Pantera Partner's 2023 Prediction: DeFi Will Continue to Grow, and Zero-Knowledge Adoption Will See Numerous Use Cases
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Pantera Partner's 2023 Prediction: DeFi Will Continue to Grow, and Zero-Knowledge Adoption Will See Numerous Use Cases
Despite some painful hacks and CeFi collapses, the overall crypto industry made significant technological advancements in 2022.
Navigating Web3 tides with focused insightsWritten by: Paul Veradittakit
Compiled by: TechFlow
2022 was undoubtedly a rollercoaster year for the cryptocurrency industry. Following the bull market of 2021, we entered 2022 with a deflationary phase—Bitcoin and Ethereum dropped approximately 20% and 31%, respectively, in just January alone. Macro factors such as Federal Reserve rate hikes, high inflation, layoffs, and broadly slowing economic growth created significant uncertainty. Challenging market conditions became the norm for much of the year, but this did not stop the crypto space from achieving numerous incredible technological milestones.
Improvements in DeFi, such as Compound v3, and advancements in the ZK ecosystem continued steadily. Institutional adoption of crypto also accelerated, with household names like Disney, Starbucks, Adidas, and many others quietly embracing blockchain technology. Major banks showed growing interest too—Fidelity launched a cryptocurrency service for investors, BlackRock partnered with Coinbase to offer crypto access to its institutional clients, and Goldman Sachs began building new crypto data services.
One standout moment for the industry was the September Ethereum Merge—the blockchain’s transition from proof-of-work to proof-of-stake—which reduced Ethereum’s energy consumption by an astonishing 99.9%. Additionally, many talented engineers continued building through this bear market, and some of the strongest projects historically have emerged during such downturns. Another positive takeaway is that while times are tough, every crisis in 2022 has provided valuable lessons. Many projects—and even entire categories within crypto—have demonstrated resilience through these events. If anything proves the staying power of cryptocurrency, it's that it can survive any adverse period. As a result, entering 2023, the industry will carry forward the strength and endurance forged in 2022.
1. DeFi Will Continue Growing While CeFi Consolidates
The past year exposed many weaknesses in CeFi (centralized finance), while DeFi (decentralized finance) largely functioned well. Given the collapse of numerous CeFi platforms in 2022, I expect the sector to consolidate around highly regulated players such as Coinbase and Bitstamp.
In the aftermath of FTX’s collapse, DeFi trading volume surged—increasing 68% from October to November (reaching about $97 billion). Such events underscore DeFi’s value proposition: managing assets via secure smart contracts enables users to better understand liquidity flows and maintain greater control over their investments.
Looking ahead to 2023, I believe we’ll see growth in more sophisticated and compelling DeFi applications. Exciting examples include GMX, a decentralized perpetual exchange, and 1inch Pro, a compliant platform bridging TradFi (traditional finance) with DeFi. Next year may also bring increased traction for use cases like self-custody wallets, synthetic assets, and prediction markets.
Despite market conditions, the industry’s real strength lies in its infrastructure—powering transactions in a trustless and efficient manner. These attributes will significantly accelerate DeFi adoption and growth in 2023, especially given CeFi’s struggles this year.
2. We Will See Massive Adoption and Use Cases for Zero-Knowledge Technology
With privacy concerns moving to the forefront of the crypto industry, zero-knowledge (ZK) technology stood out in 2022. At its core, ZK technology uses a prover, a verifier, and mathematical algorithms to prove something without revealing underlying information. Since blockchains are inherently transparent, this application holds major significance—enabling more private on-chain interactions.
We’re seeing explosive growth in use cases for ZK proofs, virtual machines, and rollups, driven by projects like Succinct Labs, RiscZero, and Espresso Systems. ZK technology has particularly strong applications in identity—a key vertical in crypto. With ZK proofs, users can verify their identity on-chain without exposing sensitive personal data. Ethereum co-founder Vitalik Buterin recently highlighted how powerful ZK tech could be in addressing on-chain information challenges.
ZK technology is also valuable for cross-chain bridges, enabling secure and correct transmission of information and tokens through succinct proofs. There are also exciting applications in traditional financial systems, such as credit scoring and taxation.
3. Institutions Will Increasingly Tokenize Financial Assets
Real-world assets (RWA) are financial primitives representing claims on underlying assets, typically generating yield. So far, the emergence of this category has unlocked substantial liquidity and utility, and 2023 may bring even more ways to represent assets on-chain in accessible formats.
Stablecoins are arguably today’s most popular RWA application, occupying three of the top seven spots by market cap among cryptocurrencies. Circle’s USDC and Maker’s DAI have remained leading stablecoins, showing minimal volatility throughout the bear market.
