Token Takeaways ✍️
✨ The token space has experienced wild surges and declines in interest throughout 2021 and 2022.
✨ AI, Layer 2, and cross-chain interoperability are key spaces to pay attention to, as highlighted in our Tokens to Watch in 2023 Collection.
✨ The future still looks bright for the token economy.
The token ecosystem is in an interesting spot, but the future looks as bright as ever. After a series of turbulent events shook the cryptocurrency market in 2022, interest in digital assets has waned due to a decline in token prices. However, tokenization’s world-changing potential has not changed. Leading teams are still working on solving problems in hopes of making mass token adoption a reality. Learn more about the state of the ecosystem as we head into 2023 below.
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How does the token landscape look in 2023? 🤔
The token ecosystem has historically followed cyclical patterns. Tokens trade in market cycles, rising in value when interest peaks and declining as it troughs. The hype surrounding the future potential of tokenization tends to get ahead of the present reality in cycle peaks, while pessimism surrounding its long-term potential tends to get ahead of the present reality in cycle troughs.
The last token market cycle spanned from 2020 through 2021. As with previous cycles, Bitcoin claimed the token spotlight for much of the surge. However, tokens occupying niches like decentralised finance, NFTs, meme coins, the Metaverse, and the Layer 1 space also experienced growth. More than any previous cycle, the token ecosystem became extremely fragmented in 2021.
The Terra and FTX Effect ⚠️
After euphoria drove the ecosystem to an all-time high value of $3 trillion in 2021, the market suffered a dramatic downturn in 2022. By far the most notable events of the year were the collapses of Terra and FTX, previously heralded as two major players in the space. Their implosions rocked the entire ecosystem due to their prominence in the space; while token projects often die during bear markets, few rise to such highs before they fall.
The events of the past two years have had a major impact on the token landscape today. Confidence in tokens has declined, casting doubt on whether tokenization will fulfil its promises. However, as with previous downturns, the leading teams continue to build. Their end goal is to create token-based innovations and solutions that benefit the world for years to come. While the token ecosystem has already seen promising hints at how the future may look, builders recognise that it could take years or decades to reach the end goal.
As the market reflects on recent events, some key trends and narratives have dominated the space in early 2023. If they gain real traction, they could become major points of interest in the future when confidence in tokens returns.
What are the key token trends to watch? 👀
Layer 2 ⛓️
One of the most notable developments in the ecosystem today has been the growth of Layer 2. Built to help ease congestion on Ethereum and prepare the network for mass adoption, the leading Layer 2 projects can offer higher speeds and lower transaction fees on blockchains built on top of Ethereum.
The two main forms of Layer 2 solution are Optimistic Rollups and ZK-Rollups, which take slightly different approaches to move data from Ethereum onto new networks. As Layer 2 teams have continued to build, new users have begun to explore the ecosystem. The total value locked in Layer 2 has trended up despite a decline in various other metrics in the token market, hinting that the space could grow in the future.
The AI Revolution 🤖
After the token space entered a period of mania in 2021, the world dismissed the technology when prices fell. Many investors pivoted their attention away from crypto to artificial intelligence as hype in the space grew. The release of ChatGPT, a viral AI chatbot created by San Francisco development company OpenAI, fueled the surge when it went live in November 2022.
Interestingly, as AI hype has grown, several token projects working on merging blockchain and artificial intelligence technologies have benefited from renewed interest. A similar trend played out with Metaverse-based gaming titles shortly after Facebook rebranded to Meta in late 2021.
Solana and Aptos 🏎️
The Solana ecosystem suffered in the fallout from 2022. While Solana adoption soared in 2021, the value locked in its decentralised finance ecosystem plummeted as the market tumbled. However, Solana remains a popular network of choice for developers and users alike. Its NFT ecosystem has proven itself as the biggest contender to Ethereum’s, drawing support from active Solana community members. Solana rose to prominence by offering high speeds and low fees, and other competitors boasting similar benefits have also in recent weeks.
The main example is Aptos, an emerging Layer 1 network promising up to 100,000 transactions per second. While the token market has stayed stagnant for several months, Aptos’ APT rallied to an all-time high in January 2023 as hopes in the network’s future grew.
Cross-Chain Interoperability 🌐
Demand for cross-chain technology that enables communication between blockchains has increased in recent years. The development has shone the spotlight on Cosmos, an early pioneer for multi-chain interoperability. Cosmos allows individual blockchains to connect to one another through one hub, making it easy for users to move tokens freely across the ecosystem. Cosmos has maintained a strong user base despite a decline in activity in the broader token ecosystem.
Defying market turbulence 💪
Other recent trends in the token space offer a preview of how the space could evolve in the future. In 2022, volatility struck the token market, sending many asset prices tumbling. However, certain tokens defied the trend, hinting that they could show long-term strength.
Much of the tumult of 2022 stemmed from weaknesses with centralised entities. While certain services collapsed due to bad practices, decentralised finance showed strength, emerging unscathed after several periods of panic. DeFi showed its potential to serve as an alternative to traditional finance at a crucial time for the ecosystem.
Ethereum and many Ethereum-adjecent projects have also shown resilience against adverse conditions. Ethereum successfully completed the most complex technological upgrade in crypto history in September 2021, renewing confidence in the top smart contract network and key projects within its ecosystem.
While the token ecosystem has weathered volatility over the last two years, the NFT space has shown that it often performs of its own accord. While most NFTs currentlt trade down from their highs, demand for prized pieces has remained high. This suggests that the technology could give rise to a new store-of-value asset class in the future. In recent months, emerging digital artists like Tjo, Grant Riven Yun, pho, and Terrell Jones have captured the attention of enthusiastic collectors. Today, Ethereum is the hub for NFT activity, while Solana has also spawned its own thriving ecosystem.
Our 2023 Collection 🔮
We’ve taken our learnings from recent developments in the token ecosystem to develop a new Collection. Tokens to Watch in 2023 tracks outperformers and projects that occupy trending niches, presenting an overview of areas we’re watching closest this year.
Layer 2 has experienced growth in recent months, and our Collection highlights some of the space’s leading projects. Optimism and StarkNet are both included.
After AI became a dominant narrative in technology, we’ve highlighted two of the token ecosystem’s top AI projects, Fetch and Ocean Protocol.
Tokens to Watch in 2023 also highlights BNB Chain and GMX—two projects that showed relative strength in 2022 while other assets trended down.
While Solana experienced a sharp fall from its peak, the community has held strong. The high-speed Layer 1 project features alongside one of its newest competitors, Aptos, in our Collection.
The Collection also highlights the Cosmos ecosystem, featuring Cosmos Hub and its leading decentralised exchange, Osmosis.
Ethereum is included alongside liquid staking project Lido and Polygon, one of the top smart contract network’s leading scaling solutions.
The Collection also gives a nod to decentralised finance with Aave.
Finally, it features Dogecoin, the meme coin that served as an entry point to the token ecosystem for many new users in 2021.
Discover more 💫
The token space is famously fast-moving and unpredictable, so it can be difficult to identify key developments before they emerge. However, after conducting extensive research into the token market in early 2023, there are some trends we’ve identified. We hope that our Tokens to Watch in 2023 Collection helps token explorers navigate the ecosystem and discover some of the most promising projects to keep an eye on.
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