Original title: 5 Crypto Sectors Flashing Bullish Signs
By Ben Giove
Compiled by: TechFlow
2023 has started off with some drama. Banking crises, a crackdown on centralized exchanges, and seemingly endless regulatory scares — every day is hit with a new piece of bad news.
However, the cryptocurrency market has shrugged off these concerns. Bitcoin and Ethereum have surged 69.1% and 57.8%, respectively, in the first few months of the year, outperforming all other major asset classes around the world. In addition, multiple areas within cryptocurrencies are still showing strong signs of growth.
Historically, sustained cryptocurrency bull markets have been driven not just by the appreciation of Bitcoin and Ethereum, but also by applications, such as the rise of smart contracts and ICOs in 2016-2017, and use cases such as DeFi/NFTs in 2020-2021 that triggered block space demand.
Which verticals are flashing bullish signals today and showing strong signs of entering the mainstream market? Let’s dig deeper:
Liquidity Staking
Liquid Staking Derivatives (LSD) have been very popular recently as we are approaching Shanghai, the much-anticipated Ethereum upgrade that is set to launch on April 12 and enable withdrawals of ETH stakes. Although Shanghai has not yet been implemented, LSD deposits have surged 21.3% so far this year, from 4.9 million to 6 million.
In the short term, the impact of the Shanghai upgrade on ETH prices is unclear. However, what is more certain is that by eliminating technical implementation risks, the Shanghai upgrade is likely to trigger a "staking super cycle", which means that in the next few years, the ETH staking rate will rise from the current 15% to a level close to the PoS network average of about 60%.
Anticipation of this staking super cycle has led to a surge in the governance tokens of LSD issuers such as Lido (LDO), Rocket Pool (RPL), StakeWise (SWISE), Frax (FXS), and Stader (SD) as the market expects them to capture these inflows.
Additionally, assets that provide staking infrastructure have also benefited from the growth of LSD, such as SSV Network, a distributed verification technology (DVT) protocol, and RedactedCartel (BTRFLY), a liquidity bribery market operator that is rumored to be entering the LSD space.
As the number of deposits increases, LSD should see a significant increase in the amount of its revenue, as an increase in the price of ETH will result in an increase in the value of its revenue measured in ETH.
NFT-Fi
NFT-Fi (DeFi for NFTs) is another area that will grow significantly in 2023 and is already starting to shake up the competitive dynamics in the space.
The NFT market landscape has changed dramatically in 2023 with the rise of Blur. With its innovative incentive program and token issuance, Blur has surpassed OpenSea to become the leading market and integrator in the field. Although some people have questions about its sustainability, Blur has injected considerable liquidity into the NFT ecosystem, and popular collectibles like BAYC have a total bid value of more than $61.9 million.
Other marketplaces, such as AMMs such as SudoSwap and Caviar, also offer innovative solutions for deep asset class liquidity, although they have yet to have a significant impact in the market.
Lending is another sub-sector of NFT-Fi that has experienced significant growth.
Loan originations surged from $95.4 million to $436.5 million in the first quarter of 2023 (up 357.5% quarter-over-quarter), largely due to the growth of platforms like NFTfi, Arcade, and BendDAO, which provide NFT traders with ways to gain liquidity or borrow high leverage.
While NFT prices have only risen slightly in ETH terms earlier this year—Nansen’s Blue Chip 10 Index is up just 8.5%—this NFT-Fi-driven increase in liquidity and leverage should pay off in the long term as it leads to a maturing asset class market structure. NFT-Fi should continue to grow as interest in alternative use cases like JPEGs and gaming increases.
Perpetual DEX
Perpetual DEXs, which allow users to trade perpetual futures contracts, which are futures contracts with no expiration date, are seen by many as the big winners from the collapse of FTX, with many hoping that trading activity in crypto’s most popular type of derivatives will move on-chain.
While centralized exchanges still dominate, perpetual contract DEXs have seen significant growth as the market has rebounded. According to data from Token Terminal, only perpetual contract DEX trading volume increased by 77.3% year-on-year in the first quarter of 2023, from $926 billion to $1.643 trillion, compared with the fourth quarter of 2022.
This growth has led to many outstanding perpetual contract protocol governance tokens outperforming ETH, such as DEXs such as dYdX (DYDX), GMX (GMX), Gains Network (GNS), and Kwenta (KWENTA).
If prices continue to stabilize and liquidity returns to the market, these DEXs look set to continue growing in the coming months. In addition, GMX, GNS, and KWENTA in particular should benefit from increased Layer 2 adoption and the popularity of ARB and OP incentives. If used correctly, these tokens should be able to deepen liquidity and stimulate trading activity on these platforms.
game
Gaming is one of the use cases in cryptocurrency with the greatest potential to attract new users and capital.
While it hasn’t received the same attention as other verticals on this list, the sector has shown strong potential so far in 2023, with gaming tokens like MAGIC, IMX, RON, and GALA outperforming ETH so far this year.
There have been many positive catalysts within the gaming industry that may have contributed to this performance, such as the Arbitrum token launch in the case of Treasure, Immutable’s announcement of zkEVM, the launch of RON staking, etc.
Other events, such as the Game Developers Conference (GDC) and Epic Games’ announcement of support for 20 games with crypto elements, may also have contributed to the growing enthusiasm for the industry.
With highly anticipated titles like card game Parallel, auto-battle RPG Illuvium, first-person shooters Deaddrop and Shrapnel, and full-chain MMOs Realm and Influence continuing to roll out their releases in 2023, and future tournaments and UX improvements like account abstraction all expected to help the gaming industry continue its slow but steady growth in the coming months.
On-Chain Treasuries
On-Chain Treasuries is another rising DeFi field, similar to the previous DeFi summer, which all started in a zero interest rate environment. Back then, returns priced at double, triple, quadruple or even quintuple were an oasis in a capital-hungry world. While these returns were an illusion and ultimately proved unsustainable, they nonetheless attracted a massive influx of capital into DeFi in an attempt to achieve these returns.
Today, DeFi faces the opposite problem, with interest rates on US Treasuries in Meatspace already exceeding the yields on farms on the safest protocols (risk-adjusted). Additionally, large stablecoins like USDT, USDC, and DAI pay no interest to holders, increasing the opportunity cost of holding cash on-chain.
Several solutions have emerged to address this problem, such as Ondo Finance (and more recently Open Eden) which provide ways to access tokenized US Treasuries from within DeFi.
Although access to these products requires jumping through KYC/AML hoops and is limited to high net worth investors, they have still found product-market fit. Ondo’s OUSG has attracted $65.2 million in TVL.
If interest rates remain above 0% and stablecoins continue to provide no yield, the tokenized Treasury market could continue its meteoric growth trajectory and penetrate one of the world’s largest financial markets.
in conclusion
There are many areas of cryptocurrency that deserve close attention. Liquid staking, crypto gaming, NFT-Fi, perpetual DEXs, and on-chain treasuries are just a few of the promising sub-sectors showing signs of growth in early 2023.
The year has just begun and there is no certainty about where the market will go - a lot can change. However, now is the time to start paying attention to these areas, as cryptocurrencies are about to become interesting again.
