NFT, DeFi, Bitcoin… will crypto escape the gloom in 2023?

A year of tests and trials, trying for the Web3 ecosystem and marked by many twists and turnsKPMG multiplies the qualifiers for 2022. But the firm anticipates above all the trends in 2023 and reassures on the prospects for the crypto sector.

KPMG France does not lack qualifiers to describe 2022. However, there is no question of painting a picture without nuance. In its latest annual report Crypto Perspectivethe firm sees the past year as one of test” period for “all aspects of the web3 “.

However, these would have emerged “consolidated”. A few examples to illustrate this: “The collapse of the NFTs in the second half of the year served as a reminder that the principle of scarcity is ultimately their essence and their added value”.

Consecration for layer 2s, dominated by optimistic rollups

Even MiCA and TFR, which the crypto industry was very apprehensive about, are becoming assets. How? By inspiring “greater confidence in the ecosystem”. Nevertheless, mistrust remains exacerbated, even if indeed the speculative bubble has partially subsided with the end of the bull market.

Very involved in the development of the crypto sector and with its players, KPMG is therefore optimistic for 2023 – and in its analysis of 2022. This is the tone adopted by its French experts at a CryptoTalks in January.

On the blockchain infrastructure side already, the company estimates that 2023 will be ” the year of layer 2 ” – a trend already announced for 2022. Indeed, blockchain consultant Flavio Restelli believes that new L2 technologies have experienced a very significant growth. 2023 should be the “consecration”.

However, it is necessary to distinguish two categories of layer 2, namely the Optimistic rollups (Optimism, Arbitrum) and the ZK Rollups (Starknet, ZKsync 2.0, Polygon zkEVM). And among them, Optimistic rollups are the most popular today.

The technology of ZK Rollups is very sophisticated and interesting, however, we see how far behind they are in the market (…) And in terms of adoption, Arbitrum has already reached consistent levels with over $1 billion in TVL.”

Ethereum alternatives underperform

The competition is also at the level of blockchains layer 1. However, KPMG notes that ” Ethereum remains the benchmark programmable blockchain in layer 1, not least because of its ongoing technical development,” says Flavio Restelli, referring in particular to The Merge.

The sites are not finished. The next one will be in Shanghai in March, and will enable ETH to be unlocked in staking.

As for the alternative blockchains, “they underperformed overall in 2022 in terms of volume, performance and security,” citing the problems that plagued Solana and Binance Smart Chain.

Markets based on these infrastructures also experienced significant movement. In 2022, the transaction costs did not constitute an obstacle to use.

NFT: from speculation to fundamentals, including utility

As far as NFT sales are concerned, the expert regrets OpenSea’s near monopoly. He therefore hopes to see competitors come and challenge this domination. This could be the marketplace Blurwhose beginnings are dazzling. This competition is taking place in a declining market (-90% of volumes).

The announced end for the non-fungible tokens ? “Not at all,” retorts Stanislas Bathelemi, manager cryptos & Web3 at KPMG France. The Number of users increased in 2022. The decline in trade value is primarily due to the drop in NFT prices and valuations.

We can still bring adoption into this sector,” he judges.

This adoption is achieved through projects that reach a wider audience than just collectors and speculators. And KPMG cites the Australian Open, for example, which in 2023 relaunched an operation to democratize the use of NFTs among tennis spectators.

RTFKT, owned by Nike, is another example of mass NFT project. Its sales generated $185 million in revenue. In addition, these tokens accounted for over $1 billion in high school sales.

DeFi’s resilience and values bolstered

On the gaming side, the trend is changing there, too. The Axie Infinity model, its “approach to financialize a video game ” and its limited functionality, is gradually giving way.

Emerging from the games offering a real gameplay rather than “finance in disguise” and including a “crypto component, highly developed or little”.

In 2022, DeFi too took a hit. The TVL collapsed. It was over $160 billion at the end of 2021. A year later, it was only 44 billion dollars – well above the 15 billion dollars of 2020. For Flavio Restelli, this decline should be put into perspective.

It is primarily due to the fall in the price of cryptocurrencies. In millions of ETH blocked on DeFi smart contracts, the drop is much smaller between 2021 and 2022 (45 million Vs 33). Moreover, some protocols show growth over the period, such as Lido (36%), MakerDAO (6%) or Uniswap (18%).

In addition, compared to the BeCeFi and the collapse of major centralized players (FTX, Celsius, Genesis…), the DeFi is showing strong resilience, KPMG notes.

Decentralized stablecoins, a potential alternative

The industrial accidents of the CeFi even value the specificities of the decentralized finance that are self-custody, transparency and composability. On the securityDeFi, on the other hand, remains far behind, accounting for about 80% of losses in 2022.

DeFi will not lose out at all in 2022. With a more favorable environment in 2023, the ecosystem will likely be able to rebound. It is ready to do so.”

The launch of experiments in the DeFi by the institutions is a strong signalthe analysts say, citing in particular the tests of JPMorgan on Aave Arc.

Will the stablecoin industry also see sweeping changes? The SEC’s offensive against the BUSD might suggest so. In the meantime, it is the centralized stablecoins that dominate the market, including the DeFi market.

Decentralized finance, however, is also promoting stablecoins in its image. But designing a token that fits this model is not easy to guarantee, consultants say.

This alternative could coexist with centralized stablecoins. “ It will not destroy their dominance “, estimates Flavio Restelli.

Bitcoin down, but solid fundamentals

Bitcoin at last, the benchmark of the cryptosaw its price plummet last year. For Stanislas Bathelemi, one should certainly not “give in to panic”. He insists on a “back to the basics”. With a resilient hash rate, even if the minors are shaken up. This month the BTC rate was briefly back above $25K.

The network security “remains at a very high level,” the manager boasts. The number of users is also growing, he adds, pushing the issue of the price of the crypto-asset to the back burner.

The expert thus prefers to focus on illustrating the “social utility” of Bitcoinand to challenge the “simplistic” ideas around the energy-consuming nature of blockchain. KPMG consultants want to believe in a “change in discourse on the environmental footprint” of the crypto queen.

2022 was a tough year in terms of valuation, but it’s still worth taking a step back […] These difficulties really apply to all risky assets. In tech in the U.S., some stocks are declining in a way that is roughly comparable to what we’ve seen in crypto,” Bathelemi adds.

“If you go back to the fundamentals, the sector has grown despite a tumultuous year,” he concludes, referring to NFTs, Bitcoin, Ethereum and “a few others.”

As for FTX’s fall, it should serve as a “wake-up call” for the sector to “the core and founding values of crypto.”

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