The Block Research’s Analysts: 2022 Predictions

Larry Cermak, VP of Research

Arbitrum, Optimism, Starknet, and zkSync all release their tokens in H1 2022, and they will outperform similarly to Layer-1s (L1s) in 2021. Token incentives will cause the Layer-2 (L2) ecosystems to amass a large TVL, and cross-L2 liquidity bridges will make the disadvantages over more centralized L1s more manageable. Optimistic rollups will be adopted much faster initially due to EVM compatibility. Still, eventually, composable ZK-rollups spearheaded by Starkware will be the winner due to better optimization, but adoption will be slow due to a new programming language. StarkNet adoption will eventually follow a similar path as Solana's - a slow start but explosive growth after that.

The ETH 2.0 merge will finally happen in 2022, but it will only be towards the end of the year, not in Q1 2022, as initially anticipated. DeFi 2.0 trend doesn't sustain, but new, more creative token economics models will continue to develop. Some DeFi 1.0 tokens will have a comeback after they revamp their token economics, similarly to YFI. Cardano will continue to be underwhelming in terms of DeFi applications built on top of it, and hype won't be able to sustain the price.

Ethereum won't flip Bitcoin, Solana won't flip Ethereum. There won't be a prolonged bear market across the board, but some tokens will drop over 90%. Crypto as a whole will continue to become less correlated overall. 

NFTs will have another strong year, but it won't be as profile picture (PFP)-heavy as in 2021. OpenSea will lose a lot of market share as alternatives address its issues and have a community-oriented approach along with revenue-sharing tokens.

The U.S. Securities and Exchange Commission (SEC) will approve a futures-based Ethereum ETF but will not approve a spot-based BTC (or ETH) ETF. The SEC will also put pressure on lenient listing practices for U.S.-based exchanges like Coinbase. 

There will be new universal standards for all USD-backed stablecoins, but they won't be banned altogether. Likewise, large U.S.-based exchanges won't ban withdrawals to unverified external wallets, but the Treasury Department will continue being aggressive.

Dubai and the Bahamas will become the hub for headquarters of global exchanges. 

Steven Zheng, Research Director, Content

After an amazing year in terms of price action and economic activity, I expect 2022 to be the plateau year for L1 blockchains as the market begins to price in the amount of innovation on a chain against the amount of commoditized copycat forks. 

L1 blockchains that survive the innovation repricing are the ones that have truly unique products that leverage the advantages of their native chains instead of just offering cheaper transaction fees. 

2022 will also see a surge in the financialization of NFTs, with NFT lending protocols taking off.

Lars Hoffmann, Research Director, Diligence

The overall market structure continues to mature, with centralized exchanges (CEXs) of developing countries having a big year. Option volumes continue to grow as more banks incorporate crypto offerings into structured products.

In terms of regulation, the European Union (EU) makes big leaps forward towards a rather unexpectedly liberal regulatory framework for crypto. However, stablecoins continue to get scrutinized most heavily out of all of DeFi. Expect Tether's respective market share to drop below 40%.

An increasing number of non-crypto companies launch tokens in an effort to better monetize their userbases, interact with and reward their userbases more directly.

Igor Igamberdiev, Research Director, Data

There will be a significant improvement in the UI/UX of crypto wallets because of the transition to a multi-chain world. There will not be only one winner among web wallets and there will be new ways to generate revenue based not only on swap fees.

The availability of on-chain data will only worsen due to the abundance of spam transactions in cheap L1s. It is unlikely that The Graph will achieve adoption and stable support for all announced networks in a decentralized way.

'Security through obscurity' will continue to be the main reason for the small number of exploits on non-EVM chains. However, it will be long until attackers come in and successfully attack projects on WASM and other VM chains due to insufficient security experts.

A more significant number of blockchain node clients will appear, which, on the one hand, will make it easier to handle the loads, and on the other, it will more often lead to consensus forks. Go and Rust implementations will continue to be the most popular.

MEV extraction on Proof of Stake (PoS) blockchains will cease to be non-trivial, as happened with Ethereum last year. Despite this, the number of competitors will significantly decrease since running the nodes for data extraction will be expensive.

The current P2E and Metaverse games implementation will not achieve meaningful success, but new approaches will allow for a breakthrough in this direction. Ponzi mechanics aimed exclusively at making money instead of fun in games will be a thing of the past.

Many narratives like liquidity mining or prediction markets will disappear, as happened with gambling and decentralized computations in 2018. A possible market drop will somewhat dampen developers' interest in overhyped topics and allow them to return to creating truly innovative products on blockchains.

Ethereum will switch to PoS, but this milestone will not significantly impact the ETH price. Withdrawing staked ETH, in turn, could lead to a drop in price due to the desire of some stakers who did not use liquid staking solutions like Lido to take over 5x profit.

Eden Au, Research Director, Content

Protocol-owned liquidity will become a norm for bootstrapping liquidity.

