Pantera Capital – a blockchain-focused institutional asset manager – released a report examining the state of the blockchain industry in 2022 and what to expect on the technology and adoption front going forward.
The report predicts that crypto has already bottomed out and the next market cycle will be defined by greater adoption of decentralized finance (Defi).
Age of Defiance
According to Pantera Co-Chief Investment Officer (CIO), Joey Krug, the crypto industry has tended towards self-custody and trust minimization since the fall of Mt. Gox in 2013. Wallet providers like Trezor and Ledger—alongside smart contract protocols like Uniswap and 0x—help alleviate issues around centralization and mismanagement.
“It seems pretty obvious that the historical arc of global financial rails will eventually evolve into blockchain-based systems using smart contracts,” Krug wrote in the report. He cited scaling solutions that allow for sub-dimes transaction fees coupled with the ease of writing contract-based smart systems as drivers of such adoption.
Much like crypto market prices, Challenge activity fell sharply throughout 2022, with total value locked (TVL) across all protocols, now just $47 billion, up from around $180 billion at the end of 2021.
Pantera’s report also reflects a substantial drop in venture capital investment in crypto during this period. According to Paul Veradittakit, general partner at Pantera, global funding for VC-backed crypto startups has grown from $9.8 billion in Q4 2021 to $2.4 billion in Q4 2022.
Nonetheless, from the money that was left in crypto last year, Defi investment alone took a 42% slice of the pie, with the rest going to sectors like gaming, consumer crypto and development infrastructure.
“We think it’s a great time to start a business in the blockchain space,” Veradittakit said. “The talent is more educated and passionate about the industry than in previous cycles. A plethora of capital has been raised and is awaiting deployment.
The importance of the merger
Pantera Investment Analyst Will Reid Called Ethereum Merge “one of the most technically impressive software updates ever.” The upgrade, which took place in September, reduced ETH’s inflation rate while transitioning the network to a proof-of-stake consensus mechanism.
Nonetheless, Ethereum still has many drastic upgrades ahead of it, including The Surge, The Scourge, The Verge, The Purge, and The Splurge, as coined by network co-founder Vitalik Buterin. Reid predicted that these upgrades will put Ethereum on the path to greater speed, convenience, and decentralization.
“Higher bandwidth, more secure and more user-friendly blockchains should enable a similar Cambrian explosion of applications and use cases in Web3,” he said.
Ethereum is Defi’s main network, accounting for over 50% of TVL across the industry.
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