Leading figures in the decentralized finance (DeFi) sector are predicting significant trends that will shape the industry in 2024.
Despite a relatively subdued year for DeFi, expectations are high for a dynamic shift in the coming year. As the crypto market stabilizes and various trends reach pivotal stages of development, 2024 is anticipated to be a pivotal year for DeFi.
In discussions with Cointelegraph, a variety of industry experts shared their insights on what the future holds for DeFi.
There is a sense of optimism within the sector, with early signs of growth sparking positive sentiment. Julian Deschler, co-founder of the Web3 privacy protocol Elusiv, expresses a strong positive outlook for DeFi’s near future.
Deschler emphasized the potential for a revival in the DeFi ecosystem, highlighting the resilience and continued progress of certain projects as indicators of tangible value and scalability. He anticipates 2024 to be a turning point where these developments will drive substantial momentum for DeFi and lay the groundwork for widespread, long-term adoption. This was conveyed in his conversation with Cointelegraph.
Kain Warwick, the founder of the derivatives markets ecosystem Synthetix, shares a similar positive outlook for DeFi. Speaking with Cointelegraph, Warwick expressed his belief that 2024 will signify the end of the current bear market. He noted the impressive price momentum observed in the last quarter, anticipating this trend to continue as market liquidity improves over the year.
This optimistic view of the future of DeFi is shared by both Deschler and Warwick, as well as by Sam MacPherson, co-founder of Phoenix Labs and a contributor to MakerDAO’s Spark subDAO. MacPherson’s analysis indicates a strong possibility of an upcoming bull trend, further reinforcing the sentiment of a promising year ahead for the DeFi sector.
Excited to see all these RWA tokenizations coming online. The space is maturing rapidly.
— Sam MacPherson (@hexonaut) December 18, 2023
In a conversation with Cointelegraph, Sam MacPherson from Phoenix Labs, also involved with MakerDAO’s Spark subDAO, shared his observations on the sector’s dynamics. Drawing from his experience monitoring Maker’s balance sheet over five years, MacPherson noted that the level of leverage currently emerging hasn’t been seen since 2021. Based on these trends, he anticipates the onset of a bull market, likely commencing in 2024.
Regulation and transparency
The regulatory landscape for cryptocurrencies, especially decentralized finance (DeFi), is poised for significant changes in the coming year. Throughout 2023, the crypto industry frequently clashed with U.S. lawmakers pushing for increased regulatory oversight. This trend suggests that DeFi will likely face increased scrutiny in 2024.
Nathan Catania, a partner at XReg Consulting, a firm specializing in public policy and regulatory affairs for crypto, shared his insights with Cointelegraph. He believes that genuinely decentralized finance platforms have less to worry about compared to centralized ones.
Catania pointed out that many DeFi projects have elements of centralization, classifying them as hybrid finance (HyFi), positioned between centralized finance (CeFi) and DeFi. He predicts that in 2024, while true DeFi might remain largely unregulated due to the current regulatory frameworks, there will be a significant shift in regulatory focus towards HyFi, particularly in the U.S. and other jurisdictions.
Echoing this sentiment, Antoni Zolciak, co-founder of the privacy-centric layer 1 protocol Aleph Zero, also foresees 2024 as a critical year for cryptocurrency regulation.
“Institutional investment interest in cryptocurrencies, indicated by discussions around ETFs, asset tokenization, and significant Web3 initiatives, puts DeFi’s preparedness under the microscope. 2024 will likely see DeFi trends gravitating towards meeting institutional needs and aligning with regulatory standards,” noted Antoni Zolciak, co-founder of Aleph Zero, in a discussion with Cointelegraph.
Zolciak further explained that the DeFi sector is acutely aware of the challenges presented by its inherent features like permissionless markets and pseudonymity. This awareness is steering the industry towards a strategic balance of privacy and transparency, incorporating proactive compliance efforts.
