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Messari’s annual Crypto Theses report is out, chock-full of crypto trend analysis and forecasts for 2023. Will NFTs ever recover - and which L1s will survive? Which DeFi niche offers the best investment opportunity? Read our summary with the best insights from this 200-page document.
Messari is a major crypto research firm, known in particular for its annual Crypto Theses report. What began as a Twitter thread in 2018 has grown into a veritable study, written personally by the CEO Ryan Selkis. The Theses cover the key trends in crypto and offer forecasts for the coming year.
Messari CEO believes that the current NFT bear market could be similar to Bitcoin’s 80% dump in 2014, which started a new bull cycle, and that the NFT industry could grow 100x in 10 years.
From investments, NFTs will turn more and more into digital consumables - a trend led by brands and creatives that embrace NFTs. Examples include Gucci, Nike, Starbucks, etc.
As for GameFi, Selkis calls it the most overhyped trend in all of crypto, though eSports and user-owned content are two niches where more growth is expected.
The same goes for crypto metaverses: even though the author is bullish on AR/VR long term, he expects a long development cycle for metaverse projects.
By contrast, decentralized social media (DeSoc) has great potential for 2023. This area includes, for example, online identities managed on the blockchain; social graphs; users running social networks through DAOs; and content that belongs to users, rather than centralized corporations. The report estimates the TAM (total addressable market) for DeSoc as $1 trillion in revenue annually.
We should also mention OpenAI’s ChatGPT. As AI is one of the key technologies for Web3, every crypto investor should watch what’s going on with ChatGPT – a revolutionary chatbot that, some believe, will replace Google. Right now we can’t imagine all the consequences of this innovation – simply go and try it for yourself.
Messari is very bullish on DeFi, though the report stresses that it needs better audit and security practices – and finds more relevant use cases.
Value is finally starting to shift away from L1s and into L2s and dApps: this year, Uniswap, OpenSea, and Lido Finance generated more transaction fees than Ethereum. In 2023, DeFi’s market cap can even come to dominate that of Ethereum.
Ryan Selkis makes a very interesting point: DeFi was in real danger earlier this year because of the proposed DCCPA (Digital Commodities Consumer Protection Act), lobbied by FTX. The collapse of Sam Bankman-Fried’s exchange may have literally saved DeFi.
As centralized lenders collapsed one by one in 2022, decentralized ones like MakerDAO and Aave looked remarkably better. The trend for them is to expand into real-world assets, especially USD-collateralized stablecoins.
Another trend to watch is undercollateralized lending, where the required collateral is smaller than the loan value: see protocols like Goldfinch and Maple Finance. Liquid staking, too, will remain popular, especially among whales and institutions.
Regenerative finance should be on your radar, too: everything that has to do with tokenizing and trading carbon emissions (KlimaDAO, Flowcarbon, Toucan, etc.).
L1s and L2s: key trends at a glance
Messari believes that EVM will win out in the end, but a few alternative L1s also have good chances to survive and thrive – in particular Cosmos (with new chains like Canto and Sei) and Solana. Cardano, Polkadot, and Polygon look interesting, too. Selkis is somewhat skeptical on how the ‘upstart’ L1s like Aptos and Sui will survive the crypto winter, though.
Optimistic rollups will remain the most popular for now, but you should watch zkEVM implementations (zkSync, Loopring, ConsenSys).
Sovereign rollups are a different type of rollups – unlike optimistic and zk-rollups, they are sovereign in their decision on which transactions are valid. They are particularly powerful when combined with modularity – see Celestia and FuelVM.
Interoperability and bridges will remain a big business – even though now everybody recognizes the security risks associated with bridges.
Web3 and DAOs
For Ryan Selkis, the true priority and the biggest investment opportunity lies in solutions that make sure crypto “cannot be shut down”. These include governance structures, social contracts, wallets, etc. - but also what he calls ‘Layer-0’. These are the tools that encode the values on which decentralized communities are built.
DePIN (decentralized physical infrastructure) is the most interesting category here, with decentralized services cloud storage and computing (Filecoin, Arweave, Akash), wireless (Helium), and video transcoding (Livepeer).
In terms of browsers, Brave (the most popular privacy browser with blockchain features) has been growing very fast. Its number of monthly active users doubled to reach 50 million by 2021.
Mobility remains a huge issue, though: most dApps still aren’t optimized for mobile, and that slows down adoption.DAOs will become more and more useful and eventually revolutionize the economy – but we need better DAO management tools (e.g. delegation incentives - see Convex) and treasury management. In 2022, we’ve seen DAOs pass and execute important corporation-level decisions, such as huge token buybacks ($1.5M a day for BitDAO), governance redesigns (Lido Finance), and eliminating threats posed by whale stakeholders (Balancer, Juno).
On the negative side, DAOs’ legal liabilities remain a very complex problem. This year, the centralized project bZx repackaged itself as Ooki DAO to offer unregistered margin trading services. When the Commodity Futures Trading Commission (CFTC) sued Ooki DAO and stated that each of the voting DAO members is liable for the illegal activities. If this becomes the regulators’ official position, DAOs will have to rethink the products they offer and manage.
Messari Crypto Theses cover much more ground than we possibly can in this summary: crypto regulations, algorithmic stablecoins, CBDCs, the sanctions against Tornado Cash, CeFi trends, and so forth. We do recommend that you read the full report (maybe over the course of a couple of weeks): https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf. Stay with us for more crypto industry analysis, case studies, and research-based insights!