Unlocking the Staking Lockdown: Liquid Staking Protocols To Watch in the 2023
Introduction
As the world of cryptocurrencies continues to evolve, new and innovative solutions are developed to address the challenges that arise. One such solution that has captured the attention of crypto enthusiasts is liquid staking. In this article, we'll explore the benefits of Liquid Staking in 2023 and how it is transforming the digital asset management landscape.
Staking is a way of pledging valuable tokens to a blockchain to ensure its security and efficiency. Tokens that are staked, locked, to the blockchain provide liquidity and speed for transactions and pledgers guarantee themselves or their chosen transactions validator will abide by the protocol rules or risk losing a large percentage of their staked tokens, called "Slashing". Liquid staking represents a novel approach within the realm of cryptocurrency staking, by enabling staked assets to serve as collateral for generating liquidity. In return for staking, when a user stake their assets, they receive a wrapped version of that token that is equal or close to equal in value to the original token. Some protocols even allow additional staking of the wrapped token for additional staking yields. This feature is particularly advantageous for those reluctant to engage in long-term investments, preferring instead to utilize their staked assets for higher yields or utilize the derivative token for swing trading.
However, it is crucial to emphasize that some liquid staking necessitates long-term commitments and the original asset cannot be withdrawn within set time frames. Various blockchains permit derivative token creation via liquid staking, each with distinct rewards and risks. Consequently, selecting the appropriate blockchain for investment can be complex with many options to consider. In this context, platforms can assist by equipping users with the tools and resources required to make informed decisions concerning the blockchain on which to stake their assets. Liquid staking tokens are an auspicious development within the cryptocurrency, as it grants investors increased flexibility to trade while still enabling them to partake in the staking process. But first, let's dive into the basics!
The Magic of Liquid Staking in 2023
What is Liquid Staking?
Liquid staking is a novel approach to managing digital assets, particularly within proof-of-stake (PoS) blockchains. It allows users to stake their tokens and obtain a liquid, tradable token in exchange. This mechanism amplifies the staking experience by providing increased flexibility and accessibility to users. In traditional staking, assets are often locked for a predetermined period, limiting the investor’s ability to capitalize on market fluctuations. However, liquid staking resolves this issue by allowing participants to trade their staked assets as liquid tokens, granting them the freedom to respond to market changes and optimize their investment strategies.
This innovative solution democratizes access to the DeFi (Decentralized Finance) ecosystem for a broader audience. As more PoS blockchains choose to adopt the mechanism of staking vs liquid staking, users with varying investment capacities can participate in the staking process and earn rewards, thus adding more liquidity to the ecosystem.
Why Are Liquid Staking Tokens Gaining Traction?
The rapid growth of PoS blockchains has spurred a surge in demand for staking services. As more users recognize its potential, the benefits of Liquid Staking are becoming increasingly apparent. Some of the reasons for its rising popularity include greater flexibility, enhanced liquidity, and reduced risks, among others. With liquid staking, users can stake their tokens and still use them for other purposes, such as collateral for loans or trading on other platforms4. Unlike traditional staking, where investors can’t access their locked staked funds, liquid staking provides room for investors to be able to access their staked funds to make other investments. The liquid staked derivative enables less overall risk and empowerment to the end-user to stay involved with trading. When crypto exchanges, such as Binance and Coinbase, began accepting various forms of wrapped tokens that represented interest-bearing staked tokens, a higher level of comfortability arose from investors knowing they have options in multiple domains to liquidate and rebuy their liquid staking derivatives in return.
There's an undeniable appeal of popular liquid staking in the world of cryptocurrency. This innovative approach addresses traditional staking limitations and provides investors with more than they were getting from staking coins. Here are some key factors driving its sustained popularity:
Liquid staking significantly enhances liquidity, allowing investors to participate in staking without sacrificing their ability to respond to market shifts. Users can effortlessly trade liquid tokens and adjust their positions as needed, unlike traditional staking, where assets are locked for a fixed duration.
Liquid staking encourages inclusive participation by streamlining the often complex and capital-intensive staking process. This accessibility attracts a broader range of investors, fostering a diverse and thriving ecosystem, such as defi. Defi is a liquid staking derivative that allows yield plus market participation in a variety of ways the user sees fit.
As more users participate, the network's security increases, potentially resulting in higher staking rewards for stakeholders and further promoting liquid staking adoption.
The Benefits of Liquid Staking: An In-Depth Look
Flexibility: Staking vs Staking and Trading Combined
One of the primary benefits of Liquid Staking is the unprecedented flexibility it offers. By providing users with a liquid, tradable token in return for their staked assets, allows them to seamlessly move between staking and trading, maximizing their investment potential.
Flexibility is a crucial benefit of liquid staking. Traditional staking requires users to lock up their tokens for an extended period, which can limit their liquidity and flexibility. With liquid staking, users can enjoy the benefits of staking while retaining the flexibility to trade their tokens as needed. This can be particularly important in volatile market conditions when users may need to adjust their holdings quickly.
Liquid staking also allows users to combine staking and trading, which can offer significant advantages. When users stake their tokens, they typically earn rewards for holding them. However, these rewards are often limited to the specific cryptocurrency in which they are staked. With liquid staking, users can unlock the value of their staked tokens and use them to trade other cryptocurrencies or fiat currencies. This can allow them to earn additional profits and maximize their returns.
In addition to increased flexibility and the ability to combine staking and trading, liquid staking also offers other benefits. These include reduced risk, as users can liquidate their staked tokens quickly if market conditions change, and increased liquidity, as users can trade their tokens more easily than with traditional staking. Overall, liquid staking can be an excellent option for cryptocurrency holders who want to earn staking rewards while retaining the flexibility to trade their tokens as needed.
Liquidity: Unlocking the True Potential of Digital Assets
Another crucial benefit of liquid staking is the increased liquidity it brings. Staked assets are often locked, making them difficult to access or utilize. Liquid staking, on the other hand, enables users to freely trade or exchange their liquid tokens, thus ensuring their assets remain liquid and accessible at all times. Flexibility is a crucial benefit of liquid staking. Traditional staking requires users to lock up their tokens for an extended period, which can limit their liquidity and flexibility. With liquid staking, users can enjoy the benefits of staking while retaining the flexibility to trade their tokens as needed. This can be particularly important in volatile market conditions when users may need to adjust their holdings quickly. Since liquidity is a measure of the outside demand and supply of an asset, a deep market with ample liquidity is an indication of a healthy market. Liquidity in cryptocurrency lowers investment risk and assists in defining your exit strategy, making it simple to sell your ownership.
Increased liquidity in the cryptocurrency markets increases the resistance to manipulation by dishonest actors or coordinated groups. A liquid market is generally regarded as more stable with greater trading volume and decreasing volatility. High liquidity also aids in the analysis of trader behavior, providing insights into market trends and sentiment. This leads to greater price stability and reduced volatility, which are crucial for investors seeking to avoid abrupt price fluctuations that can result in losses.
Risk Mitigation: Reducing Exposure to Blockchain Market Fluctuations
Liquid staking is an innovative risk mitigation solution for investors in the volatile cryptocurrency market. By allowing users to stake their digital assets and receive tradeable liquid-staked derivative tokens in return, liquid staking offers trading flexibility and control over investments. This enables investors to better manage their exposure to market volatility, minimize potential losses, and enhance their overall investment experience. Liquid staking appeals to both risk-averse investors seeking to benefit from staking rewards without incurring significant losses and active traders who desire the ability to respond quickly to market shifts.
Standard staked crypto often limits investors' options for trading in and out the asset during clearly determined highs and low patterns. In contrast, liquid staking provides tradeable tokens representing staked assets, which can be quickly converted or sold off in response to market fluctuations. This feature not only makes staking more accessible but also enables investors or their representatives to actively manage their positions, resulting in a more investor-friendly and adaptive investment experience. As the crypto ecosystem continues to evolve, liquid staking is poised to become an increasingly important tool for investors seeking to optimize their risk management strategies.
Inclusivity: Bridging the Gap for Smaller Investors
The benefits of liquid staking are not just limited to large-scale investors; they also extend to smaller investors who may have limited capital. In traditional staking, substantial amounts of capital were often required to participate in the process, which effectively barred many smaller investors from taking part and earning rewards. This exclusivity created an uneven playing field, with only those who possessed significant financial resources able to benefit from staking.
