Happy New Year! Welcome to 2023. Let’s hope this year brings a lot less Crypto chaos compared to last year’s clown show.
Here’s what we got today:
- What’s Next? 13 crypto narratives for 2023.
- The DeFi Edge. Reviewing our past year and what’s ahead!
- Around the web. SBF pleads innocent, Celsius owns its customer’s tokens now, Gemini is being sued, & more.
Let’s Dive in!
📉 THE MARKETS
“The secret of change is to focus all of your energy not on fighting the old but on building the new.” – Socrates
13 Crypto Narratives for 2023
2022 was the roughest year in the history of crypto.
Megalomaniacs like SBF and Do Kwon stole the spotlight. Everyone has been paying attention to them. And it is important to weed out these toxic characters.
However, it shouldn’t take us away from the potential. The core crypto thesis remains unchanged.
In 2023, these are the 13 narratives I’m paying attention to.
#1 Tokenizing Real World Assets
Most of the DeFi is inside baseball. A protocol will create a token out of thin air. Another will use it as collateral to create another token. And so on and so forth.
This is a problem. In order to mature as an industry, we need to integrate with the “real world.”
IRL integration is the route to sustainable yields as well. Tokenizing real world assets unlocks cashflow that’s not affected by Crypto’s volatility. Real estate, art, loyalty programs, & more.
IRL systems will benefit from transparency, capital efficiency, & improved liquidity.
We’ve already made some meaningful progress. MakerDAO has accumulated over $600 million in RWAs as collateral. They’ve invested $500 m into treasury bonds. Centrifuge bought millions in real-world assets on-chain. Maple Finance and Goldfinch are financing loans to real-world businesses.
Real estate is the holy grail for me. But, that is going to take some time.
#2 Sei “The Decentralized Nasdaq”
Sei Network is the hot new girl in the Cosmos ecosystem. It is a DeFi-specific L1 chain optimized for trading.
The Central Limit Order Book (CLOB) is the standard for TradFi exchanges. However, DeFi protocols don’t use that. They use AMM. This was due to speed limitations.
Sei fixes this.
Sei is FAST (600ms finality, 22k orders per second). They will use CLOB. It will give us tighter spreads and lower slippage.
There’s going to be a new generation of DeFi products using Sei’s technology.
#3 NFT financialization
NFT is a crypto-native asset class.
Some of the biggest projects have insane value. BAYC floor prices are around 73 $ETH. Even though I’m not mega-bullish on individual projects, I’m bullish on NFT as a sector. NFTs are going to be a multi-billion dollar asset class.
That asset class will need financial plumbing. DeFi x NFT is about unlocking NFT’s liquidity & turning them into productive assets.
The first wave of projects allowed you to use your NFTs as collateral, such as NFTfi & BendDao. We are starting to see the next wave of NFT financialization.
Nftperp is a perpetual futures DEX for NFTs. You can long or short NFTs with leverage. It is in beta and has already attracted $21 million+ in volume.
Insert finance gives bluechip NFT holders access to yield. Users can deploy their assets to a variety of set-and-forget strategies (Vaults). These vaults will provide users with returns.
Ethereum is relying on rollups to scale. There are two types of rollups:
- Optimistic rollups such as Arbitrum & Optimism.
Optimistic rollups are all the rage these days. They’re taking market share from Alt L1s. They have the first mover advantage. But, many consider zk-rollups to be the superior tech. Due to the technical complexity, it will take years for zkRollups to be fully deployed and mature.
Below are a few of the important projects,
- Aztec Network
- Polygon Miden & Hermez
Zk-rollups will also enable dApps that were previously impossible. I’m paying attention to those as well.
Even though zk-rollups are the future, Arbitrum (Optimistic rollup) is crushing it now.
Every new DeFi innovation I see is happening here, and OG protocols are expanding to Arbitrum. All the TVL from VC layer 1 chains keep migrating towards Arbitrum.
There are three ways to play Arbitrum.
