Original link: https://www.hellobtc.com/kp/du/10/4021.html
Author: 0xcD3e Compile | Fire / Source: Vernacular Blockchain
Author | 0xcD3e
Compile | Fire
Produced | Vernacular Blockchain (ID: helloBTC)
Cryptocurrency has made a huge leap in 2021, and this year, the big crash triggered by the Terra incident has continued to this day. Perhaps everyone is no stranger to the repeated “summer and winter” in this field.
It’s said that the best thing a bear market can do is learn, but don’t forget to look ahead while you’re on your way. For example, this year is almost over. What new changes may the crypto industry usher in in 2023? Today, the vernacular blockchain brings you a compiled article devoted to 2023 and future trends.
The following is the text part:
On October 3, 2016, Vitalik Buterin proposed an idea of ”running an on-chain DEX”, which gave birth to what we call Decentralized Finance, which is also known as DeFi.
Uniswap, Maker Protocol and Compound are among the few companies that were first to experience the idea of DeFi. The idea of DeFi was born thanks to the first truly distributed financial system created by Satoshi Nakamoto after the 2008 financial crisis: the Bitcoin blockchain.
A decentralized financial system built on a distributed open architecture that allows anyone from anywhere in the world to freely conduct peer-to-peer transactions without any centralized intermediaries. For the first time ever, this revolutionary technology has been created without any centralized agency or corporate greed. The Bitcoin network is worth more than $1.3 trillion in November 2021, and Vitalik’s DeFi idea TVL has reached nearly $200 billion.
But today, amid global geopolitical conflict, rising inflation, rising debt, and the world not yet recovering from the COVID-19 pandemic, we are in disarray. As we look for better solutions, Bitcoin’s market cap has also fallen from an all-time high of $1.3 trillion to less than $400 billion, while DeFi’s TVL has fallen to less than $60 billion.
And to add fuel to the fire, we saw that when the Terra UST stablecoin collapsed, its value fell from $1 to $0, billions were wiped out, followed by leading player Three Arrows Capital filing for bankruptcy, CeFi lender Celsius , BlockFi, Voyager, etc. have also been significantly affected, and since then the “crypto winter” in 2022 has officially begun.
So how do we move forward from where we are now?
With less than 70 days to go before 2023, how can we build a better and safer financial system for 2023 and beyond?
The answer is not clear. However, we can learn from the past. Of course, there will be many great ideas to transform our market economy in the process of moving towards a better future. Among them, based on the immutable, transparent and open characteristics of blockchain technology, I am particularly optimistic about the construction on top of this. financial system.
So, what follows next is my outlook for the development of various sectors of the crypto industry in the coming year.
01
Real-world assets will be moved on-chain
While DeFi is still in its infancy, the International Monetary Fund has found that due to a shrinking global population, DeFi is cost-effective considering labor and operating costs. Because DeFi offers lower cost of capital, barriers to entry and greater accessibility and flow of open source information.
Today, we have seen some real-world assets (RWA) move on-chain, and this trend will continue in the future. A recent report, An Unreal Primer on Real-World Assets, suggests that DeFi will swallow TradFi through RWA.
RWAs are often backed by legal contracts enforced by courts and governments, so for them to be entered into smart contracts on the blockchain, they must first be confirmed by a competent enforcement agency to provide ownership and protection of the asset. Switzerland’s Distributed Ledger Technology Act already does this: Once RWA entries are identified as being executed, developers embed these into smart contracts, providing greater security, immutability and transparency.
RWA can be migrated to the chain in two ways:
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Create a New Asset Class (Freshman)
Create a new asset class that doesn’t exist yet. These asset classes will be native to DeFi. For example, hash-backed loans, DAO bonds, distributed parameter insurance. Parametric insurance, also known as index insurance, is a new type of insurance that has emerged in recent years. Using the language of blockchain, the parties in a parametric insurance scheme can be viewed as participating in a distributed ledger and peer-to-peer network.
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Reclassify existing assets (respawn)
Existing asset classes such as corporate loans, mortgages and sovereign debt will become on-chain ledgers as DeFi can continue to offer cheaper capital costs, better accessibility, security and low barriers to entry.
02
The God of Crypto “Stablecoin”
If Bitcoin is the king of crypto, in a way, we can call stablecoins the god of crypto. Undoubtedly, stablecoins are DeFi’s best invention, keeping virtual assets pegged to real-world value and opening up many new uses and opportunities: collateral, yield rewards, value transfer, and more.
But like blockchains, stablecoins have their own trilemma: stability, capital allocation efficiency, and decentralization. Fiat-backed stablecoins like USDT and BUSD have achieved a lot in terms of stability and capital allocation efficiency, but are lacking in decentralization, while crypto-backed stablecoins like DAI solve the problem well. Centralization and stability issues, but also subject to capital efficiency. Over the past few years, we have seen algorithmic stablecoins grow in popularity and have learned a lot from the Terra/UST event.
So what will the next generation of stablecoins look like?
