2022 Blockchain Industry Major Trend Analysis

The year 2021 was an extraordinary year for the blockchain industry. The market capitalization of cryptocurrencies exceeded $3 trillion, NFT trading volume surpassed $23 billion, the United States launched its first Bitcoin futures ETF, El Salvador adopted Bitcoin as legal tender, Ethereum changed its fee mechanism, the total locked value in DeFi exceeded $200 billion, a year-on-year growth of 7 times, multiple new public chains were born, and the number of blockchain wallet users increased to 70 million.

Recently, cryptocurrencies have been used as a tool for cross-border remittances. After the outbreak of the war in Ukraine, the crypto market was initially hit but has rebounded. The Ukrainian army continues to receive crypto donations. During the protests by truck drivers in Canada, protesters received crypto donations after traditional channels were blocked. In the future, cryptocurrencies could be used for charitable donations, something that traditional finance cannot achieve.

The increase in cryptocurrency adoption benefits the development of multiple areas within the Blockchain ecosystem, including infrastructure improvements, application development, the adoption of mainstream programming languages, as well as increased regulatory and institutional adoption. This report analyzes the main trends in Blockchain for 2022.

1. The Rise of Multi-Chain Interoperability Solutions

In 2021, multiple new public chains and Layer 2 solutions emerged, and the demand for cross-chain liquidity became a bottleneck, but it also brought development opportunities.

Between 2017 and 2021, several new public blockchains emerged, such as Polygon, Avalanche, Optimism, Terra, and Solana. These public blockchains attracted developers to build financial applications and games.

To leverage the characteristics of different blockchains and maximize returns, cross-chain transfer capability has become crucial.

Currently, DEX aggregators such as Paraswap are beginning to integrate with cross-chain bridges to enable cross-chain token swaps. For applications that are not deployed on multiple chains, there are cross-chain solutions like Symbiosis Finance, Multichain, or Atlasdex. Multichain has attracted over $7.7 billion in total locked value.

Some well-known DeFi applications such as Aave, Curve, and Uniswap have been deployed on multiple public blockchains, allowing users to use them without cross-chain transfers.

2. Improvement of DEX User Experience and Capital Allocation Efficiency

This year, DEX will see improvements in usability and capital efficiency.

The underlying algorithm of the DEX will become more complex. Uniswap v3 transforms the AMM model into one that is closer to an order book model, allowing liquidity providers to restrict their liquidity to a specific price range.

New DEXs such as dYdX that adopt an order book model are rising. The total locked value of dYdX has rapidly increased, and its trading volume is approaching that of Uniswap. Sushiswap plans to launch a similar product, and more DEXs may follow suit.

The DEX has made improvements in areas such as unilateral liquidity deployment, impermanent loss insurance, batch processing and trading net amount, limit orders, leveraged trading, and the adoption of Layer 2 solutions.

3. The adoption of DeFi on Layer 2 is increasing

As of the end of 2021, DeFi locked assets exceeded $241 billion. Lending protocols such as MakerDAO, Aave, Curve, and Anchor Protocol lead, accounting for about 25% of the total locked value. DEXs like Uniswap and PancakeSwap created $13 billion in locked assets.

The locked-in value of Layer 2 solutions has also seen significant growth, with Polygon increasing from $100 million to $8 billion. New Layer 2 solutions such as Arbitrum and Optimism are receiving widespread attention.

As the number of users increases, mainstream public chains will quickly become saturated, leading to an increase in gas fees. High gas fees and delays will result in transaction slippage, and more assets will move to Layer 2.

Layer 2 solutions increase transaction speed and save gas fees, leading to stronger DeFi development. It is expected that more DeFi applications will adopt Layer 2. The growth of locked assets in Layer 2, such as Arbitrum and Optimism, proves that the community has begun to accept rollups.

As transaction speeds increase, fees decrease, and the process of deploying smart contracts to Layer 2 is simplified, major tokens will launch Layer 2 versions in the future, and bridges will ensure their effective movement between different layers.

4. "NFT-Fi" will define 2022

The multi-platform NFT trading volume exceeds $23 billion, with OpenSea leading. In Q3 2021, the trading volume exceeded $10 billion, accounting for nearly half of the annual total.

NFT lending/staking technology will dominate this field. Platforms like Swap.Kiwi allow for direct exchange of NFTs. Large institutions can swap tokens created from liquidity pool positions. The Taker Protocol allows for loans secured by NFTs.

In 2021, 75% of NFT transactions took place on Ethereum. In 2022, NFT transactions may shift to other public chains, including Ronin, Flow, Immutable, and Solana. Cross-chain NFT transfer solutions will redefine the field. The total transaction volume of Solana NFTs has surpassed $1.3 billion, with SolanArt leading. Polygon has completed over $480 million in NFT transactions.

The application of NFTs in games will be another focus. The trading of game items will give rise to various business models, such as on-chain analysis of item performance, scarcity, and utility.

The applications of NFTs in DeFi include:

• Uniswap V3 liquidity provider positions are represented by NFTs.
• Ubisoft Quartz allows the purchase of scarce digital products with cryptocurrency.
• University of California, Berkeley auctions Nobel Prize invention patent NFT
• NFT as exclusive event tickets
• Artists sell music streaming rights to fans

5. Strengthen Security Awareness

In 2021, $14 billion in cryptocurrency was stolen, setting a new historical record. $2.2 billion was stolen from DeFi platforms. This may hinder institutional participation in on-chain protocols.

Crypto.com and the Wormhole protocol are the latest targets of hackers. This indicates that digital asset platforms need improvements before widespread adoption.

