As an early-stage venture investor, knowing and illuminating what we expect for the future is more crucial than anything else. Hashed has debated and elaborated on which area we are excited about in the forthcoming season, and this is the list of detailed verticals we brought to the table.

1. A breakthrough in wallet UX is expected to drive greater adoption

As the crypto industry continues to gain mainstream adoption and its infrastructure improves, UX and security are becoming increasingly important for end-users. In this regard, wallet providers play a crucial role in facilitating access to decentralized applications (dApps), and will bridge thousands of millions of new users. Challenges still exist, of course, particularly in terms of the complexity of private key management and signature protocols for the average user. The advancement of wallets is not a novel idea at all, but for this time, practical solutions support the thesis.

Solutions that address the complex issues of wallet key management and signature authentication for the average users are increasingly gaining traction. One such solution is Web3Auth, which utilizes Multi-Party Computation (MPC) tech to provide a non-custodial login experience, eliminating the need for seed phrases. Another platform, Magic, offers wallet and SDK options for developers, allowing for dApp login via email and SMS, bypassing the use of seed phrases altogether. In addition, Ramper is also focused on enabling those unfamiliar with cryptocurrency to access blockchain applications through a seamless social login and Single Sign-On (SSO) experience via its mobile SDK.

With an exponential increase in the usage of mobile devices, wallet companies should prioritize the mobile service to capture a larger audience. Coin98, a fast-growing platform with a user base of 6 million, has set its sights on becoming a leading mobile super app by emphasizing on enhancing the security of mobile transactions and elevating the user experience. On the other hand, Robinhood is tackling persistent issues such as clunky design and excessive fees by launching a standalone wallet application that allows users to effortlessly manage their assets, whilst seamlessly integrating with various dApps.

Smart contract wallets are also emerging as another solution. They can be programmed with features such as spending limits, automated transactions, and enhanced security through multi-sig capabilities. These wallets cater to a diverse range of users with varying needs and comprehension levels, such as Argent which offers social recovery and limit order functionality, and Safe which is a non-custodial wallet that allows users to securely store and manage their digital assets through multi-sig function.

Moreover, the smart contract wallet space in the Ethereum ecosystem is seeing promising fundamental developments as well with Account Abstraction (AA), which aims to unify the two types of Ethereum accounts: Externally Owned Accounts (EOA) and Contract Accounts (CA). AA would eliminate the need for private keys for EOAs and enable accounts to act like smart contracts, unlocking potential use cases for improved key management and multi-signature capabilities. Visa recently demonstrated the potential of AA by building an auto-payment solution on StarkNet. And as interest in AA grow, we foresee that NEAR Protocol would gain the attention of builders with their account model, which already implemented Multiple keypairs as the secret key.

MetaMask is a recognized leader in the crypto wallet space, and is participating in the competition through MetaMask Flask. Flask enables developers to customize their own version of the MetaMask wallet. MetaMask Snaps, the very first feature of Flask, allows anyone to extend the capabilities of MetaMask and unlock new opportunities to leverage it with different blockchain protocols. They now rely on swaps for most of their sales and have a monotonous revenue stream. This revenue model generated over $450M+ for over 2 years after launch, but it is highly susceptible to market fluctuations. But if they succeed in building a dApp ecosystem atop their product, they would easily stand out as a lucrative platform with a high moat.

To summarize, the year ahead is poised to witness the growth of dApp integration of more secure login services with intuitive UX. The focus will also be on the development of mobile login, offering convenient user onboarding. Furthermore, the emergence of smart contract wallets has the potential to create a paradigm shift in the industry, with their capability to enforce programmatic restrictions and automate transactions. The notion that wallets could become the next unicorn sector is not a novel one, but with the expected influx of users through practical technical advancements, it is a promising prospect to look forward to.

2. Web3 elements added to digital identity will take a step closer to decentralized social

The current digital identity system has several areas that need improvement. One major issue is fragmentation, where individuals have multiple identities across various platforms, leading to a lack of accuracy and cohesion in personal identification. Privacy and security are also concerns, as individuals are often required to provide sensitive information to establish a digital identity on different platforms, which can result in identity fraud and financial crimes if this information is used or shared without consent. Additionally, centralized control by platform service providers raises concerns. Digital identities are often controlled by a small number of companies or organizations, which can lead to a lack of control over one’s own identity.

