📡 On the Radar 2022: DAOs, Layer 2s, Interoperability and More
Hello Defiers! Happy New Year!
Last week we brought you loads of content chronicling the best, worst, and strangest events in DeFi in 2021. Today we present our On the Radar 2022 outlook with stories on DAOs, Layer 2s, and more, plus our final two Defiers of 2021.
On the Radar 2022
Defiers of the Year
Gary Gensler, DeFi Villain
Hester Peirce, Enlightened Regulator
Previously in the DeFi 2021 Series:
Defiers of the Year:
The open economy is taking over the old one. Subscribe to keep up with this revolution. Click here to pay with DAI (for $100/yr) or sub with fiat by clicking on the button below ($15/mo, $150/yr).
🙌 Together with:
Zerion is Mission Control for Web3: an intuitive DeFi portfolio manager, multichain tracking & trading and the best place to show off your NFT collection
FUTURES Blockchain fans tend to bet on one of two futures. In one, the many blockchains out there are all just skunk works for the one final chain that will absorb all the best innovations as the rest die off to worthlessness. In the other, many blockchains will come up and find a niche in the market, and it will be systems that allow those different blockchains to communicate that will turn it into one network with many chains.
MECHANISMS That second vision can be summarized in a word: interoperability. Right now, the consensus bet in this industry is on interoperability. Mechanisms by which different blockchains communicate will be a big story for 2022, infuriating maximalists of all kinds.
INTROSPECTION It’s a funny thing, too, because blockchains are fundamentally very closed off. Bitcoin doesn’t know anything but bitcoin. Its whole business is just continuous introspection. Interoperability requires somehow moving information from outside a chain onto it, then verifying that copies of that information on other chains don’t change.
BUZZ You’ve probably seen the buzz-phrase over the past few weeks. It’s usually a variation on “DAOs will be the NFTs of 2022”. The line has a ring to it, but is it realistic?
ETHOS Well, the emergence of decentralized autonomous organizations, enabled by the Ethereum blockchain, is one of the most intriguing developments in DeFi. DAOs, a cooperative model of governance built on a DeFi substrate, have the potential to disrupt corporate structure in a seriously big way. There’s an element of countercultural creativity to the DAO, and its egalitarian ethos will probably become increasingly attractive to talented engineers, entrepreneurs, and all manner of brainiacs.
MOVEMENT In 2021, DAOs surged and now collectively have about a million members and the top 20 groups have $14B in digital assets, according to ConsenSys. Big DeFi players such as Uniswap and Compound and MakerDAO are key platforms in the movement. But there’s some novel expressions, as well.
SCOURGE The threat of regulation in crypto is an old storyline. For years, central bank governors, lawmakers, and the occasional law enforcement type would pound the table and urge his fellow officials to rein in the scourge of Bitcoin and its ilk before all hell broke loose.
CHINA Yet nothing much actually happened — outside of China, that is — because regulators couldn’t agree on what cryptocurrencies were let alone how to police them. That changed in 2021.
SECURITIES ACT When Gary Gensler, the chair of the U.S. Securities and Exchange Commission, said in September that assets considered cryptocurrencies were subject to the Securities Act of 1933 and the Securities Exchange Act of 1934 he was finally laying down a marker.
STOCKS Virtually all crypto products would have to be registered with the government as securities or investment contracts if they were offered to investors, full stop. That meant they would be subject to the same disclosure and offering rules as other assets like stocks.
FASTER Layer 2s are on the rise and blockchains are getting faster and cheaper than Ethereum. This drive toward greater efficiency is likely to accelerate and shape the evolution of DeFi in 2022.
DEMAND Monthly active addresses on Ethereum hitting an all-time high of 10M in May, according to analytics provider Glassnode, the demand is clear for the smart contract platform.
ENVIRONMENTAL IMPACT Crypto, and specifically Proof-of-Work (PoW) blockchains like Bitcoin and Ethereum, have been criticized for their impact on the environment, and perhaps with good reason.
Taken together, the top two cryptocurrencies by market capitalization constitute the 12th-largest consumer of electricity in the world, just behind the United Kingdom.
PROOF-OF-STAKE Ethereum developers recognized early on that Proof-of-Work would not be sustainable as the network grew beyond a certain size, and so a multi-year plan to transition Ethereum to a more efficient Proof-of-Stake consensus mechanism was set in motion with the launch of the Beacon chain in December 2020.
THE MERGE The final step in Ethereum’s transition to Proof-of-Stake has been dubbed ‘the merge’, in which the current Ethereum mainnet will merge with the Beacon chain PoS system, which has so far been running in parallel with the existing PoW mechanism.
Gary Gensler, DeFi Villain
The chair of the U.S. Securities and Exchange Commission is a rare player — a regulator who actually understands the intricacies of blockchain. That doesn’t mean he’s going to go easy on crypto as he proved with a series of initiatives to stop the industry from operating “outside the perimeter,” as he put it.
Crypto has countered his offensive sneering at how he has vowed to “protect” investors against the dangers of airdrops, 10x gains and bountiful yield farms, all the while making room for imperfect financial instruments like a futures-based ETF.
So far it’s been mostly saber-rattling, but Gensler did define virtually all crypto offerings as securities or contracts subject to regulation under existing laws. That’s more than any other major regulator has done before.
Hester Peirce, Enlightened Regulator
SEC commissioner Hester Peirce, also known as Crypto Mom, has been one of the loudest advocates for a clear regulatory framework for the cryptocurrencies, which would provide the necessary protections for investors, without stifling innovation in the flourishing industry.
One of her biggest contributions is her proposed Token Safe Harbor, which would give blockchain startups a three-year grace period to launch without fear of prosecution, to give projects enough time to meet the agency’s requirement that a network be sufficiently decentralized for its token to not be considered a security.
This year she has continued to push towards friendlier crypto regulation. Earlier this month, Peirce said it was disappointing that Gary Gensler’s regulatory agenda failed to include clarification on digital assets.
BOUNCE The DeFi sector has bounced back from its mid-December low, with total value locked (TVL) across the sector within 3% of its all-time high, while the combined capitalization of DeFi assets is up 24% since Dec. 13.
NETWORKS According to DeFi Llama, top-ranked protocol Curve has opened 2022 at new highs, with more than $24B now locked in Curve across seven networks. The TVL of second-ranked Convex Finance is also at record levels, gaining more than 9% this week to sit above $20B for the first time.
DRAWDOWN MakerDAO ranks third with $18.2B after shedding 4.6% in seven days, followed by Aave with $14.6B after a 5.5% drawdown. In total, $253.6B is currently locked in DeFi protocols.
🧑💻 ✍️ Stories in The Defiant are written by Brady Dale, Owen Fernau, Samuel Haig, DeFiDad, and yyctrader, and edited by Edward Robinson, yyctrader, and Camila Russo. Videos are produced by Robin Schmidt, Alp Gasimov and Daniel Flynn. Podcast is led by Camila, edited by Alp.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access, while free signups get only part of the content. Click here to pay with DAI (for $100/yr) or sub with fiat by clicking on the button above ($15/mo, $150/yr)