Waiting for a Bull Run: Six Trends to Keep an Eye on
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Waiting for a Bull Run: Six Trends to Keep an Eye on

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4 months ago

Waiting for the next bull run? Check out these potential trends to diversify your portfolio!

Waiting for a Bull Run: Six Trends to Keep an Eye on

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If you are like many cryptocurrency holders, then you have — at least briefly — attempted to predict the next big trend or sector that will take the market by storm. You also likely found that doing so is easier said than done, given how convoluted, unpredictable and, sometimes, irrational the blockchain and cryptocurrency industry can be.

That said, those who are among the first to adopt the latest technologies and trends tend to be the ones that benefit the most from them — though they also bear the risks that come with being wrong.

The seeds of the next wave of powerful products, unicorns and mass-adopted projects are generally sown in the months and years prior to a bull run, and much of the development occurs during a bear market. With that in mind, there are already some strong indications of what to expect in the coming years.

Here, we take a look at six possible sectors that could help define the next bull cycle.

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Interoperability and Cross-chain Technologies

Blockchain platforms typically operate as closed-off siloes. That is, one blockchain cannot easily or securely exchange information with another without relying on cross-chain communication protocols and bridges.
In 2021, cross-chain interoperability was largely restricted to the asset level. Thanks to bridges, which allow users to lock assets on one chain and mint on another, in addition to wrapping protocols, which create collateralized tokens of assets held on other chains, users can now move their value between blockchains at will.
But these are imperfect solutions. Bridges and wrapping protocols are often too centralized and some of the largest hacks of all time occurred when bridges were hacked — including the recent $320+ million Wormhole hack, $625 million Ronin bridge hack and $100 million Harmony Bridge hack.
As arguably the weakest link in the blockchain space right now, bridges may fall out of favor in the next bull run, as developers and users instead opt to build and use arbitrary cross-chain data and token transfer protocols. Two of these have gained significant popularity over the last year — Polkadot and Cosmos.
Polkadot allows different sovereign blockchains to securely exchange data and value through a network of parachains, parathreads and bridges, whereas Cosmos's Inter-Blockchain Communication Protocol (IBC) allows smart contracts to communicate across Cosmos ecosystem chains without sacrificing security.
These systems, as well as a range of other upcoming so-called layer-0s, will help to decrease tribalism in the blockchain space by producing a more synergistic ecosystem. It will also help power the first wave of cross-chain atomic swap DEXes, interoperable metaverses and cross-chain synthetics — not to mention the array of new use cases that haven’t yet been dreamt up.

The Metaverse

The metaverse was, without a doubt, one of the leading trends in 2021 and early 2022, with barely a week going by without a new major metaverse-based announcement hitting the headlines.

As a blockchain-powered digital world that can be accessed, used, built and monetized by practically anybody, from anywhere, metaverses are poised to unlock a range of new opportunities for work, play and socialization.

The first generation of blockchain-based metaverses are already in operation. These include the likes of The Sandbox and Decentraland, both of which provide users with virtual land that they can use to build their own products, services and experiences.

But while these first-generation metaverses allow users to monetize their content, take part in novel experiences, and communicate with other users in real-time, they were unable to achieve the scale you would expect from such a creative medium. Indeed, at the height of their popularity, both The Sandbox and Decentraland had just 300,000 monthly active users (MAU) apiece.

To put this into perspective, centralized metaverse platforms like Roblox and Fortnite have 50 million and 80.4 million MAUs. As such, it’s clear that there is still significant room for growth.

Given the sheer amount of attention, funding and institutional involvement in the metaverse space, it is likely that a range of more comprehensive metaverse platforms will appear in the coming years — some of which will likely achieve significant adoption.

Indeed, several major platforms are already in development. This includes XANA, an Ethereum sidechain-based metaverse that is interoperable across all major blockchains, with licenses for over 100 major anime/manga brands, and a partnership with the government of Japan.
As well as Meta’s (formerly Facebook) upcoming social metaverse will allow people to work, socialize and play across a variety of virtual spaces. The corporate giant recently stated it intends to transition from a social media company to a metaverse-based one within five years. Not to mention the upcoming metaverses from big names like Bored Ape Yacht Club, Bit Country, Pax World, Bloktopia and more.

Rollups and Other Layer-2 Technologies

Scalability is one of the longest-standing challenges facing the blockchain space. Many layer-1 blockchains aim to achieve VISA-like levels of throughput (>1,700 transactions per second) using a variety of methods, but few have accomplished it without any trade-offs.

The simplest of these methods is to simply increase the number of transactions that can fit into each block such as by increasing the block size (e.g. Bitcoin Cash) or optimizing transaction size (e.g. SegWit), or simply increasing the rate of block production (e.g. BNB Chain’s 3-second block time).

But these can be considered temporary measures as large blocks can make it more expensive to run a full node and can lead to empty blocks, transactions can’t be infinitely size optimized, while a low block time can be less secure and less efficient.

Technologies like optimistic rollups and zk-rollups have long been thought of as a solution to this challenge, since they allow for dramatically increased transaction throughput and potentially improved functionality, without the usual downsides of increased centralization or reduced security.
Right now, there are three main runners in the layer-2 race: Optimism, Arbitrum, and ZKsync. Each of these can be used to enhance the capabilities of the Ethereum blockchain (primarily its scalability and cost-efficiency) and use the platform as a settlement layer to maintain security.
Moreover, layer-2s can be used to augment the functionality of an underlying layer-1 blockchain. For example, they can be used to improve its smart contract capabilities, allowing the underlying blockchain to support DeFi applications — such as Bitcoin layer-2s Portal DeFi and RSK. This could help increase the utility and adoption of older blockchains to bring them in line with current-gen platforms.

