Sharding Capital Partner: Predicting the 5 Major Growth Sectors in Web3 for 2023
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Sharding Capital Partner: Predicting the 5 Major Growth Sectors in Web3 for 2023
The 2022 crypto market delivered a highly "turbulent" year-end report.
Navigating Web3 tides with focused insightsThe crypto market delivered an extremely "turbulent" year-end report in 2022. From the beginning of 2022 to date, Bitcoin’s roughly 65% decline has outpaced all other major asset classes globally. The year was marked by repeated black swan events—from Luna’s collapse in May to FTX’s implosion in November and its ensuing ripple effects—hitting industry participants and institutions across the board with varying degrees of damage.
2022 was a turbulent year, but also one of gains. Every failure presents a learning opportunity. The cryptocurrency market will become more mature, resilient, and robust. Ethereum successfully completed The Merge in September, transforming its network into a stronger execution layer and data availability layer, serving as infrastructure for rollups while laying the foundation for sharding. Non-fungible tokens (NFTs) brought blockchain technology into mainstream culture, attracting buyers who previously showed no interest in financialized crypto assets.
Sharding Capital noted that its team researched over 1,000 early-stage projects in 2022 and still found many outstanding founders and builders pressing forward. They stated, “We should be more hopeful about 2023 than we imagine, because the successive black swans of 2022 have laid a solid foundation for new entrants. Industry consolidation periods are the best opportunities to overtake competitors. When most people are fearful or stop investing altogether, individuals and institutions must actively research and deploy capital.”
With this positive outlook on 2023, below is Sharding Capital’s perspective on the five key growth sectors in cryptocurrency for the coming year.
TL;DR:
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NFTs, as core digital assets, will recover and strengthen, while supporting infrastructure like NFTFi will face explosive demand.
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SocialFi is gaining significant attention and adoption among Web3 users, with smart contract wallets and DID expected to accelerate user onboarding and network effects.
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DeFi applications with proven business models will capture greater value and achieve organic cash flow growth.
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Ethereum will remain dominant in the public chain landscape, with strong momentum in L2 ecosystem development.
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Next-generation broad entertainment flagship applications will lead Web3’s expansion to the outermost edge of mass adoption.
NFTs as a "gateway" for new users, NFTFi to face explosive demand
NFTs, representing alternative assets within the crypto space, center around PFPs (profile pictures) and combine cultural and financial attributes. Currently focused on issuance and trading, they feature limited total supply and non-fungibility, making valuation complex and contributing to relatively low market liquidity.
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The Past of NFTs: Homogeneous narratives and单一 asset types led to insufficient supply. During market downturns, reduced crypto allocations further diminished liquidity flowing into NFTs—the so-called alternative assets—while cautious demand-side behavior prevented new investment or consumption cycles. Valuation, lending, and liquidation systems were also flawed.
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The Present of NFTs: PFP-centric cultural NFTs dominate. The first NFT bubble has burst, returning the market to rationality. NFTFi is now a focal point of industry interest, while utility-driven NFTs struggle to gain traction.
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The Future of NFTs: Enriching asset diversity, expanding internal variety within PFP-type NFTs, innovating creation and derivative workflows, and building infrastructure to support creators and remixers—all can enhance meme culture's lightweight financial traits and improve overall NFT liquidity. Additionally, Web2 companies and brands are increasingly engaging with NFTs to expand audiences and boost brand influence.
On the product side, existing EIP standards advance NFT financialization:
- Issuance standards: ERC-721, ERC-1155, ERC-875,
- Leasing standard: ERC-490,
- Semi-fungible tokens: ERC-3525,
- Royalty income: ERC-2981.
These standards deepen NFT composability. Commercial developments such as the establishment of ERC-5192 enable large-scale adoption of SBTs. EIP-5643 subscription protocols open possibilities for Web2.0 membership services to transition into Web3.0. Utility NFTs still face a long road ahead.
Notably, NFTs carry no original sin and aren’t burdened by excessive baggage hindering their rise. NFTs are becoming a critical gateway for new users. As core assets, their prominence will grow over time with increased exposure. We are particularly interested in narratives and liquidity-enabling modules that catalyze NFT finance—such as trading, collateralized lending, fractionalization, options—and tools like NFT management platforms or SDKs that bring Web2.0 IP fans into Web3.0.
As NFT assets evolve, several promising NFTFi projects have emerged, including:
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Sudoswap, which uses AMMs to provide instant liquidity for NFT trades via liquidity providers,
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BendDAO, which offers pool-based instant loans for holders of blue-chip NFTs,
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Putty, which allows users to create long/short combinations through Put (sell)/Call (buy) options to meet diverse needs.
