There’s much more to say about the state of crypto, however, that goes into market performances, new asset classes, and technological advances. Let’s dive into what happened in 2023 for crypto markets and what we can expect from 2024.
Generally speaking, crypto is at an interesting point. The end of 2023 seemed to have brought the promise of a bull run with the potential launch of a Bitcoin ETF signaling increased institutional participation.
Regulations are also at the forefront. We’re closing the year with increased regulatory clarity in geographies like Europe thanks to the MiCA framework. Meanwhile, we’ve seen more hostile attitudes towards crypto from US regulators who’ve taken legal action against major players like Binance and Coinbase.
There’s much more to say about the state of crypto, however, that goes into market performances, new asset classes, and technological advances. Let’s dive into what happened in 2023 for crypto markets and what we can expect from 2024, hearing from:
In the past year, traditional financial instruments have made their way into DeFi. This has happened in the form of derivatives, especially options, and the tokenization of real-world assets. Many of these developments come thanks to advances in scalability. As a result, institutions are also making their way into the crypto space.
First, we saw significant advancements in layer-1 (L1) blockchain technology, focusing on enhancing efficiency, scalability, interoperability, and user experience.
Juan: Zero-knowledge (zk) rollups, including zkSync Era and Polygon’s zkEVM, aimed to make blockchains more efficient by executing more transactions off-chain and reducing the block space required for transactions. Likewise, developments like Chainlink’s CCIP and LayerZero’s partnership with Google Cloud and JPMorgan enabled communication between smart contracts across different blockchain networks and facilitated liquidity transfer.
These milestones were key to other important solutions further up the technological stack. They paved the way for financial innovations and capital efficiencies that were needed for the broader adoption of blockchain by traditional institutions.
The crypto derivatives market, particularly options, continued to assert its dominance in 2023, constituting a significant portion of the overall crypto trading volume. As of March 2023, derivatives accounted for 74.8% of crypto’s total trading volume, which was $2.95 trillion.
Centralized crypto derivative exchanges like Binance, Upbit, and OKX were at the forefront, with derivatives volume experiencing a quarter-on-quarter growth of 34.1% between 2022 Q4 and 2023 Q1. Binance led as the largest crypto derivatives exchange, holding a market share of 59.8% and a trading volume of $1,763.3 billion in March 2023.
However, derivatives also grew in decentralized exchanges despite being less than 5% of the total derivatives market. Platforms like Perpetual Protocol and dYdX led the way in decentralized perpetual futures, with a daily volume averaging $3 billion. Innovations in this space, like everlasting options offered by platforms like Deri, enabled users to trade derivatives in a DeFi-native way, facilitating hedging, speculation, and arbitrage all on-chain.
Jeremy: This growth was due to the expansion of relevant infrastructure. There was a notable rise in both centralized and decentralized options infrastructure, along with the development of new crypto primitives like structured vaults and everlasting options. This was coupled with a decrease in security issues like hacking incidents, indicating the industry’s rapid adaptation to challenges.
As a result, we saw the entry of more professional and transparent intermediaries from traditional industries into the space. Together with technological developments, this allowed for the complexity of financial instruments to mature. This progression marks a continued evolution in protocol efficiency and capital utilization, allowing for innovative combinations and transformations of financial products.
The crypto industry also saw a rising trend in the tokenization of real-world assets (RWA), including the representation of physical and traditional financial assets as digital tokens on blockchain platforms. RWA tokens can be bought, sold, and traded, offering a more secure and efficient investment environment, especially for those unable to hold physical assets. Their use cases include reducing transaction settlement times and enhancing scalability.
RWA tokenization maintained a growth trajectory throughout 2023 with a focus on tokenized debt instruments and T-bills. Prominent financial institutions like JPMorgan, Deutsche Bank, and SBI experimented with tokenizing currencies and sovereign bonds using Ethereum’s layer 2 scaling network, Polygon. Other players like Société Générale have even ventured into creating stablecoins which can be considered the most primitive form of RWA.