Though some see layer-2s as an unnecessary complication and would prefer improvements to be added to the base layer as their utility — at least in the short term — cannot be overlooked.

Enhanced DeFi and Financial Primitives

Decentralized finance (DeFi) was, without a doubt, one of the defining trends of the previous bull run. In the last two years alone, there has been more innovation in the DeFi space than in the decade before it.

There are now hundreds of popular DeFi platforms in operation, spread across more than a dozen smart contract platforms. These helped to dramatically increase the utility of their native assets and the rapidly growing array of tokens, while significantly increasing demand for block space and shining a spotlight on the financial applications of blockchain technology.

Thanks to the advent and adoption of dozens of breakout DeFi platforms, cryptocurrency users can now access a range of new use cases for their assets — including decentralized trading and liquidity pools (via DEXes), yield farms, collateralized lending, synthetic asset minting, on-chain governance and treasury management, decentralized derivatives and more.
At the height of DeFi popularity, the total value locked (TVL) across the entire known DeFi ecosystem reached a staggering $251.56 billion, which was almost 10% of the total market capitalization of all cryptocurrencies at the time. Moreover, a wide array of powerful smart contract platforms rose to prominence over the last two years, including BNB Chain, Solana, Polygon and Avalanche — with DeFi undoubtedly catalyzing a large proportion of their success.

Image courtesy: DeFiLlama

Far from the clunky, difficult-to-use DeFi of the past, modern DeFi is now accessible, easy to use, and generally secure. Indeed, platforms, like Uniswap, PancakeSwap, Aave, Compound, Yearn Finance, can now be considered somewhat beginner friendly — despite the complicated smart contracts that power them in the background.

Nonetheless, the amount of innovation in the DeFi space, combined with the sheer capabilities of the underlying blockchain technology, indicates that the next generation of DeFi platforms will help to provide even more value to users. This might include permissionless lending protocols, synthetic stock, and commodity trading platforms, decentralized algorithmic hedge funds and more.

Sustainable X-to-Earn

In 2021, the term “play-to-earn” was coined by Axie Infinity development firm Sky Mavis. It describes a new blockchain-powered economic model that allows players to earn cryptocurrency rewards for simply playing games.

The model proved incredibly popular and spawned the play-to-earn sector — which now includes hundreds of gaming titles. It also catalyzed the expansion of the x-to-earn space, which saw users rewarded in cryptocurrency tokens for completing various tasks, including exercising (move-to-earn), voting (participate-to-earn) and even sleeping (sleep-to-earn).

But the vast majority of these platforms suffered from one crucial flaw — their rewards were unsustainable. As rewards began to fall below user expectations and competition increased, many platforms saw a gradual exodus of users, and their reward tokens collapsed in value.

This is perhaps best demonstrated by the move-to-earn platform STEPN, which has seen the value of its reward token (Green Satoshi Token) collapse by more than 99.3% from its ATH ($9.03).

Part of the reason behind this decline is the fact that rewards are almost never directly tied to the revenue of the platform. This leads to participants earning far more than can be justified by the platform’s revenue, which when combined with the dwindling demand for the reward token, leads to collapse.

That said, it isn’t hard to imagine that some simple refinements to the x-to-earn model could yield far better long-term sustainability — such as ensuring that rewards are directly tied to the value add that users provide or by ensuring that rewards are only shared between a small number of players, similar to a lottery system.

The beginnings of a more sustainable x-to-earn model are already being seen with the likes of XCAD Network, which allows users to earn creator tokens by watching and engaging with YouTube content.

Since rewards are directly tied to the number of videos they interact with while the number of creator tokens is tied to the performance of the creator, the total value distributed is proportional to the total revenue generated by the system. This ensures both creators and viewers can better monetize their efforts without diluting the reward token as more users are onboarded.

Over time, we are likely to see existing several forward-thinking x-to-earn projects change their reward model to better align revenue and incentives, while a whole new generation of products will iterate on the model to make it more sustainable and less speculative.

Carbon Neutrality

Though incredibly secure, proof-of-work (POW) blockchains, like Bitcoin and Ethereum, use a lot of energy. So much, in fact, that Bitcoin’s mining network has approximately the same energy burden as a small country.

Unfortunately, this also leads to the release of a large amount of CO2 and other greenhouse gases, which has led to blockchain technology earning a reputation of being bad for the environment.

But in recent years, we have seen a gradual shift toward carbon neutrality in the blockchain space, with several layer-1 blockchains, including NEAR, Velas, Algorand and Polygon, being well on their way to achieving true carbon neutrality.

Given that sustainability and environmental concerns are two of the major challenges facing blockchain today, and one of the key sticking points for regulators, it makes sense that future platforms will be developed with this in mind.

This trend may be characterized by a switch to more environmentally friendly consensus systems, like BNB Chain’s proof-of-staked-authority (PoSA) or Cardano’s custom proof-of-stake consensus known as Ouroboros. Indeed, Ethereum, currently the most successful smart contract platform by DeFi TVL, market cap and developer base, is now on the path to addressing its own energy concerns by migrating to Proof-of-Stake with the upcoming “merge.”
Besides a direct transition to a more efficient blockchain architecture and consensus system, a range of new platforms are emerging to help platforms easily offset their carbon emissions to achieve carbon neutrality. This includes platforms like Toucan, which bridges the voluntary carbon credit market to Web3 using tokenized carbon credits, as well as ClimaTrade — which uses blockchain technology to power its transparent carbon offset service.
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