Many liquid staking solutions enabled users with smaller amounts of tokens to participate. Users can stake under 32 ETH, for example, on Lido and participate in the eth liquid staking process earning fractions of ETH while holding valuable stETH. This democratization of access to staking opportunities fosters a more inclusive ecosystem, allowing a wider range of investors to reap the rewards of their investments. As a result, the barriers to entry are significantly reduced, and the cryptocurrency market becomes more accessible to a broader range of participants.
Simplifying Governance: A More Streamlined Experience
Liquid staking plays a crucial role in simplifying and streamlining governance within the blockchain ecosystem. By offering a more investor-friendly approach, liquid staking allows for a greater level of participation and engagement in the decision-making process, ultimately contributing to more effective governance.
Firstly, liquid staking democratizes the staking process by making it more accessible to a broader range of investors. Traditional staking often requires significant technical knowledge and considerable capital to participate effectively, which may deter potential investors. Liquid staking pools, on the other hand, simplify the process by allowing users to stake their assets and receive tradeable liquid tokens in return. These tokens can be easily managed by users, regardless of their technical expertise, thus enabling a larger number of stakeholders to participate in the governance process.
Moreover, liquid staking streamlines governance by facilitating faster and more efficient decision-making. Since liquid tokens are tradeable, users can actively participate in voting on network proposals and other governance-related matters without the need to unlock their staked assets. This flexibility encourages stakeholders to engage in the governance process more proactively, as they can continue to earn staking rewards while actively participating in the decision-making process.
Additionally, liquid staking promotes transparency in governance. As token holders actively trade and engage with liquid tokens, the network benefits from increased visibility of stakeholder preferences and opinions. This transparency leads to better-informed decisions and fosters trust within the community, ultimately contributing to a more robust governance structure.
A Practical Guide to Liquid Staking
Choosing the Right Liquid Staking Solution
Before engaging in the liquid staking market, it's important to evaluate the various solutions available and select one of the best liquid staking platforms that suit your needs. Factors include supported assets, staking rewards, and ease of use. Below are the top liquid staking platforms to watch in 2023. They are trusted to date because of their safety and liquidity.
| Platform | Supported Assets | Key Features |
|---|---|---|
| Lido | Ethereum, Terra, Solana | Liquid assets for staking, accessible across other decentralized protocols, attractive APYs. |
| Tempus | Yield-bearing Tokens | Decentralized fixed income, supports various yield-bearing tokens, no protocol fees. |
| Hubble | Solana, BTC, ETH, + others | Automatically earn a yield on collateral, use USDH stablecoin, and stake HBB for extra rewards. |
| Marinade | Solana | Stake SOL benefits from liquid staking, no un-staking period, and 400+ top validators. |
| Meta Pool | NEAR | Liquid staking for NEAR holders, stNEAR usable on other DeFi protocols, auto-compounded income. |
| Revault | Powered by Orbs L3 | Auto-rebalancing feature, integrates Orbs Layer-3 technology, maximizes APY. |
| Izumi | Uniswap V3 LP Tokens | Enhance liquidity mining rewards, non-custodial, fully decentralized, and supports Ethereum and Polygon. |
| Balancer Labs | Ethereum/Polygon | Various liquidity pools, programmable liquidity, and strong incentives for long-term liquidity provision. |
Honorable Mention Liquid Staking Platforms:
- Rocket Pool : Long-time liquid staking provider, however, only offers to liquid stake one asset, Ethereum.
- Strader: They only participate in liquid staking for a Layer 2 protocol, Polygon, and 2 blockchains that may be more obscure for new users, Binance Chain and Fantom.
- RockX: A global node operator whose staking strategies are focused on incorporating businesses into the blockchain ecosystem.
Precautions about Liquid Staking Protocols
Before staking crypto assets on liquid staking platforms, it is important to do due diligence on the provider of the liquid staking service. Your assets will contribute to the staking pool run by the protocol.
Some of the key precautions to consider include:
1. Smart contract risks: Like any decentralized finance (DeFi) application, liquid staking protocols rely on smart contracts. These contracts may be vulnerable to bugs, coding errors, or security exploits that could lead to loss of funds or disruptions in the staking process. It is crucial to choose liquid staking protocols with well-audited, battle-tested smart contracts and a strong track record of security.
2. Counterparty risks: Some liquid staking protocols involve the use of intermediaries or third-party platforms to facilitate staking and token exchanges. This introduces counterparty risks, as the protocol's success and security depend on the reliability of these third parties. Investors should thoroughly research and assess the reputation and trustworthiness of any involved intermediaries before committing to a liquid staking protocol.
3. Regulatory risks: The regulatory landscape surrounding cryptocurrencies and DeFi applications is continuously evolving, and future regulations could potentially impact liquid staking protocols. Investors should stay informed about regulatory developments and be prepared for the possibility of new rules or restrictions affecting their staking activities. Future regulations could potentially impact liquid staking protocols. For example, in 2022, the US SEC filed a lawsuit against Ripple Labs, alleging that the company had conducted an unregistered securities offering, which affected their offerings to the general public for over a decade. In 2023, the US Treasury Department proposed new rules that would require cryptocurrency exchanges to collect more information about their customers. Regulatory developments and competition from a government-sponsored Central Bank Digital Currency (CBDC) could potentially impact liquid staking protocols.
4. Market risks: Liquid staking does not eliminate the inherent market risks associated with cryptocurrencies. The value of liquid tokens is subject to fluctuations, and investors may still experience losses due to market volatility. It is vital to have a clear understanding of market dynamics and employ effective risk management strategies when participating in liquid staking. Not all proof-of-stake service provider who makes liquid staking possible may also have blockchain rules that make your stake of certain tokens illiquid (i.e. Cardano has > 25 days to unstake). Token transfers and delegation transactions may also incur fees ¹.
5. Slippage risks: When trading liquid tokens on decentralized exchanges (DEXs) or automated market makers (AMMs), investors may encounter slippage, which occurs when the executed price of a trade differs from the expected price. This can result in unfavorable trade outcomes, particularly during periods of high market volatility. To mitigate slippage risks, investors should consider using limit orders, trading on platforms with sufficient liquidity, and monitoring market conditions closely.
In conclusion, while liquid staking protocols offer many benefits, investors need to be aware of the potential risks and take appropriate precautions. By carefully evaluating smart contract security, counterparty reliability, regulatory developments, market risks, and slippage, investors can make more informed decisions and optimize their liquid staking experience.
One disadvantage liquid staking has over normal staking is smart contract risk. The wrapping of the staked token means an additional layer of smart contract interaction, which can potentially be exploited. Another potential risk is a divergence between the collateral value and the value of the wrapped token ²³.
Getting Started with Liquid Staking Protocols
Once you've carefully evaluated and selected a liquid staking platform that aligns with your investment goals, getting started with the process is usually quite simple. Here's a step-by-step process to help you stake your tokens:
1. **Create an account**: Sign up for an account on your chosen liquid staking platform. This may require providing your email address, creating a username and password, and completing any necessary verification steps.
2. **Connect your wallet**: Connect a compatible cryptocurrency wallet to the platform. This wallet should hold the tokens you intend to stake. Follow the platform's instructions to link your wallet securely, and ensure that you maintain control of your private keys.
3. **Stake your tokens**: Once your wallet is connected, navigate to the platform's staking section and select the cryptocurrency you wish to stake. Enter the amount you want to stake, and confirm the transaction. This may require approving a smart contract interaction or paying a transaction fee.
4. **Receive liquid tokens**: After successfully staking your tokens, the platform will issue you an equivalent amount of liquid tokens. These tokens represent your staked assets and can be freely traded or used in other DeFi applications.
5. **Monitor your staking rewards**: Keep an eye on your staking rewards and track their accrual over time. Liquid staking platforms often have user-friendly dashboards that display your rewards in real-time, making it easy to monitor your earnings.
6. **Trade or use your liquid tokens**: With your liquid tokens in hand, you can now take advantage of their flexibility. Trade them on supported exchanges, use them as collateral in lending protocols, or employ them in yield farming strategies to maximize your returns.
7. **Un-stake and redeem your original tokens**: When you're ready to un-stake your assets, exchange the liquid tokens back to the original tokens on the platform. Follow the platform's specific process to complete the un-staking and withdrawal of your tokens back to your wallet.
After conducting your diligence about each platform, you can choose which is best to stake your tokens, receive the corresponding liquid tokens, and take advantage of the benefits that liquid staking offers.
