FG Roundup: Connecting the Dots in 2023

FG Roundup: Connecting the Dots in 2023

Here at Faculty Group, 2023 has been a rollercoaster of a ride full of twists and turns we didn’t see coming. Hindsight is always 20/20. As Steve Jobs’ said, 

“You can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future.”

Having faith at times in web3 feels like a never-ending hype cycle of narratives that make you feel like you have been here before. Deja Vu is a perpetual feature of life in the Cryptoverse. So in the spirit of A Christmas Carol by Dickens, here is our roundup of what we didn’t see coming in 2023:

Macro & Crypto in tandem

The Macro Crypto correlation was on full display this year as higher interest rates, and QT removed liquidity from the system, and investors sought to risk off their portfolios. This meant large pull-backs out of crypto and digital assets. Volatility was back with a vengeance this year which is always good for making money.  

Whether or not central banks have vanquished inflation remains to be seen, but the ripple effect of higher interest rates will continue into the new year. It will be interesting to see how this plays out as projects and investors look at how best to generate returns and keep their powder dry ready for the next bull run.

AI takes over Crypto's playbook

This year’s launch of CHAT-GPT and GenAI will go down as the biggest event of 2023 and perhaps in modern history. However, beyond the hype cycle, one of the most interesting use cases was the creation of AI trading bots to take advantage of alpha opportunities in the space. 

The roadblock for AI/Crypto start-ups to compete with BigTech is compute. The solution to move away from a centrally controlled Sky-Net future is decentralised, smaller open-source AI that can adapt and learn faster with less compute power than Sam Altman and friends.

From Gaming to smart contracts, AI has the potential to revolutionise how coding and cryptography evolves as well as how ‘users’ create their own productivity enhancing tools. This is only the beginning of a new cycle of innovation and creativity for humans and companies

Bitcoin is Back

The evolution of building on Bitcoin was something very few people saw coming. The advent of Ordinals and memecoins built on BRC-20 brought new builders and people to BTC and into the Bitcoin network. The network congestion for Bitcoin maxis is a small price to pay for the increase in alpha and new network users.  

Everyone is keen to get involved in the upcoming Bitcoin Halving in April/May 2024.  The stage has been set for the next FOMO, sentiment driven bull run. The anticipation of a Bitcoin ETF or ETH ETF approval in 2024 has many institutional investors ready to orb in once these receive the regulatory ‘green light’. Definitely one that will play out in 2024.  

Ethereum’s LSD trip

Creating real yield from the Ethereum network was the holy grail, making ETH a yield-bearing institutional-grade asset. We would argue that although Ethereum staking has been oversubscribed, it has also revealed the dangers of centralisation with two dominant LSD protocols owning most of the market share. 

Prior to macro interest rate rises, a 5% yield from your staked ETH seemed like a great low-risk return. However, the leverage that stETH has created has ended up being spread all over Layer2 DeFi networks. Whether or not Ethereum can regain trading volumes remains to be seen.

Ethereum’s roadmap promises more interesting twists and turns for 2024.  The arrival of EigenLayer and LayerZero are also interesting infrastructure plays built on the value accrued at the protocol level. Buckle up, the ride is getting interesting.

The Alpha Narrative

Layer2s took over from Layer 1s as the new Alpha for free money hunters. Airdrops became the yield farming vehicle of choice and being on the ground floor of new projects building on Layer2 networks has been the returns vehicle for retail investors this year.  However, trading volumes have also moved onto Layer2s which has had unintended consequences for Ethereum, where trading volumes and gas fees have substantially decreased across 2023.  Although lower gas fees are welcome, the increase in ETH supply has resulted in some interesting price dynamics. It is interesting to note that many competing L1s have taken a page out of Ethereum network’s ‘playbook’. 

Solana comes back from the dead

In the wake of FTX, it seemed like the end for the centralised L1. Ironically, Solana has been the comeback kid of 2023. Finding its way back to profitability and with many new projects launching airdrops and big products on-chain like SOL’s version of LSDs, Solana has emerged as a viable competitor to Ethereum and the hype is building.

In true Crypto copy-cat style, Jito lets users stake their SOL in exchange for the protocol’s JitoSOL token, which can then be traded or used as collateral — similar to how Lido’s stETH works. Jito and Marinade are essentially tied as Solana’s largest liquid staking providers, with around $425 million each in total value locked (TVL) according to DeFiLlama. There is also the upcoming airdrop from Solana’s biggest DEX, Jupiter. Solana Pay also went mainstream with a number of brands dropping loyalty programs and D2C products. Layer 1 network competition is definitely back on.

Tokenisation gets RWA

The speed and amount of investment in this original crypto narrative of 2017/2018 has taken many by surprise. Tokenisation of RWAs is finally off the drawing board with numerous TradFi and asset managers testing and building new products and protocols that aim to bring RWAs on-chain in the form of both securities and as tokenised assets (such as real estate, financial instrument, any asset you can think of, there is a project tokenising it).  

This blue sky thinking is all about bringing collateral on-chain by using tokenised assets to bring value, unlocking liquidity and new use cases. This time there are protocols with the licensing and regulatory frameworks to make it a reality like our friends at IXSwap.

BlackRock and their TradeFi friends have seen the size of the opportunity and are not going to give up market share when they could take their assets on-chain and turbo-charge their returns.  DeFi needs to get ready to play with the big boys, because they are coming to join the party.

The Spatial Computing race begins

The advancements in this field have been breath-taking over the past year. With the launch of Apple’s VisionPro earlier this year, few people understand that spatial computing will be the most transformative technology for human interactions and has huge consequences for privacy, freedom, democracy and humanity as a whole.

Called the Second Space Race by our friends at Auki Labs, Spatial Computing is not just the transition from phones to wearables, but a profound change in how we interact with information and each other. The next era is not a computer in your pocket, but experiencing the internet in physical space. Just as mobile changed the way we interact and communicate, so too will spatial computing in ways we cannot imagine. Of all the breakthroughs in 2023, Spatial computing is by far the biggest prize and it is far from clear who will win this space race. 

It has been a crazy wild ride and if you have been here for the duration we know it will continue to surprise you. We are looking forward to the next crypto narrative and another bull run; may we learn the lessons of Crypto’s Christmases past and build better for 2024.  

CeAnn Simpson

CeAnn Simpson

An experienced editor & analyst, CeAnn has been writing in the blockchain/DeFi/web3 space for six years. She loves creative challenges, producing podcasts and gaining insights from clients and guests.