Major Trend Predictions in the Blockchain Field for 2022

2021 was an important year for the Blockchain industry. The market value of cryptocurrencies surpassed $3 trillion, NFT transaction volume exceeded $23 billion, the United States launched its first Bitcoin futures ETF, El Salvador designated Bitcoin as legal tender, Ethereum changed its fee mechanism, the total value locked in DeFi surpassed $200 billion, increasing sevenfold year-on-year, multiple new public chains were born, and the number of Blockchain wallet users rose to 70 million.

Recently, cryptocurrencies have been used as an alternative for cross-border remittances. After the outbreak of the war in Ukraine, although the crypto market initially suffered a blow, it has now recovered to previous levels. Since the start of the war, the Ukrainian army has continued to receive cryptocurrency donations. During the Canadian truck drivers' protests, protesters received cryptocurrency donations after traditional crowdfunding channels were blocked. In the future, people may use cryptocurrencies to donate to charitable causes, which traditional financial infrastructure cannot achieve.

The significant increase in cryptocurrency adoption benefits the development of multiple areas within the Blockchain ecosystem, including improvements in Blockchain infrastructure, the development of Blockchain applications, the adoption of more mainstream and developer-friendly programming languages, and the increase in regulatory and institutional adoption. This article analyzes the main trends in Blockchain for 2022.

Improvement of Blockchain Infrastructure

In 2022, with the launch of new Layer 1 public chains, as well as improvements in consensus mechanisms, transaction costs, transaction speeds, and token economics, it is expected that blockchain infrastructure will further develop. At the same time, Layer 2 scaling solutions are also expected to make progress, which will enhance the scalability of existing Layer 1 solutions, with a greater focus on the development of cross-chain bridges, making cross-chain transfers more convenient for users, thus achieving a multi-chain ecosystem. The focus on scalability, which refers to the ability to process more transactions at a faster speed, will determine the competitive landscape between Layer 1 and Layer 2 solutions.

1. The Rise of Multi-Chain Interoperability Solutions

In 2021, multiple Layer 1 public chains and Layer 2 scaling solutions emerged. The demand for cross-chain liquidity has become a significant bottleneck for the large-scale adoption of Blockchain, but it also presents important development opportunities.

From 2017 to 2021, several Layer 1 and Layer 2 solutions aimed at increasing transaction speed and reducing costs emerged, among which the most well-known include Polygon, Avalanche, Optimism, Terra, and Solana. These blockchains leverage smart contract capabilities to attract developers to build various open-source financial applications and games.

To leverage the unique advantages of different blockchains, such as transaction costs and wait times, and to maximize investment returns, cross-chain transfer capabilities have become crucial.

Currently, there is a trend where decentralized exchange (DEX) aggregators, such as Paraswap, help users obtain the best prices through cross-DEX swaps, starting to integrate with cross-chain bridges, which not only allow users to swap tokens on the same Blockchain but also enable users to swap tokens across chains. For applications that are not deployed on multiple chains, there are some cross-chain solutions to address these issues, such as Symbiosis Finance, Multichain, or Atlasdex. Multichain is a cross-chain token transfer protocol that has attracted over $7.7 billion in total locked value across several chains, facilitating cross-chain transfers and local swaps.

Some of the most well-known DeFi applications, such as Aave, Curve, and Uniswap, were initially deployed only on Ethereum, but are now deployed on multiple Blockchains. This means that users do not have to move liquidity between different Blockchains to interact with specific applications.

2. Improvement of DEX user experience and capital allocation efficiency

This year, the user experience of the decentralized exchange (DEX) will improve in terms of usability and capital efficiency.

The underlying algorithm of DEX will become more complex. Uniswap follows a simple pricing algorithm x * y = k( constant product formula ). Here, x and y are the respective amounts of the two tokens that make up the liquidity pool. While this is easy to understand, it has a relatively large price impact on the trading of similar assets, leading to losses.

Many new DEXs have improved algorithms/curves, making them more complex but also more efficient. Some notable examples include:

• Curve: Uses a special algorithm to swap stablecoins, reducing trading costs by lowering slippage.
• Balancer: Allows multiple tokens to form a liquidity pool and uses a more complex algorithm to determine prices.
• Bancor: Uses an algorithm called "virtual balance" to adjust price impact.

These algorithms seek to reduce the price impact on transactions, meaning that when a user exchanges one token for another, the fluctuation in the value of Token X relative to Token Y is smaller. These new conversion algorithms allow the price of small transactions to remain at a more stable level ( around 1 ), ensuring minimal price impact while allowing for the creation of smaller liquidity pools.

Many DEXs have adopted an order book model. Uniswap v3 has transformed the classic automated market maker ( AMM ) model into a model closer to an order book, allowing liquidity providers to limit their liquidity within a specific price range. This is known as concentrated liquidity.

dYdX is a new type of DEX that adopts an order book model. The total locked value of dYdX ( TVL ) is rapidly increasing (, reaching 1.1 billion USD in November 2021 ), and the trading volume is nearing Uniswap's level (. Uniswap's daily trading volume is about 1.3 billion USD, while dYdX's daily trading volume is about 950 million USD ). However, Uniswap's revenue is still far higher than dYdX, with a peak intraday revenue of 17.7 million USD, while dYdX's peak intraday revenue is only 6.8 million USD. Sushiswap plans to launch a similar product in the future, and more DEXs are likely to follow suit.