On-chain communities have already demonstrated demand for RWAs—for example, MakerDAO decided in mid-2022 to allocate $500 million worth of DAI into U.S. Treasuries and corporate bonds. Goldfinch, a company offering off-chain secured loans, currently has around $100 million in active loan value. Jia enables business owners to take blockchain-based loans, generating strong yields for liquidity providers backed by real-world businesses and assets.
I expect growth in interesting RWA applications in 2023, such as flash loans and real estate. Aligned with real-world asset trends, I also anticipate a wave of startups focused on bringing TradFi institutions into crypto in regulatory-compliant ways.
4. More Companies Will Leverage Blockchain Data
Arguably one of blockchain’s best features is its rich open-source data, enabling deep analysis of on-chain activity. Leveraging this data efficiently and responsibly is essential for scaling blockchain dApps and their use cases. This data reveals extensive insights into how blockchains are used, emerging trends, user behavior, and capital flows.
Blockchain analytics platforms like Nansen will continue playing a critical role in understanding on-chain behavior through wallet tracking. Companies like nxyz are tackling blockchain indexing by offering rate-limit-free data APIs. Definitive launched in 2022, providing user acquisition tools and insights across on-chain and off-chain activities. Even as these companies grow, blockchain data remains largely untapped—I expect the sector to make significant strides in 2023. To understand where crypto is headed next, we need increasingly refined data analysis of the current landscape—just as we do now.
5. Developer Tooling Will Continue Expanding as More Engineers Seek Simple, Effective Ways to Deploy Web3 Projects
Developer tools eliminate many repetitive and tedious aspects of development, encouraging more engineers to experiment with building on-chain protocols. Over the past year, companies like Alchemy and Tenderly have been particularly important players in this space.
Despite the bear market, engineers are experimenting with on-chain applications more than ever. Alchemy recently reported a threefold increase in the number of engineers using its platform since the beginning of the year. In September 2022, monthly verified smart contracts grew 2.6x year-over-year. Impressively, by 2022, 36% of all existing smart contracts had already been deployed and verified.
As more Web3 developers enter the ecosystem, it’s crucial to equip them with robust tools from day one. Cross-chain tooling is especially vital, offering composable software that simplifies launching projects across multiple chains. As foundational infrastructure for many crypto projects, developer tools will continue expanding in 2023—driven by new use cases and increasing interest from engineers entering the field.
6. Non-Financial Tools That Offer Value to Holders—Such as Gaming NFTs and Identity NFTs—Will Continue to Expand
Utility-driven NFTs—such as gaming NFTs, identity tokens, and token-gated communities, software, and events—will grow in 2023. This year, we’ve seen promising technical and creative developments in the space, though mainstream adoption remains distant. While digital (pure) art is clearly a massive vertical, using NFTs to grant specific privileges has the potential to disrupt many existing industries.
We’ve already seen exciting early applications. PROOF Collective grants its NFT holders access to future PROOF mints and exclusive community benefits like live events and private Discord channels. Vitalik published a seminal paper on Soulbound Tokens—NFTs that hold on-chain identity information—and several projects have begun adopting the concept. Gaming-related transactions also surged in 2022, at one point accounting for over half of all blockchain activity. Additionally, NFTs are being explored in entertainment, particularly for fan engagement.
Traditional enterprises are accelerating their exploration of NFT adoption. Notable highlights include Tiffany & Co. launching a pendant collection for CryptoPunk holders, Instagram announcing NFT integration on its platform, and Nike acquiring metaverse fashion company RTFKT. Royal is redefining music royalties and ownership, allowing fans to directly invest in songs. Moreover, athletes like Cristiano Ronaldo have launched NFT collections to boost fan engagement and potentially unlock future benefits.
In 2023, I’m excited to see ideas around utility NFTs and industry disruption further mature. Both crypto-native applications and traditional companies may begin experimenting more with NFTs, delivering tangible value to their holders.
My Final Thoughts on 2022
Despite painful hacks and CeFi collapses, the broader crypto industry made tremendous technological progress in 2022. Even amid a harsh crypto winter, Web3 has already reached a surprisingly large number of people—and the technology is clearly here to stay.
Our collective mission as an industry is to make this technology accessible, reliable, and secure for users worldwide—to usher in an era of financial transparency, trustlessness, and autonomy. Web3 will continue redefining our understanding of money and ownership (both physical and digital) as we accelerate the integration of economic layers into the internet. I’m excited to see what 2023 brings.
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