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DeFi predictions 2023: How will crypto and blockchain evolve? 

Undoubtedly, 2022 was a rather depressing year for the world of crypto and DeFi in general. Scams, hacks, carpet pulling and other illegal activities have significantly eroded the industry’s confidence. Market sentiment for cryptocurrencies has been significantly low compared to the previous two years. It has also hindered the progress made by blockchain and DeFi protocols.

As we enter the new year, it is important to look at some of the key projections for the industry in 2023, and understand how the market may evolve or transform in the new year.

The positives of 2022

Not everything was grim and negative in 2022. We have seen blockchain adoption grow across all industries. Specifically, the banking industry increased its blockchain market share to 29.7% compared to 11% in the previous year. Last month, one of the largest organizations in the banking and financial services industry, JPMorgan executed its first blockchain transaction using the Polygon network. Citigroup also increased their blockchain investment this year.

The adjusted TVL (total value locked) on DeFi protocols also increased from $60 billion to $142 billion this year. In 2021, Ethereum was the main blockchain network for any existing and emerging DeFi projects. Although Ethereum’s dominance remained in 2022, the market share for other competing blockchains such as Solana and Polygon also increased this year.

Top DeFi and Crypto Predictions for 2023

Regulation is inevitable

From Celcius to FTX exchange, the current industry has been plagued with scams and hacks this year. In the recent FTX crash alone, over $1 billion in user funds were lost. Major crypto investment platforms such as BlockFi have also filed for bankruptcy due to the lack of funds available to accommodate user withdrawals.

The continued success of these events in 2023 has inevitably raised concerns about more regulations in the industry. Binance CEO CZ has already provided a statement supporting the need for more regulatory oversight for centralized exchanges. US President Joe Biden is pushing with other G20 countries for a comprehensive regulatory framework for digital assets and transactions. These movements and current market scenarios suggest that in 2023 we will see much more regulations applied to crypto and DeFi marketing.

Decentralized Exchanges (DEX) will gain traction

The ongoing failure of centralized exchanges this year has shown that transparency and control are the most critical aspects of this industry. Many users have learned the hard way that it is not a good idea to trust centralized exchanges with their funds.

Although DEXs are often complex and require more caution from the average user, such platforms offer complete transparency and control. Users do not have to hand over their money to a corporation, instead they have full visibility of how their assets are stored or invested on the platform. Therefore, 2023 could potentially be a breakout year for DEXs, and we might also see more innovative features coming to DEX apps and platforms.

Stablecoins will be under scrutiny

After the monumental failure of Terra LUNA and its UST stablecoin, the market has become extremely wary of stablecoins that do not have adequate auditing mechanisms in place to validate their assets and maintain their dollar peg. Several tier-2 stablecoins have already failed in 2022 due to the lack of user interaction and adoption. Such scrutiny may continue into 2023, as the entry of new stablecoins into the market is likely to remain low. The market will likely continue to be dominated by USDC and Tether.

Is Ethereum Better Than Bitcoin?

In terms of growth and scalability, ETH is on track to outperform BTC in 2023. In September of this year, the long-awaited Ethereum merger finally took place, changing the network’s consensus model to Proof-of-Stake (PoS) from the power-hungry mining-based Proof-of-Work (PoW) framework. Not only did this make the popular blockchain more sustainable, but it also significantly lowered ETH token supply.

This will reflect positively on ETH in 2023, and the network’s wider adaptability will potentially pave the way for Ethereum to outperform Bitcoin.

Overall, 2023 is an important year for DeFi, blockchain and cryptocurrencies. As market sentiment continues to remain low, the community will be hoping for a lift heading into the new year.

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