Blockchain technology can offer differentiated solutions to these issues by using private wallets, and allowing individuals to verify their digital identity by demonstrating ownership of specific tokens or NFTs. Storing assets and information on the blockchain improves the accuracy and reliability of digital identities. The blockchain-based identity enables individuals to consolidate multiple online identities into a unified, self-sovereign entity, giving them control and autonomy over their digital identities. CyberConnect is an example of a company building a decentralized social graph protocol to provide users with composable, self-sovereign identities using Web3 Status Tokens (W3ST) and CyberConnect Profiles (ccProfiles).

Digital identities can also be created and managed without the use of tokens or NFTs, such as with DID (Decentralized Identifier) and VC (Verified Credentials) which are used by several Ethereum-based projects like Disco and Orange Protocol as complementary tools to Soulbound Token (SBT). It is important to note that a single solution may not be sufficient for all privacy needs and a combination of on-chain solutions like SBT and off-chain like VC may be necessary for optimal security and privacy. Additionally, there should be progress in developing better data storage solutions with privacy and partial decentralization, and seamless integration between different identity layers.

Indeed, Web3 digital identity will unlock the full potential of decentralized social platforms. With Web3 identity, users will be able to easily find, connect, and even have a gated community with others who share similar interests, such as utilizing the same DeFi protocols, owning NFTs, or playing blockchain games. This new form of identity can also be integrated with existing identity systems, creating a seamless and interoperable digital identity that opens up a range of business opportunities.

The decentralized social network has been a growing trend over the whole year in hackathons with 40% of the awarded projects falling into this category. Lens Protocol has 60+ projects solely spun off from the hackathons with diverse attempts around their social graph. Farcaster and DeSo respectively have raised a significant amount of funding amid this great interest. This year, we can expect to see the initial development of blockchain-based social applications that leverage network effects by using a shared social graph.

3. Important experimentation will be conducted on optimizing the usage of ZKPs to enable privacy in account based smart contract platforms

Currently, the application of Zero-Knowledge Proofs (ZKPs) in the crypto space is mainly focused on improving scalability through verifiable off-chain computation. Optimistic rollup (ORU) scalability solutions, such as Arbitrum and Optimism, have gained popularity since launching their mainnets in the past two years. And, as we entered into 2023, ZK rollup projects such as zkSync, Scroll, Polygon zkEVM, etc. are already in the testnet phase and we anticipate to see further optimizations and advancements in 2023. Overall, it appears that we are on the right track to solving scalability issues in the crypto space.

As scalability solutions continue to advance and support more advanced user experiences, it is becoming increasingly important for crypto to differentiate itself and gain competitive advantage over traditional Web2 platforms.This reveals the importance of privacy, which is the other critical application of ZKPs. Empowering services with privacy is pivotal to further improve the value proposition of crypto, as common user experiences such as voting, governance, payments, etc., can greatly benefit from the added option of privacy.

Enabling privacy in account-based smart contract platforms, such as Ethereum, is challenging due to the complexity of encrypting the state of the ledger while maintaining its validation. Several renowned teams are working on solving this issue, using different approaches. One common approach among these protocols is the incorporation of ‘notes’ from the UTXO model into the account-based system to make ownership and its transfer more explicit.

There are several notable examples of projects working on this issue. The Aztec Connect SDK allows Ethereum protocols to be integrated with Aztec’s private rollup, which utilizes an encrypted UTXO architecture to enable privacy. ZK.Money, which is based on Aztec Connect, already offers a private DeFi yield aggregator that has integrated with major projects like AAVE, Uniswap, etc. Additionally, Polygon Miden is introducing a ‘Hybrid UTXO and Account-based State Model’ to EVM compatible ZK rollups to support private transactions when they are composed of local execution of off-chain data.

To facilitate experimentation and innovation with privacy-enhancing technologies, it is important to minimize friction for developers building on top of these infrastructures. Web3 Development already introduces an array of unfamiliar difficulties, such as fragmented indexing, additional security concerns, etc. and thus the complexity of adding privacy should be abstracted as much as possible. There is no doubt that such efforts will further mature in 2023 to cultivate a healthy testing ground for exciting applications.