FAQs on Liquid Staking
1. **What is the difference between traditional staking and liquid staking?**
Traditional staking involves locking up your tokens to support network operations, while liquid staking provides a tradable
token in return for your staked assets, allowing you to maintain liquidity and flexibility.
2. **Is liquid staking safe?**
While the safety of liquid staking varies depending on the platform, it is generally considered secure. However, always do your research and choose a reputable platform before staking your assets.
3. **Do I still receive staking rewards with liquid staking?**
Yes, one of the benefits of Liquid Staking is that you continue to receive staking rewards while enjoying the added benefits of liquidity and flexibility.
4. **Can I stake any cryptocurrency using liquid staking?**
Not all cryptocurrencies support liquid staking. It is primarily used for assets on PoS blockchains. Be sure to check if your chosen platform supports the specific asset you wish to stake.
5. **Are there any fees associated with liquid staking?**
Fees for liquid staking may vary depending on the platform. It's essential to research the fee structure before committing to a liquid staking solution.
6. **How do I un-stake my assets in liquid staking?**
To un-stake your assets, you'll typically need to exchange your liquid tokens back to the original tokens and then follow the un-staking process outlined by your chosen platform.
Conclusion
-----------
The benefits of Liquid Staking are clear: greater flexibility, increased liquidity, risk mitigation, and more inclusive opportunities for smaller investors. With these advantages, it's no surprise that liquid staking is revolutionizing the digital asset management landscape. By understanding the ins and outs of this innovative solution, you'll be well-equipped to unlock the full potential of your digital assets and enhance your investment experience. By introducing a liquid, tradable token in exchange for staked assets, it enhances the staking experience and unlocks a world of new opportunities for investors, traders, and the broader DeFi ecosystem.
(1) What is Liquid Staking? Platforms, Tokens, Risks and Benefits. https://blog.changehero.io/liquid-staking-guide/.
(2) Liquid Staking Definition | CoinMarketCap. https://coinmarketcap.com/alexandria/glossary/liquid-staking.
(3) What is liquid staking and how does it work? | Finoa. https://www.finoa.io/blog/guide-liquid-staking/.
(4) Everything you need to know about Liquid Satking. https://www.staderlabs.com/blog/staking-basics/what-is-liquid-staking/
(5) Liquid Staking: Crypto’s New Phantom Money Machine - Forbes. https://www.forbes.com/sites/digital-assets/2023/05/03/liquid-staking-cryptos-new-phantom-money-machine/.
World of Blockchain Gaming: Revolutionizing the Gaming Industry
Blockchain Gaming: The Future of Gaming
TLDR:
There are many advantages of blockchain in the gaming industry. The technology guarantees the ownership, transparency, and security of gaming assets, which is crucial for both gamers and game creators. Crypto games are becoming more popular as they offer distinctive benefits that transform the gaming business. One of these benefits is that gamers can buy, sell, and trade digital assets because of blockchain tokens.
The greatest immersive gaming and cryptocurrency experiences are what blockchain game creators are aiming to create. These game producers may build a more comprehensive gaming environment that supports a variety of digital assets, including in-game objects, virtual currency, and collectibles by employing a blockchain.
With gaming firms embracing the potential of blockchain gaming, web3 gaming is quickly emerging as the new norm. The gaming industry will become more decentralized and integrated as blockchain gaming use rises. By incorporating blockchain technology into gaming platforms, new revenue streams can be generated for both game producers and users, allowing for safe and transparent transactions.
The benefits of blockchain-based gaming have been quickly acknowledged by the gaming industry as it provides a more interesting and rewarding experience. Gaming on the blockchain gives users the opportunity to actually own their in-game currency, which they can then trade, sell, or apply to other games. Additionally, blockchain enables the creation of distinctive and cutting-edge gaming mechanics like player-driven economies and decentralized governance.
Blockchain gaming industry participants are aiming to advance the technology and make it accessible to everyone as the gaming sector continues to change. With more developers looking into the possibilities that blockchain technology can bring to the gaming industry, the future of blockchain gaming is bright.
Blockchain games offer the potential to have a huge impact on the gaming industry by giving both gamers and developers access to a more safe and transparent environment. And more businesses incorporate this technology into their platforms as blockchain gaming acceptance increases, we may anticipate a more decentralized and connected gaming industry. Blockchain gaming has a promising future, and it will surely change how we connect and experience the gaming industry.
Introduction
The gaming industry has always been one of the most innovative and fastest-growing multi-billion dollar industries, according to Taylor Goethe or REPORTER. With advancements in technology, gaming has come a long way from the days of simple arcade games to immersive 3D graphics. One such technology that is making waves in the gaming industry is blockchain technology.
Blockchain-based gaming offers a whole new world of possibilities for gamers and game developers alike. Gaming and blockchain allows for increased ownership and control of in-game assets, improved transparency and security, and new opportunities for monetization. In this article, we will delve deeper into blockchain-based gaming and its impact on the industry.
What is Blockchain Technology?
Blockchain technology is a decentralized system that allows for secure transactions without intermediaries. It is essentially a digital ledger where each transaction is recorded as a block, which cannot be altered or deleted once it has been added to the chain.
The key feature of blockchain technology is its decentralization, which means there is no central authority controlling transactions. This makes it extremely secure, as there is no single point of failure or vulnerability.
What are Web3 Technologies?
Web3, also known as Web 3.0, refers to the next generation of the internet, where users have full control over their data and are able to interact with decentralized applications (dApps) directly.
In the context of gaming, web3 technologies allow for greater player autonomy and ownership via NFTs (non-fungible assets). It enables players to truly own their in-game assets and eliminates the need for intermediaries such as game publishers or marketplaces.
Blockchain Gaming: Benefits and Opportunities
Blockchain technology has the potential to redefine the gaming industry in many ways. Here are some of the benefits and opportunities it offers:
1. True Ownership of In-Game Assets: Blockchain gaming enables players to have true ownership of their in-game assets, such as skins, weapons, and other items in their crypto wallet. These assets can be stored on the blockchain as non-fungible tokens (NFTs), allowing players to trade, sell, or lease them without restriction, creating a decentralized marketplace.
2. Enhanced Security and Fraud Prevention: Blockchain technology provides a transparent, tamper-proof, and decentralized ledger that ensures the integrity and authenticity of in-game transactions. This helps prevent hacking, cheating, and other fraudulent activities that can plague traditional gaming platforms.
3. Cross-Platform Compatibility: Blockchain gaming enables interoperability between different games and platforms. This means players can use their assets across multiple games, creating a more connected and cohesive gaming ecosystem. It also encourages developers to collaborate and build on each other's work, fostering innovation.
4. Monetization for Players: By owning and trading their in-game assets, players can potentially earn income through their gaming activities. This can lead to new revenue streams for gamers, incentivizing them to invest more time and effort in playing and improving their skills.
5. Decentralized Gaming Economies: Blockchain technology allows for the creation of decentralized, player-driven economies within games. Players can trade, sell, or lease their assets in these economies, while developers can create new assets and generate revenue through a variety of in-game mechanisms.
6. Transparency and Fairness: Blockchain solutions offer a transparent system that can aid in the elimination of unfair advantages or manipulative practices by developers or third parties. Smart contracts can ensure the equitable distribution of in-game assets and rewards, resulting in a more balanced and enjoyable gaming experience for all players.
7. Crowdfunding and Community Involvement: Blockchain technology enables developers to raise funds for their projects through token sales and other decentralized funding methods. This empowers the gaming community to support and invest in projects they believe in while also allowing developers to maintain creative control and independence.
8. Reduced Transaction Costs: Blockchain technology can significantly reduce transaction fees for in-game purchases and asset trading by eliminating intermediaries and utilizing cryptocurrencies. This can result in lower costs for both players and developers, making gaming more accessible and affordable.
9. Enhanced Privacy: Blockchain gaming offers increased privacy and data security for players, as their personal information is not required to participate in decentralized gaming platforms. This can help protect players from identity theft and other privacy concerns associated with traditional gaming platforms.
10. New Gaming Experiences: The adoption of blockchain technology can pave the way for novel gaming experiences and genres that leverage the unique features of this technology. For example, decentralized virtual worlds and player-driven economies can create new and engaging experiences for gamers.
