Crypto and DeFi melted in 2022, but the demand in Web3 is just starting to gain traction. In the past twelve months, the interest in Web3-related searches has remained within 30% from the peak in late 2021, and the next uptrend might be on its way.
Below is a list of 9 of the Web3 trends that currently are gaining momentum and will be part of the 2023 industry growth.
Continue reading for a detailed breakdown of each one.
Crypto, by nature, is anonymous, but that doesn’t mean it should be anti-social. Ever since the early days of the internet, people have used nicknames to identify themselves online. Similarly, in Web3, 0x… addresses are used to identify cryptocurrency wallets.
Current addresses are often lengthy, complex strings of letters and numbers that are difficult for humans to remember and associate with a specific person or company.
This lack of social connection between a raw 0x… address and a person’s identity on the internet has led to the development of a new branch in decentralized finance (DeFi), known as “social DeFi.”
Social DeFi refers to a range of apps and platforms that aim to make it easier for people to connect and interact with each other using cryptocurrency. Some of the critical features of social DeFi include:
Telegram recently launched Fragment — a marketplace where you can buy and sell Telegram usernames and virtual phone numbers.
This creates a completely new market for all social media account owners. Instead of something relatively meaningless that you set and forget, your username becomes a valuable asset, one of its kind, like an NFT. It is still relatively illiquid, but platforms like Fragment make it easy to cash out.
Currently, Fragment offers only Telegram usernames, but looking into the future, you can already see all kinds of things trading there: from handles on major socials like Twitter/Instagram/Snapchat to character nicknames on World of Warcraft servers to even maybe license plate numbers.
Elon Musk recently announced that Twitter is planning to delete 1.5 billion inactive accounts freeing up username handles. This kind of “purge” will free up a lot of valuable real estate on the platform and create an opportunity to snipe some of the appealing usernames with the expectation to resell them later for a considerable gain.
Twitter was one of the first major social media platforms to integrate web3 features focusing on NFTs. Early in 2022, they added the possibility to set an NFT as a profile picture for all Twitter Blue paid subscribers. In a recent update from October 2022, the developers added the ability for users to trade NFTs directly from tweets.
Back in November 2021, Twitter formed its internal web3 development division, and with Binance recently investing $500 million in Twitter, you would expect more web3 features integrated into the app.
Instagram is expected to follow suit since the platform is owned by Meta which recently pivoted into building products for the metaverse. Instagram already allows users to mint and sell NFTs directly through the app, with more features coming along in 2023.
Overall, social DeFi has the potential to bring people together in a previously impossible way and to create new opportunities for collaboration and innovation in the cryptocurrency space.
The number of unique active wallets interacting with Social dApps has risen by over 1250% in 2022, and it is projected to keep increasing in 2023 with the increased demand for web3 identities.
Investing in DeFi and cryptocurrency can yield outsized returns, but it also comes with inherent risks such as hacks, exploits, rug pulls, and scams. Many investors are turning to insurance to mitigate these risks and protect their assets, especially after 2022’s LUNA and FTX incidents.
On platforms like Insurace.io, Nexusmutual.io, or Neptunemutual, you can ensure your wallet from anything in DeFi from a hack of a particular protocol, stablecoin de-peg, or insolvency of a centralized exchange for about 0.2–0.9%/month depending on a product type.
Key Facts:
As we can see from the above points, the crypto insurance niche is still in its infancy and there are many things to improve: liquidity, capital efficiency, product availability, and costs, all of which are expected to see more light in 2023.
In 2023, we can expect to see more liquidity flow into DeFi and crypto risk insurance products as traditional investors seek additional protection for their assets
Web3 insurance can offer protection against the inherent risks of investing in decentralized finance (DeFi) and cryptocurrency. As traditional investors continue to embrace DeFi and crypto, demand for risk insurance products is expected to increase.
NFT liquidity has been a longstanding issue in the world of Web3. These assets are notoriously illiquid, making it difficult for owners to convert them into cash.
However, some protocols, like Sudoswap, attempt to solve this problem by creating pools where NFTs can be bought and sold instantly. This would allow users to easily exchange their NFTs for something more liquid, like a floor place, if needed.
