2019 was the year of institutional investment in cryptocurrencies. Social media giant, Facebook, proposed its digital currency Libra’s launch in June 2019, and countries like Russia, France and China expressed interest in developing centrally issued digital currencies, while banking magnates like JP Morgan Chase & Co. started customer trials for its JPM coin. As 2020 is upon us, we ponder what the future of blockchain and cryptocurrency will be.
In their 2019 predictions for cryptocurrencies, Outlier Ventures had predicted that “2019 is primarily going to be about ‘crossing the chasm’ as enterprise and institutional capital become the dominant financiers bringing more rigor and discipline to the industry. Initiatives that raised millions from retail investors last year won’t make it past the first stage of institutional diligence in 2019. As a consequence projects will raise more private money and stay private for longer to build out their networks. This will remove a lot of the execution risk inherent in early-stage venture from public markets but it will also force the focus from ideals and visions to code and shipping.”
The report has proven to be accurate and approximately correct in most cases, including a halt on wash trading, stability and reduction in volatility of the markets. ICOs died a slow death, giving way to IEOs. A bullish case was made for Bitcoin. Outliers predicted that there won’t be a complete market recovery but there will be green shoots here and there, scattered on the 6 month and 3 month candlestick charts. This is what drives sustainable growth.
Their narrative on DeFi, with its emergence and adoption, was very accurate. The theme of Outlier Venture’s 2020 predictions is “Deployment and installation of cryptocurrency projects with a focus on ‘synergy’ and ‘consolidation.’”
Outlier Ventures Predictions
Zombie tokens will get the axe
The cryptocurrency market cap has considerably dropped and the market is on the brink of a reckoning. Exchanges are becoming highly competitive against emerging exchanges and institutions, and zombie tokens are, well, dead weight with a high likelihood of being delisted so these exchanges can focus on quality. Outlier predicts the rise of new indices that make it easier for VCs and investors to enter into the investment and trading space. The gap between product development and adoption will be bridged and public crypto markets will emerge like startups rather than huge corporations.
Potentially between 50 and 75% of publicly listed tokens will be delisted and cease trading in 2020. There are currently over 4,000 tokens in the market and the great purge may reduce it to less than 1000 tokens by the end of 2020. There could be less than 500 if Binance delists zombie tokens to protect their users as they prepare for government regulations and staking opportunities. By the end of 2020, public offerings and listings may no longer be accepted as seed businesses. This should help projects balance their way to be a product-market fit.
Lightning apps are the future of the Bitcoin Network
Lightning Networks innovation was hardly revolutionary, however, it will see widespread acceptance similar to how DApps were adopted. The narrative of Bitcoin will shift from ‘store-of-value’ to ‘open-inclusive-financial-platform.’ While halving will capture much media attention, price may dominate the market. LApps are predicted to get mainstream attention and increase the long-term viability of Bitcoin. Bitcoin’s dominance will increase to 75% by the end of 2020.
Ethereum will keep up momentum beyond DeFi
EIP-2028 will have a major impact on layer 2 adoption, opening up use cases beyond crowdfunding and DeFi. Games that use EOS and TROM may consider migrating to Ethereum, if DeFi is available. New DApps will be built on Ethereu but there will be a spike in the number of monthly users through DeFi apps like Maker and Compound. The value of base layer may drop over time. Outlier predicts the total value locked up in Ethereum DeFi will surpass $1 billion in 2020.
Smart Contract devs will be in high demand
There’s an argument that blockchain devs are already in high demand but as blockchain and the cryptocurrency space increases, a plethora of new smart contract platforms will crowd the market in 2020. Expect a huge focus on developer and customer acquisition. A majority of developers want to be able to use stable, secure, fast, and easy-to-use platforms to integrate their projects, so platforms will be vying for one of the greatest brain drains that we’ve ever witnessed. Creative developer acquisition strategies will be deployed. Outlier predicts that no new smart contract platform will have more than 400 total applications by the end of 2020.
DAI will solve end-UX challenges
DAI gets a special mention in Outlier’s predictions because it has positioned itself as the de facto stablecoin. They expect to see improved integration into all on-boarding services like wallets, exchanges, debit cards, and browsers across platforms. Features like automated access should be high on DAI’s priority list. In 2020, DAI will, most likely, become the go-to onboarding tool as developers build apps on Ethereum. Conversely, DAI is not considered to be a systemic threat to existing, government-controlled monetary systems. Bonus prediction: This may be the reason why Libra fails. After all, DAI will gain 10% of stablecoin market share by transaction volume, and 25% if USDT collapses.
China will launch its stablecoin first
While we’re on the subject of stablecoins, the Bank of International Settlements (BIS) survey of 63 central banks in 2018 shows the majority were researching or starting proof-of-concept work on digital currencies. Most of them were not ready to launch but more than 500 million Chinese citizens may start using a service connected to the DCEP network by the end of 2020.
Staking becomes institutional
Staking took the market by storm in 2019, as already predicted in last year’s Outlier report. As more proof-of-stake networks launch, the complexity may be offloaded from end-users to service providers. Users are looking for high yield tokens, however, median real staking yield over the year remains negative; a risk that institutions may take on, but not likely to be adopted by small entities.