Increased Ownership and Control
The blockchain gaming market makes it easier to own and control in-game assets. Because assets are stored on a decentralized ledger, players can truly own them and they cannot be taken away or deleted by gaming companies, publishers or marketplaces.
1. True Ownership of In-Game Assets: Blockchain gaming lets players own skins, weapons, and other stuff. As non-fungible tokens (NFTs), these assets can be traded, sold, or leased freely on the blockchain, establishing a decentralized marketplace.
2. Improved Security and Fraud Prevention: Blockchain technology creates a transparent, tamper-proof, decentralized ledger that verifies in-game transactions. This prevents typical gaming platform hacking, cheating, and other fraud.
3. Cross-Platform Compatibility: Blockchain gaming allows cross-platform compatibility. Players can share assets across games, creating a more integrated gaming ecosystem. It encourages developers to collaborate and innovate.
4. Players can make money by owning and trading in-game assets. This can create new revenue streams for players, encouraging them to play and improve.
5. Decentralized Gaming Economies: Blockchain in gaming enables player-driven gaming economies. Developers can produce new assets and gain cash through in-game processes, while players can trade, sell, or lease their assets.
6. Transparency and fairness: Blockchain gaming eliminates unfair advantages or manipulative actions by developers or other parties. Smart contracts can distribute awards and in-game assets fairly, making gaming more pleasurable for everyone.
7. Crowdfunding and Community Involvement: Blockchain technology lets developers fund their projects through token sales and other decentralized approaches. This encourages gamers to support and invest in projects they believe in while giving developers creative flexibility and independence.
8. Lower Transaction Costs: Eliminating intermediaries and using cryptocurrencies reduces transaction fees for in-game purchases and asset transactions with blockchain technology. Players and developers may pay less, making gaming more affordable.
9. Increased Privacy: Decentralized gaming systems don't require users' personal information, which increases privacy and data security. This can prevent identity theft and other privacy issues on traditional gaming platforms.
10. New Gaming Experiences: Blockchain technology can enable new gaming genres and experiences. Decentralized virtual worlds and player-driven economies can offer unique gaming experiences.
Overall, blockchain gaming benefits players and developers. Blockchain technology can improve security, monetization, and gaming experiences.
Improved Transparency and Security
The blockchain ecosystem offers improved transparency and security as each transaction is recorded on a digital ledger that cannot be altered or deleted. This eliminates fraud and cheating in games, making them more fair for all players.
Blockchain technology improves transparency and security, which can help the gaming sector eliminate fraud and cheating. Blockchain-based games record transactions on a digital ledger, which has many benefits:
1. Tamper-Proof Transactions: Blockchain technology uses a distributed network of nodes with copies of the digital ledger. To change or delete a transaction, a majority of these nodes must agree, making data manipulation impossible. Blockchain technology guarantees in-game transaction integrity.
2. Transparency: All network participants can see every blockchain transaction. Players may verify transactions, trades, and rewards to avoid cheating, which builds trust.
3. Reduced Fraud: Blockchain technology's security and transparency prevent fraud. Since blockchain transactions are verified, players cannot fake in-game assets or manipulate their account balance.
4. Smart Contracts: Blockchain gaming often uses self-executing contracts with the conditions of the deal put into code. This promotes justice and transparency by distributing prizes, in-game assets, and other aspects according to specified rules.
5. Secure Player Identity: Blockchain technology can generate secure player IDs, allowing players to build a unique digital identity without centralized systems. This eliminates identity theft, hacking, and gaming disruption from multiple accounts and bots.
6. Anti-Cheat Measures: Blockchain-based games can use transparency and immutability to develop anti-cheat mechanisms. The blockchain records all game events and transactions, making cheating easy to spot.
7. Fair Ranking Systems: Blockchain technology allows transparent and verifiable ranking systems to rate players fairly depending on their in-game performance. This encourages healthy competition and improves gaming for everyone.
New Opportunities for Monetization
Web3 game technologies enable new forms of in-game monetization. Play-to-Earn (P2E) is a new business model where players can earn in-game items or currency by participating in the game rather than purchasing them. This allows players to monetize their time spent playing games, which was not possible with traditional games outside of gambling apps.
Web3 technologies, including blockchain and decentralized applications (dApps), have given rise to new forms of in-game monetization, significantly transforming the gaming landscape. One of the most notable developments is the "Play-to-Earn" (P2E) business model, which enables players to earn in-game items or currency by actively participating in the game rather than solely relying on purchases.
The P2E crypto gaming model offers several advantages and opportunities for both players and developers:
Empowering Players: The P2E model allows players to monetize their time and effort spent playing a game on the blockchain, which was not possible on traditional gaming platforms. Players can earn in-game assets or currency by completing quests, challenges, or achieving specific milestones. This creates a more inclusive and rewarding gaming experience, attracting a wider audience.
Incentivizing Engagement: By enabling players to earn rewards through active participation, the P2E model encourages greater engagement and retention. This can lead to a more vibrant and dedicated gaming community, as players are motivated to invest their time and skills to progress and unlock new in-game features and opportunities.
Decentralized Economies: Web3 technologies facilitate the creation of decentralized, player-driven economies within games. In these economies, players can trade, sell, or lease their earned assets with others, creating a dynamic and self-sustaining ecosystem. This can lead to new revenue streams for both players and developers for games build with a transaction fee tax.
Cross-Platform Synergy: Web3 technologies enable the interoperability of in-game assets across multiple games and platforms. This means that players can use their earned assets in various gaming environments, creating a more connected and cohesive gaming ecosystem. This also encourages collaboration between developers and the creation of shared digital economies.
Attracting New Players: The P2E model can help attract a new demographic of players who may not have been interested in gaming before due to the lack of financial incentives. By offering the possibility to earn rewards and generate income, P2E can appeal to a wider audience, increasing the overall popularity of gaming.
Innovative Game Design: The P2E model has inspired new game genres and mechanics as developers explore creative ways to integrate earning opportunities within gameplay. This can lead to the creation of novel gaming experiences that leverage the unique features of Web3 technologies and decentralized systems.
New Forms of Collaboration and Community Building
Web3 technologies also enable new forms of in-game collaboration and community building. Players can interact directly with each other through decentralized applications (dApps), allowing for greater player autonomy and creativity.
Blockchain and dApps have expanded the gaming industry's community building and in-game collaboration. Web3 technologies empower players and create a more autonomous and creative gaming experience by removing intermediaries and letting players interact directly.
Web3 technologies enable the following in-game cooperation and community building:
1. Decentralized Social Platforms: Web3 technologies allow games to create decentralized social platforms where users can interact, collaborate, and connect without centralized servers or services. This can create lively and engaged gaming communities that are more censorship-resistant.
2. Peer-to-Peer Trading: Decentralized applications (dApps) let users exchange in-game assets directly without third parties. This makes trading more efficient, transparent, and collaborative.
3. Shared Virtual Places: Web3 technologies allow participants to share virtual spaces to socialize, collaborate, or play together. These decentralized virtual worlds let gamers govern themselves and create personalized experiences for the community.
4. Decentralized Governance: Players can influence game creation and direction on blockchain-based gaming platforms. Players can submit modifications, vote on decisions, and participate in game creation, strengthening community and ownership.
5. Collaborative Game Development: Web3 technologies enable developer-player collaboration in game development. Developers can use decentralized crowdfunding to get ideas, feedback, and financing from the gaming community.
6. Esports and Competitive Gaming: Web3 technology can improve esports by ensuring openness, fairness, and secure player identities. This can level the playing field, promoting healthy competition and teamwork among players, teams, and organizers.
7. Decentralized Gaming Tournaments: Players can compete in tournaments without centralized event organizers using blockchain technology. This can lower entrance barriers and give gamers more chances to show off and work with others.
Pay-to-Win (PTW) Model in the Gaming Industry
Pay to Win (PTW) is a controversial business model in gaming where players can purchase in-game items or currency to gain an advantage over other players. While this model generates significant revenue for game publishers, it often leads to an unfair advantage for paying players, making the game less enjoyable for non-paying players.
However, with blockchain-based gaming, PTW models become less prevalent as players truly own their assets, eliminating the need for intermediaries such as game publishers or marketplaces that profit from PTW models.
Pay to Win (PTW) is a controversial gaming business strategy that gives gamers an unfair edge by buying in-game items or currency. Game publishers benefit from this arrangement, but non-paying gamers may feel disadvantaged.
