Bankless: 5 investment areas to watch in crypto infrastructure and more

Markets are in turmoil. The regulatory noose is tightening. Blockspace demand is the lowest it’s been since 2019. Crypto Twitter (CT) is a ghost town. And now, the biggest story of the year, the merger, is a thing of the past.

Is it just me, or does the crypto world really feel like it has no direction right now?

Current status of CT

We know this feeling won’t last forever. The ability for anyone to build and innovate on the blockchain, combined with the potential for intellectual capital in the space, means that it’s inevitable that some application or technology will get people excited again, bringing back demand for blockspace and driving the next wave of user adoption.

The question is, what will that be? What’s next for cryptocurrencies?

Let’s talk about a few exciting areas in infrastructure and applications and see what they might be?

01 Layer 2s

Layer 2s is expected to continue to grow in the coming months.

While there is currently little demand for block space, the increased transaction capacity provided by these networks has already begun to unlock new use cases and will pay long-term dividends during the next bull run by allowing more users to join the on-chain economy.

In fact, despite the bear market, the value locked in Layer 2 in terms of ETH is still at ATH.

Draw a chart with L2beat

Arbiturm and Optimism are undoubtedly the two largest L2s, with Optimism rollups accounting for 96.6% of all DeFi TVL on L2.

Each of these networks has several catalysts on the horizon.

For example, Arbitrum is expected to grow with the resumption of Arbitrum Odyssey, an initiative designed to encourage users to try different protocols by rewarding them with NFTs.

The network is also poised to benefit from the launch of their (as yet unconfirmed) native token , which is expected to occur after Odyssey is complete. In the meantime, L2 will continue to benefit from a multitude of upcoming protocols.

Optimism also has several exciting catalysts in the works, including Quests, an Odyssey-like active program where users can earn NFTs by interacting with the protocol, and the Bedrock network upgrade.

Although they are still early in their lifecycle, zk-rollups will also make some noise in the near future. Some zk-EVMs, such as those developed by zkSync, Polygon, and Scroll, will launch mainnets or testnets by the end of the year, while StarkWare’s governance token STARK is scheduled to go live at the end of this month.

02 Cosmos

L2s aren’t the only infrastructure play in the industry. There are a lot of exciting developments happening in the Cosmos ecosystem. Cosmos enables developers to create highly customizable, application-specific blockchains that can leverage interoperability through inter-blockchain communication (IBC), and both user and developer activity appear set to grow thanks to key network upgrades and chain launches.

One of these upgrades is Interchain Security. Coming in January 2023, Interchain Security will enable Cosmos chains to leverage the Cosmos Hub (the network with the most value) for their security, meaning they don’t need to bootstrap their own validator set, which is a difficult, expensive process that introduces security risks.

There are also a few exciting Cosmos chains that look set to gain traction in the coming months, including Canto, an L1 that offers a native DEX, stablecoins, and lending markets as public products, and Berachain, an upcoming DeFi-focused L1 with a large following while leveraging a unique Proof-of-Liquidity consensus mechanism.

03 DeFi Renaissance

Supported by the above-mentioned L2s and application chains, DeFi will see a recovery as we enter Q4 2022 and Q1 2023.

Options protocols appear to be gaining considerable momentum. Benefiting from the increased capacity provided by L2s, protocols such as Dopex, Lyra, and Premia appear set to grow in the near future as options become a more important part of the crypto market structure and mature DeFi users appear to manage their risk on-chain.

One area that seems to be gaining considerable momentum is options protocols. Benefiting from the increased capacity provided by L2s, protocols such as Dopex, Lyra, and Premia seem set to grow in the near future as options become a more important part of the crypto market structure and mature DeFi users appear to be able to manage their risk on-chain.

Another subsector that is expected to see explosive growth is NFT-Fi, or DeFi for NFTs.

Like it or not, NFTs are not going away, and as trading, lending, and derivatives primitives continue to develop, the JPEG market will become more liquid and mature.

There are many exciting NFT-Fi projects in the works and set to launch in the coming months. This includes AMMs like SudoSwap, NFT-Fi lenders like JPEG'd and MetaStreet, valuation protocols like Abacus and perps DEXs like NFT Perp.

04 Web3 Social

Between DeFi, NFTs, and pure speculative trading, many of the most popular crypto use cases to date are entirely financial in nature.

While almost all dapps are related to money in some way, there are also a large number of non-financial applications that seem likely to gain traction in the near future.

One area of ​​excitement is decentralized media platforms. These networks differentiate themselves from existing Web2 networks by providing strong censorship-resistant guarantees to users and greater ability for creators to reach a more portable audience.

Several applications and protocols to watch out for in the coming months include gm.xyz and Lens, as well as DeSo, an L1 program specifically designed for hosting blockchain-based social applications.

05 GameFi

Another area of ​​potential growth is crypto gaming (GameFi).

With the success of play-to-earn games such as Axie Infinity, STEPN, and Sweatcoin, hundreds of millions of dollars have been poured into the space over the past year.

While many gamers seem to hate cryptocurrencies and NFTs right now, GameFi has the potential to become a major channel, bringing hundreds of millions, if not billions, of users on-chain.

Are we finally going to see a breakthrough AAA crypto game?

Hope is just around the corner

While cryptocurrencies feel lethargic, there are a number of network upgrades and innovative applications ready to drive the next wave of adoption and make cryptocurrencies exciting again.

The macro clouds will eventually lift, and the insatiable demand for block space will return. But in the meantime, the seeds of the next bull run will continue to be sown.