Bankless: 5 Areas Investors Should Focus on During a Bear Market
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Bankless: 5 Areas Investors Should Focus on During a Bear Market
The market is in turmoil, regulatory constraints are tightening, demand for block space is at its lowest since 2019, and this year's biggest event—the Merge—has already concluded.
Navigating Web3 tides with focused insightsWritten by: Ben Giove
Compiled by: TechFlow
The market is in turmoil, regulatory constraints are tightening, demand for block space is at its lowest since 2019, and the year’s biggest event—the Merge—has already concluded.
Is it just me, or does crypto feel like it's going nowhere right now?
We know this illusion won’t last forever. The ability for anyone to build and innovate on blockchains, combined with the intellectual capital accumulating in this space, means some application or technology will eventually reignite excitement, drive demand for block space, and fuel the next wave of user adoption.
The question is... what will be the next technological or application breakthrough in crypto?
Let’s explore several promising areas in infrastructure and applications—and see what deserves our attention.
1. Layer 2
In the coming months, Layer 2 solutions are poised for continued growth.
Although current demand for block space remains low, the increased transaction capacity offered by these networks is already unlocking new use cases. In the next bull cycle, they’ll reap long-term benefits by enabling more users to participate in the on-chain economy.
Despite the ongoing bear market, the value locked in Layer 2 networks, measured in ETH, continues to hit new all-time highs.
Arbitrum and Optimism are undoubtedly the two largest L2s, with Optimistic Rollups collectively accounting for 96.6% of all DeFi TVL on L2s.
Each of these networks has several upcoming catalysts.
For example, Arbitrum is expected to grow as Arbitrum Odyssey resumes—an initiative designed to encourage users to try different protocols through reward NFTs.
The network may also benefit from the launch of its (still unconfirmed) native token, which is anticipated after the completion of Odyssey. Meanwhile, the L2 ecosystem will continue to gain momentum from a growing number of protocol launches.
Optimism also has several exciting catalysts, including Quests, an activity similar to Odyssey where users earn NFTs by interacting with protocols, as well as the Bedrock network upgrade.
Although still early in their lifecycle, ZK-rollups are also set to generate significant activity in the near future. Several ZK-EVMs—such as zkSync, Polygon, and Scroll—are preparing to launch mainnets or testnets by year-end, while StarkWare’s governance token STARK is scheduled to go live before the end of this month.
2. Cosmos
Layer 2 isn't the only infrastructure worth watching. The Cosmos ecosystem is also experiencing many exciting developments. Cosmos enables developers to create highly customizable, application-specific blockchains that leverage interoperability via the Inter-Blockchain Communication (IBC) protocol, and with key network upgrades and new chain launches on the horizon, both user and developer activity appear set to grow.
Interchain Security is one such upgrade. Scheduled for January 2023, Interchain Security will allow Cosmos chains to leverage the Cosmos Hub—the network with the highest value—for security, meaning they won’t need to bootstrap their own validator sets.
Several promising Cosmos-based chains also appear poised to gain traction in the coming months.
For instance:
- Canto, a public-goods-focused L1 offering native DEX, stablecoin, and lending market infrastructure.
- Berachain, an upcoming DeFi-oriented L1 leveraging a unique Proof-of-Liquidity consensus mechanism, already attracting a strong following.
3. DeFi Revival
Fueled by the above-mentioned L2s and app-specific chains, DeFi may experience a revival between Q4 2022 and Q1 2023.
One area gaining notable momentum is options protocols. Benefiting from the increased capacity provided by L2s, protocols like Dopex, Lyra, and Premia appear poised for growth in the near term.
This is because options have become an increasingly important part of crypto market structure, allowing sophisticated DeFi users to manage risk directly on-chain.
Another sub-sector looking primed for explosive growth is NFTFi, or DeFi for NFTs.
Love them or hate them, NFTs aren't going away, and as trading, lending, and derivatives infrastructure continues to develop, the JPEG market will become more liquid and mature.
Numerous exciting NFTFi projects are already live or launching in the coming months.
These include AMMs like SudoSwap, lending platforms like NFT-Fi, JPEG'd, and MetaStreet, valuation protocols like Abacus, and perpetual DEXs like NFT Perp.
4. Web3 Social
Between DeFi, NFTs, and pure speculative trading, the most popular uses of crypto so far have been entirely financial in nature.
While nearly every dApp touches money in some way, there are also many that focus primarily on non-financial applications—and these appear set to gain attention in the near future.
One exciting frontier is decentralized media platforms. These networks differentiate themselves from Web2 incumbents by offering users strong censorship resistance and empowering creators to port their audiences across platforms.
Applications and protocols to watch in the coming months include gm.xyz, Lens, and DeSo—an L1 purpose-built to host blockchain-based social apps.
5. GameFi
Another area likely to grow is crypto gaming (GameFi). Over the past year, hundreds of millions of dollars have flowed into this space following the success of games like Axie Infinity, StepN, and Sweatcoin.
While many traditional gamers today seem to dislike crypto and NFTs, GameFi has the potential to become a major gateway, bringing hundreds of millions—or even billions—of users on-chain. Will we see a breakout AAA-quality crypto game?
Hope Is On the Horizon
While crypto may currently feel stagnant, numerous network upgrades and innovative applications are being developed that will help drive the next wave of adoption and make crypto exciting again.
The macro clouds will eventually clear, and insatiable demand for block space will return. But in the meantime, the seeds of the next bull market continue to be sown.
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