Elaborating on this shift, Zolciak pointed out, “DeFi’s direction is being redefined by a stronger emphasis on transparency and regulatory compliance. Solutions addressing institutional concerns are already surfacing, including on-chain protection of intellectual property, real-time Anti-Money Laundering (AML) analytics, and decentralized exchanges with advanced order books, all aimed at securing proprietary trading methods and strategies.”
The tokenization of everything
According to some experts, 2024 is set to witness a significant trend in tokenization, spanning from innovative yield-generating stablecoins to the tokenization of real-world assets (RWAs). This movement could lead to considerable expansion in the sector.
Sveinn Valfells, co-founder and CEO of Monerium, predicts a comprehensive shift towards on-chain applications in 2024, with on-chain fiat currency being a prime example of this broader trend. He shared with Cointelegraph his insights on the evolving role of fiat currencies in blockchain-based trading and asset integration.
Valfells emphasized, “Fiat currencies are increasingly recognized for their critical role in integrating traditional assets into blockchain systems. This is why we anticipate a surge in the popularity and use of a regulated and fully authorized category of stablecoins, namely on-chain fiat, in 2024 and beyond. The driving forces behind this are the burgeoning interest in RWAs and their transformative potential for the industry, coupled with the advancements in on-chain peer-to-peer payments. To harness this trend effectively, there will be a greater demand for solutions that enable smooth integration with conventional payment systems, thus facilitating direct transfers between traditional bank accounts and Web3 platforms.”
Tokenization will power DeFi
Tokenization is expected to drive significant growth in the DeFi sector in 2024, with some areas potentially experiencing tenfold expansion, according to Danny Chong of Tranchess. He predicts that tokenization will be a defining trend of the year.
Chong, speaking with Cointelegraph, noted that the 2023 wave of tokenization not only showcased blockchain’s versatility but also established it as a key player in bridging traditional and decentralized finance, enhancing accessibility and liquidity.
He highlighted two major trends: the tokenization of real-world assets and the development of sophisticated structured products, which are poised to catalyze market maturation in 2024. The industry is also moving towards liquid staking tokens (LSTs), expanding the range of assets usable as collateral.
Kain Warwick also anticipates significant growth in decentralized, crypto-native stablecoins, pointing out the emergence of projects like Ethena as major contributors to this trend.
Conor Ryder of Ethena Labs predicts that yield-bearing stablecoins will be a crucial trend. He estimates a rapid expansion in this sector, with the potential to grow from about $1 billion to over $10 billion. These stablecoins are expected to draw yields from both staked Ether-based and RWA-based stablecoins, thereby enhancing their market presence.
David Siska from Vega Protocol DEX believes that the advancements in crypto technology during the crypto winter have now made tokenization feasible. He sees RWAs first impacting derivatives trading, with perpetuals and futures markets referencing RWAs through various oracle providers.
Siska emphasized the importance of DeFi’s interaction with the real economy, noting that a financial system disconnected from it would be fundamentally ineffective. He expects RWAs to first make a significant impact in derivatives trading, with potential growth beyond price speculation.
Other major forces
The evolution of layer 2 technologies is a significant trend from 2023 that’s expected to reach full maturity in 2024. Mathieu Baudet, CEO of Linera, a microchain pioneer, anticipates the emergence of innovative solutions to tackle the complexities of operating on layer 2 platforms.
“2023 was largely about investing in layer 2 technologies, but 2024 will focus on their consolidation, particularly for DeFi-centric protocols,” Baudet shared with Cointelegraph. He pointed out that the industry is recognizing the challenges associated with cross-layer 2 communications, such as liquidity fragmentation. He suggests that layer 2 solutions will need to collaborate for more efficient interaction, potentially through a shared decentralized sequencer, rather than relying on slower layer-1 transactions.
Additionally, Sung Min Cho, CEO and co-founder of Web3 messaging company Beoble, predicts significant growth for Web3 social platforms in 2024. In his conversation with Cointelegraph, Cho noted, “Entering 2024, I foresee continued expansion and evolution in Web3 social platforms within the ecosystem. Factors like enhanced regulatory clarity, rising consumer interest, and ongoing technological innovation are set to make Web3 social platforms a key area to watch in the industry.”