Curve's vote locking mechanism will spread throughout the landscape of DeFi governance to realign interests amongst protocol users and token holders.

Nascent derivatives like power perpetuals and everlasting options will start gaining momentum, possibly driven by token incentives as they get repackaged into structured products.

Geo-blocking will become a norm for centrally hosted DeFi frontends, whereas an increasing number of protocols will develop (or incentivize third parties to develop) alternative frontends with decentralized hosting solutions.

Polkadot and Cosmos will have their own "multi-chain season" with increasing usage of XCM format and Cosmos IBC, respectively.

Despite the rise of ZK-rollups, optimistic rollups will gain meaningful and sticky volume after support from major CEXs. Arbitrum or Optimism (or both) will launch a token decentralizing the sequencer.

StarkNet will dominate the ZK-rollup space in almost every metric by a significant margin.

CryptoPunks will outperform BAYC in floor market capitalization.

ETH will not flip BTC in market capitalization, but the gap will be narrowed.

Andrew Cahill, Research Director, Reports

Multi-chain Layer-1s (e.g., ATOM, DOT) outperform monolithic Layer-1s (e.g., SOL, ADA).  

Ethereum merges to PoS in Q3 2022.

At least one Ethereum Layer-2 token reaches the top-10 by market capitalization.

SEC does not approve a spot Bitcoin ETF. Grayscale Bitcoin Trust (GBTC) trades between a 25% discount and 10% premium.

George Calle, Research Director, Client Services

Traditional PE/VC firms became far more active in crypto in 2021 as private investment increased to $25 billion from just $3 billion in 2020. Most allocated via equity financing deals for infrastructure, exchange, and services businesses – the strategy being to get directional exposure to the sector while minimizing specific asset risk and operational complexity. In 2022, expect some of these firms to hire, partner, or acquire capabilities to directly custody crypto, execute on-chain yield opportunities and participate in governance.

As crypto native investment firms continue to raise nine to ten-figure funds, expect token launch, unlock, and major exchange listing dumps to intensify following the shift in dominance to institutional capital. Successful new protocols will adapt by being more creative about airdrop and access qualifications, enforcing stricter lockups from early investors, and generally being more diligent around decentralization and distribution to earn community support. 

Supercycle remains intact. Most attention through H1 2022 will be focused on Ethereum L2s, multi-chain L1s, and both existing DeFi protocols undergoing treasury restructurings along with net new protocols aiming to aggregate liquidity and votes. Infrastructure will be important, with bridging being an early example. 

In H2 2022, expect significant prominence of Ethereum and record volumes during the transition to ETH 2.0 as institutions with Environmental, Social, and Governance (ESG) mandates like banks and sovereign wealth funds become suddenly able to publicly change their tune on the blockchain platform with the most liquid applications and thus crypto generally.

Bitcoin will outperform equities but be a laggard within crypto portfolios. A spot ETF will not be approved, but the infrastructure surrounding the OG orange coin will continue to develop, paving the way for its broader adoption within portfolios over the next 3-5 years.

Greg Lim, Senior Research Analyst

I think we are going to see more institutional involvement from TradFi and non-crypto native firms. With U.S. inflation at all-time highs of 6.8%, it does not remain viable to keep large Level I and/or II securities on balance sheets that are generating negative yield. The first companies to implement DeFi and staking protocols will go down in history as adopters and champions of the future for how to properly optimize balance sheets. In 2021, we saw blue-chip household names like Visa buying NFTs and getting into digital assets. FinTech and payment services will also continue to shift towards digital asset adoption as on the retail side, digital assets lower the hurdle for access to lending, staking, payments, and traditional banking for the historically marginalized. While many institutions and TradFi participants remain skeptical, they can no longer ignore crypto as a legitimate asset class. In my opinion, many of them are neither bullish nor bearish, but simply want to adopt so as to "not be left behind" and for the inherent FX and inflation hedges. The largest hurdle to their entrance is driven by internal regulation, compliance and the necessary infrastructure they need to feel comfortable to either custody or hold on their own balance sheet.

Abraham Eid, Research Analyst

While interest in other L1 blockchains continues, we will see a strong narrative being formed around Ethereum's ability to scale with further developed optimistic rollups as well as the proliferation of ZK-rollups (predominantly Starkware & zkSync). 

Ethereum will also see increased institutional inflows compared to Bitcoin, primarily led by the shifting ESG narrative with the transition to PoS.

NFTs continually realize a utility scope outside of digital art, seeing a number of use cases that converge on traditional capital market instruments such as collateralized lending. In addition, blockchain gaming begins to gain more feature parity with traditional gaming, aided by the off-loading of in-game transactions to generalizable ZK-rollup solutions.

Afif Bandak, Research Analyst

The Merge is successful and Ethereum officially becomes a PoS chain. Modular blockchain plays and data availability innovations get more attention.