Blockchain-based gaming could change PTW models and make gaming fairer. The main causes are:
1. True Ownership of In-Game Assets: Blockchain technology lets players own their non-fungible tokens on a decentralized ledger (NFTs). Players can buy assets through gameplay or peer-to-peer trading instead of through game publishers or marketplaces.
2. Play-to-Earn Model: Blockchain-based games commonly use a P2E model, which lets players earn in-game currency or things by playing. Non-paying gamers can earn valuable assets by playing the game, which can level the playing field.
3. Decentralized Marketplaces: Blockchain gaming lets users trade, sell, and lease in-game goods without game publishers or centralized platforms interfering. This creates a more open, competitive economy where players determine asset values, minimizing PTW practices.
4. Community-driven Creation: Decentralized governance mechanisms in blockchain-based gaming platforms allow gamers to influence game development. The community can decide on PTW-prohibiting rules, which can make games more balanced and fair.
5. Transparency and Fairness: Blockchain technology's visible and tamper-proof ledger protects in-game transactions and assets. This can eliminate unfair advantages or manipulative techniques by developers or third parties, making games more balanced and fun for everyone.
Play-to-Earn (P2E) Model in the Blockchain Gaming Industry
The play-to-earn (P2E) model in blockchain gaming is a business model where players can earn in-game items or currency by participating in the game and completing certain tasks rather than purchasing them. This allows players to monetize their time spent playing games, which was not possible before, and will disrupt the current gaming ecosystem according to Diana Ambolis of Blockchain Magazine.
However, the P2E model also has its downsides. It may lead to increased competition among players as they strive to complete tasks faster than others to earn rewards. This may also lead to a "grind" mentality where players feel compelled to play for extended periods of time just to earn rewards.
The blockchain gaming play-to-earn (P2E) paradigm allows players to earn in-game currency and products by actively participating and completing tasks. This model has many pros and cons.
1. Increased Competition: P2E players compete to complete tasks and challenges faster to gain rewards. Casual gamers may not enjoy this competitive setting.
2. "Grind" Mentality: Players may feel motivated to play for long hours to gain prizes and maximize in-game assets. Players focus more on incentives than gameplay, which can lead to addiction, fatigue, or decreased enjoyment.
3. Earnings Inequality: The P2E approach may create discrepancies between players with different skill levels, time, or resources. Skilled or dedicated players may build up in-game assets, while casual or less-skilled players may fall behind, extending the gap between them.
4. Exploitation of Players: Unscrupulous developers or publishers may design games that intentionally encourage excessive grinding or purchasing, taking advantage of the P2E model to benefit from players' thirst for rewards. Exploitative game mechanics that favor profitability over player happiness or well-being might result.
5. Market Saturation: The success of the P2E model may lead to an inflow of games that use it, generating market saturation and making it harder for players to locate games with fun gameplay and fair earning potential.
6. Sustainability Concerns: The P2E model relies on fresh players and a strong in-game economy to keep prizes valuable. The Play-to-Earn (P2E) model in blockchain gaming may face challenges if the player base or the in-game economy experiences a decline. New players and a robust in-game economy are needed to ensure the long-term sustainability, if either of these elements falters, the P2E model might struggle to remain viable. Some even go as far as stating P2E is killing blockchain gaming, according to Huobis research.
If applied fairly and responsibly, the P2E model can benefit users and the gaming industry despite these drawbacks. Developers and publishers should focus on player satisfaction and a viable in-game economy. They can ensure that the P2E model continues to offer fresh experiences and build a more inclusive and rewarding gaming environment by doing so.
Advanced AI NPCs in the Gaming Industry
AI advancements are poised to revolutionize non-playable characters (NPCs) in the gaming industry. Advanced AI NPCs use machine learning (ML) and natural language processing (NLP) to offer more natural conversations and intelligent decision-making. These lifelike NPCs can enrich interactive experiences and enable new game mechanics and content.
Jeremy DSouza of Engait claimes AI can help make in-game characters smarter and more adaptable by using techniques like pattern learning and reinforcement learning. This allows non-player characters (NPCs) to evolve through self-learning from their actions, making the games more challenging and immersive for the players. AI can also enhance the user experience in blockchain gaming by providing more efficient, secure, and transparent ways to engage in digital transactions and access virtual assets, according to Chirag of Appinvetiv.
Game studios are experimenting with advanced AI characters in development versions of games.
A few goals are:
- Provide narrative designers and writers with training in conversation design.
- Consider adding advanced AI NPCs to existing games, expansion packs, or new releases.
- Test audience reactions by featuring NPCs in meet-and-greets or Q&As.
- Balance dynamic NPC interactions through a mixture of scripted and generated conversations.
Advanced AI NPCs can drive industry growth as players are willing to engage more. Blockchain Studios can capitalize on this by charging monthly subscriptions from token profits, offering customization options, and incorporating modded AI NPCs into the gaming market.
Why Game Developers are Showcasing Interest in Blockchain Technology?
Stan Peterson of Coingape expresses the idea that one key benefit of the adoption of blockchain gaming for developers is the ability to provide players with true ownership of their in-game assets. This unique feature has piqued the interest of many game developers who recognize the potential benefits that blockchain gaming can offer.
Some of the benefits for developers of creating blockchain-based games with open economies include:
1. Increased Player Retention: By allowing players to have true ownership of their in-game assets and transfer them freely between games and marketplaces, developers can create a more engaging gaming experience. This can lead to higher player retention, as players are more likely to remain invested in games that offer them greater control and freedom over their assets.
2. Cross-Platform Synergy: Blockchain gaming enables the interoperability of in-game assets across multiple games and platforms. This means that players can use their earned assets in various gaming environments, creating a more connected and cohesive gaming ecosystem. This can encourage collaboration between developers and the creation of shared digital economies, benefiting all parties involved.
3. New Monetization Opportunities: Open economies within blockchain games can create new monetization opportunities for developers. By allowing players to trade, sell, or lease their in-game assets, developers can earn a share of the revenue generated through these transactions. This can lead to additional revenue streams and help support the long-term sustainability of the game.
4. Enhanced Reputation and Brand Loyalty: By adopting blockchain technology and creating open economies, developers can position themselves as pioneers in the gaming industry, attracting a dedicated and enthusiastic player base. Offering true asset ownership and cross-platform compatibility can foster brand loyalty as players appreciate the freedom and control that these features provide.
5. Incentivizing User-Generated Content: Open economies in blockchain games can encourage the creation of user-generated content, such as custom items, skins, or game modifications. Developers can benefit from this content by integrating it into their games and potentially earning revenue from the sale or usage of these creations.
6. Lowering Barriers to Entry: By leveraging blockchain technology, developers can reduce the barriers to entry for new players as they can easily transfer their assets from one game to another. This can help attract a wider audience and increase the overall popularity of the game.
By integrating blockchain technology, developers can position themselves at the forefront of the gaming industry, capitalizing on the growing interest in the nft market and open gaming ecosystems.
Conclusion
The use of blockchain in gaming is an emerging frontier that presents various advantages over traditional gaming, such as improved transparency and security, increased ownership and control of in-game assets, and new opportunities for monetization. Web3 technologies enable greater player autonomy and creativity, opening up new gaming solutions in the form of collaboration and community building.
As AI advancements continue, the gaming industry stands to benefit significantly, leading to a transformation in NPC quality and more immersive worlds. The future of gaming looks bright, with blockchain technology presenting greater opportunities.
Looking Ahead: The Crypto Market in 2023
In this unprecedented whiplash economy, the rest of 2023 should be full of interesting events. Crypto is definitely affected by macroeconomic developments and central bank edicts, but that doesn't mean that this year will be a year of greater separation from the larger economy's central planners. Uncorrelation from the macro economy will necessitate greater retail adoption, which will necessitate more intensive education from those of us in the crypto ecosystem. If crypto winter of 2022 taught us anything, it is that we must return to emphasizing fundamental principles for those who want to participate in blockchain-based economies. I noticed that the crypto space has shifted away from educating retail investors and advising professional investors to focus on the fundamental reasons why crypto exists in the first place. Since we've lost our way, refocusing on trustless systems, self-custody/security, thoroughly researching project missions and founders, and generally not engaging in foolish activities, goes a long way toward creating the type of environment required for long-term growth and prosperity. Here are Alpha Stake's predictions for blockchain development in 2023.
