Digital assets have grown at breakneck speed in the last year. Several centralized crypto companies, from hedge fund Three Arrows Capital to crypto exchange FTX, have gone bankrupt, while the SEC, Commodity Futures Trading Commission (CFTC), and other U.S. government agencies have gone bankrupt. Launched a regulatory offensive against related businesses. Moreover, all risk assets face an uncertain macro future amid high inflation, banking crises and possible recessions.
However, we cannot forget the long-term asymmetric opportunities that digital assets can bring. Fundamental investors are looking for digital projects with the highest potential for mass adoption despite negative overhangs. With this in mind, his five key themes have emerged in the digital asset market that could lead to greater blockchain adoption in the medium to long term.
1. Major Players Rise: Web2 Partnerships and the Next Wave of Web3 Users
Until now, digital asset adoption has been largely a native domain. web 3 Innovator. To continue along this curve, more early adopters will need to join. Several companies with pre-crypto origins have made significant strides in 2021 and 2022 through their efforts to help grow Web3’s user base beyond crypto-natives.
Four projects in particular leveraged Polygon, an Ethereum-based scaling solution, to facilitate these efforts.
polygon + project
In many of these cases, customers do not even know they are interacting with blockchain technology. The Web2 company has effectively abstracted blockchain. Up until now, Web3 onboarding has been pretty technical. By mitigating it, brands can drive mass adoption.
Google and Amazon also see the value of partnering with blockchain in their node operations. Amazon Web Services Partners with Avalanche and solana and google.
Why are all these brands adopting Web3 plans? To improve user experience and customer relationships, attract Gen Z digital natives, secure alternative revenue streams, and more.
As the momentum continues into 2023, we expect more major brands to follow suit and develop their own blockchain initiatives.
2. Ethereum dominates, but needs to scale to support mass adoption
With 60% of decentralized finance (DeFi) Total Value Lock (TVL) and 85% of NFT trading volume, Ethereum is the clear leader among smart contract platforms. But if millions of people flooded his Web3, it could overwhelm the Ethereum network and make the price of transactions on that blockchain prohibitively expensive. So how can blockchain scale up? There are three possible approaches.
3 blockchain types
- monolithic blockchain Like Solana, it offers execution, settlement, consensus and data availability all in one. Apps are built directly on the blockchain.But this leads to scalability issues, the so-called The blockchain trilemma — If the blockchain is decentralized and highly secure.
- modular blockchain Like Ethereum 2.0, the layers of execution, settlement and consensus, and data availability are separated. “Layer 2” in the form of sidechains and rollups help the original “Layer 1” blockchain scale without sacrificing decentralization or security. Applications are built on top of both Layer 1 and Layer 2.
- An interconnected blockchain world Cosmos and others are ecosystems with relatively secure inter-blockchain communication protocols, so data and values can be exchanged between different blockchains.
according to lindy effect Given the current dominance of Ethereum and its Layer 2 in launching new projects, modular blockchains are expected to become popular. Smaller positions in other blockchain scaling models, especially those with solid tokennomics and attractive relative valuations, can be a good hedge.
3. Tokenization introduces various foreign assets on-chain
Tokenization creates digital representations of a variety of assets, from securities and funds to artwork and other collectibles, and is one of the most important in the current Web3 narrative. The benefits of tokenizing assets explain why the subject is gaining so much attention.
Benefits of Tokenization
| tokenized Securities |
tokenized funds |
tokenized real real estate, art, and Other collectibles |
|
| Better accessibility |
open securities market to the global pool investor’s |
institutionalize private market strategy more accessible Individual investor with less investment minimal, improved onboarding, and May improve liquidity |
make it possible Subdivision |
| Better efficiency |
improved liquidity, faster payments, Reduce costs |
deform relatively liquid resources Commodities that can be easily traded |
The opportunities are huge. According to HSBC estimatesthe tokenized market size is expected to reach $24 trillion by 2027.
How is this theme expressed in portfolios of liquid tokens and non-fungible assets (NFAs)? Through smart contract platforms that provide public blockchain and settlement infrastructure for these tokenized assets. KKR Tokenized Healthcare Fund and Hamilton Lane’s $2.1 billion flagship fund Via Avalanche and Polygon respectively. Decentralized applications (DApps) (Maker, Centrifuge, Maple Finance, Ondo Finance, etc.) help users bridge their real-world assets (RWA) to her DeFi.