White hat hackers will play an important role in protecting the ecosystem. At the ETHDenver conference, white hat hackers discovered a critical vulnerability in Optimism, emphasizing the importance of bug bounties.

As cryptocurrency becomes more popular, scams are inevitable. Strengthening user cybersecurity and education on Blockchain operational safety is crucial.

As more funds are deployed to DeFi, security audits must be prioritized. DeFi innovations bring more vulnerabilities, driving security innovations. Stricter regulations will lead to greater security concerns.

6. Innovative DeFi and Staking Protocol Development

DeFi

In 2021, Uniswap V3 market makers earned $200 million in commissions, but suffered a temporary loss of $260 million, resulting in a net loss of $60 million. Finding solutions for temporary losses will be a focus in 2022. Managing LP positions in UniV3 is more complex than in V2, as the algorithm will adjust the liquidity range based on on-chain and off-chain data. The demand for precise indexing protocols will increase.

In 2022, market interest in new DeFi protocols will be reignited. Traditional financial applications such as interest rate swaps, futures, hedge funds, and insurance will be launched on the Blockchain. New protocols will also emerge.

Many new projects will draw inspiration from the Curve token economy. The Curve token economy allows users to vote on which pool receives CRV rewards.

The Ethereum mainnet will become more expensive, raising the barrier to entry, while Layer 2 is more beneficial for beginners. Ultimately, only whales and professional traders will be able to use the mainnet. New DeFi protocols are also more suitable for professionals.

Staking

A new liquidity staking protocol will be launched, allowing tokens to be staked across different public chains and projects, and to participate in DeFi using derivative products of the staked tokens. These derivatives are backed by the tokens currently held and locked.

ETH-merge will use PoS to validate transactions. People are starting to use liquid staking tokens like stETH to continuously earn interest, currently at an annualized rate of about 4.4%.

7. Rise of DAO

The Decentralized Autonomous Organization ( DAO ) has gained significant attention by raising funds to purchase high-value items, such as soccer and golf clubs, and even an original copy of the United States Constitution.

In 2022, DAOs will build more business models, such as the NFT marketplace TreasureDAO on Arbitrum. DAO fund management becomes increasingly important, as BitDAO holds over $2.5 billion in liquid funds. BitDAO becomes the Master DAO, acquiring stakes in multiple DAOs. DAOs will also be used for political donations, such as UkraineDAO and Assange DAO.

More tech companies will turn to decentralized organizations, including large corporations. Shapeshift has successfully transformed into a decentralized entity.

DAOs provide rapid fundraising opportunities for protocols and platforms while allowing more community members to participate in decision-making. This may encourage both new and existing protocols to conduct ICOs.

DAOs face issues with slow decision-making and poor task management. Management tools will become important and are key to preventing mismanagement of capital.

8. Large-scale Investment in Games/P2E Economy and Metaverse

The three major themes in the gaming field in 2021: Play-to-Earn ( P2E ), gaming guilds, and Axie Infinity token economy.

Developers choose to develop games on the Blockchain, providing low-cost transactions, fast execution, and settlement. Currently, only tokens and NFTs are deployed on the chain. In 2022, more traditional games may shift to P2E models and be fully deployed on the chain.

More games will be directly deployed on the Blockchain, providing permanent storage and supporting NFT transactions. Animoca Brands leads with 8 Blockchain games, including Sandbox. In the future, we will see more Blockchain entertainment studios dedicated to games and NFTs emerging.

More traditional game company developers will enter the blockchain game field. However, many P2E games will weigh between launch time and quality.

Which public blockchains will be most suitable for game development in 2022? Flow has proven to be suitable for deploying games, while Solana and others still offer flexibility.

The rise of gaming guilds. Yield Gaming Guild is a typical example, with 100,000 members and over 10,000 Axie Infinity scholars. Guild management software systems will become a new topic.

How to develop blockchain games that attract players in the long term is worth paying attention to. Axie Infinity's daily revenue surged from $10,000 to $17.5 million before declining, highlighting the rapid shift in interest.

In 2022, more funds will be invested in P2E projects, giving rise to venture capital funds focused on Blockchain games. For instance, Spartan raised $50 million for its metaverse and gaming fund, and FTX announced a $2 billion gaming investment fund.

The attention to the metaverse will continue to increase. Metaverse live streaming events will offer products, such as the Decentraland Toronto Fashion Show. More NFT series will be launched in the metaverse. Virtual gaming, gambling, and banking experiences will be presented in the metaverse. Banks and insurance companies are creating virtual services in the metaverse.

9. Storage will continue to be dominated by centralized companies

The cost of decentralized storage is continuously decreasing. Global data storage exceeds 80 ZB. Storage services are a major source of revenue for large tech companies, such as Amazon AWS, which accounts for 14.5% of its revenue. Decentralized storage will squeeze profit margins and allow people to regain control over their data.

Decentralized storage allows data to be stored on a distributed network of nodes. Notable protocols include Arweave, Filecoin, and Functionland. There are also companies that do not use blockchain tokens but utilize Web3 applications, such as Filebase.

It is expected that more business models around storage, indexing, and identity will be developed. These are prerequisites for blockchain projects and help differentiate Web3 from blockchain/crypto projects.

10. Blockchain Developer Incentives

In 2021, the flow of talent from Web2 to Web3 reached a new high. How to retain talent and provide clear profit goals in 2022 will become the main theme.

Frequent job-hopping among excellent blockchain developers leads to significant changes. Only 25-30% of developers remain in their positions by the third year.