4. Programmable NFT technology represented by Dynamic NFT will expand

Over the past few years, the NFT landscape has undergone a seismic shift, particularly those in the form of Profile Pictures (PFPs). However, the trading volume of image-based NFTs has noticeably dwindled in the second half of 2022, as users have begun to yearn for additional functionalities. As a result, the NFT ecosystem is undergoing a transformation as it responds to this changing demand. Ethereum Improvement Proposals (EIPs) have served as a gauge for the direction of Ethereum’s community development, with a majority of recent proposals focusing on NFT standards, indicating the community’s desire for NFTs with added utility. We believe that 2023 would be a cornerstone where various NFTs, including Dynamic NFTs, address these issues by offering new functionalities.

Dynamic NFTs are a unique type of NFTs that can adapt and evolve based on certain triggers in their smart contracts. These triggers can be a result of on-chain or off-chain events, or even real-world occurrences. The changes in a Dynamic NFT’s characteristics are usually made by modifying its metadata. Decentralized oracles are used in this process to update metadata with off-chain events.

Dynamic NFTs can take many forms, for example, the functionality of an NFT can change based on an athlete’s performance stats, or its appearance can change based on weather conditions. Alongside Dynamic NFTs, there is a growing discussion in the community about other programmable NFTs that have advanced capabilities such as Executable NFTs, NFTs with separated permissions, and shared ownership. This opens up diverse possibilities for interactivity and engagement for creators, collectors, and gamers.

Programmable NFTs are expected to gain significant popularity in the blockchain ecosystem due to their ability to create advanced use-cases beyond the traditional representation of digital ownership through images or records. These NFTs offer a vast array of possibilities, such as the ability to create interactive experiences, represent unique and complex digital assets, and develop new financial instruments.

In the meantime, the widespread adoption of Dynamic NFTs requires addressing the issue of reliability of the trigger events that cause these NFTs to change. To achieve this, the implementation of more trustworthy oracles and the establishment of clear NFT standards are necessary to validate the authenticity of trigger events, while also promoting transparency and fairness in the smart contract rules that govern these Dynamic NFTs.

As the blockchain ecosystem continues to draw in more game developers, artists, and entrepreneurs, the caliber of their creations is also improving. The emergence of Dynamic NFTs is expected to add a new level of excitement to the NFT ecosystem in 2023. The abundance of talented creators in the space will open up endless possibilities for new and imaginative use cases.

5. Diverse NFT utilities will be explored and small and medium-sized brands and creators will drive new wave of adoption

Despite the prolonged bear market and the consequential drop in sales volume, NFTs are becoming an increasingly popular way for companies to connect with customers. Major corporations like Coca-Cola, Twitter and Visa have begun using NFTs as a way to enhance their brand image.

“I think you’re going to see an explosion of things being created, traded, and collected in NFTs.” — CEO of Disney, Bob Iger

Disney, the epitome of unbreakable IPs that are revered by audiences of all ages and ethnicities, has recently delivered its promise for NFTs. Disney’s strong records in generating derivatives such as movies, games, and other forms of media & entertainment with its everlasting IPs make this a promising area for the company to expand into. As a demonstration of its commitment, Disney has launched NFT-based digital collectibles with Marvel, one of its subsidiaries. To support this effort, they are actively seeking to hire experts with knowledge and experience in this field.

Regardless of the foreseeable mainstream success of NFTs, the benefits derived from owning an NFT often lack emotional value for the holder and are not continuous. In layman’s terms, after acquiring an NFT, the holder may not feel a strong connection to it over time and may not know what to expect from owning it. While many NFT projects or studios provide intermittent benefits as outlined in their roadmaps, they often fail to provide a sense of belonging and true ownership of the underlying IP and content, such as the sense of community and exclusivity offered by Yuga Labs’ Bored Ape Yacht Club.

To address these hurdles, a few and a growing number of teams are working to showcase how NFTs can provide genuine, continuous utility and a sense of belonging/ownership to the holders’ community. As an example, Modhaus is revolutionizing the K-pop entertainment industry by allowing fans to actively participate at a higher level and offering ownership through NFT-based governance and voting. To be more specific, TripleS is a one-of-a-kind K-Pop group that leverages blockchain technology to give fans more influence in important decisions such as selecting of title song, selecting subgroups of TripleS and assigning individual members of each sub-group from the very beginning.

