Though the failure of several centralized businesses in 2022 has shaken the crypto industry, the DeFi ecosystem remained intact.
However, it does not mean that decentralized finance players were unaffected by the many bankruptcies that occurred in the centralized industry. The extended bear market circumstances and harm to customer trust in digital currencies proved to be detrimental but there is a silver lining to this cloud.
In comparison to Centralized Finance (CeFi), Decentralized Finance (DeFi) offers superior robustness, transparency, and scalability. When customers opt for centralized systems rather than decentralized ones, they are choosing to accept certain drawbacks, which are brought to light by fiascos that took place last year.
The abrupt collapses and bankruptcies taught traders and investors a difficult and costly lesson, but it is one that absolutely must be learned. With that in mind, DeFi platforms came into focus and are constantly evolving to offer new ways for crypto investors.
In this article, we will examine some of the big DeFi trends that may emerge in 2023 as the cryptocurrency industry works to pull itself from the bear market.
1. Emerging Real-World Assets in 2023
RWAs have the majority of stake in the global financial industry, however, until 2022, DeFi protocols didn’t have the proper infrastructure to adopt RWAs. In 2022, DeFi protocols started generating revenues via the yield farming speculation that took place during the last two years.
The RWA has already helped in unlocking large amounts of liquidity and use cases by moving on-chain. RWAs will become more mainstream in 2023 and many in the industry have begun viewing them as a prime opportunity to monetize with this DeFi trend.
On the other hand, investors are less eager to speculate now as the cost of digital assets has decreased and there are fewer prospects for yield farming.
Hence, more than ever, DeFi protocols are now incentivized to look for new revenue sources and get into real-world assets through which more sustainable yields can be found.
Big decentralized finance lending players, including MakerDAO, have proposed to put money in the United States Treasury as well as corporate bonds. It has also formed alliances with traditional banks to provide loans using RWAs as collateral.
These investments will be made in the hopes of increasing the value of RWAs.
2. Increasing Stablecoin Adoption
The main purpose of stablecoin is to create a close link with conventional trading commodities. Despite the bear market conditions that have been prevalent, stablecoins like Circle’s USDC or Maker’s DAI continue to be among the top cryptocurrencies by market capitalization.
Stablecoins, which also have substantial applications, are quickly becoming some of the cryptocurrencies that are the most widely known on the market today.
Recently, Japan, a country that is known for its tough laws on cryptocurrencies, announced that it would lift the prohibition on the local circulation of foreign-issued cryptocurrencies in 2023. This change will take place in the next five years.
The largest democracy in the world, India is also in the pilot phase for its Digital Rupee (eINR). In December 2022, it announced the pilot launch of CBDC-R.
Stablecoin adoption by various governing bodies worldwide has increased the possibility of improving foreign remittances with a fast and reliable system in the coming year.
3. Prioritizing Layer-2 Scaling And ZK Technology
The Ethereum Merge was one of the most awaited events of 2022, but market crashes due to Terra luna and FTX collapse overshadowed its achievements. On top of that gas fees and transaction speed still remain obstacles to mainstream adoption.
The development of zero-knowledge (ZK) innovation with layer-2s dubbed as “the Surge” will continue to be a primary focus for DeFi engineers throughout the upcoming year.
According to trade analysis sites like the-ethereumtrader.com, a ZK proof is a type of digital verification that will significantly enhance the performance and scalability of blockchain networks. The end result will be a significant improvement in both the scalability and performance of said networks.
4. The Data Compliance & Security
In the coming years, everyone’s primary concern will be security. Over the past year, DeFi platforms have been the victim of billion-dollar thefts. Even the FBI advised investors to remain wary of the space in general.
ZK proofs will increase on-chain interactions’ security while simultaneously lowering transaction costs and speed.
It will be challenging to onboard everyone unless there are successful attempts to increase security in the space during the next several years.
5. DAO Expansion
Despite facing regulatory ambiguity, decentralized autonomous organizations (DAOs) have managed to stay out of trouble this past year.
In 2023, the emergence of DAO governance may strengthen their credibility, and eventually, decision-making in the space would be much more transparent, preventing another FTX-like collapse.