Economic Outlook
GDP Growth:
Crypto analytics since 2020 shows the market cap of crypto is closely tied to the macroeconomic environment, particularly in the United States. The US economy is in an unusual state. The Fed has been able to control the economy for several decades using various tools such as interest rate adjustments, open market operations, issuing bank reserve requirements, overnight repos, the discount window with discount rates, term deposit facilities, and central bank liquidity swaps. Since 2020, all of these operations have been severely disrupted. With an inverted yield curve, the bond market is now signaling lower GDP growth in the future by valuing short-term bonds over the 10-year horizon. This occurred despite the Fed's erratic policies, which ranged from the lowest interest rates since its inception to the steepest curve rate hike in history, rising from 0.25% to 4.5% in less than a year.
|
Rate hikes 2022-present |
||
|
Meeting date |
Rate change |
Target range |
|
Source: Fed’s board of governors |
||
|
March 15-16, 2022 |
+25 basis points |
0.25-0.5 percent |
|
May 3-4, 2022 |
+50 basis points |
0.75-1 percent |
|
June 14-15, 2022 |
+75 basis points |
1.50-1.75 percent |
|
July 26-27, 2022 |
+75 basis points |
2.25-2.5 percent |
|
Sept. 20-21, 2022 |
+75 basis points |
3-3.25 percent |
|
Nov. 1-2, 2022 |
+75 basis points |
3.75-4 percent |
|
Dec. 13-14, 2022 |
+50 basis points |
4.25-4.5 percent |
|
Jan. 31-Feb. 1, 2023 |
+25 basis points |
4.5-4.75 percent |
Although the rate hike curve is steep, the effects will lag. We have yet to see what this will inflict on the markets or the general economy. Individuals’ savings are low, but their money market accounts and T-bill investments are higher since average savings interest rates at a bank are well below 0.5%. Real Estate has yet to take the brunt of these rapid changes because most folks took advantage of the low-rate environment and are locked in without being affected by the higher rates. Corporates that survived or thrived throughout Covid are sitting on healthy cash balance sheets and many are debating about the need for real estate purchases or leases since hybrid or strictly remote work was proven to work for many companies and brought about more efficiency or just bottom-line savings.
However, business loan terms are usually refinanced more frequently than retail. Thus, the higher rates will begin to eat into industries causing more capital to go to service debt vs R&D, employment, or acquisitions. This will lead to stagnation and overall slow-down.
While the Fed is attempting to fight inflation, which means less overall spending on goods and services to bring down prices, and they also want less employment. The higher unemployment metric is a strange data point in this environment of the lowest W2-worker participation and the highest number of baby-boomer retirees leaving the job market. Demographics alone should cause the central planners to adjust their expectations of not only the financialization of the middle class who are seeking alternative means to earn money versus the standard non-farm payroll job, but replacement workers could never refill the high number of boomers leaving the workforce. So, open job demands will remain high and current workers will continue to demand higher wages due to less competition.
With more technological aid, most industries will continue to produce at current levels or even higher. The most onerous restraints for industries in all developed Western nations are regulatory burdens and the high costs of compliance. If the goal is higher and ever-expanding GDP to cover higher interest rates on magnificently large debts, smarter policies must be enacted to streamline approvals, allow more free competition in nascent spaces, encourage entrepreneurial innovations, and take on more risks with government-sponsored entities and grants.
However, at least for the cryptocurrency space, it seems our government agencies are doing the exact opposite. We witnessed a definitive lack of regulatory scrutiny for several bad actors within the crypto space and a lack of cooperation with honest agents who sought guidance and clarity for the important work they are attempting. As of the first month of 2023, we are slightly up from 2022 all-time lows but remain far from 2021 highs. Many believe the crypto ecosystem will remain stagnant until the risk-off Quantitative Tightening (QT) period is over. QT is their attempt to pull liquidity out of the economy as many central banks around the world are attempting to do. However, much pressure is on the Fed to not break things too drastically domestically. Other nations that denominate much of their debt in U.S. dollars are also struggling to fulfill their obligations with a strong dollar that becoming harder to acquire. Many nations are facing even higher energy inflation, food production inflation, and capital flights from unstable nations such as Russia and China are finding Western real estate safe havens which cause more strain on the local Western citizenry. So, non-U.S. nations need a weaker dollar to grow their economies because everyone over-printed currencies and kept Quantitative Easing in place for too long.
As quoted by the IMF’s Gita Gopinath and Pierre-Olivier in October 2022 How Countries Should Respond to the Strong Dollar, “As of now, economic fundamentals are a major factor in the appreciation of the dollar: rapidly rising US interest rates and a more favorable terms-of-trade—a measure of prices for a country’s exports relative to its imports—for the US caused by the energy crisis. Fighting a historic increase in inflation, the Federal Reserve has embarked on a rapid tightening path for policy interest rates. The European Central Bank, while also facing broad-based inflation, has signaled a shallower path for their policy rates, out of concern that the energy crisis will cause an economic downturn. Meanwhile, low inflation in Japan and China has allowed their central banks to buck the global tightening trend”.
Commodities
The only saving grace for most emerging economies is to focus on their richest commodities and export them for a premium to compromised developed Western nations who seek much-needed raw inputs to maintain their industries and farmland production due to disassociation with China, a cut-off of Russia, and a compromised Ukraine.
Human Resources
Human resources are another asset that emerging markets may not want to lose. With low birth rates in Europe and other developed countries, the demand for replacement workers is increasing. Immigration policies will relax, and brain drain will be a major threat. Remote work may be the solution for professionals who can fulfill their responsibilities in front of a computer regardless of where they are. Developing countries should do more to allow their most talented university graduates to negotiate remote work and help build their home country by capturing a larger tax base.
This is especially important for the decentralized digital assets ecosystem. With greater openness to innovations and alternative financial systems, smaller nations can free themselves from the cycle of dependence on the IMF or WEF, or any other agency to rescue them when there’s economic turmoil caused by decisions made in other nations whose currencies they are entangled with. Many blockchain projects desire talent from around the world. The talent can remain local and operate servers (nodes, validators) in their home countries. This benefits the workers who are paid in uncorrelated digital assets, blockchain technology advances in the local area, and many talented individuals will seek to train others to expand their work capacity (jobs creator). The benefits are exponential, and many are advancing the conversation about these opportunities.
As quoted by Mayur Kamat, Head of Product at Binance, “What’s the next thing you want to do? Is it something that may potentially change the world and how people view financial investments, inclusion, and freedom? If yes, there's never a better time than now. There’s so much room for growth and innovation, and some of the brightest minds are working here”. You can read more about Mr. Kamat’s journey at,
The Builder: How Binance Product Lead Mayur Kamat is Helping Build The Future of Web3
2022-03-23
Mayur Kamat’s resume includes some of the most prominent tech companies, from Google to Microsoft. Now, he brings his experience to take on a new challenge as the Head of Product at Binance.
Market Trends
Equity Markets
Equity markets began the year not really believing what Jerome Powell was declaring for interest rate hikes and Quantitative Tightening. Market conditions moved slightly towards the end of 2022 with a quote from CNBC, “Stocks slipped on Friday to end a brutal 2022 with a whimper, as Wall Street wrapped up its worst year since 2008 on a sour note. The Dow Jones Industrial Average slid 73.55 points, or 0.22%, to close at 33,147.25. The S&P 500 shed 0.25% to end at 3,839.50. The Nasdaq Composite ticked down 0.11% to 10,466.88”.
After the first month of 2023, the Forbes Advisor stated, “After logging its worst annual performance in 14 years in 2022, the S&P 500 kicked off 2023 with a very strong January. The benchmarked index gained a smidgen more than 6% for the month as the first wave of fourth-quarter earnings reports came in better than many had feared. In the background, inflation data suggest that Federal Reserve policy measures are starting to cool off red-hot price gains, while gross domestic product and labor market readings show that the U.S. economy remains on solid footing—for now”.
Since the beginning of 2023, optimism is high for growth potential, and many believe the Fed and other Central Bankers will ease by mid-year. However, others believe the rates will be held higher for longer, and max pain will occur throughout the first half of 2023, with relief from the bear market only being seen towards the end of 2023. This is if the stock and bond market associate with the physical economy more closely. The Fed's fight against rising interest rates will take time to appear in the real economy. However, the stock market is a forecaster of future overall GDP and there could be premature front-running of what is to develop. The crypto market front-runs the equities market by about 6 months, so, the upswing for crypto in the first 6 weeks of 2023 is signaling a trend pivot of equities by late summer.