In the DeFi sector, MakerDAO, a pioneering protocol, deepened its involvement with RWAs. Their ‘Endgame Plan’ proposed making DAI, a stablecoin, a free-floating asset initially backed by real-world assets. They also allocated significant funds into short-term treasuries and investment-grade corporate bonds, indicating a growing demand for RWA tokens as financing tools for RWAs.
Jeremy: Now we’ve reached a pivotal point in technological development where trading extends beyond speculative assets to those with tangible ‘real world’ effects. This is evident in the increased tokenization of various bonds, including corporate bonds. One reason for this is the need to decrease DeFi’s reliance on over-collateralization in order to offer financial services like lending and borrowing. RWAs provide a new avenue for financial innovation in this regard.
Overall, 2023 marked a pivotal year for RWA tokenization in the crypto space, suggesting a broadening scope for digital assets beyond just cryptocurrencies. This led to increased involvement from major financial institutions and innovative applications in DeFi that contribute to the growing integration of traditional financial assets into the digital asset ecosystem.
The trends of 2023 will continue to evolve in the new year. Overall, we can expect more scalability improvements in L1 networks that will, in turn, lead to more possibilities for financial innovations. This will solidify the appeal that derivatives and RWAs already have. It will also enable new developments such as cross-chain liquidity and better custody, which are key to an influx of institutional capital into crypto markets.
We anticipate technologies that will match or even surpass the efficiency of systems like Visa in transaction processing, which is the “Golden Benchmark.” This advancement is significant, as it will mark a milestone in technological superiority over current standards.
Transactions on L1 networks like Ethereum can be costly and time-consuming at the moment. However, with protocols like Arbitrum and Optimism, these pain points have been reduced significantly. ZkSync’s future plans aim to lower these costs further, which is crucial for widespread adoption, particularly for retail users who are more affected by transaction fees.
Moreover, these improvements are vital for institutions concerned with transaction volume and settlement speed. These factors, often overlooked in retail transactions, are crucial for institutions. In 2024, development teams will be pushing the technology even further to make transaction fees affordable not only at the retail scale but also for larger investors.
A by-product of improved infrastructure will be better liquidity flows across different networks. This will be an important step forward, akin to a streaming aggregator platform, merging content from various networks into a single subscription service. This aggregated approach will offer superior liquidity, broader user demographics, minimized dependency risks, and enhanced versatility for users.
Juan: So far, cross-chain bridges, crucial for interoperability, have been vulnerable to hacks and vulnerabilities, posing considerable risks to the ecosystem. Innovative solutions, like cross-chain bridges and interoperability protocols by projects like Cosmos and Polkadot, are being developed to overcome these obstacles.
Moreover, the future of cross-chain DeFi will likely involve the introduction of standards and regulations for interoperability that will result in enhanced user experiences, collaborative ecosystems, and significant investment in research and development. These developments aim to create a more decentralized, global, and inclusive financial system in 2024.”
Another notable development in 2024 will be the continued evolution of custody solutions. For example, exchanges like Binance are now facilitating users to maintain custody through custodians like Fireblocks or Copper. This shift allows trading on centralized exchanges without depositing funds, mitigating the risk of losing control over assets in case of an exchange’s failure or hack.
Custodians also present a safe solution for larger investors and institutions to partake in crypto without the fear of losing funds. Today, institutions such as BlackRock or KBC are reluctant to use centralized exchanges and deposit funds because they won’t take the risk of Binance getting hacked and losing all their funds.
As a result, more and more exchanges allow investors to keep custody via a custodian like Fireblocks or Copper, which allows them to trade on these exchanges while keeping their funds separately with their custodian.
In this new landscape, custodians are emerging as crucial technology providers, enhancing security and reducing risk. In extreme scenarios, like the collapse of Fireblocks or Copper, users retain control over their funds, demonstrating a significant reduction in risk levels.
Jeremy: The diminishing role of custodians in centralized exchanges leads to a blurring of lines with decentralized exchanges because suddenly, neither of the two is a custodian, signaling a sort of convergence of the two technologies where we return to the principle of giving control of funds back to the users. This shift will eventually transform the role of exchanges to simply matching user transactions without handling custody like it’s the case in traditional finance.
