Coinsights #14: My 2022 Predictions
Happy (almost) new year!
As a member of the Coinsights Community, you already know that the web3 world had a record setting year. It seemed like every other protocol boasted a four digit APY, and NFTs were bought and sold at insane valuations every day.
So what’s going to happen in 2022? Let’s dive into my predictions.
1. Alt L1s Continue Their Climb, But Individual Projects Struggle
Some quick definitions:
Alternative (Alt): not Ethereum or Bitcoin
L1: underlying main blockchain infrastructure (Ethereum, Avalanche, Solana, etc.)
As crypto becomes more mainstream, there will be an explosion of projects launched on popular alt L1 chains.1 Regardless of whether a project has merit or not, it will have to work much harder to gain traction in 2022 simply because there will be so much noise in the ecosystem. Much like how $SOS originated, tons of communities will pop up overnight with promises of quick returns and “a better value proposition”. As we covered last time on the origins of $SOS:
Blockchain based apps uniquely enable this idea of community composability…In a web3 world, founders can leverage hype marketing and the principle of ownership to kickstart communities faster than ever before.
In order to succeed, projects will need to provide real utility, which isn’t necessarily the norm today.
Given the low barrier to entry, it’s difficult to predict which projects will reach escape velocity. However, the underlying alt L1 chains that will power these applications will explode. This lines up with the fat protocol thesis: most of the value in web3 is captured at the protocol layer, not the application layer!
In addition, chains are much harder to replicate. Creating a new chain requires convincing many people to spend time, energy, and money into being validators and as well as devising fair economic incentives that can support an entire ecosystem.
To narrow down which L1 chains to focus on, a good bet is to focus on where project developers are since they’re the ones that create value for a blockchain ecosystem. Therefore, chains with high throughput like Solana and Avalanche will likely rise as they can support a variety of use cases at a low cost. In addition, more niche chains like DeSo that address deficiencies of other blockchains will also increase in popularity.
2. Eth2 Makes Or Breaks Core Ethereum
Ethereum’s prospects in 2022 depends on if the Ethereum developers can finally execute Eth2.
The current Ethereum gas prices and transaction speeds are a non-starter for many developers. Concretely, a single transaction can cost ~$100 and Ethereum supports a maximum of ~13 transactions per second. For comparison, Solana can handle ~50k transactions per second at $0.00025 USD each!
However, if Eth2 is released, Ethereum will again be a popular landing spot for new developers due to its familiarity and existing market share. Until then, Ethereum-based L22 chains like Polygon will continue their meteoric rise. On $MATIC, Polygon’s coin:
3. Increased Flexibility for Cross Chain Tooling
One of the most useful concepts in web3 is “sign in with wallet,” a relatively seamless way to use apps built on a specific chain. With just a few clicks, you can do things like verify that you’re part of an exclusive group (such as owning a Cryptopunk NFT) or are eligible to play a game that requires a minimum asset balance.
However, wallets are typically restricted to a single chain. Metamask, which has >10M downloads, is just compatible with Ethereum based networks! Even then, the UX around transferring assets between the core Ethereum chain and its L2 networks like Polygon is confusing.
I predict that there will be a set of shared protocols developed from both the client (wallet) and backend (blockchain) such that cross chain interoperability becomes a reality for not only current blockchains but also all future ones. In order for the crypto world to continue expanding its reach, there needs to be products that wrap “crypto primitives” such as transferring & staking to users in an understandable way. Right now, there are simply too many hoops to jump through and ways to accidentally lose money when performing basic tasks, even for crypto veterans.
In terms of who could execute on this, Uniswap or Sushiswap are logical candidates given their positions as major decentralized exchanges. Perhaps they’ll develop a wallet with cross chain transfers, staking, and liquidity providing all built in!
4. Improved Accessibility
Blockchains are globally accessible and readable, yet observability still lags behind. Sites like dune.xyz are a great first step but cater heavily to developers.
There needs to be a globally accessible way for non-technical individuals to interact with and understand the web3 world. There’s a need for a blockchain focused search engine which can not only index current news but also answer more difficult queries like “last 5 NFTs bought for over 10 SOL.” Current events in the crypto world are locked away in Discord servers and certain pockets of Twitter. Someone will index it all and provide a crucial resource for a range of experience levels.
Side note: as a developer, I also struggle to find answers to technical questions online. Indexing Discord channels like #developer-support in the Solana server would go a long way!
The Macroeconomics
There are many factors that will affect web3 outside of the core ecosystem in 2022. First, it looks like monetary conditions will be tighter. Check out this thread by Tascha:
Another unknown is how American policy will play out. Congress already held a surprisingly productive hearing featuring some of the top leaders in crypto just a few weeks ago, but it’s unclear what legislation will actually happen.
A great resource on this topic is Crypto Theses for 2022 by Messari. It’s 165 pages but is extraordinarily well-written and is at least worth a skim.
Recap
To summarize, in 2022:
Alt L1s (but not necessarily the projects built on top of them) will boom
Eth2 execution determines the fate of core Ethereum
Cross chain tooling will standardize & more horizontal wallets will appear
Accessibility and search will improve as the demand for visibility grows
Do you agree with the takes in this article or think I missed something? Come chat in the Coinsights Discord or find me on Twitter!
Some examples of popular alt L1 projects are: FTX on Solana (DeFi), SheepGame on Avalanche (Gaming), SolPunks on Solana (NFT), DiamondApp on Deso (Social)
Layer 2 blockchains are overlaying networks on top of an L1 chain. For more info, check out this Medium article.