Although NFTs remain in early stages and face challenges like fragmented liquidity, we believe they will gain far greater influence over a full cycle, playing pivotal roles in community governance, developer incentives, and user asset management. The gap between the total market cap of NFTs and fungible tokens may narrow—or even reverse—spurring corresponding growth in NFTFi demand.
SocialFi draws growing attention and adoption from Web3 users, with smart contract wallets and DID poised to drive user penetration and network effects
In the Web2 world, social products allow users only to create and share content, without ownership of their own data. Platforms like Facebook, Twitter, Weibo, and WeChat leverage user behavior and profile data to refine feed algorithms and monetize ads—an act essentially equivalent to uncompensated appropriation of users’ digital assets.
Social (Web3.0) addresses data ownership, privacy, and revenue rights, focusing on control over traffic (liquidity), attention, and user autonomy. This dual narrative of “liquidity sovereignty” aligns well with the modern ideals of equality, freedom, and openness in virtual social experiences. Moreover, social platforms hold vast troves of user traffic, profiles, and behavioral data, carrying immense commercial potential.
SocialFi applications offer functionality similar to everyday Web2.0 social products but make it easier for users to own their data and interact using cryptocurrencies in Web3. Development centers on data composability. Key areas to watch include SocialFi infrastructure, protocols and middleware for data transmission and storage, core social graphs emphasizing data availability, smart contract wallets lowering onboarding barriers, and portable decentralized identities (DID) usable across DApps.
Emerging SocialFi projects have achieved notable growth even during this bear market, and these trends are expected to strengthen in 2023. For example, Lens Protocol—a Web3 social protocol built by Aave and deployed on Polygon—has nearly doubled monthly engagement, reaching 370,000 interactions per month in posts, comments, and mirrors (equivalent to retweets). Phaver, a decentralized social app enabling interest-based discovery and vertical communities, recently surpassed 100,000 downloads.
Additionally, Web2 platforms like Twitter, Instagram, and TikTok are actively positioning themselves in this emerging space. Twitter established an internal Web3 team back in 2021, Instagram has intensified investments in NFTs and the metaverse, and TikTok and Bilibili are engaging with NFT/SocialFi trends through innovative approaches.
Social inherently possesses the strongest network effects and will ultimately host the largest user base and most sticky behaviors. Its close ties to privacy make decentralization a crucial value proposition. Today’s main challenge lies in the limited scale of mobile Web3 users, but as the aforementioned enabling technologies mature, the contours of the SocialFi sector will become increasingly clear.
Proven DeFi business models will capture greater value and achieve organic cash flow growth
DeFi (decentralized finance) remains arguably the primary use case for blockchain. Although 2022 saw DeFi’s total value locked (TVL) shrink dramatically due to falling crypto prices—from a peak of $180 billion in December 2021 to $38.5 billion by end of 2022, a drop of about 78%—the number of active users and wallets interacting with DeFi continues to grow.
In fact, collapses like Celsius and BlockFi—reminiscent of centralized financial institutions—highlight DeFi’s advantages in security and transparency: users retain custody of assets, smart contracts manage funds, and all data is publicly verifiable on-chain. After FTX’s collapse, DeFi trading volume surged, increasing 68% from October to November alone (reaching ~$97 billion).
We observe numerous DeFi projects with clear business models continuing to grow in user count and transaction volume during the bear market, such as:
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Uniswap maintaining around 50% market share in trading volume;
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Curve’s share rising steadily from 12.9% to 19.6%;
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Ethereum-focused liquid staking projects Lido and Rocket Pool seeing 85% growth in staked amounts (in BTC terms) since the start of the year;
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GMX, a decentralized perpetual exchange on Arbitrum, growing its market share from 9% to ~15% over the past six months, with daily revenues occasionally surpassing Uniswap;
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Gains Network on Polygon, a rising star in perpetuals, supporting stocks and forex beyond crypto, facilitated $8.1 billion in trading volume within half a year.
The future of DeFi belongs to real applications with solid sector logic, organic demand, and sustainably growing protocol revenues. Innovative applications bringing mature traditional finance concepts onto the blockchain—such as on-chain order books, derivatives protocols, and synthetic assets with built-in leverage—are especially worth watching.
Ethereum to maintain dominance in the public chain landscape, with favorable L2 ecosystem development
With Vitalik himself embracing the “Rollup-Centric Roadmap,” the technical debate between Plasma and Rollup was largely settled in 2022. Leading L2 teams have fully committed to Rollup architectures.
