Pantera Capital, a crypto-focused venture with about $3.8 billion in assets under its management, summed up its 2023 forecast declaring Decentralized Finance (DeFi) is the future and will take over the crypto market.
Last year saw the beginning of the bear market, with its progression exacerbated by multiple financial disasters and failings—such as FTX’s multibillion-dollar implosion in centralization and Genesis’ bankruptcy filing that occurred only last week.
In his forecasted “Year Ahead” investor letter, Dan Morehead — CEO and Co-Chief Investment Officer of Pantera—proudly declared that the company had weathered the past three ‘crypto winters’ in proficient blockchain fund management.
Although each event may have been considered catastrophic, take Mt. Gox for example; this crash was far bigger than FTX today as it stood at 85% market share when the fall happened, and yet still blockchain managed to recover. It’s a revolutionary technology that is only starting its journey – there’s no doubt it will survive these issues.
DeFi in 2023
Joey Krug, co-Chief Investment Officer of Pantera, also predicts that the world’s financial rails will eventually become blockchain networks using smart contracts. However, he noted that the critical questions are how the blockchain space can make this transition and what needs to be done to reach the goal.
He recognized that scalability systems have decreased transaction fees on the Ethereum blockchain to less than 10 cents. Also, Krug forecasts that through future upgrades to Ethereum and protocol extensions for second-layer scalability tools, such costs will be further lowered to around 1 cent – enabling decentralized exchanges to rival those larger centralized exchanges.
According to Krug, the ultimate goal of crypto is a world where users can access decentralized finance (DeFi) with ease through apps on their phones. This would provide them lower fees, global liquidity, and 24/7 markets – without banks or brokers. Yet achieving this requires solutions to various issues that fit into two distinct areas: improving DeFi’s liquidity and simplifying its use for new players in the crypto space.
Also, the co-Chief Investment Officer highlighted the importance of enticing more institutional capital into DeFi by introducing federally or state-regulated custodians that support Ethereum. Furthermore, combining liquidity across multiple chains and layer 2s and liquidity pools would create a system where apps could scan for competitive pricing and execution after users submit their trades. While this kind of aggregation necessitates constructing secure cross-chain bridges, it is still achievable despite the wave of exploits to these same bridges.
Krug further stated that UX design and user experience have improved in the DeFi space, yet crypto wallets still require optimization. In addition to simplified UX design, reducing trading fees that are always paid with ether (ETH), regardless of the asset being traded, and expanding fiat on-ramps could prove invaluable for making the DeFi space more accessible.