Five crypto megatrends for 2022

AVentures thesis series: Interview with Dr Ömer Demirel

There are five significant developments and trends to look for in 2022 and beyond.

1 | Decentralised Autonomous Organisations (DAOs)

DAO is a decentralised organisation gathered around a central idea, purpose, or objective. Members vote and direct the activities of a protocol by consensus. Thanks to blockchain and smart contracts, this new organisation form has all the necessary tools (dApps) to facilitate voting and execution in an efficient and trustless manner.

Last year, we saw numerous DAOs, powered by Protocol-Owned Liquidity (POL) solutions, building large treasuries and investing in early-stage crypto projects. The Investment DAOs that are not shy of leveraging their communities, utilising existing DeFi solutions, or improving the status quo will become a major force in the venture capital world.

The rise of DAOs was one of the impressive crypto stories of 2021, the story likely destined to have even a stronger impact this year. DAOs and their social tokens are expected to become more dominant in the future.

2 | Infrastructure and bridges

We are still in the early phases of blockchain innovation, where infrastructure projects like L1s and L2s remain topical. Many teams building L1s and L2s believe that the market cap of Ethereum is up for grabs. Hence, infrastructure wars will continue as base protocols compete for a larger market share. The key differentiating factors will boil down to community/user incentives, developer adoption, and the quality of engineering and technology of the underlying blockchain.

Most infrastructure projects have massive war chests, and it would be challenging for one protocol to win it all. So, a multi-chain future is highly likely. To properly function, this multi-chain world will need to pay great attention to security, speed, and decentralisation. Bridges are where we will probably see a few major technological breakthroughs soon.

3 | DeFi innovations

DeFi was the most exciting playfield for blockchain enthusiasts in the past two years. It will likely remain the innovation hotbed for the foreseeable future.

There are four critical areas of development in DeFi that Dr Demirel emphasised as particularly interesting:

• Improved automated market maker protocols (AMMs) with optimised smart contracts, lower transaction costs, and a better design/UX. There were already several examples of innovative DEXs with super low slippages, single-asset deposits, and virtual currencies to facilitate transactions. As the research in the AMM space matures more innovations in this area can be expected.
• Decentralised ID for DeFi. Many financial institutions require a trust framework to preserve their privacy when transacting on the blockchain. Web3 solutions based on zero-knowledge proofs and other privacy solutions will likely convince many large players to join the crypto space.
• Decentralised insurance solutions. Another critical element to the success of institutional adoption will be the ability to measure the smart contract risk and assess the likelihood of losing their funds. The existing insurance solutions cover many areas, but not everything, which seems to be holding the institutions and traders back.
• Options markets. The off-chain options markets are enormous, and their on-chain counterparts are still in the infancy stage. The growth potential is massive here, and this sector of DeFi is expected to become highly innovative and competitive as structured products lead the on-chain option adoption.

4 | dApp-specific blockchains

An increasing number of dApps running on their own permissionless (or permissioned) blockchains will not be affected by congested public blockchains. These dApp-specific blockchains will have their validators, new economies driven by their native cryptocurrencies, and DAO-like communities. Participation in a dApp-specific blockchain economy would earn incentives for participants, be they validators or simple users. For some dApps, that could mean that they can become a DAO or an amalgamation of dApp and DAO.

We might see heterogenous L1s fighting for high-potential dApps to become part of their Infrastructure. Avalanche Subnets are promising and expected to become game-changers by offering highly-customisable blockchain templates to dApps and DAOs.

5 | Cross-chain solutions

In the multi-chain world, the interaction between different smart contracts on different chains, especially for DeFi enthusiasts and yield hunters, will be of the essence. If there is a better yield for the same asset on another chain, the funds should migrate over there as soon as possible to start earning higher profits. In that regard, it would be prudent to closely follow many cross-chain enablers (e.g., Quant, LayerZero, etc.) and the next generation of dApps that will utilise these cross-chain solutions.

About Dr Ömer Demirel

Dr Demirel (PhD in Computer Science from ETH Zurich) is a blockchain enthusiast, investor, and a trusted community member in the Avalanche ecosystem. Previously, Omer has worked in academia and at a leading insurance company as a senior data science consultant. Omer is currently an advisor to several leading decentralised finance (DeFi) applications and a senior partner at Muhabbit Capital — a group of blockchain professionals investing in high potential crypto projects and incubating them.

About AVentures

AVentures is an investment DAO comprised of OG Avalanche community members on a mission to support the ecosystem. The team boasts multiple successful blockchain developers and project owners, content creators, advisors and domain experts that have come together to channel our expertise to support the Avalanche ecosystem.

AVentures DAO:

* Provides advisory and marketing support to new Avalanche projects
* Supports Avalanche projects by investing in seed/private rounds
* Incubates new projects via mentoring
* Publishes technical analysis on DeFi projects