on decentralization). From this point forward, the industry will come to realize that the future must be multi-chain with multiple layer-2s and even layer-3s, and any future layer-1 launch will not see any adoption.

During the second half of 2023, the markets will start seeing some form of recovery, with inflation coming down drastically (although not close to 2%) and the US Fed pausing hikes and deciding to hold rates at around 5% into 2024. 

There will be more crackdown on DeFi crime (such as the Mango market one) as US courts show no hesitation in going after crypto-related crimes. This ends up being good for the whole industry and results in less shady DeFi-related activity. However, it will come at a cost of tighter regulation and less privacy in the long term. New privacy-related projects will emerge in H2 2023, which aim to show regulators that crypto OGs are willing to fight back against strict or unfair regulations and censorship and measures that drastically reduce privacy.

By the end of the year, the SEC will have another case against another popular crypto project (like XRP) and require projects that are not decentralized to register as securities to trade on US-based exchanges. This leads to protocols doing their best and getting creative in achieving a higher level of decentralization. However, there will still be little clarity from the SEC with respect to which projects are securities and which are commodities. 

Last but not least, there will be new use cases for NFTs towards the end of the year and more traditional brands will continue joining the NFT game. Polygon will benefit the most from this and eventually become a TOP 10 project by market cap. However, the focus will be more on NFTs as part of a whole ecosystem than the ecosystem being built on the NFT collection after its launch. 

Michael McNelly

There are a lot of factors currently preventing widespread crypto adoption and interest. The cryptocurrency market as a whole took a massive reputational hit due to the collapse of LUNA and the insolvency of FTX. On top of this, global macro economic conditions have been tightening to combat exceedingly high inflation levels. These conditions cannot be fixed rapidly. The length of time needed to restore confidence in the cryptocurrency market is uncertain, however, players responsible for theft, fraud, and hacks will need to be brought to justice with regulations put in place to prevent it from happening again. 

That being said, I do believe we will see continued innovation in the industry in regard to scaling, NFTs, UX, custody, and other unique use cases. Ethereum rollups, specifically Polygon, Arbitrum, StarkNet, and Optimism, are experiencing continued use with new innovative products and solutions launching. These platforms will host dApps that have an improved and simple UX that is friendly to new users. A recent example of this is the rise of the popular trading platform on Arbitrum, GMX. Alongside incremental improvements in DeFi, institutional adoption will continue with a focus on data management. Many players like Home Depot, Walmart, and Coca Cola have been experimenting with Blockchain to accurately track their supply chain. This will only become more robust over time.

The energy industry in particular is, and will be a breeding ground for further experimentation and adoption. Players like GM are interested in the concept of virtual power plants that use blockchain to track and manage the electric grid (especially green energy). This leads to the creation of a peer-to-peer energy market where everyone is both an energy provider and consumers. This concept is still very much in the early R&D stage. However, some pilot programs have successfully launched in small cities. Using Electric vehicles paired with solar energy, this new era of energy management and provision will be ushered in, where every home becomes a power plant with a battery connected to the grid.

In the meantime, oil and gas companies like Exxon Mobile are repurposing natural gas (that would otherwise be burned) into electricity on-site to power Bitcoin mining rigs. This further bolsters the narrative that Bitcoin is backed by energy itself, giving it more perceived value. With resources only becoming more constrained in our ever-consuming society, the energy and resources used to mine Bitcoin will be respected more and more. Therefore, confidence in Bitcoin as a currency will rise over time as projects like this continue.

In summary, I believe we will not see a bull market in 2023 but rather institutional experimentation and adoption for internal infrastructure purposes using private blockchains. DeFi will steadily make progress and NFTs will be implemented more creatively while stifling  pressure for regulations persists. Regardless of any innovations, I do not believe any surge in activity or adoption will happen until there is regulatory clarity and confidence injected back into the market.

Marcel Bluhm

Privacy will be a big topic. Because of regulatory scrutiny, full privacy coins will struggle. But solutions like zk.money which explore a middle ground between privacy, censorship resistance and regulatory realities, may find product market fit.

A national legal framework for stablecoins will be introduced in the U.S. If well-crafted, this will lead over time to sizable growth in stablecoins’ market cap and perpetuate dollarization in the digital asset space. Globally, some CBDCs may see the light of day. But unless they work on public rails or incentivize usage they will see only limited adoption.

Blockchains will become more ‘mobile’: most use cases (and lots of blockchain users) are in the developing world, which to a large extent, uses mobile access in everyday life.

Market-related, crypto will continue to move sideways/down unless central banks pivot.