No one has the right answer yet. However, it may be some combination of existing products. for example:
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Iron Finance is a fractional algorithmic stablecoin that is a combination of a seigniorage and collateral model
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Frax Protocol is another stablecoin pegged to the Consumer Price Index (CPI)
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RAI is a debt and algorithm based stablecoin minted by leveraging Ethereum
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Decentralized Reserve Currency for OHM DeFI
In the DeFi ecosystem, many concepts will be tested and iterated until the right one that fits best is found, enabling the industry to reach mass adoption of stablecoins is key. The current volatility of cryptocurrencies is not yet suitable for everyday use, but stablecoins are, so its success is important to the industry.
03
The Popularity of Blockchain Technology and the Rise of CeDeFi
Companies such as JPMorgan, HSBC, Nasdaq, and Goldman Sachs have embraced open distributed ledger technology, and it is only a matter of time before blockchain technology becomes widespread.
Aside from the adoption of blockchain and crypto assets by Wall Street bankers, an interesting trend we will see in the coming years is the world of CeDeFi and DeFi. (CeDeFi is a combination of CeFi and DeFi, combining the best features and attributes of both financial systems.)
The DeFi stage, as Bankless calls it, is the concept of fintech in the table and DeFi in it. Here are some trends in which fintech is becoming crypto’s biggest ally:
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Robinhood launches DeFi wallet with Polygon
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There are many DApps on Coinbase
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Stripe launches USDC payments on Twitter
As more institutions embrace blockchain encryption, fintechs step up to integrate decentralized finance on their platforms, more retail users will adopt cryptocurrencies, which will be the largest in the financial services industry in 2023 and beyond one of the opportunities.
04
Start the Infrastructure Wallet Race
Wallets are the gateway to the world of DeFi, and without them, non-technical users will find it difficult to interact with any blockchain application and protocol.
As more and more retail users enter the DeFi ecosystem, the demand for specific functions in web3 wallets also increases. The first generation of web3 wallets was simple, showing only transactions sent and received, but the next evolution of web3 wallets will need to address the specific needs of different verticals of blockchain. Metamask currently leads the pack with the most active users, but it’s hard to say whether it will have the last laugh. The competition for digital web3 wallets is underway, and we may see a battle for multiple wallets that meet the different needs of different users.
And Web3 gamers want to have a wallet that displays their in-game items (skins, weapons, characters) like Fractal (a marketplace for Solana-based NFT games). NFT creators and owners can choose wallets that display their NFT art collections category, such as Phantom and Coinbase wallets, while DeFi traders, investors will choose wallets that provide clear statistics on their portfolios.
While custodial wallets provide users with faster accessibility and a better user experience, non-custodial wallets will likely play a bigger role in web3 adoption and other financial services as it provides full ownership of assets .
Crypto wallets can be used as a tip for hacking and stealing user assets and identifying unknown identities. We may see wallets implement reversible transactions for stolen assets, and zkSNARKs (zero-knowledge proofs) can prove the origin of funds while still maintaining a greater degree of privacy. The key to winning in this competition is the multi-chain wallet, how to better integrate with the market, link on-chain data in real time, and ultimately a simple and easy low-barrier access process.
05
DeFi integrates everything: NFTFi, GameFi, socialFi, Metaverse and more
Over the past few years, the blockchain-based ecosystem of economic and financial models has developed multiple verticals and sub-sectors. But in the next few years, we may see them move horizontally instead of vertically. Whether it’s NFTFi, SocialFi, GameFi or MetaFi, all of them need to go hand in hand with DeFi.
“Without the DeFi element, the Metaverse would lack commercial scalability. Without the GameFi element, the community would lack an experiential motivation to keep coming back. Finally, without the SocialFi perspective, the credibility of the ecosystem would not be built. The SocialFi element ensures that Users and creators gain value-added credentials.”
By Arunkumar Krishnakumar.
06
More countries will push the development of central bank digital currencies (CBDCs)
Thirteen years have passed since 2008, and Satoshi Nakamoto’s Bitcoin has become the legal tender in El Salvador and several developing countries. While some governments are still hostile to Bitcoin, blockchain technology is unstoppable. More and more countries are embracing open ledger technology, and some are experiencing the technology through their own economies.
After China, economic powerhouses such as Europe, the United Kingdom, India, Australia and now the United States are building their own central bank digital currencies (CBDCs). More than 600 million Chinese citizens are now setting up digital wallets for the digital yuan, China’s version of a CBDC. Australia has launched a pilot project for a CBDC. As larger economies continue to push for CBDCs, more and more will follow in 2023 and in the years to come.
While countries pushing for CBDCs are a sign of embracing blockchain technology, we’re not sure what central banks around the world will do. The Reserve Bank of India calls CBDC “ it is the same as fiat currency, only its form is different, although it is uncertain whether the CBDC is deployed on a public blockchain or a private blockchain” . U.S. Federal Reserve Chairman Jerome Powell said that a U.S. CBDC “ will not be anonymous, and its four characteristics will be decentralization, privacy protection, authentication and transferability”.
