Although the failure of several centralized companies in 2022 rocked the crypto industry, the DeFi ecosystem remained intact.
However, this does not mean that decentralized finance players have been spared from the many bankruptcies in the centralized industry. The ongoing bear market and damage to customer confidence in digital currencies has proven damaging, but there is a silver lining in this cloud.
Compared to Centralized Finance (CeFi), Decentralized Finance (DeFi) offers superior robustness, transparency and scalability. When customers choose centralized rather than decentralized systems, they accept certain disadvantages that were brought to light by last year's fiasco events.
The abrupt collapses and bankruptcies have taught traders and investors a difficult and costly lesson, but one that must be learned. With this in mind, DeFi platforms have come into focus and are constantly evolving to offer new opportunities to crypto investors.
In this article, we will examine some of the big DeFi trends that could emerge in 2023 as the cryptocurrency industry works to emerge from the bear market.
1. Emerging real assets in 2023
RWAs account for the largest share of the global financial industry, however, until 2022, DeFi protocols did not have the proper infrastructure to adopt RWAs. In 2022, DeFi protocols began generating revenue from the yield farming speculation that took place over the past two years.
RWA has already helped unlock large amounts of liquidity and use cases by moving on-chain. RWAs will become more mainstream in 2023 and many in the industry see them as a prime way to make money from this DeFi trend.
On the other hand, investors are now less willing to speculate as the cost of digital assets has fallen and there are fewer prospects for yield farming.
Therefore, now more than ever, there is an incentive for DeFi protocols to seek new revenue streams and enter real-world assets that can generate more sustainable returns.
Major decentralized finance lenders, including MakerDAO, have proposed investing money in the US Treasury alongside corporate bonds. Additionally, the company has formed alliances with traditional banks to provide loans with RWAs as collateral.
These investments are made in the hope of increasing the value of the RWAs.
Also read: Lido now has the highest TVL in DeFi; Better than MakerDAO
2. Increasing stablecoin adoption
The main purpose of stablecoins is to provide a close connection to traditional commodities. Despite the prevailing bear market conditions, stablecoins such as Circle's USDC or Maker's DAI continue to be among the top cryptocurrencies by market capitalization.
Stablecoins, which also have extensive applications, are quickly becoming the most well-known cryptocurrencies on the market today.
Recently, Japan, a country known for its strict cryptocurrency laws, announced that it would lift the ban on local circulation of cryptocurrencies issued abroad in 2023. This change will occur over the next five years.
India, the world's largest democracy, is also in the pilot phase Digital Rupee (eINR). In December 2022, it announced the pilot launch of CBDC-R.
The adoption of stablecoins by various governing bodies worldwide has increased the possibility of improving foreign remittances with a fast and reliable system in the coming year.
3. Prioritize Layer 2 scaling and ZK technology
The Ethereum Merge was one of the most anticipated events of 2022, but market crashes due to the collapse of Terra Luna and FTX overshadowed its achievements. Additionally, gas fees and transaction speeds still pose barriers to mainstream adoption.
Developing zero-knowledge (ZK) innovations with Layer-2s, dubbed “The Surge,” will continue to be a key focus for DeFi engineers in the coming year.
According to trading analysis sites like the-ethereumtrader.com, a ZK proof is a type of digital verification that will significantly improve the performance and scalability of blockchain networks. The end result will be a significant improvement in both the scalability and performance of these networks.
4. Data compliance and security
In the coming years, safety will be the main concern for everyone. Last year, DeFi platforms fell victim to billions of dollars in theft. Even the FBI advised investors to be cautious about this area in general.
ZK proofs increase the security of on-chain interactions while reducing transaction costs and speed.
Getting everyone on board will be a challenge unless there are successful attempts to increase security in this area in the next few years.
5. DAO expansion
Despite regulatory ambiguities, decentralized autonomous organizations (DAOs) have managed to stay out of trouble over the past year.
In 2023, the emergence of DAO governance could strengthen its credibility, and ultimately decision-making in this space would be much more transparent, preventing another FTX-like collapse.
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