To improve user experience, the DEX sector has also made several other improvements, such as single-sided liquidity deployment, impermanent loss insurance, batch processing and net trading, limit orders, leveraged trading, and the adoption of Layer 2 solutions.

3. The adoption of DeFi on Layer 2 increases

As of December 31, 2021, the locked assets of various decentralized applications ( dApp ) have exceeded $241 billion. Lending protocols such as MakerDAO, Aave, Curve, and Anchor Protocol are leading, accounting for about 25% of the total locked value ( TVL ). As of December 31, 2021, decentralized exchanges like Uniswap, PancakeSwap, spookswap, and Serum have also generated $13 billion in TVL.

In addition to the rapid growth of TVL in Layer 1 public chains, benefiting from the high yields of liquidity mining, the TVL of Layer 2 solutions has also significantly increased since the first half of 2021, with Polygon being a standout, as its TVL rapidly rose from 100 million dollars to a peak of 8 billion dollars. Arbitrum, Optimism, and more Layer 2 solutions were launched in the second half of 2021, gaining considerable attention from DeFi participants and the developer community.

As more and more market participants enter the world of digital assets and engage in the development of new applications, the DeFi space is rapidly becoming crowded, leading to increased transaction costs and decreased transaction speeds. As the number of participants in the Blockchain continues to grow, these issues will continue to worsen, and the major Layer 1 public chains will quickly become saturated. Consequently, the gas fees for most Layer 1 public chains will rise.

The high volatility and delays of gas fees will lead to transaction slippage, which will also become an eternal problem for Ethereum, causing more and more people to transfer large amounts of assets to different layers.

The emergence of Layer 2 solutions and sidechains not only improves transaction speed but also saves gas fees, leading to a stronger development of the DeFi sector. By 2022, it is expected that more DeFi applications will adopt Layer 2 solutions. The increase in TVL of Layer 2 solutions ( such as Arbitrum, Optimism, and Boba ) strongly proves that the community has begun to accept rollups.

With the improvement of transaction speed, reduction of fees, and innovations like Optimism V2, the process of deploying Layer 1 smart contracts to Layer 2 will be simplified. Therefore, it can be fully believed that in the near future, all major tokens will launch Layer 2 versions, and bridges will ensure that they can effectively move between different layers.

In addition to the main development of blockchain infrastructure, multiple blockchain applications also showed tremendous prosperity in 2021 and will continue to grow in 2022. The following will elaborate on these applications.

4. "NFT-Fi" will define 2022

The NFT trading volume across multiple platforms has exceeded $23 billion, with OpenSea holding a leading position. In the third quarter of 2021, NFT trading volume surpassed $10 billion, accounting for nearly half of the total NFT trading volume in 2021.

Lending/collateral NFT technology will dominate this field and compete with the token exchange market. In 2021, NFTs entered the public eye and had a significant impact on the art world, gaining mainstream recognition. By 2022, NFTs may continue this trend. Companies like Swap.Kiwi allow for direct exchange of NFTs with other parties in custodial accounts. NFTs can not only tokenize assets but also tokenize positions. For example, large institutions can create tokens for their existing positions in liquidity pools, allowing for swaps without having to close positions first, and then trade these assets. In addition, companies like Taker Protocol are allowing users to borrow money using NFTs as collateral, enabling NFT holders to gain liquidity.

In 2021, 75% of NFT transactions were conducted on Ethereum. By 2022, NFT transactions may shift to other Layer 1 and Layer 2 chains, including Ronin, Flow, Immutable, and Solana. Multi-chain solutions that allow for cross-chain transfer of NFTs will redefine the space. Since the launch of Solana and its NFT marketplace in the second half of 2021, the total NFT transaction volume on Solana has exceeded $1.3 billion, with SolanArt leading the way. Meanwhile, Polygon has completed over $480 million in NFT transactions, with $413 million coming from OpenSea, largely thanks to users being able to directly publish NFTs on Polygon through the OpenSea platform.

The application of NFTs in games will be another focus. The trading of in-game items will give rise to various business models, such as on-chain analysis emphasizing item performance, scarcity, and utility.

Some examples of NFTs applied in DeFi include:

• The liquidity provider positions in Uniswap V3 are represented by NFTs, as they are non-fungible.
• The NFT platform Ubisoft Quartz allows people to purchase scarce digital products using cryptocurrency.
• The University of California, Berkeley has auctioned two Nobel Prize invention patents as NFTs: CRISPR-Cas9 gene editing and cancer immunotherapy.
• NFT as a ticket to participate in exclusive events
• Artists sell music streaming rights to fans and allow fans to share streaming rights.

5. Strengthen focus on security

In 2021, a total of $14 billion in cryptocurrency was stolen, once again setting a historical high. DeFi platforms were collectively robbed of $2.2 billion. This figure is concerning and may deter institutions from participating in on-chain protocols.

The centralized markets Crypto.com and the Wormhole protocol have become the latest targets of hackers. According to Crypto.com, on January 17, 2022, approximately $30 million worth of Bitcoin and Ethereum was stolen, and about 500 user accounts were attacked. The Wormhole protocol allows users to transfer assets between the Ethereum and Solana Blockchains, and the protocol was hacked on February 2, 2022, resulting in a loss of about $320 million. These hacking incidents indicate that digital asset platforms have a lot of work to do before being more widely adopted.

Due to the open-source nature of crypto projects, white hat hackers will play an important role in protecting the ecosystem. At ETHDenver