White Star Capital Digital Asset Fund - newsletter #109
2023 Predictions: The Year Ahead for Crypto
2023 Predictions: The Year Ahead for Crypto
White Star Capital Digital Asset Fund - newsletter #109
After potentially the most tumultuous year ever in crypto, we approach the time of year with a deluge of reflections and forecasts. Whilst we are in the depths of the bear market, there is still plenty to be excited about as this industry continues to develop and mature. The recent Alchemy developer report proved that despite 70% YoY falls in BTC and ETH prices, now really is the time for building- in September, developers submitted more than 17k smart contracts to Etherscan, up 160% YoY. At White Star, we categorise our thinking on the year ahead into three buckets.
1. FTX Effects
The FTX fallout continues to be painful, and we expect more dominoes to fall as more bad actors and practices come to light. We predict this to have two positive, maturing affects on the crypto industry.
Firstly, the demise of personality cults. The fraud at FTX was partly possible because of the adulation of and trust in Sam Bankman-Fried as an individual by both crypto insiders and regulators. He was perceived as an industry hero, representing the crypto cause in Washington and ostensibly altruistically buying up other mismanaged firms like Voyager and BlockFi. Crypto history has been marked by other fraudulent individuals who built cults of personality online to hype up faith in their projects. This unwavering faith in the founder has happened in Web2 too; just look at the likes of Elon Musk and Adam Neumann. We hope that 2023 sees belief shifting from individuals to entities, whether in decentralised bodies like DAOs or in centralised regulation determined by elected politicians. We certainly expect 2023 to see a lot of the latter, with increasing pressure to protect both retail and institutional investors in this still nascent industry.
Secondly, the renewed promise of decentralised finance. To be clear, FTX was a centralised entity- its transactions were not recorded on-chain and so did not have the transparency and accountability that blockchain technology was first intended to provide. This type of fraud is literally impossible in open-source, smart-contract based DeFi. Further, FTX and Alameda held an outsized proportion of the FTT tokens in circulation, and so had a huge influence over the price, liquidity and utility of the token. We expect this to form a tailwind for decentralisation efforts.
2. Transition to Web2.5
2022 saw institutional adoption of Web3 like no other. Many big brands turned to the Polygon infra stack in particular. Its BD has proven to be best in class, with over 37k dApps built and partnerships/integrations this year including the likes of Reddit, Meta, Instagram, Stripe, Adidas and JP Morgan. We expect this to accelerate next year, as each additional participant increases the value, awareness and trust in the network.
Relatedly, we expect more institutional adoption and commercialisation of NFTs by both consumer brands (building loyalty schemes similar to Starbucks) and gaming developers (building out in-game asset economies). One of the main use cases will be data tracking and marketing, catalysed by the death of the third-party cookie, and the accelerating pace of development of decentralised identity (DiD) infrastructure in web3. Which leads us to our third bucket...
3. Decentralised Identity
2023 is going to be the year of decentralised identity, after significant developments this year in the space. Users will start to manage and own their own digital reputation, and use it for both financial and social applications at scale. This will accelerate as the benefits of removing control from third-parties become clearer and users are more able to trust in innovative technology solutions like ZK proofs that enable full privacy of on-chain data.
NFT infrastructure has laid the groundwork for soulbound tokens and associated verifiable credentials (VC), meaning 2023 will see the first iteration of a scalable reputation system. Zero-knowledge proofs have also exploded this year into the new preferred privacy technology, and promise to underpin access to identity data.
The utility of DiD solutions will range from credit scoring to marketing and user controlled tracking, to improved wallet management and UX. We also expect gaming studios to take advantage of these developments, able to better understand user cohorts and build on gaming profiles with avatars and in-game asset economies.
We’re looking forward to seeing how these predictions play out! Happy holidays from all of us at White Star Capital.
🔦 White Star & Portfolio Spotlight
Lighthouse release ‘The Road to Interoperability’ report
The report is on openness and interoperability across the metaverse, written by Lighthouse and many of the most inspiring builders in the space.
Haruko has been nominated as one of the Top Blockchain Startups of the Year
This is the official European Blockchain Convention recognition to the 100 top early-stage blockchain startups in Europe.
Superfluid is now available on Ethereum Mainnet in early access for selected partners
So far developers have built over 500 projects with Superfluid, As one of Superfluid’s key mainnet launch partners, ENS domains have already started streaming their Public Goods Scholarships with Superfluid Protocol on Ethereum mainnet.
🏦 Enterprises & Institutions
Google Hires Former BlockFi Crypto Executive for Web3
A former executive at troubled crypto lender BlockFi has taken a role at Alphabet Inc.’s Google to work on Web3.
Visa Proposes Automatic Payments Using Ethereum Layer 2 System StarkNet
Visa said self-custodial wallets could use a unique “account abstraction” method to set up automatic recurring payments on StarkNet as existing smart contracts do not currently support such steps.
Polygon's next web3 play is an NFT debit card
Polygon has partnered with the neo-banking app Hi to create a platform to mint Polygon NFTs as the face of a web3-focused debit card.
Crypto investment firm CoinShares debuts trading on Nasdaq Stockholm
CoinShares’ stock was previously listed on the Nasdaq First North Growth Market, an alternative stock exchange for small and medium-sized companies.
⚖️ Government & Regulation
EU financial regulator braces up for tokenized securities pilot
ESMA published guidelines to prepare market participants for the DLT Pilot Regime launching in the EU in March 2023.
France may oblige crypto platforms to obtain licenses
A member of the French Senate’s finance commission proposed to eliminate a clause enabling crypto companies to operate without a full license until 2026.
G20 looks to develop a global crypto policy consensus
G20 economic leaders aim to develop an agreement on policy for crypto assets to inform global regulation at a meeting with finance and central bank deputies in Bengaluru, India.
Key financial regulators call for stronger licensing of crypto firms
The Financial Stability Oversight Council convened for an open meeting, at which several key regulators cited issues with cryptocurrency firms.
💰 Funding & Exits
Post-Merge Ethereum Block Builder Blocknative Raises $15 Million
The company has seen its business skyrocket after the Ethereum merge, with new customers pouring into the ecosystem.
Embattled crypto lender Amber Group raises $300 million
Singapore-based crypto lender Amber Group today announced a $300 million fundraise that comes amid layoffs and refocusing at the company.
a16z leads $100 million raise for web3 privacy firm Aztec Network
Aztec Network will use the funds to build out its encryption architecture and to double its team of 40 people.
Arca invests in Spaceport's $3.6 million raise
Web3 IP protocol Spaceport raised $3.6 million in pre-seed round co-led by Arca, Decasonic and Crit Ventures.
🚀 Project Launches & Updates
BAYC creator Yuga Labs rounds off year with new CEO from Activision Blizzard
The hire puts a firm stake in the ground for Yuga Labs' gaming ambitions as it prepares for additional tests of its Otherside 'metaverse.'
MetaMask Launches PayPal Integration for Ethereum Purchases
Some U.S. MetaMask users can now venture deeper into Web3 by buying Ethereum directly from their wallet using PayPal.
🔥 Other Bits We're Excited About
Big Time, Gods Unchained, MetalCore, Star Atlas and other Web3 Games Win Polkastarter GAM3 Awards
In a live ceremony on December 15th, the 16 winners of the first-ever industry awards were unveiled.
How will ChatGPT affect the Web3 space? Industry answers
From smart contract auditing to enhancing user interactions, executives point out how ChatGPT can potentially affect Web3.