Prospects for cryptocurrencies in the next 5 years
DeFi
The trend towards decentralized finance (DeFi) began in 2020 when projects such as the decentralized exchange Uniswap and the Aave credit protocol started to gain popularity. That's when Yield Farming, a set of tools for making money in DeFi, became particularly popular.
DEX exchanges have become one of the main trends in the cryptocurrency sphere, especially against the backdrop of the bankruptcy of centralized exchanges and constant sanctions. Even if a decentralized exchange goes bankrupt, liquidity providers can withdraw their funds and transfer them to another DEX exchange.
In addition to DEX exchanges, cross-chain solutions are growing in popularity. People have traditionally used centralized marketplaces as intermediaries to transfer cryptocurrencies from one blockchain network to another. However, now users can transfer digital assets between different, even incompatible, networks and exchange coins and tokens. For example, using THORChain, users can exchange native Bitcoin for Ethereum on the native network or some other (wrapped ETH token).
With the development of decentralized protocols, there is virtually no need for users to go outside of DeFi, except when converting cryptocurrencies to fiat and vice versa. However, perhaps in the future, we will see decentralized solutions allowing us to abandon centralized exchanges altogether.
To this trend, we can also add LSDFi, which is the liquid staking of cryptoassets. LSDFi opens up new avenues for generating income from steaking.
Tokenised assets on Bitcoin
Bitcoin has become an outsider to the DeFi sector as the protocol lacks smart contracts that enable the execution of autonomous transactions without intermediaries. Despite this, developers have found solutions to ensure that Bitcoin is not left behind in the DeFi and NFT trends.
One such solution has been Layer 2 protocols like Lightning Network (LN) and Liquid Network, sidechains like Stacks, Bitcoin artefacts (ordinals) and BRC-20 tokens. While the hype on ordinals and NFTs in general has subsided considerably after a considerable surge, many users are underestimating the potential of these assets.
For example, Lightning Labs, behind the development of the LN Layer 2 network, has launched an alpha version of a protocol for Taproot Assets, which have been dubbed "bitcoinized assets". The protocol will allow the issuance of Bitcoin-based tokens such as dollar-pegged stablecoins and even tokenized shares.
While Bitcoin is already the leader among digital assets in capitalization, developing a token ecosystem and other new solutions can only widen the gap between the leading cryptocurrency and altcoins.
SoFi and GameFi
Another trend is social and gaming platforms. Any game items or digital avatars can be issued as non-replaceable tokens or NFTs. These tokens can then be sold or repossessed by other users securely through a smart contract.
We will likely see X (Twitter) and YouTube competitors on blockchain in the next 5 years. Telegram has joined the crypto movement by integrating the TON Wallet cryptocurrency wallet into its messenger. Already, users can buy anonymous numbers and nicknames with TON tokens. In the future, Telegram will probably turn into a global platform where users will have a lot of options to use cryptocurrency in the messenger.
Another actively developing area is Metaverses. Blockchain games and social platforms such as Friend.tech open up new opportunities for monetising content and in-game items while providing better copyright protection.
Alongside this, Social Recovery — the ability to distribute access between wallet owners and transfer ownership rights — is growing in popularity. Some wallets, such as Argent and OKX Wallert, have already integrated AA) account abstraction and thus expanded their functionality.
Regulation
When we talk about cryptocurrencies, we cannot ignore the issue of regulation. It is inevitable: the crypto market's capitalization already exceeds $1 trillion.
What will regulation lead to? On the one hand, it is a huge positive signal for investors, as additional significant investments will flow into the crypto market, catalyzing an even stronger wave of growth.
However, there is also the flip side: with increased regulation will come stricter controls. Let's take a look at the major trends among crypto projects from the outside to understand better where things are headed;
- Ledger wallet integrates the controversial Recover feature for key recovery, which will now be controlled by more than just users. While this feature allows access to assets to be restored if a key is lost, Ledger Recover will also increase the risks of unauthorized access to a user's wallet;
- DEX exchange Uniswap will introduce a verification (KYC) process for customers and an address-blocking feature. Earlier, KYC also added the largest credit protocol Aave. These features increase centralized control and allow controlled access to the platform's functions.
Also, the emergence of new financial instruments such as BlackRock's Bitcoin ETF and Ethereum ETF will increase the concentration of cryptocurrency assets in the hands of a few groups, which could pose a new threat to the decentralization of the crypto sector.
Predictions and outlook
Some analysts believe that the total capitalisation of the crypto market could exceed $10 trillion by as early as 2025. If the regulation of cryptocurrencies becomes clearer and more transparent, it could provide an influx of institutional money, making the figures seem pretty realistic.