- Arbitrum Odyssey is an 8-week long event to help users explore the Arbitrum ecosystem. They’ll give you NFTs for completing tasks. Participate in it.
- Also, use various dApps to get an airdrop one day, possibly.
- Keep an eye on the new protocols launching. I’m constantly monitoring DeFiLlama to find rapid TVL increases.
The first blockchains had a monolithic architecture. A single blockchain did everything: consensus, data availability, and execution. This led to an issue (blockchain trilemma). Ethereum couldn’t scale. Solana sacrificed decentralization.
Enter modular architecture. They solved the issues by separating different functions.
Celestia is the first modular blockchain.
You can think of Celestia as the Amazon Web Services of blockchain. It will lower security costs and make launching a blockchain as simple as a smart contract. And these blockchains will be customizable and sovereign.
#7 The Perps War
Decentralized perps found product/market fit last year. And FTX’s death gave it a rocket boost. Although it feels saturated as a DeFi degen, they’ve barely penetrated the market.
The Main Perps Protocols
- Gains Network
- Kwenta by Synthetix
I’ll watch how much traction GNS can get on Arbitrum (GMS’s territory), and how dYdX integrates with the Cosmos ecosystem.
#8 Cosmos chains
Several interesting chains are launching in the Cosmos ecosystem.
- Berachain ⛓️🐻: proof of liquidity consensus.
- Kujira ㊗️: an ecosystem built around real yield. They’re constantly launching new products.
- Canto: EVM compatible on Cosmos. Liquidity as a public good.
#9 Decentralized Sports betting
DeFi attracts a lot of users who want massive amounts of risk. They want to make 100x. Right now.
Sports betting is an obvious choice for them. Hence, this narrative is inevitable. We are early to it as there aren’t that protocols live yet.
Some names that came up in my research are:
- Betswap (Backed by Wonderland)
- Frontrunner (injective)
- RektBets (Kujira)
#10 Decentralized Social Media
In the current system, big tech owns your data. The content you produce is stored on their servers. Your social graph is managed by them.
This is a big problem. They can kick you out any time they want to.
There’s also a market opportunity. Twitter is going through a chaotic time. TikTok may be banned in the U.S. It is already banned in India.
There are a few protocols to pay attention to:
- Lens Protocol (from the Aave team) is the most popular.
#11 Decentralized Stablecoins
Stablecoins are the biggest use case for DeFi. The problem is that the leading stablecoins are centralized stablecoins.
Circle and Tether can freeze your $USDC and $USDT, respectively. OFAC sanctions on Tornado Cash led Circle to freeze USDC in the TC protocol. Tether has also frozen around $435 million.
$DAI, $FRAX, and $LUSD are some of the leading decentralized stablecoins.
Many other protocols are releasing their own stablecoins.
- GHO from Aave
- crvUSD from Curve
Even though the industry is weary of stablecoins since the LUNA collapse, this space is a must-watch.
#12 Big Brands Joining Web3
Polygon has the best business development in crypto. In 2022, they partnered with several Big brands. Some of the names include Disney Nothing, Adobe, Meta, Reddit, Starbucks, Adidas and Prada.
In 2023, I’m going to look at how well Starbucks’ Odyssey and Nike’s swoosh NFT efforts perform. I also expect this momentum to keep going. More big brands will be joining web3.
#13: ETH Liquid Staking
Ethereum’s next major upgrade is happening around March. It’s called Shanghai and it’s going to slowly unlock Staked ETH.
Around ~16m ETH are locked right now. Staking your ETH helps validate the chain (proof of stake) and it gives you yield.
LiquidStaking means you deposit your ETH with a 3rd party, and they give you an “IOU” version in return like stETH. You can then use this stETH to go play around in DeFi while earning staked returns.
Lido is the king now. Two protocols you should pay attention to are Rocket Pool (focuses on decentralization) and FraxETH.
Apart from the above, there are few more things that I’m paying attention to:
- Cosmos: The 2.0 proposal was rejected. What’s next for them?