Small and medium-sized brands and individual creators are projected to embrace NFTs as a means of enhancing and retaining customer loyalty in 2023, echoing the lead taken by major enterprises the previous year. This includes incorporating NFTs into membership and loyalty programs in real-world communities, such as local restaurants and social events. The practical benefits of NFTs, such as offering exclusive perks at offline events, are expected to contribute to the widespread adoption of NFTs.

Enabling wider NFT adoption requires reducing barriers to entry for users through easy-to-use wallet services; as an example, Reddit’s Vault enables users to claim the Collectible Avatars at ease. At the same time, tools that allow non-crypto savvy individuals to effectively leverage Web3 stacks are equally important. The growing demand from long-tail brands and commerce for enhanced user experiences in NFT communities will drive the use of services such as RareCircles or CIETY, which enable the launch of these communities without the need for coding or technical expertise. OpenSea, a leading NFT marketplace, has also recently launched “Drops,” a tool for creators to launch their NFT projects. It has also introduced customizable landing pages on EVM chains, aimed at enhancing the experience for small and medium brands and creators. We anticipate such tools will drive further use-cases and adoption.

6. Blockchain Gaming Will Revitalize with Adoption of Strong IPs and Lubricated Onboarding

Blockchain games like Axie Infinity, The Sandbox, and Blankos Block Party, have seen unprecedented growth in late 2021, despite having only launched within the last 2 years. Moreover, the evolving gaming ecosystem of the SEA market with the advent of novel ideas such as Gaming Guilds have also made GameFi a highly sought-after sector for both crypto builders and traditional gaming conglomerates.

We could witness the top-line market cap growth of the major blockchain gaming projects within the initial wave of blockchain games in 2021–22, but did not meet high-set assumptions due to macroeconomic conditions and market turbulence. Nevertheless, the blockchain game sector including GameFi has seen $5B+ annual fundraise since Q4 2021, and we expect to see a huge amount of attempts including multiple AAA games to undertake officially in 2023.

In order to provide innovative experiences to game players, we often see utilization of well-known IPs, such as popular webtoons and films or even established masterpiece game IPs integrated with blockchain technology. Korean conglomerates such as Nexon and Netmarble, as well as global companies like SEGA, Bandai Namco, and Square Enix are also making efforts to incorporate their IP into games. For instance, the launch of User Generated Contents (UGC) platforms using long-loved characters and storylines such as Gundam Metaverse is now becoming visible, and Nexon has also unveiled a blueprint for the creator driven ecosystem incorporating blockchain through MapleStory Universe, its most noted IP source. In the future, more content companies will expand IP by utilizing blockchain for the games.

However, the mass adoption of blockchain games cannot solely be attributed to the utilization of well-known IPs. While AAA games with renowned IPs effectively tackle the issue of inadequate quality of gameplay, the pressing concern of high entry barriers for the regular users remains unresolved. Axie Infinity, one of the highly successful blockchain games that boasted over 2 million MAUs(Monthly Active Users) in 2021, once encountered challenges in attracting a wider audience due to the difficulty in wallet creation and asset purchase. In the future, it is envisioned that the barriers to entry will be diminished, allowing gamers to play blockchain games without the need for a wallet or with a much more seamless wallet creation process.

In 2023, it is expected that streamlined onboarding tools will gradually advance to attract a greater number of players while blockchain infrastructures offer convenient mobile SDKs to facilitate the launch of top-tier games. Multi-chain enabled wallet services specializing for the gaming sector, such as Sequence and Face Wallet, will work in tandem with numerous blockchain gaming companies to enhance accessibility, in addition to infrastructure companies with similar efforts coming up such as Immutable Passport recently announced by Immutable X. These collaborations will aid in creating a more seamless and user-friendly experience for all gamers, making the whole journey more accessible and enjoyable.