New distribution strategies
Since ICOs are pretty much dead, there is an emergence of alternative token distribution strategies that projects need to implement in order to lure prospective investors and supporters to their project. Western markets are largely driven by conservatism and it will become clear in 2020 that the total pool of investors, who may be genuinely active within the network, is too small to raise enough capital for the full life cycle of new protocol networks. Equity shareholders will just receive a portion of the profits from network services. And in stark contrast to Asia, projects will have to decide if they invest their time in raising capital and building a presence in Asia or The West. The West will become the dominant fundraising instrument before network launch.
East / West Divergence
The distribution strategies will influence the east/west divergence. Outlier Ventures has spent extensive time in Asia, specifically in China. It’s their conclusion that there will be a divergence between the East and West in blockchain, and more specifically digital assets. The acceleration of adoption driven by the Chinese is staggering. Of note, a majority of exchanges and trading volume is still Chinese originated and they might start getting licensed to operate in fairly restricted ways.
Various SOEs (State Owned Enterprises) might begin to champion their own regionally based tokenized networks within regulatory guidelines. Chinese Digital Currency Electronic Payment (DCEP) will reach hundreds of millions of consumers overnight and there may be a longer period of Web 2.5 in Asia, or an entirely different form of Web 3.0, but the outcome will lead to potential financial dominance. So far, three Chinese exchanges will be given official permission under license to operate domestically under restrictions.
Europe to be the West’s hub for blockchain projects
Europe may get all mainstream media attention and investor interest to become the West’s hub for blockchain projects; in particular, tokenized networks. BREXIT will be part of the narrative and London may be the second most popular city for early-stage blockchain financing. The EU has determined to break away from the U.S. hegemony and there may be a launch of several European funding initiatives. Growth of a stronger secondary market within the wider common economic zone, with what is traditionally a more conservative primary market, will follow suit. European venture capital in blockchain companies was $700 million in 2019 and will surpass the all time high of $850 million of 2018 to reach $900 million in 2020.
Treasury funding will be retrofitted
In 2019, there may be further contributors to open-source projects. Policies like Harberger Taxes and NFT’s continuous auctions will measure up to expectations through 2020 despite any backlash it may receive. Five projects in the top 100 Y2050 market cap will instigate a treasury funding model as it becomes clear previous token funding cannot sustain the project.
DAO may still be further away from mainstream
2019 was the year of the DAO, however the world still isn’t ready for it. DAO is offering a revolutionary digital organizational structure that inefficient corporate structures still have a hard time wrapping their head around. Voting on expenses and budgets is still not a reality and in 2020, we imagine a proliferation of DAOs limited to spending decisions. The outcomes may be less than optimal. DAOs will stay limited to capital allocation vehicles and it is predicted that less than $50 million will be allocated in 2020.
Gaming will drive blockchain adoption
A breakout game will drive adoption. We’ve seen games like Splinterlands on Steemit and Wax.io; CardMaker: NatureTown on NEO; and My Crypto Heros on Ethereum. By the end of 2020 many of the pieces needed for a break-out mainstream game will be in the market. Imagine if a blockbuster like Fortnite adopted blockchain? Indeed, it will get easier for digital assets, storage, in-game purchases, and tools once for gaming full embraces blockchain. The gaming industry will really drive blockchain adoption. Outlier predicts that Valve with Steam or Epic through Unreal will launch a blockchain service.
Synthetix: The Chainlink of 2020
Project Synthetix also gets a special mention in Outlier’s predictions as it becomes as important to the DeFi space in 2020 as MakerDAO was in 2019. As a synthetic asset platform, the early obvious use cases are long and short positions to the price of other crypto assets. Synthetix will be to 2020 what Chainlink was to 2019. By the end of 2020, it is predicted that they’ll end the year above a $700 million market cap; up from circa $210 million today.
Telegram will win the first battle of messaging apps
Communications apps like Telegram may start real usage of blockchain-based platforms and reach about 200 million users in a month. Why? Because these users will opt into a messenger specifically differentiated on privacy and security. TON’s apps run on top of the network with a ready-made audience unlike other social media apps. By the end of 2020, TON will have the most monthly-active users of any blockchain network.
Enterprise: Corda dominates Hyperledger, Ethereum and Quorum
Corda will emerge as the market leader in the enterprise blockchain market and R3 will continue making inroads into other verticals like energy and telecommunications. Enterprise-friendly services will motivate developers to build the platform. In 2020, real customers and real money will be made with Corda apps. It will overtake Hyperledger, Ethereum, and Quorum by market share.
Web3 middleware/developer experience will create a hot new market
The middleware market for DeFi has been built out over the last few years and now similar middleware is being built out on EOS. New institutions will develop their own middleware ecosystem as they continue to attract developers. These are all protocol-specific middleware solutions, but we’ll see general-purpose middleware get popular. Unpermissioned networks might continue competing with players like R3 who will get enterprise grade levels of product support. The next Binance-like blockchain unicorn success will be a middleware company that comes to attention in 2020.
Outlier Venture’s predictions have, more often than not, been accurate and befitting for the cryptocurrency industry. These predictions are based on extensive research and projections by their experts. As we await 2020, we will see how well these predictions age as the cryptocurrency industry becomes another year older, more mature, and better adopted.
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