- Thorchain: Crosschain swaps
- Minimum Extractible Value
- FTM: André’s return + FVM
- Web 3 Wallet Wars
What I’m bearish on:
- Solana: Too many L’s last year.
- GameFi: It’ll be massive in a few years, but not in the short term.
- Crypto AI: I’m bullish on AI overall. But right now, anything involving crypto and AI is a money grab.
I shared some narratives I’m looking at. Think of these as bread crumbs. See something you like? Do your own research!
By the way, nothing’s an endorsement. Some of these protocols I mentioned haven’t even shared their Tokenomics information yet.
It’s kinda like I’m the GM of an NBA team, and I’m sharing what potential draft picks I’m looking at. Except I’m not drafting any until I see how they perform in the NBA combine.
It’s possible that I overlooked something. If you think I’ve missed any major narratives, shoot me a reply. I personally read everything.
The DeFi Edge Year in review
I created The DeFi Edge Twitter account nearly a year ago. I spent all day researching and thinking about Crypto. I wanted to start an account to share what I was learning since it gets super lonely!
Well, here we are now.
I can’t believe how fast the account grew. I get to wake up everyday and research Crypto for a living!
- 0 -> 222k on my Twitter account. 26k email subscribers.
- We launched a successful course, Double Your DeFi, in the middle of the bear market. People loved it, and there were 0 refunds. We’ll be doing a few more cohorts this year.
- The DeFi Edge is now a team of 4 people. My interns have done an exceptional job in the past 2 months. I’m hoping to grow the team more this year.
What’s Next This Year?
I’d like to go from being a Twitter Threadboy to being a media company.
We’ll be aiming for more original research and not just curate the news. As we nail down our processes, it’ll give me more bandwidth to research and share original content.
We’re exploring a lot of new products including free courses. Newsletter and threads are great, but I want to start helping you bridge the gap between theory and action.
We’re also planning to expand beyond writing. Podcasts and YouTube could be interesting.
So much more in the pipeline! I rather just ship when it’s ready than hype things up.
The most important thing for me is:
- Increase the quality bar. There are so many content creators out there now, and ChatGPT’s only going to keep improving. The only way to stand out is to level up my content.
- Keep it real. This is such a shady industry. We’re going the extra mile to do due diligence if we take sponsorships or talk about any protocols.
Thanks so much. I wouldn’t be here if it weren’t for you. Me and the team will work as hard (and smart) as we can to help you navigate DeFi and Crypto.
I won’t get everything right, but I promise to work my hardest and to stay honest.
🍿 DeFi Bites
Sam Bankman-Fried pleaded not guilty to all charges. Two people who signed SBF’s bond were granted anonymity by the judge.
Coinbase will pay a $50 million fine to the New York State Department of Financial Services to settle charges that it let users open accounts without conducting sufficient background checks.
Celsius now owns all of its customers tokens. A bankruptcy judge rule that there wasn’t enough value left to repay the customers. Not your keys, not your coins.
Gemini, a crypto exchange, is being sued by investors over their Gemini Earn program. Due to Genesis insolvency, Gemini had abruptly halted the program in November.
FTX Japan will allow customers to withdraw money starting in February. It was possible because these funds were under Japanese law. The company did say that the timeline could change.
White House claims that the meetings between SBF and Biden administration officials were primarily about pandemic preparedness initiatives. SBF was second largest individual donor to the Biden campaign.
China is launching the first ever state-backed NFT marketplace. Its name translates to “China Digital Asset Trading Platform”. This is a sign of acceptance in a country where the cryptocurrency regulations are very strict.
Convex Finance is updating its staking system on Curve protocol. This will allow users to earn more rewards and have more control over rewards. They are proposing changes to the fees on the platform.
Lido Finance, a liquid staking derivative, flipped MakerDAO in Total Value Locked. Lido is now the largest DeFi protocol in terms of the TVL. This also led to an impressive rally over the week.
Magic Eden, leading NFT marketplace on Solana, displayed porn and big bang theory images instead of NFTs. This wasn’t any hack, but a fault of a “third-party service” used for caching images