5 Trends in 2023 Crypto Investment

OKX Ventures
11 min readJan 21, 2023

From a war, to a pandemic, to unscrupulous actors in the crypto economy, we’ve witnessed several unusual events in the last year that have precipitously consolidated into a global economic decline with rising inflation. Innovative companies and individuals seize this downcycle to re-invest in their infrastructure, emerging stronger once the inevitable upcycle arrives.

The downfall of some of the biggest players in the Crypto economy will galvanize lawmakers to provide more regulatory clarity, while crypto companies are using this time in the interim to reevaluate their longstanding practices in order to optimize for the long term. In response to the FTX collapse, some crypto companies have released features to address customer concerns over the security of their funds, including OKX’s Proof of Reserves.

The volatility of the crypto environment, and the impact on its early adopters and innovators will no doubt be discussed and analyzed for years to come, however, there are silver linings. The ‘creative destruction’ created by events in 2022 will ultimately be a huge win for the consumer, both in regulatory protections and rapid innovation and ultimately, lowered cost structures.

Read on to learn more about our outlook for the year ahead, and how we are meeting these challenges.

If you have questions about crypto investment and want to understand how OKX ventures can help your investment firm, please reach out to us at ventures@okx.com.

With an initial capital of $100 million, OKX Ventures has invested in hundreds of teams building everything from blockchain infrastructures, NFTs, metaverse technologies, Decentralized Finance, GameFis and more. We’re committed to helping entrepreneurs who contribute to the development of the blockchain industry build great companies and bring global resources and historical experience to blockchain projects.

Ethereum retains the largest number of developers

With the Ethereum merge shifting from Proof of Work to Proof of Stake, energy consumption has slashed by 99%. With multiple OP Layer2s scaling Ethereum, we expect to see Danksharding boost TPS to 100k+ after approaching Shanghai Upgrades.

With exciting innovations on the horizon, OKX Ventures continues to invest in a trust-minimized form of cross-chain communications, and others which advance blockchain interoperability.

Onboarding Innovation

In the last few years, the DeFi and Web3 space has seen steady growth. In 2020 the DeFi space onboarded many financial enthusiasts. In 2021, GameFi and Play 2 Earn projects onboarded tens of millions of gamers and gamblers. In 2022, Yuga Labs, Reddit and Starbucks activated and onboarded tens of millions of traditional users with their NFT products.

OKX Ventures has invested in hundreds of projects in the GameFi, DeFi, NFT and other sectors. And we’ll continue to focus on two areas around “onboarding” in 2023.

* Web2.5 application

Traditional companies like Starbucks and JP Morgan have attracted a number of users to the Crypto industry in the past year. In 2022, Reddit users minted over 5 million NFT avatars.

Traditional brands, internet companies and KOLs have seen enough dividends in the web3 space for the showcase to work.

Polygon also benefited from partnerships with major brands to attract new users, and the the cumulative number of wallet addresses has increased by as much as 54%.

Apple’s 1 billion users and Instagram have embedded NFT into certain features as well.

source:Dune

* Improved Wallet Experience

Complications in storage and retrieval of both public and private keys have dampened the progress of making crypto and Web3 wallets secure and readily adopted. The fear of losing assets by way of losing these keys has kept widespread adoption and usability out of reach.

For Web3 to advance towards the next adoption phase, some Wallet developers are making big investments on improving the Wallet experience to improve usability.

With low-threshold wallets, improved Web3 experiences, easier access to DApps, the introduction of shared secure open source, and with many more innovations on the way, we’ll start seeing not only a more user-friendly environment for wallet novices that will unlock Web3 innovations.

DeFi Revitalization

The overarching theme for 2022 in crypto was deleveraging, as the data proves. The total value locked in DeFi declined 76.1%, from $166.58 billion to less than $40 billion. The three largest lending protocols, MakerDAO, Aave, and Compound, have collectively reduced their aggregate deposits by 76.1%. But these fluctuations are all in preparation for grander innovations ahead.

More efficient decentralized trading mechanisms, compliance and corresponding infrastructures will help lend itself to a cautious atmosphere for institutional and investment firms.