Regardless of valuation fluctuations in primary and secondary markets, top-tier L2 ecosystems—including Arbitrum, Optimism, StarkNet, zkSync—remain in early developmental phases. Application ecosystems and user experiences are far from mature (especially ZK-Rollups). Given the low likelihood of either OP Rollup or ZK Rollup’s core value propositions being invalidated in the short term, multi-chain coexistence will likely persist for some time. However, considerations include:
1) Limited utility of L2 tokens within the ETH ecosystem,
2) Ongoing competition from application-specific chains (e.g., dYdX),
3) Technical uncertainty around general-purpose scaling (e.g., zkEVM), requiring disciplined valuation when investing directly in L2 ecosystems.
From the perspective of developer mindshare and effort allocation, Ethereum’s leadership strengthened during the bear market, with much of the development work now carried out directly or indirectly on L2s. Sharding Capital’s extensive project evaluations confirm this trend, and we will continue monitoring high-quality application-layer teams emerging within L2 ecosystems. Beyond GMX mentioned earlier, Perpetual Protocol and Robicon on Optimism achieved monthly active users of 140,000 and 100,000 respectively in December 2022. Treasure DAO’s gaming aggregation platform and unified token governance model have also sparked meaningful insights.
Given the ongoing dynamic evolution and multi-player coexistence in the L2 landscape, projects focused on L2 interoperability deserve close attention. These primarily offer multi-L2 compatibility for developers and enable cross-L2 asset transfers and swaps for users. Key metrics to track include To-C transaction volumes and profitability, To-B developer feedback, and potential for higher-value services (e.g., market making). Representative players like Hop Protocol and breakout project Orbiter demonstrated rising L2 cross-chain activity through counter-cyclical growth in volume and revenue in 2022.
Next-generation broad entertainment flagship apps will lead Web3’s outermost frontier of mass adoption
One defining trait of the last cycle was that L1s captured the vast majority of valuation growth within the crypto asset class. The heavy focus on infrastructure over applications resembled a city pouring resources into highways while neglecting actual transport vehicles—despite those vehicles being fiercely competed for by different highway operators.
Sharding Capital believesinfrastructure will continue capturing most valuation gains in the next cycle, but application-layer projects will claim a significantly larger share than before, following a spiral upward trajectory. Tokenomics-driven consumer-facing (To-C) applications naturally attract speculation, yet after the bubbles burst, valuable legacies remain. Overall Web3 user numbers are expected to increase by one to two orders of magnitude compared to the previous cycle’s peak, extending adoption to broader demographics and elongating the lifecycle of flagship applications.
Regardingflagship applications, Sharding Capital maintains thatproducts aligned with human nature possess greater breakout potential than those opposing it. Thus, broad entertainment (games, media, etc.) holds inherent advantages in driving positive externalities in user behavior. The entire content pipeline—from creation → distribution → presentation—is undergoing revolutionary innovation. Teams excelling in AIGC for content creation, game development/operations, data infrastructure for AI algorithms in distribution, and rapid adaptation to next-gen hardware in presentation merit special attention.
It must be acknowledged that Web3 applications’ financialization and efficient value transfer invite heightened speculation, potentially blurring value propositions and causing volatile public sentiment during breakout attempts. Whether these ideas can successfully translate into a vast Web3 user wave in the next cycle, generating strong network effects and birthing historically significant killer apps with sustainable business models, remains cautiously optimistic. But we’re ready to watch closely in 2023.
If you're a builder actively exploring any of the above directions, feel free to reach out to the Sharding team—we’d love to offer inspiration and support.
[Final Thoughts]
2023 has just begun—but it will only be a brief moment in crypto history. Because the industry is still early, every year, month, and even day brings changes and shifts that can reshape the future.
For the average observer, approach new developments with equanimity—extend tolerance and imagination, stay appropriately cautious, and gradually embrace the possibility of widespread commercialization over the next 10–20 years.
For enthusiastic participants, fully embrace the bubbles, stay sensitive to industry information, elevate your understanding, exploit early-stage information asymmetries for profit, and invest counter-cyclically in quality assets at lower costs (i.e., buy the dip).
For passionate industry insiders and believers—like the Sharding team—we must deepen our understanding of the entire industry and market cycles, rigorously assess the quality of projects and founders in early-stage investments, place bold bets on non-consensus truths, and remain unwavering amid market noise. Approach new sectors and demands with a pioneer’s mindset, stand shoulder-to-shoulder with visionary founders, support exceptional teams, and back projects that deliver real utility for casual users and real profits for engaged participants.
Wishing you all a slay-filled 2023.
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