From L2 to Mainstream: The Crypto Adoption Journey
Building upon my previous post, the prospect of consolidation within the L2 space, due to the fundamental user base cap. However, it's important to recognize that we're still several years away from witnessing any significant consolidation. Most L2 solutions are either in the planning stages or have recently launched their tokens, backed by substantial venture capital investments. This will give them enough runway to survive for at least 3-5 years.
While financial backing is essential, success in the L2 arena hinges on the creation of a robust ecosystem, fostering diverse communities, streamlining developer onboarding, and, most crucially, enabling a seamless onboarding of existing Ethereum-based applications. Achieving these goals demands substantial investments. As a point of reference, grant programs during the previous bull market had already surpassed the $1 billion mark per chain.
With scalability issues seemingly addressed, I find myself contemplating where we can expect to see the utilization of these newfound capabilities. Examining successful use cases from the past, it's evident that certain sectors will thrive in the next bull run:
01. DeFi: Historically, DeFi has flourished during bull runs, driven by speculation, trading, and extensive borrowing and lending. While the infusion of liquidity from the traditional financial space is anticipated, regulatory hurdles, compliance concerns, and the need for user-friendly infrastructure remain unresolved. Therefore, a substantial increase in volume is likely to stem from broader crypto adoption and spillover effects from other crypto sectors, such as ReStaking. Companies like Alterscope are poised to benefit from these developments. However, it's challenging for me to envision DeFi as the primary driver of the next wave of adoption.
02. Gaming: Projects like Axie Infinity have demonstrated the potential of the play-to-earn concept in the crypto realm. In the last bull market, crypto games couldn't match the quality of traditional games. With lower transaction costs and account abstraction, I anticipate a significant upsurge in this sector. Nevertheless, most elements of the crypto ecosystem already exist in centralized forms in the traditional gaming industry, from item cross-selling to marketplaces and loyalty points. Crypto's potential for a 10x improvement could prompt traditional gaming to embrace Web3 features. My prediction is that a substantial push in this direction will coincide with the establishment of a mature MetaFi industry, as game development alone cannot build such a complex financial ecosystem. Moreover, the open nature of crypto ensures that virtual assets remain secure from corporate interference due to platform updates. Explosive growth in this sector is likely to occur alongside the emergence of high-quality metaverse platforms.
03. Decentralized Social Networks: Against the backdrop of increasing polarization and censorship, the decentralized social network sector holds immense promise. Platforms like Twitter, before Elon Musk's involvement, and opaque recommendation algorithms on platforms like Facebook have accentuated the need for change. Crypto offers a solution, with transaction fees and user experience hurdles nearly resolved. The financialization of social networks could overcome the chicken-and-egg problem, as demonstrated by projects like Steemit and Friend.tech, which were first tries to create network effects. In my opinion, there is a lot of room for improvement. With strategic timing, such as during upcoming elections, and a well-thought-out design leveraging the advantages of the crypto stack, this sector could witness significant growth. TikTok wasn't the first social network, but its smart design allowed it to outperform existing platforms by catering to a specific niche.
As adoption increases across these sectors, the interconnectedness and composability inherent in the crypto ecosystem will elevate even more the risks. Companies specializing in data and risk assessment, like Alterscope, are poised to thrive in this environment. Their adaptable frameworks, developed for one sector like, for example, DeFi, can be readily applied to others, such as MetaFi, and SocialFi.
In conclusion, while the road to consolidation in the L2 space is distant, the potential for growth and innovation in crypto remains vast, with diverse sectors poised to drive adoption in their unique ways. Managing the accompanying risks will be paramount in this dynamic landscape.