* Decentralized Stablecoin Re-launch

Over the past few years, we have seen a number of failed Stablecoins. Stablecoins are critical to DeFi protocols and can be used to attract new users to DeFi through liquidity and even increase the revenue and FDV of the protocols. The industry is looking to developers in this space to take these lessons to innovate against past failures in order to advance and stabilize these coins.

source:The Block,Coin Metrics

Aave’s, Curve are just two of many players developing a better stablecoin. The Curve-led liquidity wars will have stabilized, and the next phase of the decentralized stablecoins may have utility in the real world.

* Tracking the GMX model, Layer2-enabled derivatives will emerge.

The rise of GMX represents a breakthrough adoption of L2 in 2022. GMX achieved $81.4 billion in volume in 2022, generating $33 million in revenue, and is currently the top 1 TVL in derivatives, ahead of dYdX and Perpetual.

source:Nansen

There is still plenty of room for Arbitrum and Optimism on DeFi in 2023. The Optimism rollup ushers in a lower gas fee, faster interactions, and Layer1 provides security and consensus for DeFi and its derivatives, and GMX takes full advantage of the improved environment.

* NFTFi Boosts Capital Efficiency

In the first half of 2022, the NFT market continued its hypergrowth from the second half of 2021 with the explosion of several large PFP blue chip projects.

Though the market has deleveraged in the second half of 2022, we believe the value of NFT assets will return. The NFT industry will move beyond digital art and push into utility applications for wider adoption.

source:CryptoSlam
source:NFTGo

OpenSea, X2Y2, LooksRare, MagicEden, and Blur have virtually monopolized the entire MarketPlace track, while NFTfi and BendDAO also dominate the NFT lending market. The current dilemma of NFT-Fi protocols still lies in the fact that most of the protocols’ TVLs come from blue-chip PFPs, which limits the overall industry growth, and the price volatility of PFPs affects the overall NFT-Fi growth.

Therefore, the NFT-Fi market needs innovation from the underlying assets. Considering that PFP NFTs have no utility beyond their social attributes, we believe that innovative assets beyond PFP NFTs are needed in the future, such as securitization combined with DeFi, analogous to the wave of asset securitization in the 1970s. If it can be better combined with DeFi assets, the whole NFT will be enriched with credit, value and equity in the future, and more applications of NFT-Fi will explode in the future.

NFTs next innovation cycle, including AMM mechanism, liquidity pools, NFT lending, Oracle and their stablecoins will be one to watch for.

A Industry-Wide Focus on Infrastructure

In order to attract billions of users, more traditional developers will need to enter the crypto arena so that the entire ecosystem can scale up. Bigger bets will be placed on permissionless and decentralized infrastructure projects. OKX Ventures invests dollars in multichains and cross-chain ecosystems.

We invest in bridges -Layerzero; meanwhile, for multichain, Cosmos, Near, Polkadot, Solana, AR , to solve for heterogeneous chain or L2 liquidity to name a few.

In 2023, we continue to be optimistic about infrastructure and focus on the following three areas.

* MEV-Boost

MEV is an important public governance issue for Ethereum, and the MEV market has changed significantly since ETH Merge, when Validator replaced miners to provide consensus and security for Ethereum.In 2021, Vitalik and researchers from Ethereum Foundation proposed a specific design for a Proposer-Builder Separation Scheme (PBS) to solve the MEV problem. In September 2022, Flashbots’ MEV-Boost relay was launched, and all validators who connected to MEV-Boost after the merger received MEV revenue in addition to the validator rewards. Since then, validator adoption of mev-boost has reached 90%.

source:Dune

In light of OFAC’s sanctions against Tornado Cash however, Flashbots has stated that “Flashbots relays and builders are and will remain subject to OFAC regulations,” meaning that Flashbots mev-boost relay validators are under OFAC’s scrutiny. This is a huge problem for MEV.

From the perspective of 2023, the fragmentation of liquidity brought by Layer2, app-chains and multichains represented by cosmos also brings great opportunities for MEV. The manner in which Flashbot extracts on Ethereum will be completely different after danksharding, potentially creating a new MEV landscape. We’ll start to see further innovations in MEV in 2023.

* Zk Acceleration Hardware

The speed of ZKP is affected by three factors: the proof system, the size of the circuit to be proved, and the software and hardware of the algorithm. Among them, the proof system is the foundation, and the scale of the circuit to be proved is also affected by the compatibility of zkEVM. Projects like Scroll and Hermez, which aim to be compatible with zkEVM from the bottom, have more complex circuit scale and more urgent need for hardware acceleration.