7. Building Resilient Infrastructure for the Next Generation of DeFi: The Rise of NFT-Based Virtual Goods

Production and finance are closely linked in the real-world economy. Production activities are based on natural resources and infrastructure and the financial industry leverages the growth of these activities by providing loans and other financial instruments. For instance, a farmer may establish a ranch and raise cattles (Production), banks and securities firms can leverage this by providing financing or listing it on the exchanges (Finance) and help the farmer expand their operations.

However, until 2022, the crypto economy lacked this balance, with infrastructure-level projects such as crypto exchanges and money market being collapsed (Finance), leading to an unstable financial market before projects with solid utilities and strong communities thrived (Production). The foundation for the crypto economy, blockchain technology (Infrastructure), was in place, but it needed more development of production-focused projects to support its growth.

Major DeFi tokens have interdependent values, where the value of one token relies on the usage and value of other tokens in the DeFi ecosystem. This creates a fragile structure where a decline in the value of one token can affect the entire DeFi market. For example, tokens from DEX A accumulate value through transaction fees, which are traded on DEX B, generating transaction fees for each other. Decentralized lending platform C earns fees through token mortgages from A and B, and the tokens from C are traded on A and B… and so on. This recursively formed mutual reliance has repeatedly resulted in the DeFi market experiencing steep declines in value during times of regulatory uncertainty or skepticism towards the industry as a whole.

The top challenge in the blockchain industry is building a solid infrastructure to make it easier for the general public to use and to thicken the commodity production market with real value on it. Fortunately, despite setbacks, the volume of blockchain transactions has been steadily increasing. Currently, there are 5 leading L1 projects with over 1M+ transactions (Ethereum, Solana, BSC, Polygon, Avalanche), featuring scalable and private modular solutions, user-friendly onboarding, and digital identity solutions.

On top of that, digital products are slowly piling up, including non-fungible assets produced through the blockspace of L1s. Ethereum, the largest existing smart contract platform, is still generating large NFT transactions after the last NFT summer with a total trading volume of over $35B. Despite lower activities in NFT communities and a drop in OpenSea’s trading volume, secondary NFT trading remains strong at over $780M per month.

Ethereum is no longer the sole ecosystem with thriving communities based on scarcity of non-fungible goods. Polygon is drawing in millions of Web2 users with its adoption of large enterprise NFT programs such as Starbucks Odyssey and explosively increasing popularity of Reddit Collectible Avatars. Solana has also maintained a monthly secondary trading volume of nearly $150M despite a drop in TVL by over 80% and accelerated DeFi user churn. In mid-2022, Solana NFTs, like Y00ts, successfully created a unique and distinct community different from the Ethereum NFT community. And, the number of UAW (Unique Active Wallets) for Solana NFTs grew nearly fourfold during the bear market from August to October 2022.

New types of virtual goods will emerge, likely to begin with blockchain games and metaverse. These sectors accounted for the largest fundraising in the Q1 of 2022. Also, the use of aforementioned programmable NFTs to represent real assets in the virtual world will be discussed in greater depth this year.

As infrastructure players accumulate valuable virtual goods and the infrastructure stabilizes, financial models that have evolved so far will start to operate within this particular infrastructure. Exchange primitives such as OpenSea and Blur, lending platforms like NFTFi and BendDAO, and various experimental models including derivatives platforms are continuously being developed, although there is no clear winner yet.

Smart contracts of DeFi can swiftly be applied into other blockchains, yet, the products such as NFTs and the communities built around them can never be copy and pasted. This year, the growth of blockchain ecosystems will be geared towards creating the minimum production scale to support these financial primitives, rather than infrastructure that is restricted to DeFi. Major blockchains will concentrate on constructing a robust ecosystem around NFT-based products which are difficult to replicate, such as NFT communities and blockchain gaming.

8. AI will have a significant role in blockchain game development and beyond

The field of Artificial Intelligence (AI) has seen significant advancements since its inception. It has evolved from early research in Natural Language Processing (NLP) and problem solving in the 1950s to more recent developments in data synthesis and Machine Learning (ML). This has resulted in AI becoming widely adopted across various industries, including healthcare, finance, media, and transportation.

There is a growing expectation that AI will see widespread adoption in 2023, with the success of Large Language Model (LLM) models like ChatGPT being a prime example. The blockchain gaming industry is poised to benefit greatly from AI advancements, particularly in terms of streamlining the traditional game development process and bringing a new level of gaming experience — all through Generative AI.

