In the process of continuous development and popularization of core technologies such as artificial intelligence, distributed data, and edge computing, Web3 has shown infinite development potential with its amazing reshaping of the traditional Internet.
In the original conception, digital currency is a pass for users to interact freely in the Web3 world. But as the cryptocurrency market slowly recovers from a long period of turmoil, its risks have raised concerns about its upcoming role in the Web 3 space. At the same time, when central banks around the world begin to develop and launch their own digital currencies, cryptocurrencies may usher in new developments in the regulatory integration with legal digital currencies.
The doom of cryptocurrencies is not over
Affected by the Fed’s interest rate hike, the currency circle in 2022 will be precarious.
In the past year, Bitcoin has plummeted by nearly 70%, and the top 100 cryptocurrencies have collapsed across the board, with countless liquidations, and the entire industry once fell into a freezing point. According to data released by Glassnode, global bitcoin investors will lose more than $200 billion in total in 2022.
LUNA, Terra and other tens of billions of projects or platforms Lehman crisis-style chain reaction, resulting in 6 CeFi platforms and institutions including encrypted hedge fund 3AC, broker Voyager Digital, and encrypted lending giant Celsius; 8 companies including AEX and FTX Centralized exchanges; 5 mining companies including Compute North went bankrupt one after another.
After the collapse of FTX, the Solana public chain ecology, which is highly bound to its founder SBF, also began to collapse. DeFi projects experienced liquidity crises one after another, bad debts continued to accumulate, NFT triggered a wave of sell-offs, and the total locked value of many projects on the chain returned to zero overnight. As a result, the number of core developers and sub-ecosystem developers has been greatly reduced, and the activity on the chain has been hit hard.
At the same time, the GameFi project StepN, which originated in Solana in early 2022, has also plummeted in popularity due to domestic regulation, and users continue to lose. Previously, Axie Infinity, known as the king of chain games, suffered huge losses due to hacker attacks. The secondary disasters caused by the attacks led to a comprehensive decline in Axie’s native NFT prices, transaction volume, game revenue, and number of users. Axie has since declined.
From market conditions to relevant institutions, various derivative projects to the underlying ecology, the entire currency circle will be shrouded in haze for a long time in 2022.And this year’s cryptocurrency market is not optimistic. Although the optimism brought about by the Federal Reserve’s determination to fight inflation has initially recovered the price of Bitcoin, the once unforgettable plunge has left Wall Street with a lukewarm response to this. More than 70% of traders said that they have no plans to trade cryptocurrencies in 2023.
This concern is not without reason. Just this month, Genesis Global Capital, a well-known cryptocurrency lender in the United States, has filed for bankruptcy protection, which seems to be the aftershock of the currency catastrophe in 2022. According to reports, the institution’s loan amount exceeded 100 billion U.S. dollars last year.
Web3 application acceleration reshuffle
Since the development of Web3, its ecology has begun to take shape. From bottom to top, it is mainly divided into four layers: blockchain network layer, middleware layer, application layer, and access layer. At present, the Web3 projects that have been launched are mainly divided into two categories: applications and protocols.
In the early days of the Internet, the underlying protocols of TCP/IP and HTTP could not capture value, while protocol-based applications such as Google, Facebook, and Amazon captured most of the value of the Internet era. In the blockchain era, the value will be more concentrated in the shared protocol layer, and only a small part of the value will be distributed in the application layer.This is the famous “fat protocol” theory. It should be noted that the value in this theory includes enhancing system security, use value, etc., and is not directly equivalent to return on investment.
With the decline in the market value of various cryptocurrencies, the enthusiasm in the market has gradually subsided, and it may be possible to look at and think about the future development of Web3 more calmly.Various reasons indicate that in the future Web3 industry, protocol projects seem to have more room for development than application projects.
Compared with CeFi applications, the security factor of the Web3 protocol is higher. Data show that due to the turmoil in the cryptocurrency market, tens of billions of dollars will be blocked in the bankruptcy process of centralized institutions in 2022. In comparison, the Web3 protocol was hacked to $3.77 billion last year.
In terms of supervision, Web3 evangelist a16z called for the continuation of the Internet supervision idea for Web3 projects, that is, the dichotomy between protocols and applications: setting relevant norms for applications, and removing applications with problems or risks, rather than directly banning them. The operation of its underlying protocol.
The operating style of different Web3 projects also leads to this ending. Most of the traffic of application Web3 projects comes from the currency circle. Even Damus, which does not issue coins, is attracting downloads by rewarding users with bitcoins.This is also doomed, when the currency circle enters a bear market, the traffic of such applications will also dissipate.But no matter what the follow-up reaction of Damus is, it cannot erase the value and potential of its underlying protocol Nostr. As long as Nostr is still there, other more valuable services can emerge from it. The protocols in the current most popular Web3 projects all play a role of infrastructure or middleware in the process of eliminating the chronic problems of traditional applications.
Whether it is GameFi or SocialFi, the model of X to Earn is certainly eye-catching, but Web3 projects purely based on cryptocurrencies with the nature of Ponzi schemes cannot go far in the long run. This also means that without a truly sustainable method of operation, the application of cryptocurrencies in Web3 will wander in a gray area for a long time.
Central bank digital currency spring has arrived
In the gloomy market environment, the full blooming of the central bank’s digital currency around the world has brought a glimmer of life to the continued development of cryptocurrencies. This type of sovereign digital currency represents the direction of currency development in the future digital age.
According to the statistics of the Bank for International Settlements, about 90% of central banks around the world have begun to study central bank digital currencies. The Atlantic Council, a think tank in Washington, said that among the major G20 economies, 16 countries are developing or piloting digital currencies, and the European Central Bank is exploring the design of a digital euro and preparing to launch a pilot project.
At present, central banks around the world are developing or exploring digital currencies. Japan, Australia and other countries have announced related research and development plans; the United Kingdom is currently working on a roadmap for a “digital pound”; China’s central bank digital currency research and development and pilots are leading the world , the digital renminbi has formed a large number of online and offline application models that can be replicated and promoted in the fields of wholesale and retail, catering, cultural tourism, education, medical care, and public services; as the dominant global reserve currency, the attempt of the “digital dollar” a work in progress…
Central bank digital currency and cryptocurrency are of the same origin, and both belong to a type of digital currency. The former has the same status and value as legal currency.
It is undeniable that the background of the central bank’s digital currency is that legal currency is increasingly facing competition from cryptocurrencies. The purpose of issuance is to maintain the country’s monetary sovereignty, but the two are not completely hostile. From the perspective of maintaining stability, the existence of the central bank’s digital currency is conducive to dispelling the run and financial panic caused by the above-mentioned stablecoins being attacked or crashed.
The scale of the central bank’s digital currency is also conducive to the regulation and inclusion of cryptocurrencies in the market. Among the major countries in the world, only the European Union has initiated comprehensive regulation of cryptocurrencies, bringing market participants including digital currency issuers and trading platforms into the regulatory framework.Other countries in the world have not yet formed a systematic regulatory policy for cryptocurrencies. When the volume of central bank digital currency gradually expands, the regulation of central bank digital currency will provide a reference template for the regulation of cryptocurrencies.
When an effective regulatory system is established, the development of cryptocurrencies is expected to receive more support and encouragement from the government. Central bank digital currency and decentralized cryptocurrency coexist and compete with each other, which will constitute the main structure of the world’s cryptocurrency in the future.