Physical Goods
Market outlook for the used cars expects a crash along with real estate. The larger question, however, is how much liquidity will be left in the market to allow these sectors to rebound quickly or slowly.
If trust in physical assets is low for recovery, larger investors may seek yield by investing in virtual economies such as the metaverse or web3. The first cycle of NFT assets is over, and builders are infusing more use cases into virtual assets. Many lessons were learned in 2020 and 2021 that will fuel innovation towards ongoing community building and thus increase value creation with each project.
With the decline of the ESG narrative and the increased awareness of the need for oil, natural gas, and nuclear energy sources, more investment may go toward infrastructure efforts for American and European energy sustenance. Since a renewed focus on re-shoring much of Western manufacturing, more cheap energy and regulatory policy changes are needed to meet our most basic needs. Cryptocurrency can assist in these efforts by enabling more transactional transparency between those who contribute to the energy grid and those who want to know the exact sources of their energy consumption. Projects such as Energy Web (EWT) are almost ready for prime-time. Grid+ (GRID) is a project that not only hopes to acquire uses to transfer their tokens for energy payments but also uses their hardware as a secure wallet for digital assets.
Bond Market
Safe havens for 2023 look to be defense stocks with geo-political activities around the world. Many hedge funds may outperform in comparison to the previous 10 years of monetary easing and an ever-increasing stock market. Diversifying back into bonds and fixed income with higher interest rate yields is a safe placement for excess capital until a definitive pivot is noticed. Corporate bonds are also a solid play until equities recover.
Venture Capital
Deal flow will slow for insider Limited Partners of private Venture Capital funds, but deal quality should improve, which could pay off exponentially in the coming years. Most managing partners will become much more picky about the startups in which they will invest. With so much capital on the sidelines, however, placements must be made. As a result, founders with a solid product/market fit and a competent team will receive headline-grabbing investments in 2023.
Crypto Economy
Improved infrastructure within the cryptocurrency economy is enabling more strategies for investors. For example, there are defi platforms that enable shorting (ByBit), forms of forex trading (Vela), and purchasing options (Deribit). Investment diversification allows more professional traders, whether day traders or swing traders, to enter the market, and curious investors will interact with UX interfaces they are familiar with. Retail will lead the next rally now that decentralized crypto exchanges, built on blockchains such as Solana, are nimble and fast enough to compete with centralized exchanges. Institutional investors will remain on the sidelines for a longer period of time until regulatory clarity is improved and the consequences of 2022 are fully realized.
Geopolitical Risk
The next black swan event that no one in the investment world will see coming could be a disastrous turn of events of escalation with the Russian conflict. If Russia continues to advance, they will eventually engage a NATO nation. If Russia begins to take heavy losses due to superior weapons being supplied to Ukraine by NATO nations, desperation may cause the Russians to launch nuclear weapons. Either outcome is becoming more likely as the war continues, however, these are not the only two outcomes possible. Investors must keep a close eye on developments and prepare for worst-case scenarios that will affect market moves dramatically.
Cryptocurrency Developments and Opportunities
Emerging Technologies
The biggest advancement that captured the imagination of the general public in late 2022 was Artificial Intelligence (AI). With the advent of Chat-GPT, many now realize the power of one of Cathy Woods’ Ark Invest’s great innovation pillars along with energy storage, robotics, DNA sequencing, and blockchain tech. The development of these sectors will disrupt classical models of investing tremendously. Even bigger will be the convergence of these innovations to create synergy toward a new reality we can barely fathom.
As of now, it’s not certain how AI will impact digital assets other than ensuring blockchain-based authenticity in a rapidly expanding deep-fake era. Developers and users at every level can bring products to market much faster with the addition of AI supplementation to code writing, user experience interface, and website copy.
Creating more content, products, and deeper knowledge bases in a cheap energy environment will require the protection of the blockchain for individuals, companies, and organizations to maintain their sovereignty, privacy, and security, which is bullish. The exponential growth of technology platforms will require an increase in server power. Current capacity can be expanded quickly in centralized entities such as Google Cloud, Amazon Web Services, or IBM/Microsoft’s Azure, however decentralized expansion of edge data centers is also needed to maintain the values of the blockchain listed above. Regulatory barriers may stymie the development of blockchain-based businesses, but not the advancements in technology.
Regulatory Development
Although Gary Gensler of the Securities and Exchange Commission (SEC) met with Sam Bankman-Fried on many occasions, my speculation is to develop schemes for FTX’s regulatory capture of the custody crypto market, he has yet to provide a clear path for anyone else in crypto.
The year of deleveraging and lack of monetary controls for companies that held other people’s cryptocurrencies created an environment of thieves and scallywags who lost billions of dollars. With such irresponsible behavior, law enforcement, the courts, lawmakers, and regulatory bodies are focused on crypto-based companies like never before. Since the lack of rule-making and guidance has lasted so long within the U.S., with the few actions taken by regulators being ad-hoc and onerous, the only thought about what comes next is a heavy and damaging regulation-by-enforcement hand.
The only way to prepare for what's to come is for crypto consumers and citizens to rally support for Representatives and Senators who understand the technology and want to act in good faith toward better behavior and clarity about what's required to operate in the United States. Even if it means creating sandboxes or completely rewriting security laws to accommodate fast-moving modern technologies. The industry may be stifled if innovators expend too much energy, time, and resources determining what is legal or moving out of the country to set up shop offshore.
Digital Assets Advances
After the many failures of 2022, many investors did not cash out of the crypto space, but instead, crypto investment capital poured heavily into Defi projects. According to The Defiant’s Owen Fernau in November 2022, “DeFi protocols are experiencing double-digit increases in the number of users over the past week, according to data from Nansen, the blockchain analytics platform.
MakerDAO, DeFi’s largest protocol with $6.5B of total value locked (TVL), has increased addresses by a third in the last week. And other top 10 protocols have also attracted huge jumps in users, with Aave, a lending protocol, notching a 70% increase, and Curve, a DEX, a 63% spike.
Lender Compound and yield booster Convex also drew 30% rises in users, according to the data Nansen shared with The Defiant”.
Although the total value within Defi protocols dropped from $165B in April to $42B by December, the overall number of users went up. Despite a drop in token value and a mass exodus of institutional investors from the space, retail investors are the crypto enthusiasts driving the market again and are seeking solutions within the Defi ecosystem.
Ethereum upgrades are continuing with the Shanghai revision that unlocks staking. A highly anticipated event that should establish a true benchmark measure within crypto when individuals are free to stake and un-stake at will. The interest rate earned at any given time will be equivalent to the fixed-income bond index in traditional markets.
Staking and liquid staking continue to innovate. Projects such as Bancor are developing schemes to reduce or eliminate impermanent loss, more efficiency via multi-chain access, and like Uniswap’s latest innovation, liquidity providers can choose a range to provide their capital for swaps. From Uniswap’s medium post: “In V3, LPs can choose a custom price range when providing liquidity. This allows for concentrating capital within ranges where most of the trading activity occurs”.
Stable Coin Battles
Stable coins will face increased scrutiny in a post-FTX “show me proof of your reserves” environment. The battle for stable-coin acceptance by U.S. regulators will intensify. Most likely only one or two crypto projects will be “allowed” to issue stable coins, fully backed by U.S. Treasuries, and no allowance for retail customers to earn interest on stable coins moving forward. The payoff for the winner is enormous as interest on the T-bills alone will net Billions of profits every year.
Privacy Priority
Zk-snarks (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) development increased in cryptocurrencies to invest by gaining attention for investors seeking privacy and autonomy to transact without spying eyes. Privacy coins have been around for years, ZCash, Dash, and Monero (which were targeted by regulators in 2022). However, crypto investors demand for this same level of privacy to be extended to other chains also. Litecoin stepped up and created a means to turn on or keep off private transactions. Investment firm A 16z had the foresight in 2021 and invested in Matter Labs to help bring zkSync technology using zk-SNARKS to Ethereum. So, 2023 should bring more main net realization of privacy solutions for other blockchains, new and existing.
Crypto Acquisitions
With the decline in overall market capitalization for publicly traded or well-known private crypto-based companies, the possibility of buyouts by established financial institutions has increased. This will be their fast track to capturing the technology and ensuring that they capitalize on the next upswing or outright displacement of old systems..
