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DeFi Trends In 2022 Web3. Is The Future Of Finance On The Blockchain?

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Top trends in DeFi that will support the growth of Web3 in the next 5 to 10 years.

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Research
One Button Capital
July 20, 2022
Jul 20

Many experts divide the Internet into three historical phases:

  • Web1 from the 1980s to 1990s
  • Web2 from the 2000s to 2010s
  • Web3 from now in the 2020s

Web3 stands out because it is getting better at storing data permanently in a decentralized way. That opens the door for a new generation of trustworthy applications built on blockchains and linked data, allowing users to control their data and choose to whom to share it.

Decentralized technology will help shape the next wave of computer innovations and even whole new economic sectors.

Our objective now is to analyze rising trends in Web3 and, more specifically, Blockchain finance, and see which sectors are expected to have the highest growth in the next 5–10 years.

Web3 describes the third generation of the Internet: the Internet of Things and decentralized apps.

Blockchain is a peer-to-peer distributed ledger that cryptographically timestamps transactions and stores them in an immutable public database.

Macro Forces and Emerging Trends

The first major trend in Web3 is expected to be the decentralization of money.

Right now, the financial ecosystem is undergoing a complete transformation, with more and more people moving away from banks.

Digital wallets

Digital wallets like Coinbase, Circle, and Xapo are leading the way in the digital revolution of money. They offer a much simpler way to store and send money. They can give users more control over their digital assets or the ability to sign smart contracts, allowing them to have more autonomy. Over $25M+ people use a wallet from a single provider like Trust Wallet, for example.

Other dApps

In 2021, for the development of Blockchain technology, $6.6B was spent and is projected to go up to $19B by 2024.

In the most recent funding round, the asset management firm Andreessen Horowitz raised $4.5B from private investors. They plan to use the money to help build decentralized applications (dApps) and the backbone of blockchain systems.

Crypto has surpassed the 4.0% global adoption mark. Source: Triple-A

Cryptocurrencies

One of the most discussed topics in May 2022 was stablecoins. While most people are familiar with Bitcoin, stablecoins are the most widely used type of cryptocurrency.

Stablecoins are assets that are “pegged” to another asset or a basket of assets.

Price stability is achieved as a result of this, allowing people to transact with digital representations of commodities and currencies. About $150B are locked in the current top 3 stable coins Tether, USD Coin and Binance USD.

Algorithmic stablecoins

Another group of stablecoins is so-called “algo-coins” that use mathematical formulas to maintain the correct ratio of the coin to its real-world asset.

The fall of TerraUSD was the second biggest crash of algorithmic stable coins in the last year after the TITAN coin fiasco in 2021, when it lost -95% of its value in one month. These two events almost entirely erased the trust of investors in algorithmic stablecoins.

Future development

The main goal of Web3 companies would be to make the blockchain network more accessible to users. The development of the lighting network for faster transactions in Bitcoin or the upgraded Ethereum 2.0 version are examples of ways to improve the user experience, so when a larger percentage of people join crypto, they have fewer issues like high transaction costs for small payments.

The 2021 crypto hype attracted many new users into the industry. Over 10 million new people have created crypto wallets in the past two years, and the amount of money raised via ICOs hit $27B. The increased interest led to many developers and creators transitioning to crypto and further assisting in the development.

We are looking at repeating the cycle in the next 2 to 3 years with the development of dApps, hardware wallets, and other core protocols.

Banking

Decentralized banking is another innovation of the Web3 Internet phase. Nick Szabo was the first person to talk about decentralized banking way back in 2003. This type of digital banking lets people send payments to each other safely and cheaply using a token or cryptocurrency like Bitcoin.

In 2021, decentralized banking grew by 1500%, and in 2022, the value of transactions secured by cryptocurrencies was over $14T.

Another recent study shows that banks and insurance companies are using artificial intelligence to automate credit risk modeling and update the way credit scores are calculated. That further validates the thesis that AI is crucial for asset management in the digital age.

DeFi

Decentralized finance or DeFi means using P2P technology and cryptography to allow individuals, companies, and entities to make and receive payments without the need for traditional financial institutions.

The most promising trends in DeFi are using open-source tools and platforms to create solutions that lower the cost of financial services.

According to a research paper by Future Today Institute, the DeFi projects that can grow rapidly are digital wallets, staking projects, and smart oracles.

A graph showing the growth of DeFi technology between Oct 2017 and May 2022. Rapid development after mid-2021!

Conclusion

Web3 is already here, and DeFi is leading the way into the new decentralized world. With reports indicating that the growth in the mass adoption of crypto to reach 10% by 2030, it is of utmost importance to have a functional system that can handle the millions of new users.

Digital wallets, improvements on existing Blockchains, and the development of new dApps and DeFi protocols are the projects that will most likely trend the most in the next 2 to 5 years and will also be the backbone to support the next explosion in crypto and Web3.

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