In the letter to investors released yesterday, the cryptocurrency company Panther capital shared possible top industry trends for 2023.
Pantera Capital highlights the resilience of the cryptocurrency sector
Dan Morehead, CEO of Pantera Capital, said 2022 was undoubtedly one of the worst years on record for both the US bond and cryptocurrency markets. However, even in this challenging macroeconomic environment, Bitcoin fares well:
“Blockchain’s resilience in the face of a dire macro market for risky assets and historic idiosyncratic disasters is impressive.”
Shares of tech giants are down for 2022, however Bitcoin’s performance is outperforming some companies: while You are here lost 63% over the year, A half 60%, PayPal 57%, Bitcoin has lost 54% of its value, which places it just short of that Amazonia And Squarewhich respectively record a loss of 42% and 54%.
DeFi, the centerpiece of the next crypto cycle
Joey KrugCIO of Pantera, believes that in many ways 2022 was similar to 2014. The main difference is in the explosion of the crypto credit market. Capital of the three arrows, Earth/Moon, BlockFi, Celsius, To travel, FTP extension And Genesis lent large sums of credit to risky counterparties without an effective risk management mechanism.
Krug notes, however, that the crisis spared the vast majority of decentralized protocols (Composed, Creator, Aave) who, however, lent to largely unknown counterparties. According to Krug, most of these centralized activities were based on models that are the antithesis of the fundamentals of the cryptocurrency industry, especially the need for trust. Krug attributed DeFi’s success to its reliable nature and more resilient risk management system.
What are the barriers to DeFi adoption at scale?
According to Krug, these obstacles are mainly at two levels: liquidity and ease of use of DeFi tools.
Increased liquidity within the DeFi ecosystem may be aided by an increase in active regulated custodians directly supporting the use of Ethereum. Another way to increase liquidity is to aggregate liquidity across multiple chains, liquidity pools and Layer 2 solutions.
The DeFi usability problem can be solved by the following three means: improving the user experience on wallets, the ability to pay fees other than ETH, and on-ramping fiat in decentralized applications.
Creating a structurally secure DeFi ecosystem
Chia Jeng Yanginvestment advisor to Pantera Capital, believes that despite the existence of bad actors, it is possible to reduce their probability of success thanks to three pillars: the code as enforcer, traditional structures and regulations as guarantors, and market expectations as guarantee filter.
While DeFi is a decentralized technology that operates outside the regulations, it needs to be able to protect user funds and in an open and increasingly conflicted global environment. In this respect, the Code constitutes the structurally most appropriate enforcement mechanism. More regulation likely contributes to more legal certainty, but when it comes to DeFi, the goal is to create an ecosystem with minimal workable regulation through a self-governance mechanism based on market expectations and safe behaviors. The current debate on the use of the reserve test and the passivity test at the level of centralized exchanges is an example of this mechanism.