Crypto and DeFi market predictions for 2023

The 2023 predictions for DeFi (Decentralized Finance) are more than optimistic regarding the imminent future of the entire crypto industry. In fact, while it is possible that DeFi will avoid many actions as a result of the lessons of traditional financial failures, this on the other hand can only increase confidence in decentralized finance. 

The predictions for DeFi in 2023 suggest that while it may opt to merge with traditional finance, it will become a solid foundation for other Web 3.0 protocols. 

DeFi: what it is and why crypto is accelerating 

As we know, DeFi ignited the cryptocurrency market in the summer of 2020, ushering in a new era. Indeed, thanks to its high liquidity, expensive assets, and high mining yields, DeFi has thrived during the Fed’s great quantitative easing. 

In particular, it is in this latest year of crypto winter that the market has realized that DeFi, which is entirely blockchain-based and extremely transparent, could be the answer to the innovation dilemma of non-compliant financials. So much so that DeFi and TradFi merged this year and many traditional financial institutions entered the space to capitalize on potential opportunities. 

Now, the cryptocurrency community is building a new financial infrastructure from the ground up. For the first time in hundreds of years, the barter economy makes sense once again: humans can trade and exchange value in a peer-to-peer fashion without relying on third parties. 

This time, however, without boundaries or constraints, as DeFi dictates. For example, consider that DeFi projects in the past three years have produced more in finance than the entire banking sector in the past 25 years

In particular, the ecosystem has over 30 million users and strong network effects. The level of innovation enabled by DeFi composability is amazing, and the fact that cryptocurrencies and DeFi run on transparent and open networks with open-source codes makes it virtually unstoppable. 

Moreover, the fact that DeFi breaks down corporate walls between institutions creates the potential for unprecedented capital efficiency.

The future of finance: details of 2023 predictions for crypto and DeFi

First of all, regarding 2023 in the crypto world, there is the question of whether a DeFi Summer 2.0 is possible. Then, certainly there is the fact that there will be a better UX DeFi in 2023. 

This means that if in 2022 we saw DeFi protocols being tested, strengthened, and improved, with smoother user experiences, robust use cases, and DeFi applications that are easier to use than home banking applications, the coming year will most likely see the way to user onboarding. 

Other updates, such as EIP-4337, will also bring account abstraction and more user-friendly wallets to preserve privacy and protodanksharding – EIP-4844 – will bring better scalability and a step toward more scalable L2 and Ethereum Verge.

In addition, an explosion of retail cryptographic wallets is expected. The public, in general, is also gaining better awareness of digital wallets due to the integration of large social media companies.

Reddit users, for example, have created nearly 3 million crypto wallets in order to interact with the Reddit NFT avatar. Instagram is launching its official NFT wallet in November, potentially reaching 2 billion users. In addition, it is also rumored that Twitter could also integrate a crypto wallet, reaching another 300 million users.

Other predictions for crypto in 2023: NFTs and institutional entry into DeFi

Other important predictions from the DeFi sector are certainly those regarding NFTs and crypto spillovers: the potentially new user base for crypto and NFTs, now very large.

Indeed, as of November 2022, nearly 80 million crypto wallets have been created, and about 5 million wallets have interacted with DeFi, or about 6% of the total number of wallets. 

Considering the potential large adoption that crypto wallets could achieve and the ease of use of DeFi platforms, we can see an acceleration of DeFi adoption already in the year that has almost passed. 

Moreover, surely among the DeFi predictions will be the goal of unlocking multibillion-dollar liquidity from DeFi NFTs. Although on the one hand NFTs may be seen as a danger to cryptocurrency adoption, the intersection of NFTs and DeFi may be a big trend in 2023. 

Currently, the NFT market is a multibillion-dollar market that can leverage DeFi to unlock its liquidity. This market is a crucial part of the financialization of NFTs and can help accelerate the tokenization of real-world assets as non-fungible tokens. 

Again, we will see in 2023 a recursiveness of ETH to DeFi. That is: Ethereum Merge and EIP1559 have established recursiveness properties for DeFi polynomials and their connection to their assets. DeFi protocols are among the largest users and payers in the Ethereum chain. At the same time, ETH and Ethereum and L2-based assets are the major resources used in DeFi. This could amplify the value of the entire ecosystem and increase the value around DeFi use cases.

Finally, we will likely see true institutional adoption of the crypto world. 2023 will also be a year when we will see increasing involvement of traditional finance in DeFi. Indeed, the existing infrastructure allows institutions to interact with DeFi applications while still meeting regulatory compliance requirements.

In response to the initial question, we can say that market participants are waiting for favorable macro conditions to get involved in volatile assets such as those in the crypto space and DeFi instead. Should the world economy see significant signs of recovery in 2023, tokens, projects, and TVL related to DeFi could significantly outperform all other asset classes. 

Real-world resources that will be part of the upcoming DeFi Summer.

DeFi and mainstream market: cryptos in the top 10 within two years 

As demonstrated, DeFi has now shown the potential to disrupt the financial industry. Indeed, two effective years after its inception, DeFi’s TVL has risen to a size comparable to that of a medium/large bank in the United States. 

So, it can undoubtedly be said that user growth is as fast as the neobank sector. Moreover, YoY growth in terms of wallets had ended at 100% last year. Continuing this growth rate, DeFi would become a “top 10 bank” within two years.

If, for example, we consider the fact that there are a total of 2116 banks in the US that have consolidated assets over $300 million, we know that the DeFi market, although not a single bank, is larger than 2071 of those banks. Thus, at its peak ($179 billion TVL), DeFi would be the 20th largest bank in the United States.