The DeFi ecosystem is leaving behind a bittersweet year. The breakdown of Terra (LUNA) and the FTX case dominated the mainstream agenda. But besides that, global metrics show a significant growth and adoption of DeFi platforms: we started 2022 with 4.7 millions users and we have finished it with more than 6.5 millions.
This trend is likely to continue as more people become interested in Decentralized Finance ventures. The impact of blockchain technology in the Fintech industry increases transparency, security and makes digital transactions more efficient. A quite close document of OECD (2022) highlighted that “DeFi applications are building on the use of smart contracts, which could allow for cost reduction in issuance, administration, execution of transactions, while also potentially reducing execution risk”.
But… What can we specífically expect of the DeFi market in 2023, and how is Rather Labs contributing to that ecosystem?
1. Gaming & Metaverse
The DeFi sector within the realm of blockchain gaming has seen significant expansion as the number of gamers grows. This tendency gets bigger if we include a crescent appearance of metaverse platforms that are looking to add internal transactions inside them.
Through blockchain, gaming players have the ability to securely earn various cryptocurrencies, NFTs, and other number of digital assets. DeFi protocols can help ensure the transferability of these in-game assets and monetize their time spent there thanks to this technology.
In Rather Labs we can confirm that trend. Our team is working on different solutions for this specific sector of the industry and the contacts of game and metaverse startups looking for DeFi integrations is increasing fast.
2. Increased competition
Grand View Research predicted a few months ago that the DeFi market is expected to reach USD 231.19 billion by 2030. That implies a Compound Annual Growth Rate of 42.5% for the next 7 years.
With these numbers it is highly probable that more players will enter the space or transform their current industry into a DeFi service. That means that competition will increase and also opportunities will flow.
We have to remember that we are talking about a really young market, which started drawing attention at the beginning of the pandemic, when a number of DeFi applications appeared, gaining traction with users. That's why in 2023 we can expect more innovation in this ecosystem, better products for users and better DeFi UX.
This process promises a real democratization of finances all around the world, because of it simplesness and security in operations. 2022 closed with almost 5 million wallets interacting with DeFi and all predictions see a deepening in these tendencies. Due to the decentralized and self-governed nature of DeFi protocols, the market has the potential to have a much larger and fast scale than traditional finance.
Fast tip for startups: Put an eye on your growth plans and try to present a conscious and solid roadmap for investors and the general public.
3. Decentralized exchanges
Black crypto episodes during 2022 encouraged the importance of Decentralized Exchanges (DEXs), probably leading to more experiences in that route by 2023. By definition, DEXs are cryptocurrency exchanges that operate in a decentralized manner. That means they do not rely on a central authority or server to facilitate trades. Instead, they use smart contracts.
5 characteristics of DEXs:
- Privacy: DEXs often offer greater privacy compared to centralized exchanges.
- Security: This is a strong benefit. DEXs don't hold users' funds and are truly hackers resistors.
- Greater control: Connected to point B, users have greater control over their funds, as they are able to hold and manage their own private keys.
- Lower fees: They often charge lower fees compared to centralized exchanges.
- Accessibility: Access can be done from anywhere, as they are decentralized and do not rely on a single server or location.
The challenges for DEXs? First, Decentralized Exchanges have to solve the need for liquidity, especially when compared to its centralized counterparts. And inevitably, this is connected with the scalability perspective.
And B) DEXs have to focus on going through Security Audit processes, to avoid unfortunate events in the future and offer more confidence to the market and the general public.
If you are thinking in a great DeFi project, you must consider the evolution and perspectives of DEXs. Rather Labs has a specific chapter destined to this industry and proven track record on different initiatives.
4. Increased regulation
Relevant cases such as the FTX saga, combined with the increasing integration with traditional financial institutions, will probably promote a future of more regulation for DeFi initiatives.
You can imagine this as a pendulum: interoperability will expand in the near future, making DeFi more accessible to a wider audience. But in the other corner, it is highly likely that regulatory offices will turn their attention to the industry and seek to impose rules. Nobody knows exactly what this could mean: it is a process and it will take time and discussion.
Some interventions may have a bad impact in the short-term, but others like Anti-Money Laundering controls and labeling DeFi-related financial products could bring certainty to the space, according to analysts.
We are talking about a rapidly evolving field and many variables that could impact its future. Besides conceptual discussions, this point will also have an impact in technical developments. If you are planning to enter the DeFi ecosystem or are already inside it, we encourage you to talk with our team about this issue. Rather Labs has extensive experience working on DeFi projects, including Membrane, an over-the-counter trading, and lending platform for institutional clients; Hatom, the first lending protocol on Elrond network, modeled after Compound; and Rather Labs Vaults, an investment platform offering market-neutral alternatives for institutions.
5. The stablecoins year
From the very beginning, the role of stablecoins in the DeFi ecosystem was critical. DLT-based fiat-backed tokens composed the main type of collateral used to provide liquidity to applications. This large use of stablecoins in DeFi protocols is pushing, in parallel, the convergence between traditional and decentralized financial markets. Is important to keep in mind that stablecoins are mostly tokens denominated in USD, backed by financial assets held as reserves in a traditional financial institution.
All these indicators may predict a year of protagonism for stablecoins. Some political movements in Japan and Hong Kong are confirming this while also accelerating this tendency. In addition, analysts anticipated a fast increase in 2023 on demand and adoption of dollar-pegged stablecoins globally, especially in developing countries with weak economies.
The relation with Decentralized Finances? The increase in the use of stablecoins will support DeFi mass adoption.
Last but not least
If you are about to enter into the promising DeFi market, you will need a partner with experience and network to guide you. In Rather Labs, we work with startups in the fullfiling of their goals and plans. Contact us for a free consultation.
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