5 Trends in DeFi for 2023

Many centralized firms have gone bankrupt in the last year, but the DeFi ecosystem has stayed strong.

That is not to imply that the numerous insolvencies in the centralized industry have spared DeFi players – protracted bear market conditions and harm to customer trust in cryptoassets hurt — but there is a silver lining.

What distinguishes DeFi is that it is “more resilient, transparent, and scalable than CeFi,” according to Ryan Rasmussen, a Bitwise crypto research analyst.

“Events like this highlight the trade-offs that customers make when they pick centralized vs decentralized services,” he said. “It's a hard — and costly — lesson, but it's necessary. DeFi will benefit from this in the long run.”

As the year comes to a close, Blockworks examines some of the significant patterns that may emerge in 2023 as DeFi attempts to climb out of the bear market.

Push toward real-world assets

By migrating on-chain, real-world assets (RWA) have already helped release significant amounts of liquidity and utility.

Large DeFi lending players like MakerDAO have proposed investing in US Treasurys and corporate bonds, as well as partnering with regular banks to issue loans with RWAs as collateral.

These movements are likely to become more widespread in 2023, as many industry participants already see RWAs as a great way to combine traditional institutions with DeFi liquidity.

Partnerships with banks, according to Marcus Leanos, co-founder and chief investment officer of Adapt3r, bring together one of the most viable use cases for DeFi, describing it as “something that might scale and disrupt the real-world assets sector and connect DeFi to the banking system.”

Greater stablecoin adoption

Stablecoins are closely related to real-world assets. Despite the bear market, stablecoins like Circle's USDC and Maker's DAI remain among the top cryptocurrencies in terms of market capitalization.

Stablecoins are among the most extensively used cryptocurrencies, with numerous applications. Recently, Japan, a somewhat stringent jurisdiction in terms of cryptocurrencies, announced that the ban on domestic distribution of foreign-issued stablecoins would be lifted in 2023.

These positive changes to stablecoin trading that we are seeing now have the potential to accelerate stablecoin adoption and cut time and costs on international transfers in the coming year.

Focus on layer-2 scaling and ZK technology

The Ethereum Merge was one of the year's most talked-about events, but gas fees and transaction speed remain barriers to widespread adoption.

As one of the world's largest networks enters its next generation, called “the Surge,” zero-knowledge (ZK) technologies and layer-2s will remain a priority for DeFi engineers in the coming year.

A ZK proof is a digital verification mechanism that will dramatically increase blockchain network scalability and performance. The final result will be enhanced ecosystems that can handle a greater volume of transactions in less time.

Security and compliance

Security will most certainly be a major priority in the next years.

ZK proofs will not only enhance transaction speed and prices, but will also significantly increase the security of on-chain transactions.

Over the last year, billions of dollars have been stolen on DeFi platforms. Enough so that the FBI advised investors to be cautious of the space in general.

It will be difficult to bring the masses aboard unless initiatives to increase security in space over the next few years bear fruit.

DAO growth

Though regulatory ambiguity remains an issue, DAOs have mainly avoided difficulties this year.

FactoryDao's Nick Almond, also known as drnick on Twitter, believes that consistent performance combined with structural maturity could result in a “massive departure out of centralized institutions into decentralized ones.” A possible victory for DAOs.

The growth of DAO governance in 2023 may strengthen these organizations' legitimacy and eventually make decision-making in the field far more transparent, averting another FTX-like collapse.

As a reminder, WikiBit is ready to help you search the qualifications and reputation of projects in a bid to protect you from hidden dangers in this risky industry!