Gaming
The NFT bubble opened the door to a new block-chain based digital value creation. The next iteration will connect entertaining games with unique digital assets that can be used outside the game. Standards must be developed to establish baseline rules for intellectual property rights, display rights, and cross-platform compatibility, as well as to ensure the NFT maintains its scale, functionality, and overall appearance. With more non-crypto native influencers, from Gary V to Tim Ferris, entering the space and expanding the utility of NFTs, the value and growth of communities will only increase. Gamification must be incorporated into non-fungible tokens, whether they originate within a game or are minted by a celebrity; thus, allowing creativity to expand for token holders.
Real World Assets Tokenized
We will see an increase in physical items tokenized this year in the cryptocurrency industry. Tokenization is occurring but much is done on small-scale items that can be easily shipped to individuals to take possession. However, government entities must become involved for larger items such as tokenizing real estate. Hopefully, more foresight from token issuers will lead this effort with legislation guidance written and handed to lawmakers before they ask for ideas. Once a structure is in place to read, audit, and verify the smart contract code by regulatory bodies, a multi-trillion-dollar worldwide market will be unleashed. However, before large-scale items are tokenized, we will continue to see collectibles, art, and slightly larger items like automobiles transfer ownership via the blockchain.
Conclusion
The adoption of AI, along with other innovations, is expected to create synergies that will disrupt classical models of investing. The blockchain industry will require protection to maintain its privacy, security, and sovereignty values. Crypto regulation development is crucial to provide clarity and better behavior for crypto-based companies. However, before centralized finance can take hold again, the adoption of Defi protocols is increasing. Leading the way are Ethereum upgrades, and along with Shanghai, developers are also hoping for Proto-Danksharding by fall. Other L1 tokens are closely watching Ethereum’s developments and seeking ways to create unique value propositions while developing interoperability solutions.
The NFT (Non-Fungible Token) market experienced explosive growth in 2021, but it faced a significant decline in 2022, leading some to question whether it was just a passing fad. However, in late 2022, NFTs made a slight comeback with new use cases and developments. The gaming industry is driving the demand for NFTs, as players use NFTs to purchase and trade in-game items, skins, and virtual real estate.
2023 is expected to be a year of continued growth and innovation for the crypto industry. AI, blockchain, and other disruptive technologies are expected to converge, creating new opportunities for developers and entrepreneurs. Regulatory developments, stablecoin battles, larger DeFi participation, and the growing demand for privacy solutions are expected to shape the industry's landscape in the coming year.
Part 4 DPoS: The Big Money Backers (Originally Posted June 2020)
Alternative Consensus Mechanisms To Proof-Of-Work
For previous topics covering delegated proof of stake, see Part 1 DPoS: The Protocols, Part 2 DPoS: The Validators, and Part 3 DPos: The Delegates.
A definitive uptick in Proof of Stake (PoS) occurred in 2020. Proof of Stake (PoS) is a consensus model different from the first-generation cryptocurrencies’ Proof of Work (PoW) model. Included with PoS is every variant, such as Delegated Proof of Stake (DPoS), Liquid Proof of Stake (LPoS), Nominated Proof of Stake (NPoS), and Bonded Proof of Stake (BPoS). For a detailed explanation of each consensus model listed, see Stakin’s article, “The Proof of Stake Guidebook.” With proof-of-stake, validators are required to generate new blocks by staking tokens and operating proprietary software instead of miners utilizing high energy outputs to solve complex math problems to win new block generation as within proof-of-work consensus models.
With more protocols utilizing PoS models, more demand for validators arises within the cryptocurrency ecosystem. Most validators are smaller operations, but more protocol developers need a larger percentage of enterprise-scaled validator teams. Professional validation requires not only high levels of technical skill but also large outlays in capital expenditures for infrastructure. Who finances enterprise-scale validators? A variety of visionary backers invest in server-side professionals who deploy fast, highly secured, and scalable PoS blockchains. They range from angel investors to venture capitalists. Investors familiar with Distributed Ledger Technology (DLT) seek to invest in layer-one protocols (tokens) and companies that enable base-layer protocols (equity). This pioneering class of investors focuses a large percentage of their investment strategy in PoS-based projects to gain maximum leverage in DLT’s governance influence and economic expansion.
Slashing Risk
A consensus model is a means for all nodes operating and validating blocks to stay in sync while adding new blocks to the blockchain. If a node attempts to add a block whose hash value does not match the other nodes, the block is rejected. For some staking chains, if a validator misses blocks due to careless mistakes or malicious behavior, the validator is slashed by code. Slashing is the process of punishing a Validator by taking away staked tokens and/or not allowing the team to validate blocks for several rounds.
Why is slashing important to investors? For some protocols, slashing includes penalizing the delegates who vote for the validator being slashed. Although most protocols do not punish the delegates as severely as the validator, slashing could risk thousands of dollars if a delegate is heavily invested. Professional investors who want to ensure their token stacks are safely growing will only invest in validators who operate a commercial infrastructure business, are properly staffed, and have disaster recovery protocols in place. So far, only a few validator companies are organized with the necessary business and legal structure to receive such funding.
Most validators are self-funded small teams or operate under bootstrapped conditions with proceeds from angel investors. Funding is critical for talented teams to upgrade equipment and expand to levels that match their capabilities. Although PoS coins were around since the inception of Peer Coin in 2012, the space is still considered nascent, but the last 2 years experienced rapid growth. According to CryptoSlate.com, pure PoS tokens make up 3.10% of the sector, DPoS makes up 2.86%, and masternodes now only make up 0.49% of the cryptocurrency space. Development is early, and there is much room for additional talent to grow alternative consensus methods to PoW. To date, most new protocols launched in 2020 are built with some variant of PoS consensus code.
The Players of Distributed Ledger Technology (DLT)
Several companies foreshadow what will soon become the industry standard for enterprise-scale validators. Companies such as StakeFish, Chorus One, STAKED, EverStake, and Infinity Stones. In addition to staking, professional node services are offered for various projects, such as Bison Trails, Blockdaemon, and SKALE. Most businesses on the scale of the firms listed above were backed by institutional funding. Those within the crypto space are familiar with firms highly dedicated to blockchain projects such as Galaxy Digital, a16z, Coinbase Ventures, etc. However, other players who did not originally include DLT projects in their portfolio are investing, such as Kleiner Perkins backing Bison Trails, or Bonfire Ventures backing Figment Networks. Even the oil company Shell backs Blockdaemon’s promise to expand support for validators’ onboarding to new Web3 projects.
Backing entities that perform work with physical infrastructure is more attractive to some traditional equity investors versus investing directly in digital assets. The demarcation of ownership and rights is clearly laid out by established business legal structures and case law. Having recourse to physical collateral is a natural comfort for investors delving into a new asset class of investments. Until a greater understanding of DLT is established and evidence of its potential is seen in consumer behavior, investing solely in digital assets will remain the playground of a few whale investors.
The next question for institutional investment in DLT is private ledgers vs. public ledgers. Entities such as State Street Corporation, one of America’s oldest banks, have demonstrated interest in blockchain technology since 2015, just as many other members of the R3 consortium. However, using IBM’s Hyperledger proved these entities were attempting to develop internal well-controlled blockchains of whom validators would be selected by the consortium. After proofs of concept were established and teams within large financial institutions sought solutions to legacy problems, a turn towards a private-public blockchain hybrid is trending. From the Coindesk article, “State Street Slashes DLT Developer Team as Bank Rethinks Blockchain Strategy,” an inside source states. “They are moving away from this giant in-house DLT initiative.” The shift in thinking may open opportunities for validators outside of financial institutions to assist in meeting their technology demands. “Now, however, the bank is now describing its approach as ‘ledger-agnostic,’ and relying more on outside providers.”
Conclusion
Large enterprises can maximize distributed ledger technology (DLT) by balancing public and permissioned blockchain networks. This will allow companies to benefit from decentralization’s security, transparency, and efficiency while keeping data and transaction control. To build a foundation, venture capitalists, businesses, and governments must invest in validator operations, large and small. DLT has huge promise, but only with the correct infrastructure. Balanced public and permissioned networks would enable digital asset exchange, smart contracts, decentralized finance, and more. This balance would also ensure that enterprises can control their data and transactions while benefiting from decentralization. Governments, enterprises, and venture capital firms must invest in infrastructure development because the potential of DLT is now limitless.
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