Pantera Capital partners predict six hot areas for 2022: Layer2, DAO, and Web3.

Author: Paul Veradittakit, Partner at Pantera Capital
Original Title: "2022 Crypto Predictions"
Compiled by: Hu Tao, Chain Catcher
2021 was possibly the most exciting and tumultuous year for cryptocurrency. We witnessed incredible growth and innovation, including the highly anticipated Ethereum London hard fork, the explosive expansion of the Solana ecosystem in the summer, and Bitcoin reaching an all-time high of $69,000 in November. At the same time, we have seen the inefficiencies and widespread vulnerabilities in the crypto industry, from Ethereum's ridiculous gas fees to the $600 million PolyNetwork smart contract vulnerability attack.
Undeniably, cryptocurrency has captured the public's attention in unprecedented ways. Every day, thousands of users register on blockchain platforms, search for NFT collections on OpenSea, and invest more in DeFi and web3.0. As we enter 2022, I look forward to seeing how this mainstream attention will guide the direction and pace of crypto innovation—pushing the boundaries of what crypto can achieve and helping realize the vision of a decentralized, user-centric financial system.
Here are six areas where I expect significant innovation and growth in 2022.
L2s and Rollups: The biggest criticism of Ethereum today is its outrageous delays and gas fees, which stifle the computational capacity of dapps and deter users without substantial funds. Layer 2 (L2) solutions have addressed this issue by executing transactions offline (reducing the amount of slow, expensive on-chain computation) and then batching transaction data on-chain (known as "Rollups").
L2s became extremely popular last year. Arbitrum, an optimistic rollup solution launched in September, reached a peak TVL of $2.78 billion this year and accumulated over 50 dapps, including 1inch and Balancer. The TVL of zero-knowledge proof rollups increased from $43.5 million to $1.9 billion and has already been used to scale the trading throughput of dapps like dYdX.
As mainstream adoption of cryptocurrency continues to grow, Ethereum's network congestion will only worsen, exacerbating its delays and fee issues. By ensuring a high level of scalability for computational infrastructure, Rollups are crucial for maintaining Ethereum's growth, allowing users to interact with dapps with usability expectations similar to or even better than traditional web applications. Optimistic rollups and ZK rollups will gain more attention in the coming year, with optimistic rollups likely dominating in the short term while the much more technically complex ZK rollups make progress as a long-term scalability solution.
Non-Ethereum/Bitcoin Chains: At the beginning of the year, 97% of DeFi's total TVL belonged to Ethereum; today, Ethereum holds only 63% of that TVL. Competing layer one blockchains have exploded in growth over the past year, largely due to their significant scalability advantages and different use cases compared to Ethereum. In particular, Solana, which offers unparalleled transaction throughput, witnessed an incredible 2021, peaking at $15 billion in TVL and nearly $260 in price in November. Recent activities in the Solana community, including significant funding for decentralized social media and gaming, indicate that the ecosystem will continue to grow significantly in the coming year.
Beyond specific blockchains, many technological developments this year have set 2022 up to be a significant year for the multichain space. Bridges like NEAR's Rainbow Bridge will help accelerate the development of non-Ethereum ecosystems by expanding liquidity access and allowing for easier aggregation of digital assets. EVM platforms, such as Aurora on NEAR, also make it easier than ever for Ethereum-based dapps to launch on other chains, enhancing cross-chain participation in DeFi. Overall, these advancements in cross-chain infrastructure will accelerate the traction of alternative layer one chains, fostering the development of a truly robust and diverse multichain crypto ecosystem.
Composability and Web3.0: "Web3.0" can arguably be considered one of the biggest buzzwords of 2021. The scope of web3.0 is broad, making it difficult to pinpoint exactly what it means. However, the term generally refers to technologies that prioritize user ownership of data and/or assets and interoperability between different applications.
2021 was a significant year for digital ownership. NFTs now constitute a $7 billion industry and continue to grow as more artists and art consumers seek verifiable forms of ownership in the digital realm. In addition to NFTs, digital ownership is being advanced through initiatives like decentralized crowdfunding (e.g., Kickstarter announcing decentralization on Celo) and decentralized identity projects that allow users to maintain comprehensive and precise control over their personal data and reputation, enabling use cases like uncollateralized loans, KYC, and more. In 2022, we will see more projects expanding the scope of on-chain ownership, enabling users to have comprehensive, functional control over their identity and assets in the digital world.