Generative AI has been a developing field for over a decade, but it was not until recently that it advanced enough to mimic and even outperform human capabilities in image, language, and speech recognition. The market was valued at $8B in 2021 and is projected to reach $63B+ by 2028. As avid investors in this field, we are excited to see how it will continue to shape and innovate the industry in the coming years.

AAA-game developers spend a significant portion of their budget on content creation, making it a major bottleneck in the gaming industry today. It takes at least 3+ years for top game studios to complete production, and developers must predict consumer trends years in advance of product launch. The development cycle becomes even more challenging in crypto gaming, where the focus is on decentralizing gameplay development to players but their preferences can change rapidly and unpredictably.

Generative AI can be a powerful solution for addressing this issue. By gathering data on user behavior from a core group of community beta testers over multiple game iterations, developers can train models to create unique, generated content that is tailored to specific demographics such as levels, characters, and items. Such content is generated procedurally, evolving in response to real-time changes in user behavior. This not only provides players with a diverse, dynamic gaming experience but also helps developers reduce the need for manual content creation.

A core facet of crypto gaming is engaging users to create their own user-generated content (UGC) with in-game utility and/or monetizable potential. Creation tools in games like Minecraft are but the tip of the iceberg, as the combination of blockchain and generative AI enables users to create and monetize assets. Users can design weapons, items, or collectible cards with unique attributes, rarity, and value, and after integrating with the blockchain, they can trade, buy and sell their UGC items on on-chain marketplaces. This allows for a more immersive gaming experience and opens up new possibilities for monetization of in-game assets. Additionally, it opens up opportunities for original asset designers to earn royalties on secondary trades.

Game developers are already using a variety of AI technologies, but the implementation of generative AI models and the applications running on them can bring about significant transformations. The integration of AI can not only improve the game development process but also enhance the overall gameplay experience for players.

Beyond gaming, we are also excited to see AI’s potential in other crypto verticals. Predictive risk management is an area that is increasingly popular among trading teams, where they train generative AI models to generate synthetic financial data to simulate different market conditions — prices, CEX/DEX trading volumes, order book depth, AMM liquidity, etc. This helps traders understand how to identify and react to potential risks in various market conditions.

Smart contract auditing powered by AI solutions is another area we are keeping an eye on. Today’s auditing process is cumbersome, inefficient and expensive. We expect future audit AI models to be trained with a large dataset of existing smart contract code, along with information about vulnerabilities, bugs, and attack patterns. After sufficient data processing and cleaning, the model should then be able to automatically analyze and audit new smart contract code inputs.

The most effective AI solutions are the ones that perfect the data collection process — both in terms of quantity and quality of information received. We envision a future where there are Incentivised Data Marketplaces. Decentralized computing protocols, such as Filecoin and dFinity, and distributed GPU rendering protocols, such as Render Network, are leading examples of projects that embody a common theme. With the advent of distributed AI protocols, parts of the ecosystem can be tokenized while leveraging incentives in exchange for user engagement and the sharing of data to further enhance the AI-based model. This symbiotic relationship between users, AI, and tokens holds immense potential to revolutionize the industry.

9. Institutional grade finance will onboard via blockchain infrastructure

It is predicted that in 2023, institutional finance will experience a significant growth in scale, driven in part by the increasing use of tokenized Real-World Assets (RWAs: representative of a claim on an underlying asset) and advancements in enterprise-level staking and unsecured lending.

The most successful application of Real-World Assets (RWAs) today is stablecoins, with market leaders such as USDT, USDC, and BUSD being among the top seven tokens by market capitalization. Crypto-native organizations are showing clear initiatives in RWAs, with MakerDAO investing $500M in US Treasuries and corporate bonds and diversifying into other types of RWAs such as real estate, invoices, and commercial loans. RWAs now make up almost 60% of Maker’s total protocol revenue, demonstrating the potential of this space.

Another significant development in institutional finance is the growth of enterprise-level liquid staking, driven by the expansion of the LSD (Liquid Staking Derivatives) sector. Companies like Alluvial are building enterprise-grade standards for liquid staking to bridge institutional capital and PoS blockchains. This allows token holders to stake their tokens and receive a token that can be used as collateral, hence increase of capital efficiency. The validity of the requirement for liquidity staking has been demonstrated by the market expansion, which has progressed from 21% to nearly 40% of the total tokens staked within a single year.

