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By Lior Lamesh, CEO and Co-Founder of GK8
In the cryptosphere, if 2021 was the “Roaring 20’s,” 2022 felt a little bit too much like the 2008 subprime mortgage crisis. Between Terra, FTX, and the steep plummet of Bitcoin’s price, this last year has been more of a free fall than a roller coaster for crypto—and there’s still no end in sight.
Despite the turbulent times, the most important thing the crypto winter gifted the industry was the opportunity to do some serious soul searching. Amid uncertainty, the industry will no doubt continue its maturation and emerge from the bear market all the more wiser and more resilient. Here are the five biggest trends to expect to see in 2023.
#1 Value > vibes
“You know the message you’re sending out to the world with these sweatpants? You’re telling the world: ‘I give up. I can’t compete in normal society. I’m miserable, so I might as well be comfortable.’” – Jerry Seinfeld
Tech moguls flipped Jerry’s famous Seinfeld line on its head in the last decade, establishing the new, ultra-casual precedent for what dressing like a high-status CEO looks like. What was noteworthy about this shift wasn’t in the style itself. In fact, it was much more about the message it sent to founders and the culture it cultivated in crypto and tech.
That’s all about to change in 2023, particularly in crypto. There’s simply no question at this point that VCs will think twice before betting on a founder clad in an old t-shirt and shorts who plays videogames mid-meeting. This new year will bring about a return of sensible, effective, and serious founders who worry more about building groundbreaking products than being charismatic media darlings. VCs will pivot back into investing based on merit rather than vibes.
Expect to see CEOs whose products make more headlines than they do. It’s not that tech geniuses don’t exist, it’s just that they’ll need more than IQ and charm to win over users and investors. This maturation process will go hand in hand with other anticipated trends, and its significance will come from restoring public trust in an industry that sorely lacks it.
#2 Regulation is coming
It’s no surprise that regulations are coming. It has been a widely discussed topic within the industry for years, and took center stage this year amid all the chaos. However, if up till now regulators have seemed reluctant to be proactive, the events of the last year leave little doubt that they will speed up their efforts in the coming year.
For example, Markets in Crypto Assets (MiCA) regulations, which may serve as the gold standard for crypto regulation going forward in Europe, might have prevented some of the events in the last year. But these were only recently approved by the EU council and if approved by the regulators, are expected to come into effect only in 2024 and beyond.
What is more surprising is the support for regulation coming from hardcore crypto advocates, including Coinbase CEO Brian Armstrong and Binance CEO, Zhao (CZ). Expect industry leaders to be more vocal in advocating for regulations that aim to address the problems of trust and transparency without stifling innovation.
With regulation so desperately needed, even the most hardcore defenders of decentralization would agree that proof-of-reserve audits would be a good starting point.
#3 No, the FTX debacle won’t scare institutions away from crypto
Industry observers have compared the fall of SBF’s FTX to that of the Lehman Brothers in 2008. It might be in the sense that FTX was a behemoth and its downfall could spur effective regulation, but the comparison mostly ends there. As the world decries the end of crypto as we know it, crypto founders are shrugging their shoulders and continuing to buckle down and build their products. Institutions will continue to buy crypto. In fact, they will likely raise their allocations ahead of the next bull cycle—yes, there will be one.
Up till now, crypto-native companies have virtually monopolized the market, while more traditional financial institutions explored, discovered and strategized. However, over the last several years, banks and other financial institutions have gradually warmed up to cryptocurrencies and realized that they are missing out on revenue-generating opportunities. Despite the slumping market, banks still seem interested in providing crypto services to their clients. Morgan Stanley and Goldman Sachs are both among the top five investors in blockchain-based firms, and Goldman Sachs plans on investing millions more.
Moreover, given the lack of trust and transparency rife among the more crypto-native institutions, retail investors may be lured back to open arms of traditional financial institutions for these same services. Expect announcements of additional proponents who used 2022 as time to build out their infrastructures or acquire new capabilities in order to get a jump on the next boom market.
In time, and with more financial institutions entering the crypto space, expect to see a surge of new blockchain-based investment vehicles and a jump in retail investors diversifying their investment portfolios and IRAs with digital assets.
#4 DeFi will reign supreme
Up until now, centralized exchanges played an important role in the cryptosphere by functioning as an easier entry point, but their lack of transparency, and sometimes questionable activities, made them hard to trust. Decentralized financial (DeFi) applications, on the other hand, have proven time and again that decentralized, automated “smart contracts” enforce terms and conditions indiscriminately across their user base.
This has already been playing out in front of us, with DeFi applications and protocols, in many cases, coming out stronger and more consistent while the industry, as a whole, suffered. As more and more financial institutions look to provide crypto services they will turn towards DeFi to help fill that demand. And as they do more and more retail investors will also choose DeFi as they differentiate it from their centralized counterparts.
Yet, DeFi is not without risk as 2022 has proven repeatedly. DeFi protocols have been targeted increasingly by hackers and resourceful crypto criminals. The past year was teeming with cyber attacks against everything from bridges to networks, and wallets to platforms. In order to facilitate adoption, dApp programmers and DeFi platforms will need to build smart contracts that don’t allow superpowers to gain access to the Admin keys or external oracles to make decisions. This would take the decentralization out of DeFi.
Moreover, what is often overlooked is the fact that DeFi programmers often ensure they have left themselves an Admin key. In almost all smart contracts, the admin key allows the programmer to control the code post-deployment. These Admin keys include permissions for functionalities that no one else has, creating another ‘single point of failure’. Anyone who gets access to the Admin key has control of the protocol.
#5 Self custody
Last but not least, expect to see self custody play a more pronounced role in the industry. With an anticipated increase in DeFi activity, more institutional crypto holders will realize that controlling their own digital assets is the best route to securing and controlling their crypto. Self custody solutions empower institutions to take ownership over their private keys, while giving them the flexibility to do what they want and when they want with their crypto.
The fact that actors like Binance CEO, Paxful CEO, and our partners at ConsenSys all urge self-custody, is not without remark. In fact, CZ called self-custody a ‘basic human right’:
The events of 2022 have taught us all that institutional investors cannot entrust their private keys to a third party. While for retail investors, self-custody may be a fundamental human right, for institutional investors it is a fiduciary responsibility.
In conclusion
With an industry cleanse long overdue, reputable projects and institutions will have used this period of soul searching to return to the drawing board and innovate. Just like the decade-plus long tech boom that followed the subprime mortgage crisis of 2008-2009, the crypto industry is due for a similar rebound.
All five of these anticipated trends, at least partially, result from the brutal conditions of the current crypto winter, but will also help the industry emerge stronger. The ongoing cleanse will directly contribute to the changing trend of CEO styles. Looming regulations and the realization that FTX’s collapse wasn’t as impactful as many initially thought will signal confidence to financial institutions that they have a role to play within the industry, and DeFi—as long as it is true DeFi—and self custody provide tangible solutions to enable the industry to function better, while helping repair crypto’s reputation, trust and transparency.
About the author:
Lior Lamesh is the Co-Founder and CEO of GK8, a company which offers both traditional and crypto-native institutions an end-to-end platform for managing blockchain-based assets, including custody, DeFi, staking, NFT, CBDC, and tokenization support. Having honed his cyber skills in Israel’s elite cyber team reporting directly to the Prime Minister’s Office, Lior led the company from its inception to one of the most impressive acquisitions of 2021. In 2022, Lior alongside his co-founder Shachar Shamai, were selected by Forbes to be included in its prestigious ‘Forbes 30 under 30’ list.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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