Rebranding Crypto with Web3… and expanding AI control to reduce critical failure
The crypto market has experienced exponential growth since 2021 and has drawn the attention of many new investors. The main drivers of the growth were Bitcoin, stablecoins, DeFi, NFTs, Layer 2s (L2s), and the Metaverse. Metaverse gained a lot of hype, and even if it offers a market collapses, with monthly platform sales falling 96% in 2022. However, a recent McKinsey report suggested a massive $5T value by 2030.
Innovation never stops, and there are a few hottest tech trends to watch in 2023, including growth opportunities in the consumer and corporate sectors. Reviewing the crypto market highlights coming from the 2023 Digital Assets Outlook, it is possible to recognize the improvement in technology and solutions available. At the same time, this abundance of funds and the adrenaline for the exponential technology looking for the singularity generate failure caused by over-leverage and unclear directions. Unfortunately, some extremely valuable concepts and game-changer models, i.e., many DAO’s were built and run without a fundamental representation rule, and the ownership was too concentrated, making everyone suspicious.
The security was lacking in 2022, probably exacerbated by the significant adoption in a short time without precise guidelines, as demonstrated by the raising of Crypto Compliance Providers; the problem is still ongoing. Consequently, 2023 will be the year of On-Chain User Security.
Stablecoins miss the trust of many consumers even if algorithmic stabilization is the key to effective crypto-finance. Crypto must move on from the LUNA crash and trust algorithmic stablecoins again.
The lack of transparency in the underline asset, reserve, and custody shows that the value chain needs to be reinforced. Furthermore, the mixology between token and the crypto economy create false expectation and borderline behavior. The absence and/or presence of different rules and the companies playing different roles prepare the best case for failure. In this scenario, it is essential to notice that the financial institutions captured the potential competitive advantage the technology could offer quite well.
The institutionalization of DeFi and the adoption of new Digital Asset classes is the new normality. Banks are moving faster than the previous years, with the US banking sector launching digital asset settlement proof of concept and Credit Suisse testing securities tokenization on a public blockchain.
Preparing for a new wave of crypto regulation
2023 will almost certainly see a global crypto regulatory wave. Significant legislative changes are planned in the EU with its Markets in Crypto Assets (MiCA) bill and the US with the Lummis-Gillibrand bill. While the US legislation, in particular, still has some way to go before it becomes law, as two of the world’s powerhouse markets, reforms here will indeed ripple worldwide. Though enforcement actions remain to be seen, firms should proactively review and consider new legislation to stay ahead of next year’s regulatory changes. Basel Committee endorses Global Crypto Banking Rules to be implemented by 2025: The rules suggested that a bank’s exposure to certain crypto assets must not exceed 2% and should generally be lower than 1%. The Basel Committee for Banking Supervision has published the final version of the rules for crypto-assets to be implemented by January 1, 2025. The highlights:
1. The 1250% risk weighting for unhedged cryptocurrency exposures remains, which means a dollar of capital has to be set aside for every dollar of exposure
2. The high-risk weighting does not apply to assets held in custody. Had this remained, it would have prevented banks from providing crypto custody at scale.
3. Previously, Basel proposed an infrastructure risk add-on of 2.5% for digital securities and stablecoins. This has been waived by default. However, it can be imposed on a bank if there’s a perceived infrastructure risk
4. Cryptocurrency exposures are still limited to 1% of Tier 1 capital with new significant relaxations for hedging. The 1% can be exceeded, but it should not exceed 2%.
5. The tests for assessing low-risk stablecoins have changed. It is now a combination of redemption risk and regulatory supervision but will evolve.
The big ideas for crypto are not lacking, and the combo ESG & Web3 could generate an exciting synergy of the next decade, considering that ESG will be a heavy focus for tech leaders in 2023.
Web3 is an opportunity to reset the chaos
Web3 is often referred to as a group of technologies such as Blockchain, Decentralised Finance, Cryptocurrency, NFTs, and the relationship, so it could be helpful to rebrand crypto with Web3. In so doing, it will be possible to reduce the backslash from the previous mismanagement and maintain the positive capability of this technology. In 2022, Web3 start-ups raised a total of $7.1B in investment, and investors say web3 and hype are in for 2023. Today, Web3 is shaking up Digital Marketing, and many brands will be experimenting with nascent web3 technologies like NFTs.
A new storyline is necessary to distinguish between wrongdoing and mismatching expectations. One possibility could be rebranding crypto into Web3, empowering AI to reduce the failure rate waiting for a common regulation. The next necessary steps are no mixology, refactoring the layers, simplifying corporate finance, and adopting lean corporate governance that avoids “related party” transactions. The first action will be to prevent mixology between crypto and token. The second is to simplify the corporate finance structure avoiding the plethora of companies that make * i.e., FTX. There is an apparent necessity for “refactoring”: a lean system without cross-ownership will provide less risk for “correlated “ activities.
The regulators will provide the significant part, but it will be helpful to do some housekeeping in advance to avoid total equalization or dismantling.
The less appetite for investment by VC will probably compensate for the banking system’s interest in buying and running a project on securitization. The economic situation with high inflation and high-interest rates will be a challenge for a few start-ups that cannot pay back the loan with the low valuation. The founders must recapitalize the balance sheet with their resources during this challenging time. Empowered DApps with AI (Google AI’s LaMDA Vs. OpenAI’s ChatGPT)) will provide more transparency and control even in the banking system. A company such as ComplyAdvantage uses machine learning to detect and prevent financial crime. This will offer a clear and intuitive “storyline” embedded in a personal wallet that can provide a clear status based on which Crypto Taxes can be easily calculated. Cross-checking smart contracts and oracle will be used to write better code and find vulnerabilities quickly.
Rebranding crypto with Web3 empowering by AI embedded the DeFi composability with new lego building blocks will improve CX (customer experience) and reassure the user.
List of additional Crypto Market Outlooks for 2023
Coinbase: https://lnkd.in/eZXa8meu
Messari https://lnkd.in/ecCBypB9
a16z https://lnkd.in/ezJjAT5u
Pantera Capital https://lnkd.in/eFYkcsNQ
Arca Funds https://lnkd.in/eTF6K8ZP
New Order DAO https://lnkd.in/ef_9YqWF
Crypto.com https://lnkd.in/e3Yj7_Qz
Huobi Research https://lnkd.in/e6SbRqSa
Binance https://lnkd.in/eU62aVZV
Delphi Digital https://lnkd.in/eHwjAtr2
DeFi Lama https://lnkd.in/eUZvdK2H
Cointelegraph https://lnkd.in/eFGnb_XG
CoinDesk https://lnkd.in/ec6kHAfy
The Block https://lnkd.in/eSQQHvyd
Bloomberg https://lnkd.in/e-2yYBEF
Forbes https://lnkd.in/ebg7vxeQ
Saxo Bank https://lnkd.in/e_TAY9kg
VanEck https://lnkd.in/eRPeETKV
PwC https://lnkd.in/eMDtZ42r
Accenture https://lnkd.in/esh65Q6F