Decentralized lending has grown rapidly in the past two years, but most current lending models require over-collateralized debt positions, and on-chain borrowers lack access to general-purpose credit. The DeFi space has become complex with a high learning curve and fragmentation across multiple dApps and infrastructure, making it difficult to manage positions and generate sustainable yield. The bear market has revealed the short-lived nature of yield farms, and the rise of unsecured P2P lending is seen as a more sustainable source of real yield. On-chain unsecured lending provides transparency, allowing underwriters to make proactive lending decisions. Projects like Maple Finance and Goldfinch are actively working on providing capital to real-world institutional businesses in a decentralized manner.

However, the DeFi space is not without its challenges. The lack of clear regulations for crypto is a major uncertainty for the industry, but if industry can push iterative progress on on-chain tokenization and securitization to have well-defined guidelines, it could greatly benefit the sector and open up a wide range of possibilities for real, cash flow-generating activities.

Overall, we see institutional developments as inevitable progress in DeFi while CeFi continues to consolidate. Traditional financial institutions are expected to experiment more with mature DeFi protocols, such as MakerDAO, AAVE and Centrifuge. Additionally, there is expected to be a surge of startups focused on onboarding traditional financial institutions into the crypto market in a regulatory-compliant way. This blending of characteristics has the potential to become a larger additional layer of finance, especially in emerging markets where millions of entrepreneurs are locked out of the financial system.

10. Emerging markets led by India to challenge US dominance in innovation and open source contributions

The crypto realm is witnessing a persistent inflow of new participants, particularly in burgeoning markets like India. As per the 2022 Global Crypto Adoption Index unveiled by Chainalysis in last September, India stands tall as a leader in the realm of both centralized and decentralized transfer amount, displaying a remarkable degree of crypto adoption among emerging economies. In the meanwhile, the United States, which has long been the hub of global blockchain innovation from a supplier perspective, is now facing challenges due to the rapid technological advances that are taking place in emerging countries, represented by India.

Over the past decade, India has emerged as a tech innovation hub and is considered one of the world’s leading sources of tech talent. 3500+ engineering colleges which produce 1.5M+ engineering graduates annually, will propel India as home to the world’s largest base of software developers, overtaking the US by 2024. Moreover, this talent base has graduated to innovative, high-value roles from being the execution layer of multinational corporations. Additionally, India is witnessing the fastest growth globally in terms of open-source contributions powered by a developer community of 9.7M on GitHub, second only to the US. In 2022 alone, 2.5M new people from India joined GitHub. India’s growing presence in this space is a positive sign for the country’s future contributions to technological advancement.

The biggest beneficiary of this skilled talent base has been the “Software-as-a-Service” industry. The Indian SaaS industry is forecasted to grow 25x to $50–70B over the next decade. Indian founders have shipped multiple globally recognized SaaS products and developer tools including Freshworks, Zoho, Hasura, Postman, etc. With the right ecosystem support, India could also lead the next wave of innovation in the emerging world of blockchain. As per 2022 Electric Capital Developer Report, while the US continues to see a decline in its market share of Web3 developers, India steadily increased its market share to more than 5% in a relatively short span of time and is already among the top 4 nations in terms of number of Web3 developers.

Indian SaaS saw exponential growth and activity with 500+ ex-employees from Indian SaaS companies becoming founders themselves. This trend has continued for blockchain infrastructure as several founders have branched out of Web3 organizations to start on their own. Early employees of leading Web3 projects from India such as Polygon have gone on to build blockchain infrastructure projects.

The evolution of SaaS and infrastructure in the blockchain space will likely mirror the journey of the Indian SaaS revolution although at a much faster pace due to a low cost, skilled and large English speaking talent base, improved technology infrastructure, software-first and modular nature of crypto, and the trend towards digital GTM accelerated by COVID. The aforementioned factors are likely to position India at the center of the blockchain infrastructure movement with founders building products across both horizontal and vertical domains. We are excited to see how these key themes play out given short term volatility but secular long term growth for innovative Indian Web3 projects.