OpenSea and Uniswap have recently acquired NFT aggregator services, gem.xyz and Genie, respectively, which plan to utilize Sudoswap’s liquidity to facilitate NFT trading. By making it easier to buy and sell NFTs, these efforts could increase the liquidity of the NFT market, making it more appealing to investors and collectors. Overall, developing liquidity solutions for NFTs is an essential mechanism in Web3.
Liquidity tools will stabilize the NFT market in 2023 and ultimately create a better Web3 infrastructure for users and investors. Marketplaces will become more liquid and NFT prices more predictable.
An excellent example from outside of crypto is Masterworks, which offers options for everyday investors to own a fraction of expensive traditional art for a lower cost by purchasing paintings and registering them with the SEC as IPOs (and selling shares of them for as little as $20).
One of the main barriers to the widespread adoption of decentralized exchanges (DEXs) has been the need for advanced trading tools, such as stop-loss functionality.
However, several protocols are working to address this issue, with dYdX being one example.
In addition to the lack of stop-loss functionality, liquidity and slippage/frontrunning have also been issues for traders on DEXs.
To address these challenges, platforms like Hashflow are innovating in DEX liquidity models by bringing market makers into the mix and allowing them to generate liquidity. These efforts aim to minimize slippage to as close to zero percent as possible, or at least to levels comparable to centralized exchanges (CEXs).
Overall, the development of advanced DEX trading tools is an important trend in the world of Web3, as it will help to make DEXs more user-friendly and competitive with CEXs.
After the collapse of the centralized exchange FTX, other CEXs saw a tremendous amount of outflow in favor of decentralized exchanges. As one of the more obvious ongoing Web3 trends is the increasing wave of new DeFi users, it will be of utmost importance for DEXs to keep improving their UI/UX and their assortment of advanced trading tools.
Move-to-earn, a trend that rewards users with cryptocurrency, non-fungible tokens, or points for working out, is gaining momentum and is expected to continue into 2023.
This innovative way of exercising has caught the attention of Olympic athlete Usain Bolt, who has partnered with the recently launched Step App, which allows users to earn NFTs and cryptocurrency for physical activities. The popularity of move-to-earn apps is on the rise, offering a new and engaging way for people to earn rewards while staying active.
More fitness web3 apps use similar mechanics that combine NFTs, cryptocurrencies, GPS, and GameFi technologies.
Examples:
The inflow of new users might have slowed down on the leading move-to-earn apps, but that is also due to the winter season in the Northern atmosphere. As spring approaches and people increase their activity, it is expected to see quicker growth again.
NFTs, or non-fungible tokens, have gained widespread attention in recent years as a new form of digital asset. They are unique, one-of-a-kind items that cannot be exchanged for other items of equal value. While NFTs were initially popularized in art, they have since gained traction in various industries, including sports, music, and gaming.
One exciting development in the world of NFTs has been the emergence of branded NFTs. These NFTs are created by or associated with well-known brands, companies, or celebrities. Branded NFTs offer fans and collectors the opportunity to own a piece of their favorite brand or celebrity, and they can be used to promote and engage with fans in new and innovative ways.
With 2022 being the year of the FIFA World Cup, we saw many footballers and teams launch their NFT collections. For now, the most popular option for owning licensed digital cards in the form of NFTs is Sorare.
Sports cards have long been a beloved collectible, with fans gathering physical cards featuring their favourite players and teams. More recently, digital sports cards in video games like FIFA’s Ultimate Team have gained popularity. Now, the collectible industry is turning to NFTs, non-fungible tokens, as a new medium for sports card representation and trading.
Top brands also use NFTs to build awareness and align with broader marketing. Coca-Cola, for example, used NFTs as a marketing tool in July 2021, selling a batch of collectibles in an online auction for $575,883.61.
The new wave of mainstream brand NFTs is expected to increase its share in the overall NFT market in 2023, which is currently dominated by PFPs (profile picture) type of NFTs.
Brand and sports NFTs are expected to continue their upward trend through 2023 due to the overall growth of Web3. The increasing adoption of blockchain technology and the desire for unique DeFi products as a source of income and a distinctive trademark are likely to drive this trend.
Many cryptocurrency projects have historically been vague about their operations, internal workings, finances, team, and partnerships. However, recent events, such as those involving FTX, have caused an increased focus on transparency in the crypto industry.
As a result, many projects are now taking steps to be more transparent.
