We named this year’s report “The Great Reset” because we believe that’s what 2022 means for crypto – a great reset of prices, expectations, and speculative interest across the industry. Every major tailwind that drove the crypto market higher from Q2 2020 to Q4 2021 has turned into a headwind, leading to one of the most dramatic and fastest price declines we’ve seen to date.

Bull markets are where most investors make money, and bear markets are where you fight to hold on to those gains. But long-term pullbacks also have a silver lining, as they encourage deeper reflection and give all of us a chance to reassess what’s truly important and where we really want to spend our time. Tis the season when everyone predicts what’s going to happen next year and the years to come.

Cryptocurrency has largely been a speculator’s market, and that remains true today. But speculation is not inherently evil. The word “speculation” often carries negative connotations. But, like most things, it lies on a spectrum. Hype and excitement spark interest, which attracts funding, which provides entrepreneurs with the resources to develop innovative products using new technologies. Without speculation, capital would not flow to such ventures. In fact, I believe speculation is more than just beneficial — it is necessary at this stage.

Now, not all entrepreneurs are created equal—this year we’ve seen firsthand how entire industries have fallen victim to a few who let ego or profit get in the way of progress and purpose. But history is littered with examples of hubris (and even outright fraud). Innovation attracts all kinds of players—good, bad, and everything in between.

All innovation cycles begin with extreme speculation. The dot-com mania of the late 1990s culminated in one of the most infamous market bubbles of the last century. Inflated expectations fueled higher valuations, and when market conditions changed, these 90s high-flyers were hit the hardest. Like all hype cycles, speculation preceded reality, and it took time for fundamentals to catch up. Cryptocurrencies face similar challenges, and it would be naive to say that the rapid valuation expansion in the cryptocurrency market over the past few years has been driven by pure fundamentals rather than speculation. The question now is whether cryptocurrencies are in a post-tech bubble-like period of depression, or if this is just smoke and mirrors without any underlying substance.

Crypto Innovation Cycle

The crypto industry itself has gone through multiple hype cycles, each driven by speculation about the triggers for new innovations.

Bitcoin experienced a brief surge in 2013, but its true mainstream hype cycle occurred in 2017. The “digital gold” narrative gained traction as macro conditions were ripe for a new type of digitally scarce speculative asset to flourish. Risk-on was prevalent, financial conditions were loose, the dollar fell more than 10%, and stock market volatility hit multi-decade lows as stocks continued to move higher.

The launch of the first smart contract protocol — Ethereum — greatly simplified the process of creating new crypto assets (via its standardized ERC-20 contracts), setting the stage for the ICO boom of 2017 (also aided by a similarly favorable macro backdrop). The launch of more sophisticated DeFi protocols like Uniswap, Aave, Compound, and Synthetix made trading, lending, and borrowing crypto assets much easier than older alternatives, and the advent of liquidity mining (and the copycat projects that spun off from its early success) paved the way for the “Summer of DeFi” of 2020.

As attention shifts to more mainstream and consumer-friendly use cases beyond DeFi speculation, blockchain gaming and NFTs have been on fire in 2021. Game developers and creators alike have leveraged FTs and NFTs to build new ecosystems and engagement models (some even use a combination of the two). The hype behind this wave of new assets and use cases — again coupled with extremely favorable macro tailwinds — has once again propelled crypto markets to new heights.

Additionally, the surge in transaction activity has caused transaction costs to soar, which has accelerated the “L1 wars” narrative and sparked critical debate around the optimal blockchain architecture for different application types.

The point is, each of these hype cycles brought more attention, users, and capital to the crypto ecosystem and built on the progress made by those before them, expanding what was possible for crypto/Web3 technology.

We need all of this innovation for different reasons. We need highly secure protocols to facilitate open, permissionless trading on a global scale. We need standardization to optimize the creation and interaction of digital assets running on top of these protocols. We need decentralized financial applications to create more efficient, liquid markets for acquiring, selling, lending, and borrowing these new asset types. We need non-fungible token standards to introduce more uniqueness, specificity, and customization to digital assets. We need to demonstrate that the design space for applicable use cases extends far beyond trading DeFi tokens on DeFi rails with other DeFi traders.

We need a lot more. We need more mature derivatives markets for hedging and risk management. We need standards around decentralized identity to unlock new ecosystem applications, such as unsecured lending and trusted reputation systems. We need more UX improvements and abstractions (where appropriate). We need more regulatory clarity. We need… a lot of things.

But I believe we’ve finally reached a point where there are enough puzzle pieces — pieces that can be reconfigured in enough ways to address a wider range of needs and use cases — that put us on the cusp of another, even bigger creative explosion, one that will once again redefine what’s possible?

We’ve all heard the battle cry of the crypto faithful: “Bear markets are when you build.” There’s a lot of merit to this mantra — many of today’s notable protocols and applications were built during previous downturns. In the early stages of any emerging technology, a lot of attention must be focused on the technical aspects of what is being built. Without the upfront investment, anything that comes after doesn’t matter. But building is only one side of the equation. Demand is what’s needed to maximize the value of all that sweat equity invested going into a bear market. Demand leads to more usage, which leads to faster feedback cycles, which leads to better products, which leads to more demand and more usage. And the reality is that we’re facing a demand shortage right now.

If we really want to bend the demand curve for Web3, we need to think about how we can take the needs of today’s world and bring them into our journey. In order for us to get to this stage, we need more examples of how this technology can benefit more people, beyond just leveraged speculation. Web3 products need to provide valuable utility so that people understand the potential applications that can exist in this new world. This is one of the reasons why I am so bullish on the long-term prospects of NFTs. Their relevance makes them uniquely positioned to appeal to a wider audience, which will bring new sources of demand and purchasing power. The creation of new asset types will also benefit the entire crypto economy by increasing the total surface area for new participants to interact with digital assets (which I believe will be the gateway for the next wave of Web3 enthusiasts).

If we want to show the world the power of what we’re building here, we need to give the world more reasons to care. That means creating more products that more people want to engage with, and getting those products in front of the people who are most likely to find value in using them. That’s how we take action, and at least that’s how I see it, changing consumer behavior is a difficult task without relevant and rewarding experiences to catalyze it.

原文：Delphi Digital《The Great Reset: Navigating Crypto in 2023》

Compiled by: Encrypted Voyage