The crypto industry has garnered considerable attention throughout 2021. Accordingly, these developments pave the way for a brighter future in 2022.

CoinCu recently released a market report that highlights potential trends and predictions that could materialize in the coming months.

The infrastructure is still a problem

Although competition between infrastructure providers will increase significantly in 2021, important bottlenecks still need to be addressed. For example, Ethereum is the leading blockchain for dapp (decentralized application) development but suffers from severe network congestion and high transaction fees. Some Layer 2 solutions have somewhat solved this problem, but there are still many challenges for them to achieve sustained traction. Ditto for most “Ethereum competitors” as they are all still in their infancy. It is therefore imperative to address these restrictions through 2022 and beyond.

Many expect the launch of Ethereum 2.0 to help ease some of the concerns. Accordingly, implementing sharding solves network congestion, transaction fees, and low throughput. Unfortunately, this rollout will be phased and likely won’t be complete by 2022. Other networks like Binance Smart Chain, Solana and Avalanche will continue to attract users and developers for free problem.

However, it is important to note that Layer 2 solutions will follow the same path as Ethereum. It is only a matter of time before gas prices start to rise rapidly at these levels, putting them at a disadvantage in the process of becoming Ethereum’s transaction fee avoidance solution. Unless developers come up with a creative solution, it will also affect cross-chain bridges that use Layer 2 networks.

NFT and Metaverse in 2022

The role of non-fungible tokens in the Metaverse sector will become more evident in 2022. The current NFT market is segmented into Artworks, Collectibles, and Games. But there will soon be many new initiatives and vehicles that will launch non-fungible token standards. In addition, NFT will support various Metaverse activities including avatars, virtual spaces, economic activities, etc. Essentially, Metaverse can help perfect development scenarios applicable to the NFT, while the non-fungible tokens will push the Metaverse even further.

Speaking of Metaverse, currently this section is mostly about games. However, it has great potential to blur the line between real and virtual activities. Projects that create a private, isolated metaverse are the necessary first step toward that goal. Then, connecting these virtual worlds will be a major hurdle to overcome, eventually culminating in the creation of a multi-metaverse space.

Two other metaverse trends to expect are the role of DeFi and cross-chain bridging. Decentralized funding has proven to be efficient and stable, serving as a solid foundation for Metaverse to operate economically. Additionally, DeFi and NFT make a solid combination and apply to many metaverse use cases. Metaverse is the equivalent of empowering users. Offering a wider range of assets, products and services will pave the way to broader financial inclusion.

Developers can make big strides on the cross-chain bridge front for Metaverse. Current initiatives focus on a blockchain, which creates the problem of “eco-islands”. Additionally, most public chains are trying to grow on the infrastructure front, reducing the appeal of Metaverse projects using their technology. Cross-chain bridges can address these challenges and make metaverse, NFT, and decentralized finance more powerful.

Regulatory trends

As in previous years, the regulation of the crypto industry remains a pressing issue.

Most countries around the world are still undecided on this. The lack of a clear framework can stifle innovation and should be avoided at all costs. Also, the process of regulating the industry has become even more difficult with innovative concepts like DeFi, NFT, Metaverse, etc.

Regulators and policymakers need to focus on creating a regulatory framework for Metaverse. This technology has attracted general interest from enthusiasts and many companies. Clear guidance on what can and cannot be done in the virtual world will help legitimize such efforts. KuCoin Labs analysts expect things to improve significantly on this front. In addition, the report suggests that policymakers should issue some guidelines soon. For example, it can be applied to decentralized identity, an identity method of using Metaverse in various activities.

Regulations DeFi

Decentralized finance will certainly attract the interest of regulators as well. However, protecting investors without compromising innovation and decentralization is a major obstacle that needs to be addressed. Furthermore, the current regulatory guidelines cannot be applied to the DeFi industry. A new regulatory model is therefore required, depending on how the SEC, BIS or FATF approach the industry.

Additionally, the way DeFi protocols are governed presents an unprecedented regulatory hurdle. Holders holding large amounts of tokens gain more voting power, showing a degree of centralization. To date, achieving decentralized governance has proven virtually impossible, but Decentralized Autonomous Organizations (DAOs) can help. KuCoin Labs expects DAOs to be a major trend in the DeFi sector for 2022, although new mechanisms may emerge.

A final issue to consider is the convergence of decentralized finance with KYC (identity verification) and user privacy requirements. A certain level of regulatory compliance must be in place. Permission-based DeFi solutions like Aave Arc are an attractive approach to this problem. However, the KuCoin team expects both institutional and non-organizational DeFi users to be compliant sooner or later. On-chain KYC could be an option, although developers will come up with many more ideas this year.

Security Outlook Blockchain

2021 is again littered with numerous blockchain security incidents, from DeFi carpet-pulling to exchange hacks to smart contract mining. It is therefore important to change a few things in 2022 and the years to come. Unfortunately, that’s easier said than done, especially when blockchain transactions are irreversible. Furthermore, there is no real “protection” for affected users, although insurance protocols can offer a solution.

Code audits must become the norm in the broader blockchain industry by 2022. Many auditing companies have been established including CertiK, SlowMist, etc. Audits can help to detect errors or problems before smart contracts are deployed in a live environment. If accounting firms are better funded, they will help eliminate more risks in the blockchain industry. However, it is up to the developers and programmers to edit the code and not everyone does it.

Coverage protocols can provide an additional layer of protection and security. There are several such protocols in DeFi today and they mostly focus on mutual fund pools or financial derivatives. Unfortunately, their growth is hampered by high fees, KYC requirements, no cross-chain support, and inefficient use of capital. However, according to the report, attracting institutional players will force better and more efficient insurance protocols.

A final aspect to consider is transaction privacy. Public blockchains allow the use of aliases but offer no privacy or anonymity. Even the private computing protocols – Manta, Oasis, zkSync… sacrifice decentralization to increase computing power. The need for privacy in transactions will increase as blockchain and cryptocurrencies evolve, necessitating more and more initiatives for better private computing.

2022 may be challenging but productive

The year 2022 is expected to bring many much-needed changes for the entire industry. The ongoing developments to bring decentralized technology into the mainstream is one of the avenues to look forward to. But unfortunately, this innovation requires some regulation to win over mainstream followers. Whether regulators will ultimately make the hard decisions remains unclear, but they can’t put off those decisions forever.

On an industrial level, it is still important to solve existing infrastructure bottlenecks. Innovative ideas like DeFi, NFT and Metaverse cannot become reality through existing infrastructure tracks. Inefficiencies and high costs must be eliminated without jeopardizing decentralization.

In summary, we can look forward to 2022, but there is still much more to do.

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