Developing countries will likely design more open CBDCs to benefit from Bitcoin and other cryptocurrency networks, while larger economies will adopt CBDC designs that are in line with their banking policies, have less anonymity, and are compatible with Bitcoin Maintain greater differentiation from other cryptocurrency networks.
07
Tips for Implementing a Successful Technology Strategy
In paradigm shifts in financial systems, economic markets, and technological development. For the first time in human civilization, the financial system has become so transparent, immutable, and open to anyone, anywhere, economic markets have become more volatile and accessible, technology has become more powerful, and more people are involved. Building financial systems and services will be the most important part of this paradigm shift. So how do we build better and safer financial technology for all?
There are several implementation tips, but only for blockchain technology for financial services:
1) Implement zero-knowledge proofs (ZK-proofs) for under-collateralized loans
With the help of zk proof technology and on-chain KYC using Soul-bound Token, decentralized identity can be achieved to parallelize ID and under-collateralized loans.
Most of the DeFi protocols we have now are based on over-collateralization because on-chain KYC has not been implemented. Future DeFi protocols could implement ZK proofs for on-chain KYC and even start issuing loans based on users’ credit or spending history.
2) Loans using social-based NFTs as collateral
As social and financial become increasingly connected, the next generation of finance can be built on social NFTs, gaming NFTs, and the metaverse. This will attract more users as these sub-sections can reach a larger audience.
Financial products can be constructed to provide loans against social NFTs, gaming NFTs, and virtual land as collateral.
3) DAO-focused financial services
Not sure yet how to build financial services around DAOs, guilds, or even web3 communities. But we are already convinced that DAOs and guilds are basically the next generation of organizations and even corporations.
Innovation of DeFi protocols in lending to DAOs and guilds will play a huge role, and the market is expected to be promising.
4) Interoperability – a multi-chain future
Financial services built on only one chain are so isolated, the future of DeFi will definitely be multi-chain. Since a chain’s assets can only exist natively on its native chain, packaged assets and bridges can be built to interact with other chains.
Source: Dmitriy Berenzon, 2021.9.8
For example, Polygon has more than seven chains:
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Polygon Mainnet – a modified proof-of-stake blockchain,
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Polygon Supernet – an application dedicated to blockchain,
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Polygon Availability – a blockchain centered around data availability,
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Polygon Zero,
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Polygon Miden,
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Polygon zkEVM – zk-rollup blockchains.
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Polygon Nightfall
5) Easy-to-use DeFi entry process
DeFi’s current onboarding process is too complicated. An average person with almost no technical background will not be able to handle the first 5, 6 steps. For the next generation of blockchain-based financial services, an easy-to-use onboarding process will be key. The ENS domain name should be an easily readable address. Most importantly, simple user experience and easy onboarding process will be an important part for DeFi.
6) Market infrastructure, tools and discovery platforms
For mass adoption, we need better market infrastructure, tools, and discovery platforms for NFTs, DApps, and DeFi protocols.
7) Community and Goal Manager
Unlike web2 companies, web3 organizations are largely community driven. To win the web3 competition, the community and the DAO will play a central role.
8) Open source
In addition to being community-driven, the next generation of protocols, projects, and services will be open source, receiving regular community feedback, iterating on them, and building with community support in an open-source collaborative manner.
9) Technologies that are changing the competitive landscape
Some technologies that are changing the competitive landscape:
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Zero-knowledge proof (ZK-proof)
Zero-knowledge proofs are one of the most innovative concepts in cryptography. The protocols and services associated with it will be a huge success in the years to come.
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L2 on-chain scaling
Since the Leyer1 blockchain suffers from scalability by taking a stronghold on decentralization and security, L2 chains like Polygon are the solution for scalability. More and more DApps and services will be built on the L2 chain instead of directly on the L1 chain.
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Soul Binding Token (SBT)
SBT is one of the latest developments in blockchain. Unlike NFTs, SBTs are not transferable, but represent a person’s identity. It will be one of the most interesting technologies in cryptography and will change the way we look at online identity, online social status, and even academic records, medical records, credit records, etc.
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Cross-chain bridge protocol
As protocols become more and more chained, cross-chain bridges will play a major role in connecting and bridging the multi-chain gap. Cross-chain inter-bridge protocols will be the future of hosting most assets and the solution for cross-chain interoperability.
08
summary
The market is going through a “crypto winter,” the ecosystem is clinging to the narrative, the builders are building without sleep, and everything is progressing steadily. Better protocols are being built, VCs keep pouring cash, and communities stay strong. From Soulbound to zk-proof, from community to open source, from L2 extension to bridge, the next generation financial system will be completely owned by users and asset holders.
Friends, what do you think about 2023 after reading it? Welcome to the comment area to exchange and discuss.
Original link: https://ift.tt/pN5h9AH
Original title: Building Secure and Reliable FinTech System for 2023
Original author: 0xcD3e
Compile: Huo Huo
This article is reprinted from: https://www.hellobtc.com/kp/du/10/4021.html
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