2022 Prediction: Venture capital Pantera's six key focus areas: Layer 2 solutions, non-Ethereum chains will thrive

People have never been more focused on the cryptocurrency space than they are today, and as crypto technology continues to go mainstream, the pace of innovation next year will leap even further.

(This article is authorized to be reprinted from BlockBeats, with the original title "Pantera Fully Sorts Out the Key Focus Tracks for 2022", original article here)

Every year, I make predictions for the crypto market in the coming year and review the predictions from the previous year.

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Overview

2021 was an extraordinary year for the Crypto industry:

DeFi grew into a market worth over $100 billion; Bitcoin reached a peak price of $69,000; L2 ecosystems like Arbitrum and alternative L1 public chains like Solana saw significant growth; NFT sales exceeded $22 billion; and more mainstream and institutional attention than ever before.

Here are six major predictions for the crypto space in 2022:

L2 and Rollup: Rollup scalable platforms built on Ethereum, such as Arbitrum and StarkEx, as medium to long-term solutions to address Ethereum network congestion, will continue to be in focus.

Non-Ethereum/Bitcoin Chains: Alternative L1 smart contract public chains ecosystems like Solana and Binance Smart Chain will continue to grow as cross-chain bridges increase the demand for cross-chain liquidity, making it easier for developer platforms to launch their dApps on other chains.

Composability and Web 3.0: Projects will find new, powerful ways to integrate with each other to create a unified user experience throughout the online ecosystem. Digital ownership and data management mechanisms will also expand further, allowing users to develop more robust, practical digital identities.

NFT Expansion: As the digital art ecosystem evolves, the popularity of NFTs will continue to soar. In addition to pure images, NFTs will also support multiple use cases in vertical fields such as gaming, music, and communities of creators/influencers.

DAO: With people increasingly accepting the concept of digital, collective action, more DAOs will be launched around unique, noteworthy use cases. As DAOs become more complex in organization and functionality, we will see significant developments in DAO management and operational tools.

DeFi Security Protocols: Following several major DeFi attack incidents in 2021, the security of DeFi protocols in 2022 will be more scrutinized than ever before. Emphasizing runtime security and smart contract attack insurance projects will help protect dApps on various public chains while enhancing mainstream user confidence in DeFi as a robust financial ecosystem.

2021 "Crypto Craze"

2021 may have been the most exciting and tumultuous year for the crypto market. We witnessed incredible growth and innovation, including Ethereum's highly anticipated London hard fork, Solana's explosive expansion in the summer, and Bitcoin hitting a historical high of $69,000 in November.

At the same time, we also saw inefficiencies and vulnerabilities in various crypto areas, from Ethereum's absurd gas fees to attacks on PolyNetwork smart contracts totaling up to $600 million.

There is no denying that Crypto has attracted unprecedented attention in ways never seen before. Thousands of users are registering addresses on various blockchains, searching for NFT collections on OpenSea, and investing more funds in DeFi and Web 3.0 every day.

As we enter 2022, I look forward to seeing how this mainstream trend will guide the direction and pace of innovation in the crypto space—expanding the boundaries of the crypto world and empowering crypto technology to realize its vision of a truly decentralized, user-centric financial system.

Looking Ahead to 2022:

Here are six areas where significant innovation and growth are expected in 2022:

L2 and Rollup

Ethereum's biggest drawback is its exorbitant delays and gas fees, which significantly limit the computational capacity of dApps and keep financially constrained new users at bay. L2 solutions tackle this problem by executing transactions off-chain (reducing slow, costly on-chain computations) and then posting batch transaction data on-chain.

L2 became very popular last year. Arbitrum is an Optimistic Rollup solution launched in September, currently reaching a peak TVL of $2.78 billion and accumulating over 50 dApps, including 1inch, Balancer, and Coinbase Wallet. The TVL of ZK Rollup has increased from $43.5 million to $1.9 billion and has been used to scale dYdX transactions.

As Crypto's mainstream adoption grows, Ethereum's network congestion will only worsen, exacerbating its latency and cost issues. By ensuring highly scalable computational infrastructure, Rollups are crucial to sustaining Ethereum's growth, enabling ordinary users to have a user experience and expectations similar to or even better than Web2.0 applications when interacting with dApps.

Both OR and ZKR will receive more attention in the coming year, with OR potentially dominating in the short term, but the more technically complex ZKR will achieve longer-term scalability as a solution.

Non-Ethereum/Bitcoin Chains

At the beginning of the year, 97% of the total DeFi TVL belonged to Ethereum. Today, Ethereum only holds 63% of that TVL. L1 public chains competing with Ethereum have shown explosive growth over the past year, mainly due to their significant scalability advantages and different application scenarios compared to Ethereum.

Solana had a particularly brilliant performance in 2021, creating massive transaction throughput, reaching a peak TVL of $15 billion in November and a price peak of nearly $260. Recent activities in the Solana community, including providing significant startup funding for SocialFi and GameFi, indicate that the ecosystem will continue to grow significantly in the coming year.