Actions taken
Furthermore, there is an increase in publically available monitoring tools:
This trend towards transparency is accelerating as legitimate projects strive to gain the community’s and investors’ trust. Meanwhile, less transparent projects will raise red flags and be seen as untrustworthy. It is crucial for cryptocurrency projects to be transparent to build trust with their community and investors.
The collapse of FTX had some positive outcomes, including increased awareness in the crypto industry. Governmental regulatory action, the loss of client trust, and capital outflows prompted centralized exchanges and other crypto projects to become more transparent.
One of the first steps towards transparency was the introduction of proof-of-reserves data. Top analysis firms have also added tools to make tracking these metrics easier, making it harder for companies to hide.
With the continuous bear market, industry leaders acquire smaller companies that struggle to survive. This trend can be observed in the NFT space with Uniswap acquiring liquidity aggregator Genie, and Open Sea purchasing Gem.xyz.
Also, partnerships between existing projects are getting established to weather the crypto winter together.
During bear markets, financing can be tight, and the hype around the industry may dissipate. In these circumstances, smaller projects may turn to partnerships as a free marketing tool to increase their visibility and reach. On the other hand, larger projects may be more willing to engage in partnerships or acquisitions with smaller projects when there is less hype and competition in the market.
An example of market consolidation in the cryptocurrency industry is the recent partnership between Balancer and Aave for the exchange of governance tokens and the introduction of common pools. Both of these projects are well-established in the industry, but by joining forces, they can expand their reach and offer even more value to their users.
Partnerships and acquisitions can provide access to new resources, technologies, and user bases, which can help projects to survive and thrive in the long term. If the market continues to consolidate, partnerships and acquisitions will likely continue.
Regulatory compliance is increasingly crucial in cryptocurrency as governments worldwide seek greater oversight and transparency.
The recent FTX case has highlighted the need for crypto projects to be prepared for additional scrutiny from regulators. The US Commodity Futures Trading Commission (CFTC) chairman, Rostin Behnam, has called on lawmakers to create a regulatory framework for digital assets following the collapse of the cryptocurrency exchange.
Behnam told the Senate Agriculture Committee that the CFTC, which does not have the power to regulate spot markets, is “hamstrung” by its inability to register cash market exchanges.
He also said that the CFTC had no legal authority to examine any of FTX’s other entities and had no visibility into their operations. Behnam has previously called on lawmakers to give the CFTC more authority to regulate digital assets.
The MiCA (Markets in Crypto-Assets) regulation is set to be introduced in 2023. On October 10, 2022, the European Parliament’s Economic and Monetary Affairs Committee voted overwhelmingly in favor of the regulation, paving the way for a vote by the entire European Parliament before the end of the year.
If passed, the law will allow providers of digital wallets and other crypto services to sell their products across the EU, provided they register with national authorities and meet minimum guarantees for investor protection and financial stability. The MiCA bill also requires crypto issuers to publish a white paper with information about their project.
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There are some concerns about limits on stablecoins and whether the rules will apply to non-fungible tokens (NFTs). In addition, the EU is considering a digital finance strategy, a Digital Operational Resilience Act (DORA), and a DLT pilot regime for wholesale uses to strengthen regulatory compliance and ensure the stability and security of the cryptocurrency industry.
Founders of Web3 companies are likely to face stricter regulatory scrutiny and may need to acquire additional licenses to operate in 2023. The crypto incidents of 2022 have spurred regulatory institutions worldwide to take action, and this trend is expected to continue.
With the widespread adoption of blockchain technology, Web3 has become the frontier of innovation for entrepreneurs and builders.
The industry is still in its infancy and rapidly evolving with trends changing every month. It becomes critical to remain ahead of the curve and stay on top of the recent market dynamics.
In 2023, we expect to see significant progress in social DeFi, insurance protocols, and tools for NFT liquidity. Mainstream NFTs, move-to-earn apps, and advanced trading tools for DEX are expected to see even higher velocity.
Yet, it is also critical to pay attention to the newly introduced industry regulations and stay on top of relevant market consolidations.
Disclaimer: This article is not intended to serve as financial advice. The sole objective is to provide an educational perspective on the current state of Web3 and to identify trends that are gaining momentum. Investing in products, tokens, or company shares associated with these trends will not necessarily result in financial gain. Always conduct your own research and seek the advice of a financial professional.
We regularly prepare insightful reports and case studies about crypto trading and the blockchain industry.
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