2022 Crypto Theses
By: Kirill Naumov
Tags: Metaverse, Venture Capital, Ethereum, Crypto, Bitcoin

A view on the main theses and trends in crypto for 2022

It’s that time of the year again. This time, however, I decided to put my views on paper to summarize the mess of information that is flowing through my head. I’ll try to keep it brief for the sake of your time.

2021 was an extraordinary year for anyone even remotely involved with cryptocurrency. People had the time of their lives watching their wealth skyrocket (unless you got liquidated on May 19th). Bitcoin reached an ATH of $69,000, the Ethereum killers and Layer twos are now mainstream, NFTs were sold at Sotheby’s for millions, and Elon Musk’s meme coins had the entire world watching crypto in awe.

In 2021, crypto has captured the public’s attention like never before. I can’t promise the same for next year, but here are some theses about the direction of the cryptocurrency ecosystem in 2022.

Ethereum Scaling: Ethereum fees are ridiculous and they are here to stay for the foreseeable future. Layer two (L2) rollups help reduce Ethereum’s network congestion by executing transactions off-chain and only writing the most crucial data to the chain, thus leveraging the security of Ethereum. Sidechains remove transactions from Ethereum entirely and use their own set of validators to confirm and write transactions. I am fairly confident that ZK rollups will win the Layer 2 scalability race in the long term once they achieve smart contract functionality. For the time being, however, Optimistic rollups will be gaining users and TVL. Can’t wait for Ethereum 2.0, whenever that will finally come.

Ethereum Killers: If anyone was thankful for Ethereum’s congestion, it was the “Ethereum killers”, which had a killer year (pun intended). Other Layer one (L1) blockchains (i.e., Solana, Avalanche, Cardano, Polkadot, and NEAR to name a few) compete with Ethereum by theorizing different implementations of the blockchain for faster transaction speed, lower transaction costs, and higher throughput, but sometimes with the trade off of increased centralization. Going into 2022, I see the trend of Ethereum losing market share in TVL continuing and the ecosystem growing into a multichain future where the user experience is completely abstracted from the network layer. The current narrative of “Ethereum killers” is far from new and largely stems from venture capitalists with huge portfolios in the chains that just so happen to be at the forefront of the narrative. I’m not a big fan of being dumped on by VCs so will abstain from any positive predictions regarding Ethereum killers. If the investment environment cools off in 2022, altcoins will take the biggest hits, unless their progress outpaces the selloff. For most, it won’t.

Composability: The key difference between the crypto economy and traditional finance is composability, which allows anyone to take existing projects and build on top of them, unlocking new use cases. The multichain future and its DeFi ecosystem demand composability between blockchains and protocols to improve the user experience and capital efficiency. In 2022, we will see the emergence and adoption of technology that connects the networks and dApps that were most successful in 2021. I am talking about bridging solutions, cross-chain DeFi applications, utilization of LP and derivative position tokens as collateral in protocols, and numerous cross-dApp collaborations that create complex DeFi instruments. During a bull run, everyone wants a quick cash grab. Real progress takes place when retail interest cools off.

Metaverse: No, not Meta. I mean the entire concept. The narrative is so overhyped now that everyone and their mother is building something for the metaverse. Poor VCs have to go through hundreds of VR game and NFT project decks to find anything they could get behind. Ultimately, I think that in 2022 we’ll see real implementations of blockchain in virtual reality and screen-based 3D environments, including NFT collectibles, avatars, characters, and property. In my opinion, once big boys like Meta take over the narrative, projects like Decentraland won’t be relevant at all. In terms of valuations, we’ll see a slow and painful fall of projects that rode the crypto metaverse trend in 2021, but also rapid rises in new (and better) projects. Hence, investing in the Metaverse Index ($MVI) won’t cut it anymore — inventors will need to carefully pick newer projects for their portfolios. At the end of the day though, I don’t think that many of my business meetings will shift their medium of communication to a VR meeting room, but am nevertheless very excited for finally being able to show off my NFT bags to non-crypto people.

NFTs: Speaking of NFTs, 2021 was an insane year for the NFT market. We saw the meteoric rise of profile picture (PFP) and generative art NFTs. Even major corporations got involved (i.e., Nike, Adidas, Visa, Coca Cola, Sony). Currently, major CeFi players are building NFT marketplaces, which will allow millions of users to access art on the blockchain. My bet is on credible projects in the $500–3000 range getting featured and seeing huge rallies when these platforms debut. That being said, art is not the sole purpose of NFTs, as proven by Uniswap V3’s EC-721 liquidity positions. Going into 2022, I see the rise of financial NFTs, which represent information that cannot be stored in ERC-20 tokens. Specifically, I see more projects adopting ERC-721 as the standard for accounting and other projects starting to accept these as collateral. Ultimately, the push towards composability will not be limited to ERC-20 tokens.

DAOs: 2022 will be the year of the DAO. The core idea of cryptocurrency is decentralization and if an established project in crypto is not decentralized by the end of 2022 I’m not touching it with a 6-foot pole. I think that in 2022 we’ll see startups raising funds from DAOs instead of VCs, DAOs streaming token call options instead of bulk-selling tokens (airdrip), DAOs setting up risk-management structures (more on this later), and so much DAO governance bribing that there will be projects with a sole mission of combatting this issue.

Risk-Management: In 2021, we saw the largest of protocols start building out systems for risk management and risk allocation (e.g., backstop liquidity, risk management governance settings). In 2022, these improvements will become the norm for new protocols going into mainnet. Protocols will have to design mechanisms for reimbursing users in case of security breaches before going into production rather than after said hack takes place. Risk has really not been addressed enough yet.

Memes, Ponzis, and FOMO: Finally something fun to write about. The community, both crypto-native and retail investors, loves skyrocketing coins and ponzis. That won’t change ever, but it’s likely that it will be less prevalent in 2022. The technology of FOMO-ing doesn’t change, only the target changes. Best thing we can do is spend hours on crypto twitter and identify memes early.

I know that there’s many trends and upcoming technologies which I’ve omitted in this summary, so feel free to add your two cents in the comments. I appreciate you taking the time to read this writeup and hope that you will enjoy the time off with family and friends.

Happy New Year!