In terms of interoperability, as mentioned earlier, cross-chain bridges have enabled greater composability in DeFi, effectively allowing users to trade assets between chains and use DeFi protocols across different blockchains. Beyond DeFi, projects like login.xyz provide a service for logging in using Ethereum, showcasing how blockchain can more broadly achieve composability between applications, allowing users to maintain a single "login" across all services. In summary, applications and services are seeking tighter integration with each other, and I hope to see more projects addressing the fragmented nature of how we interact with the web.
Expansion of NFTs: NFTs are undoubtedly one of the hottest crypto trends of 2021. The NFT marketplace OpenSea saw its trading volume surge from $1 billion to over $10 billion in just three months, showcasing the viral adoption wave that NFTs have begun. Other projects, such as NBA Top Shot and Bored Ape Yacht Club, have provided NFTs with a prominent platform in popular culture, making NFTs one of the top search queries on Google this year.
Looking ahead, it is important to note that physical art represents an asset class worth up to $1.7 trillion, which means NFTs are just beginning to scratch the surface. With the rising popularity of digital art and the increasing tokenization of physical art, NFTs will continue to thrive in the coming year to facilitate better verifiability and more liquid markets.
Beyond the classic use case of images, NFTs have made significant strides in other verticals, namely gaming and music. Games like Decentraland and Axie Infinity have demonstrated the value of offering in-game assets as tradable NFTs, allowing players to fully and flexibly own their assets and status within the game. In music, projects like Audius and Royal are establishing mechanisms to help fans directly support their favorite artists' projects and share in their success through royalties. NFT projects in 2022 will exhibit more diversity in use cases and will reconfigure how we interact with digital media and think more broadly about ownership of digital media.
DAOs: DAOs were also one of the hottest crypto trends of 2021, gaining widespread attention for their potential as tools for fair, decentralized collective action. We have seen DAOs launch around shared digital cultural identities (e.g., FWB and plsrDAO), around crowdfunding and capital allocation (e.g., BitDAO and ConstitutionDAO), and even around social impact causes (e.g., KlimaDAO addressing climate change). Given their prominence, I hope to see DAOs become mainstream tools for online organization and collective action, helping individuals around the world engage meaningfully in causes they care about.
In addition to the increasing number of DAOs, the crypto space is also beginning to recognize (and address!) several gaps in the onboarding of DAO tools, operations, and aspects. Platforms like Syndicate can simplify the process of establishing DAOs for collaborative investing, while Station can help users join DAOs, making it easier than ever to launch and operate functional DAOs in record time. As DAO operations become increasingly complex, I expect to see more projects building DAO tools and infrastructure in 2022.
DeFi Security: It can be argued that 2021 saw more scrutiny of DeFi security than any other year. Over $610 million was stolen through DeFi vulnerabilities in 2021 (an astonishing 8-fold increase from $77 million in 2020), and an additional $704 million was stolen, later returned by white hat hackers, such as the hacker behind the $600 million PolyNetwork. These incidents are the inevitable but unfortunate consequences of DeFi's growing prominence.
To maintain the pace of DeFi adoption, it is absolutely crucial that we develop more protocols and tools to ensure users interact with secure crypto financial products. Projects like Forta enable dapps to monitor runtime security, and Nexus Mutual provides smart contract vulnerability insurance for dapp users, making significant progress in protecting the crypto financial ecosystem. Nevertheless, many vulnerabilities still exist in the smart contracts supporting DeFi, most of which we are still unaware of.
By 2022, I expect security to become a focal point for DeFi projects and hope to see more initiatives launched around better smart contract audits, precise runtime monitoring, and consumer protection.
Final Thoughts
In summary, 2021 witnessed tremendous growth and an astonishing number of innovations in the crypto space, from blockchain infrastructure to DeFi to NFTs and beyond. Crypto has clearly asserted itself as one of the most powerful technologies of our time, offering unparalleled privacy, trustlessness, composability, and decentralization, while the traditional web remains highly exploitative, monopolistic, and fragmented.
The public's attention has never been as focused on crypto as it is today, and the increasing mainstream adoption of crypto may shape and accelerate the pace of innovation in the coming year. With this newfound attention, I am very excited to see how crypto captures more of the mainstream financial and digital landscape in 2022 and becomes a more powerful and secure platform that drives our interactions with the web.