Jason Michelson

Market conditions remain mostly bearish for the first half of 2023 as recessions unfold in the US and Europe. Weak earnings will likely push equities further down and crypto markets will follow suit. Volatility will decrease with interest in digital assets during this period, and crypto markets will mostly trade sideways. It will take years to restore public trust in cryptocurrency in the wake of FTX’s fraudulent behavior, and many institutions will continue to distance themselves from digital assets until the public forgets and macroeconomic conditions improve and make risk-on assets more palatable. Despite this, distributed ledger technology’s value proposition of providing more efficient value transfer and trustless financial rails remains. Some will continue to experiment with institutional use cases, such as in the case of Project Guardian, an initiative created by the Monetary Authority of Singapore in collaboration with firms including JPMorgan and HSBC to further asset tokenization and institutional-grade DeFi protocols. New use cases in this realm will continue to emerge.

ETH will not flip BTC in 2023 but will gain significant ground in terms of market cap. Most existing non-EVM-compatible L1s will underperform compared to ETH and begin to slowly fade in terms of mindshare. Polygon may be an exception to this with the launch of Polygon zkEVM and its continued product-market fit in retail and asset tokenization use cases. Cross-subnet communication via Avalanche Warp Messaging will make bridging between subnets more efficient and perhaps drive more projects and developers to experiment with Avalanche. GMX will continue to grow, but will eventually be exploited again so long as it continues to offer minimal spread and price impact on trades. The general decrease in trust in centralized trading venues among crypto-natives will also continue to drive traffic and volume to decentralized options/perpetual futures protocols.

Fundraising will decrease significantly compared to 2020 and 2021, but VC funds with mandates to deploy will continue to do so. A new batch of projects and tokens will emerge to outperform the existing ones in the next bull market cycle. Modular blockchains like Celestia will see increased attention and could outperform the alternative monolithic blockchains of the previous cycle. Arbitrum will likely release a token in late H1 or H2 of 2023, and this could cause a mini altcoin season for tokens within its ecosystem. The Total Value Locked in Ethereum L2s will gain significant ground on the TVL of non-Ethereum L1s, perhaps even overtaking it. There will be a significant advancement in zk-rollup tech, but most will not launch or see significant traction in 2023.

Atharv Deshpande

The bearish market structure will create more uncertainty among users over the next three quarters as crypto market capitalization hovers between $0.65 trillion – $1 trillion. More firms will become insolvent, and more bad actors will be purged. The fall of crypto exchange FTX and FUD around Binance creates more demand for better regulation, but we are unlikely to see any pathbreaking strides. However, the fall of centralized entities and the demerits of power centralization in 2022 will increase DEXs adoption more than ever.  

ETH market cap will get closer to BTC but won’t flip just yet. L2 adoption will increase with the launch of Starknet and Arbitrum, and more and more NFT Gaming projects will bridge to L2. Polygon will continue to build partnerships with non-crypto traditional brands and strengthen its position in the NFT sector. User onboarding caused by these partnerships will cause a ripple effect across the industry as we will observe the highest NFT user adoption and trading volume compared to previous years. Most of the play-to-earn games will fade away as we are no more in the ‘up-only’ market phase and, more importantly, lack the ‘entertainment’ element. Decentralized social networks will grow, and the protocol-native tokens from this category will perform better than the other decentralized entities barring exchanges. 

Given that funding activity is usually a lagging indicator of the sector’s health, venture funding will slow down for the first three quarters in response to the events in the second half of 2022. Infrastructure and Crypto Financial Services companies will be least affected by the funding pullbacks. 

Ian Devendorf

Decentralized identity solutions will continue to grow in importance as they build the infrastructure for self-sovereign identity and enable the compliant onboarding of institutional capital once regulatory clarity is established. As the market waits for more explicit regulatory guidance, market share will continue to concentrate on incumbents who prioritize transparency and have a proven track record, making it difficult for new entrants. A larger share of users will have a preference for self-custody until centralized exchanges can provide reliable proof-of-reserves audited by a third party on a consistent basis with little reliance on exchange tokens as collateral. EVM-compatible chains will continue to dominate TVL as optimistic and zero-knowledge rollups start to expand functionality. 

Dipankar Dutta

We will see renewed interest in blockchain technologies that preserve privacy and enhance censorship resistance into 2023. Other general predictions include Ethereum stake withdrawals will be enabled in H2 of 2023 and there will be no spot Bitcoin ETF in 2023. Additionally, more regulatory challenges will be initiated by the SEC, labeling token/coins as securities to produce case law in 2024 or later. More legislative bills will also be introduced in the US Congress, some that will undoubtedly test the unity, lobbying efforts and resolve of the crypto-community

Healthy adoption of layer-2s and sidechain-based scaling solutions will continue into 2023 – alleviating problems related to scarcity of blockspace, but likely also uncovering issues related to their complexity and (general) lack of decentralization. User adoption and investment patterns for blockchain ecosystems will also shift meaningfully towards innovative applications built atop rather than the technical merits of the underlying layer-1 blockchain (e.g., TPS, time to finality, etc.). Revenue-generating platforms will be an important vertical. Application-specific blockchains and interoperable ecosystems will continue their rise in development activity (e.g., Cosmos, etc.)

Application-centric growth for ecosystems will mean that L1 foundations & ecosystem growth funds will cater more to the needs of applications developers so they come build in particular blockchain ecosystems vs. their competitors.