Keyrock experienced significant growth during the past year, hiring over 100 new team members, expanding internationally, and demonstrating robust organizational progress.
The firm is now poised to leverage current market opportunities for substantial growth and expansion in 2024, aiming to solidify its position in the market.
Kevin: In 2024, Keyrock plans to capitalize on market conditions with a focused strategy to enhance its growth trajectory. Our aim is to evolve into a major player in the digital finance sector, underpinned by strong business lines covering all liquidity needs on digital assets, both spot and derivatives.
To achieve this, we will stay current with market trends and developments involving a comprehensive coverage of all asset classes. This includes everything from spot trading and derivatives to RWAs, both in centralized CeFi and DeFi. We offer this diverse range of services through our market-making solutions and customized offerings from our OTC desk.
Our methodology is designed to address every facet of these asset classes. We’re agile in adapting to emerging asset types, regardless of the technology behind them. We possess the technological infrastructure and the financial models necessary to support the utility of these diverse protocols. Whether dealing with real-world assets, tokens, technologies like zkSync, or operations on centralized and decentralized exchanges, Keyrock is fully equipped.
This holistic approach is key to our mission at Keyrock, as we aim to stay at the cutting edge of the industry, ready to meet diverse needs and anticipate changes in the market.
In 2023, we also established Keyrock Labs, marking a significant stride in our journey. This entity enables us not only to participate in the market but also to drive innovation in DeFi. We’re actively involved in the creation of financial primitives on-chain, positioning us as a leader in this evolving landscape.
Stef: Keyrock Labs consistently monitors the DeFi landscape, investing substantial effort in understanding, assimilating, and implementing emerging protocols. This proactive approach lets us quickly discern what can work for our operational strategies, ensuring we confidently remain steadfast once a niche protocol becomes widely adopted.
Besides interacting with promising early-stage projects, we also collaborate with DeFi platforms with solid foundations to increase mass adoption through their technology or approach to unlocking new asset classes.
Our partnership with Radix is a striking example. As a crypto market maker, we’re excited about this opportunity to deploy $10 million into the ecosystem, which perfectly aligns with our mission to expand tokenized economies and adapt financial strategies through DeFi applications. Thanks to its robust tech stack, Keyrock firmly believes in the Radix ecosystem’s ability to foster user and developer adoption.
Another example of our DeFi activities is our dedication to participating in RWA initiatives, such as our partnership with Credix. The decentralized credit marketplace initiated a receivable pool in close collaboration with other major actors such as Clave and Solana Foundation.
This fully insured receivable pool showcases the application of real-world asset tokenization (in this case, private credit and bonds) and how different stakeholders, with their expertise, can make it a reality within DeFi while stimulating emerging countries’ economies.
Another focus for Keyrock is to leverage the emerging emphasis on on-chain reputation in the crypto space. This is more than just an opportunity; it’s a crucial path we fully commit to engaging in and integrating into our operations.
Stef: We aim to establish a strong on-chain reputation by being an active participant and contributor, ensuring our activities reflect our commitment to integrity and innovation.
Our governance initiatives exemplify this commitment. We are staunch advocates of on-chain transparency, reliability, and the adoption of a decentralized digital asset ecosystem. DAOs and their governance are crucial to these values and the wider adoption of tokenized economies.
Keyrock’s approach to DAO governance involves holding or acquiring tokens through delegation from external entities. Our governance wallet, 0xkeyrock.eth, has been one of the most active participants in DAOs such as Uniswap and Aave. Our commitment to the growth of decentralized ecosystems is also highlighted by our contributions to running validators in multiple L1s.
As we step into 2024, Keyrock is set to continue its trajectory of growth and innovation. With advancements in derivatives, a focus on on-chain reputation, and the continued development of Keyrock Labs, we are ready to tackle the challenges and opportunities that lie ahead. We remain committed to being a dynamic participant and driver of innovation in the crypto space, especially within DeFi.
Last year brought significant advancement and learning for Keyrock, setting the stage for an even more impactful 2024.
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