In addition to specific public chains, many technological developments this year suggest that 2022 is destined to be an important year for the "multi-chain universe." Cross-chain bridges like NEAR's Rainbow Bridge will help accelerate the development of non-Ethereum ecosystems by expanding cross-chain liquidity and enhancing the composability of cross-chain assets.

On the other hand, some EVM platforms, such as Aurora on NEAR, also make it easier for Ethereum-based dApps to launch on other chains than ever before, further enhancing cross-chain participation in DeFi. Overall, these advancements in cross-chain infrastructure will accelerate the development of alternative L1 public chain network effects, promoting the development of a truly robust, diversified multi-chain crypto ecosystem.

Composability and Web3.0

"Web3.0" was one of the key terms of 2021, encompassing a wide range of areas, making it difficult to determine its specific content. However, it is generally used to refer to technologies prioritizing user data or asset ownership and interoperability between different applications.

2021 was an important year for digital ownership, with the NFT industry reaching a scale of $7 billion, and as more artists and art buyers start exploring verifiable ownership in the digital realm, the entire NFT industry will experience further growth.

In addition to NFTs, digital ownership will grow through developments in decentralized crowdfunding (such as Kickstarter's announcement ofa decentralized protocol on Celo) and decentralized identity projects.

In these projects, users can have full, precise control over their personal data and reputation, enabling features like DeFi uncollateralized loans, KYC, and more. Next year, more projects will emerge, expanding the scope of on-chain ownership, allowing users to more comprehensively and functionally manage their digital identities and assets.

In terms of interoperability, cross-chain bridges will greatly enhance composability within DeFi, allowing users not only to perform cross-chain asset trades but also to use DeFi protocols across different blockchains.

Aside from DeFi, projects like login.xyz offering Ethereum login services demonstrate how blockchain can further enhance composability between applications, enabling users to access all services with just one login method. Overall, integration between applications and services will become tighter, with more projects in the future improving network fragmentation.

Development of the NFT Industry

NFTs were undoubtedly one of the hottest Crypto trends of 2021. Within just three months, the digital asset trading volume on the OpenSea platform soared from $1 billion to over $10 billion, proving the fervor for NFTs.

Projects like NBA Top Shot and Bored Ape Yacht Club brought NFTs into popular culture and became one of Google's most popular search terms this year.

Looking ahead, we need to note that the market value of physical art is still as high as $1.7 trillion, indicating that the NFT market is just getting started. However, as the popularity of digital art grows and with the trend of tokenizing physical art, along with improvements in verifiability and market liquidity, the NFT market will continue to thrive in 2022.

In addition to traditional image formats, NFTs in gaming and music have emerged and seen significant development. In the gaming sector, games like Decentraland and Axie Infinity provide tradable NFT assets for players, allowing them to have full ownership of their assets and fully functional, versatile ownership within the game.

In the music sector, projects like Audius and Royal are establishing mechanisms that allow fans to directly support their favorite artists' works and receive a portion of the artist's royalties. I believe that in 2022, NFTs will extend to more areas, reshaping how we interact with digital media and prompting deeper reflections on digital media ownership.

DAO

DAOs were also a hot trend in the crypto space in 2021, garnering widespread attention for their achievements in building fair and decentralized collective organizations.

This year, DAOs focusing on digital cultural identities (such as FWB and pleasrDAO), crowdfunding and capital allocation (such as BitDAO and ConstitutionDAO), and even those focusing on social causes (like KlimaDAO dedicated to climate change improvement) have emerged.

Given their outstanding achievements in their respective fields, I expect DAOs to become mainstream tools for online organizations and collective actions in the future, allowing people worldwide to actively engage in causes they care about.

As the number of DAOs continues to grow, people are also constantly optimizing DAO tools, operations, and guides. For example, Syndicate simplifies the process of creating DAOs, making collaborative investments easier for people; Station provides DAO introductory guidance to users, allowing them to spend less time than before building and running functional DAOs.

As DAO operations become increasingly complex, I hope to see more projects dedicated to building DAO tools and infrastructure in 2022.

DeFi Security Protocols

Compared to the past, people had more concerns about DeFi security in 2021. A total of over $610 million was stolen due to DeFi vulnerabilities this year (an 8-fold increase from $77 million in 2020), with an additional $704 million stolen but later returned in full by white-hat hackers, similar to the $600 million PolyNetwork hack incident.

These incidents are difficult to avoid and have brought disaster to DeFi. However, these events also highlight significant underlying flaws in DeFi's fundamental technology, which may ultimately limit DeFi's expansion into more areas.

To ensure that users continue to use DeFi, more protocols and tools need to be developed to ensure user security when using crypto financial products. Some projects, like Forta that can monitor dApp security during runtime,