It will officially end in 2022. Looking back on the encryption market in the past year, various "magic realism dramas" dazzled people. From major hacker intrusions to the collapse of large trading platforms, investment institutions and market makers, the scope and amount of coverage were extremely shocking. These events also made the total market value of the encryption industry evaporate by more than 200 million dollars over the beginning of the year, and the circulation movement drew a pause. So, let's take a look at the trend of the encryption industry in 2023.

Prediction of seven trends in the encryption industry in 2023

Trend 1: Global encryption control has entered a new stage

Embrace compliance will be a must

The occurrence of a series of security accidents and mine explosions is leading to stronger encryption control. Major countries and regions in the world, especially those with high preference for encryption assets in the past, will have to rethink how to deal with the risks and challenges behind virtual asset innovation after 2022.

A clear signal is that after several Black Swan events in 2022, we will see a large number of strict virtual asset regulatory policies in 2023. Although we do not want to see too much control to restrain the creation of innovation, the era of counter trend is coming to an end and the global regulatory trend is inevitable as the regulatory authorities have a deeper understanding of the field of virtual assets. For institutions around the world of encryption, the importance of management and control is further highlighted, and supporting compliance will become an essential option for the benign development of the field.

Trend II. The application of Web3 industry starts

Creative destruction with AI3.0

Web3 is still the most attractive scientific and technological concept in 2022, with a large number of real gold, silver and outstanding talents flowing in this year. Although there are still disputes about the concept of Web3, Web3 is really changing this, and many institutions have also joined in this year, combining Web3 with the industry they have entered, to find a solution that "upgrades" the original business and "lands" Web3 at the same time.

Although there are not many original disruptive innovations, the development of the Web3 industry has just begun, and everything is worth looking forward to. However, in terms of technology, the popularity of ChatGPT at the end of 2022 surprised us to see the strong power of AI in application. The improvement of AI's production efficiency is expected to solve the productivity problems in the Web3 era and supplement the important weaknesses in the development of Web3.

We believe that the collision between Web3 and AI3.0 will cause creative destruction and stimulate a lot of imaginative application innovation in 2023.

Trend 3: Web3 safety runway highlights its importance

A large number of organizations will care about the data industry on the chain

This is not a prediction, but a fact that is happening.

According to the incomplete statistics of Euroscience Cloud Chain Research Institute, 275 security accidents occurred in blockchain ecological attacks in the first 11 months of 2022, resulting in a total loss of about $2769 million. These endless hacker intrusions and scams are causing some customers to leave in depression and fear, and also making a large number of external questions about Web3 security. Of course, we want customers to bear their own property, but in the eyes of many professional attackers, individuals sometimes appear weak. At this time, we need more professional Web3 security agencies to protect the entire market.

The outstanding performance of a group of Web3 security institutions in the financing market in 2022 has already verified the importance of the market on Web3 security. This trend will not change in 2023. Along with Web3 security, blockchain data industry is also concerned.

On chain data can not only provide support for Web3 security governance, but also conduct in-depth analysis of on chain activities, revealing important information such as Web3 user behavior, emerging trends, investment opportunities, etc. Even though a number of excellent online data analysis companies, such as Nansen and OKLink, have emerged at home and abroad, we believe that there is still a great prospect for development in this field, and a large number of organizations have paid attention to and participated in this field in various forms.

Trend 4. Continuous innovation of expansion plan

ZK system L2 ecology ushers in spring

In the past years, we have seen the blockchain ecosystem grow at an exponential rate. After the merger of Ethereum in 2022, the market will look forward to the future development of the blockchain ecosystem. However, the merger cannot solve the expansion problem of the blockchain core. Various expansion plans will still become the focus of attention in 2023, and continue to innovate under the pressure of market demand.

Among them, ZK Series Layer2 public chain may break out in 2023. This year, we will welcome the launch of multiple ZK Series L2 public chains including Starknet and ZK sync. The competition between zkEVMs will be further aggravated. In the case of similar performance increases, reliability and cost will be important factors affecting market selection.

Trend 5: Ce DeFi prevails, and organizations will use

"Another way" to participate in the encryption market again

Although many investment institutions will be frustrated in the encryption industry in 2022, many traditional organizations will try to understand the encryption innovation again in a more in-depth way.

In November 2022, MAS of the Monetary Authority of Singapore announced and implemented "the first real use case of the organizational level DeFi agreement", that is, JPMorgan Chase, DBS Bank and SBI Digital Asset Holding Company applied the Aave agreement on Polygon to complete foreign exchange and government bond transactions on the Ethereum network. The case that such organizations directly use DeFi is becoming common in the encryption industry, and many financial enterprises that previously opposed cryptocurrencies, such as JPMorgan, are also becoming interested in and betting on related businesses.

We believe that the sensitivity of traditional institutions to DeFi innovation will continue to improve in 2023. A number of forward-looking financial enterprises will pay close attention to and participate in it, integrate organizational risk management capabilities with code mandatory transparency, and explore a large number of operational models that can be applied to real business. But those fast growing and relatively perfect DeFi services will be more easily favored by organizations.

Trend 6. Organizations continue to deleverage

Retail investors become the key energy to support market confidence

In the previous two years, due to the water release of the global central bank and the increasing acceptance of the traditional financial system, the virtual asset market investment institutions expanded rapidly, and the market leverage ratio expanded rapidly. However, with the tightening of the Federal Reserve's policy in 2022, a large amount of funds began to flow out. In addition to the domino effect caused by a series of explosive events, many centralized organizations suffered from serious liquidity crisis, and organizational deleveraging became the theme.

Up to now, we still cannot determine how long organizational deleveraging will take, but there is no doubt that compared with retail investors, organizational deleveraging must take longer and have a more long-term impact. Although organizational entry is an important reason to promote the last cycle, in the process of organizational deleveraging, retail investors are becoming the key energy to support market confidence.

Trend 7: The global CBDC R&D process is accelerating

Further expand the pilot program of digital RMB

At present, more than 100 countries and regions around the world are exploring the central bank digital currency (CBDC). These countries have accounted for more than 95% of the global GDP, and 11 of them have already fully launched CBDC. In the coming 2023, the surge in cross-border payment demand and the impact of FTX and other encryption black swan events will once again promote the development process of global CBDC.

Among them, the United States is now making efforts at the CBDC level. President Biden signed Executive Order 14067, which gives the highest priority to the R&D of designing and deploying CBDC. The White House Office of Science and Technology Policy (OSTP) released the Technical Assessment of the CBDC System in September 2022, which also determined the policy objectives and technical design scheme of the CBDC system in the United States.

In addition to the United States, Türkiye, Kazakhstan, Australia and other countries will also accelerate CBDC R&D or pilot work in 2023. China's digital RMB has always been in the first echelon of global CBDC research and development. Recently, the pilot areas have been expanded again, and 17 provinces have conducted digital RMB pilot projects in whole or partial areas. It is estimated that the scope of digital RMB pilot will be further expanded in 2023 and will play a more important role in the international market, but it may take some time before it is fully released.

Speaking of this, I believe you have a certain understanding of the trend of the encryption industry in 2023. In general, looking back to 2022, blockchain ecology has experienced important growth and development. Despite the difficulties, the crypto asset community has persevered and will eventually become stronger and more experienced. It can be said that every market cycle will eliminate those who do not have a sustainable business model, and there is no exception in the encryption industry. Let's wait and see the development of the encryption industry in 2023.