Meanwhile, Scroll launches ZK proof outsourcing and decentralized proof network, and “proof generation”. As an expansion scheme, ZKP’s acceleration requirements for different schemes can be supported by hardware.

Although Ethereum miners still have a large number of GPUs suitable for parallel computing, there are many FPGA schemes in the market that provide sufficient programmability, and these advantages are not perfectly applicable in the environment of zero-knowledge proof generation. ASIC is the best solution in terms of performance and cost (including throughput, latency, etc.), but considering the development time and thread performance, the best solution is still uncertain.

The hardware acceleration scheme represented by scroll is accelerating ASIC to customize integrated circuit chips for specific purposes. Designers can design adaptive hardware according to the characteristics of ZK technology, and combine with the optimization of algorithms to release the potential of hardware to a great extent. However, ASIC is too customized. It will take more time and cost. Scroll’s logic circuit has not been finalized at present, and there is still an opportunity towards future improvements.

* On-chain Data Tool Iterations

For a long time in the past, centralized data tools have dominated the industry, mainly serving investment and on-chain data analysis, including Dune, Flipside, Transpose, Footprint, GlassNode, the Block and BigQuery. It has been able to serve the current data needs very well. Currently the innovation of centralized data tools is relatively focused on the association, cleaning and aggregation of addresses. Decentralized data tools will become a central focus for developers in the coming months.

Decentralized data tools have a wide range of tracks, from the underlying data sources to the upper layer of data cleaning, analysis, indexing, node services and the upper layer of data and content-based protocol layer projects, as well as many ToB data tools, ToC data Kanban and data applications; Node service and data service represented by The Graph, which released their 2023 roadmap.

The development of these data tools will be more decentralized with better performance.

On-chain security

According to the 2022 Global Blockchain Ecological Security Situation Report released by OKG Research Institute, more than 80% of the losses in the field of blockchain security in 2022 are concentrated in DeFi and cross-chain bridges, with phishing attacks being the most common attack methods.

source:OKLink
source:OKLink
source:OKLink

In the first 11 months of 2022, OKLink monitored 275 security incidents related to blockchain ecology, an increase of 30% over the same period in 2021, but the total loss was about $2.769 billion. The industry knows that investing in better security technology to reduce these losses will pay dividends. New attack vectors in finance are nothing new, and the Crypto industry shares these pain points. Innovation and research and development in security technologies is will be a win for all.

Private key protection for enterprises and individuals are crucial to institutional asset management. The loss caused by private key issues has mounted upwards to $930 million, accounting for about 40% of the total assets lost.

To echo an earlier point, on-chain data, tracking tools, and asset recovery tools will be a main focus for 2023. On-chain data can not only provide support for Web3 security governance, but also monitors on-chain activities, Web3 user behavior, tracks lost assets, and protects against AML. There is exciting potential in this field, and institutions are paying attention.

Conclusion

OKX Ventures firmly embraces the future of decentralized development, not only for financial returns, but also for our long-term investment philosophy of serving decentralized innovation.

OKX Ventures is not a financial investor in the traditional sense. We’re not just investors for innovative projects, we are also a think tank that provides support to projects. And we’ll continue to place big bets on new players in the space. We’re proud contributors to the crypto community who believe that supporting serious innovators is a win for all.

Most investors take a long-term approach to the markets, and embrace the cyclical nature of bull and bear markets, and OKX ventures is no different. We’re optimistic that we will see big dividends and opportunities in the market in the next 3 to 5 years.

THIS BLOG IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED TO PROVIDE ANY INVESTMENT, TAX, OR LEGAL ADVICE, NOR SHOULD IT BE CONSIDERED AN OFFER TO PURCHASE OR SELL OR HOLD DIGITAL ASSETS. DIGITAL ASSET HOLDINGS, INCLUDING STABLECOINS, INVOLVE A HIGH DEGREE OF RISK, CAN FLUCTUATE GREATLY, AND CAN EVEN BECOME WORTHLESS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING OR HOLDING DIGITAL ASSETS IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. PLEASE CONSULT YOUR LEGAL/TAX/INVESTMENT PROFESSIONAL FOR QUESTIONS ABOUT YOUR SPECIFIC CIRCUMSTANCES.

--

--

OKX Ventures

OKX Ventures is an investment institution under OKX.com, focusing on exploring the best blockchain projects across the globe.