Top 10 Predictions | Coinbase Outlook for 2022: On-chain KYC, DeFi Regulation on the Horizon

Coinbase's Chief Product Officer Surojit Chatterjee has put forward ten predictions for the development of Web3 and the cryptoeconomy in 2022. Here is the translation.

Original Article: "10 Predictions for Web3 and the Cryptoeconomy for 2022"

In 2021, it was proven to be a breakout year for cryptocurrencies, with the price of BTC rising nearly 70% from the beginning of the year, DeFi's Total Value Locked (TVL) reaching $150 billion, and NFTs emerging as a new asset class. Here are my predictions and perspectives for 2022:

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As we welcome the next wave of millions of users into the crypto space and Web3, Ethereum's scalability challenges may increase. With the emergence of ETH 2.0 and many layer 2 solutions, I am optimistic about ETH's scalability optimization.

The attractiveness of other Layer 1 networks like Solana and Avalanche indicates that we will see a multi-chain world in the future, where we will also see more new Layer 1 chains focused on specific applications such as gaming or social media.

With more and more L1 networks and L2 gaining a large number of users, the crypto industry will go to great lengths to optimize the speed and usability of L1 – L2 cross-chain bridges. We may see interesting developments in the usability of cross-chain bridges next year.

In 2021, protocols like ZkSync and Starknet began to receive attention. With L1 getting congested due to increased demand, ZK-rollup technology will attract investors' and users' attention. We will see new privacy-centric applications emerge, including privacy-preserving apps and game models that embed privacy at their core.

This may also lead to more regulatory scrutiny in the crypto space, as KYC/AML policies may pose a real challenge to privacy-centric networks.

Many DeFi protocols will embrace regulation and introduce separate KYC user transaction pools. Decentralized identities (DID) and on-chain KYC verification mechanisms will be key applications linking user real identities in DeFi wallets.

We will also see more acceptance of ENS-type addresses and the emergence of new cross-chain domain name solutions.

Institutions are showing more interest in participating in DeFi. Firstly, institutions are attracted by higher-than-average interest rates compared to traditional financial products. Additionally, providing financial services through DeFi can reduce costs, offering interesting opportunities for institutions.

However, institutions are still hesitant to engage in DeFi and want to ensure they only transact with counterparties who have completed KYC verification. Therefore, the development of regulated DeFi and on-chain KYC verification will boost institutional confidence in DeFi.

As DeFi grows, it becomes a target for hackers. According to data from Elliptic based in London, the total amount of DeFi exploit losses in 2021 exceeded $10 billion. To protect users from hack attacks, feasible insurance protocols will emerge in 2022 to ensure users' funds are protected from security vulnerabilities.

NFTs will continue to redefine how they are perceived. We will see the rise of "creator tokens" or "fan tokens."

NFTs will evolve into user digital identities and passports to the metaverse, where users will gather in various small community categories based on the NFTs they hold. The user-generated metaverse will become the future of social networking, gradually challenging ad-driven centralized social networks.

Many brands are realizing that NFTs are essential tools for brand marketing and building brand loyalty. Coca-Cola, Campbell’s, Dolce & Gabbana, and Charmin released NFT collectibles in 2021. Adidas recently launched a new metaverse project with Bored Ape Yacht Club.

We are likely to see more interesting, NFT-based brand marketing initiatives. NFTs and the metaverse will become the "new Instagram" for major brands. Just as many brands started entering the NFT space, like in the early days of Instagram, we will see more celebrities joining this trend to enhance their personal brands through NFTs.

We have seen Facebook attempting a reshaping through Web3. We are likely to see other major Web2 companies getting involved in Web3 and the metaverse in 2022. However, many of these companies may introduce centralized, closed-source versions of the metaverse.

We will see DAOs becoming more mature and mainstream. More people will join DAOs and lead to a redefinition of employment, including:

• Never receiving formal acceptance letters again.
• Tokens replacing fixed salaries, or both running in parallel.
• Working for multiple DAO projects simultaneously.

However, DAOs will also face many new challenges, including how to conduct mergers, manage salaries and benefits, and coordinate activities in increasingly expanding organizations. We will see a plethora of auxiliary tools emerge to assist DAOs in executing efficiently.

Many DAOs will try to interact with traditional Web2 enterprises, and regulatory agencies may focus on DAOs in an attempt to clarify their workings.

We thank our users and ecosystem for an incredible 2021. We look forward to laying the groundwork for Web3 in the coming year, Wagmi.