4. RWA Helps Combat DeFi Circularity
DeFi’sself-reference” has been recognized as a shortcoming in this field. For example, DeFi users may take out loans on the lending protocol Aave for leveraged trading of assets on the Uniswap decentralized exchange.
We are bullish on the opportunity to break through this circularity problem by integrating external information and “real world” use cases into a closed blockchain network. There have been numerous recent examples of non-crypto-native companies turning to his DeFi.
Through the lending protocol Maker, users can borrow DAI stablecoins by locking collateral into Maker smart contracts. Built on Ethereum, Maker determines the collateral it accepts and the collateral ratio for each collateral type. Most of Maker’s collateral today is in the form of stablecoins such as USD Coin (USDC) pegged to the US dollar, but RWA is the fastest growing segment. At the beginning of Q4 2022, RWA represented just 2% of Maker collateral. That has grown to 13%, and RWA income now accounts for more than half of Maker income.. In fact, RWA’s collateral currently includes US Treasuries and loans from the US through MIP65. Huntingdon Valley Bank of Pennsylvaniainvestment grade Asset-backed securities through BlockTower Capital.
RWA activities
Built on the Ethereum and Solana blockchains, Maple Finance is another lending protocol that provides the infrastructure for credit professionals to run their on-chain lending business.announced earlier this year $100M Debt Fund PoolThis will allow Intero Capital Solutions to borrow USDC using accounts receivable as collateral. Investors finance USDC with a target yield of 10%.
5. NFT: An Underrated Advantage
NFT activity boomed in 2021, with sales volume and unique buyers increasing by 41,784% and 6,959%, respectively. according to crypto slam. In 2023, NFT activity is on the rise again thanks to his two important events. Blur, Ethereum NFT Marketplace, And it became explosively popular, bitcoin ordinalthrough which users can write text, images and other data to SATOSHI (smaller bitcoin units).
NFT activity
The 2021 boom is reminiscent of the initial coin offering (ICO) boom of 2017 and serves as a proof of concept for DeFI. Despite cartoon monkeys and pixelated punk “profile picture” NFTs, we believe a much larger digital collectibles market will span the following industries:
- game: Through NFTs, gamers will be able to more fully own their in-game lands, avatars and other assets they have earned and invested. Game NFTs can be sold, exchanged, and moved between different metaverses, allowing users to move their digital assets out of the game. From A to game B instead of starting from scratch.
- music: Fans can invest in and support their favorite music artists through NFT. For example, if you buy a share of an artist’s song, you can earn royalties every time that song is played on a streaming service. NFTs also have the potential to enable real-world experiences for fans, such as early access to new music releases and meeting artists.
- Ticketing: NFTs can also be applied to the live event industry. Through the partnership between Ticketmaster and Blockchain Flow, event organizers can now issue NFTs before or after live shows. Like music NFTs, these applications can enhance the fan experience and serve as digital collectibles. On his website at Ticketmaster, wallet An NFT marketplace that allows collectors to share and trade.
- Social media: The centralized Web2 social media giants profit from content they didn’t create. Real content creators are underpaid or not paid at all because of the current advertising-driven business model of social media. By storing social media on the public blockchain via NFTs representing profiles, likes, comments, and other activities, content creators can access their content through social chips, secondary marketplaces of profiles, and other concepts. You can better capture the value of your work.
- Domain name Web3’s runa.eth, etc. are similar to their Web2 counterparts, such as runa.com, and serve as websites and email addresses. These domain names are technically represented as NFTs on the blockchain and offer additional use cases such as data storage, allowing users to grant applications permission to access specific information. In this way, users can carry their data around the web via her NFTs, allowing them to more fully own their online identities.
Admittedly, the digital asset sector is still in its early stages of development. It’s no longer in its infancy, but it’s far from a mature market. As such, it is still highly speculative and has plenty of potential.
That’s why it’s worth paying attention to and working on it carefully.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect those of the CFA Institute or the author’s employer.
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