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The future of crypto adoption
Written by Dr Martin Hiesboeck head of research at Uphold
If you own any crypto, you are probably familiar with certain words that excite the crypto spirits more than others, like “interoperability,” “to the moon,” or “adoption.” Adoption has traditionally meant mainstream companies, financial institutions and essential networks switching to one of the familiar crypto projects. Crypto bros have done “deep dives” into every single token out there and tried to assess who would use this blockchain for what. The Hedera Council, with its impressive line-up, could lead one to believe HBAR is the blockchain of choice for every major U.S. corporation out there.
But that is far from the truth….
What we are really seeing is an adoption of blockchain, not an acceptance of crypto. Three points in case: FedNow, DB and JP Morgan. When the US wanted to revamp its interbank payment system, it launched FedNow - a closed system in complete contradiction to the principles of public blockchain technology. Despite not being a blockchain itself, rumor has it that it will soon incorporate strictly guarded links to ramps and other blockchain-based components. When JP Morgan, a financial behemoth, joined the blockchain race, it didn’t adopt any of the existing crypto projects and built its own Onyx system and introduced JP Morgan’s Coin for wholesale payments: no Ripple, Stellar or any other payment-based crypto in sight. Whilst having launched a product on Ethereum and, in the last week of October, Deutsche Bank announced plans to build its own blockchain for bank transfers. HSBC has launched a "digital twin" of physical gold not on an existing blockchain but on its own internally developed platform. When the incumbent financial firms talk about “cryptocurrency,” they mean a (temporarily) attractive crypto asset one could add to a portfolio. Yet a survey amongst top DAX companies, informally conducted by research outfit AlpineBlock in March '22, showed that 80% had an interest in blockchain “on their own terms” and only 12% had an interest in “crypto.” As blockchain developers become more plentiful (good ones are still hard to find), companies realize that the main advantage of blockchain may not be the use of an existing system, especially not a public permissionless one, but to build your own or piggy pack with a side chain, rather than “adopting” somebody else’s solution.
The real story here is not of crypto acceptance but blockchain adoption, a technological sea change, and the birth of a new asset class. It is, however, not what the crypto community at large means by adoption. Even Ethereum, the largest and, for institutions, one of the most attractive blockchains out there for modern forms of (decentralized) finance, isn’t gaining much traction beyond people holding and staking ETH. I dare you to name three confirmed projects of an existing top 100 company using a public blockchain project for anything. Not only are companies distrustful of words like “permissionless” and “public,” but they really have little need to use such a project. Hardcore crypto bros still “keep building” to change the world, but they may be overrun by blockchain development outside crypto. There are, for example, tests for chain-agnostic financial instruments with cash-flow projections built into the code, such as Nucleus Finance. One Ethereum proposal circulating sees the future in “digital assets not tied to a specific blockchain, but interoperable with everything.” This is one of the reasons Chainlink ($LINK) has become so popular lately: it is the interoperability solution for decentralized systems, and its CCIP is accessible to anyone. Why pay fees to Oracle or Quant if you can have your own decentralized node solution?
In fact, many crypto projects are struggling to find real use cases. The decade-old quest of Algorand for faster “time to finality” has yielded few real-world collaborations, for example. Neither has Solana, after the NFT craze faded. Adoption of the tech, yes; adoption of crypto, no. Because crypto is associated with crime, nefarious intentions and suspicious actors, constant exploits in the billions of dollars, system outages, public spats between project owners, and fraudulent tokenomics that only benefit the initial holders of a token. That’s not a world in which companies feel at home. The logical consequence of this is an era of stock picking rather than the broader market. The next bull run is a tide that won’t rise all ships: if your blockchain project has no real use case, you won’t be part of the next bull run. Security, privacy, and real use case adoption will be the main themes, once you remove the meme coin noise. At Uphold Institutional, we have made it our mission to identify future winners in a sea of duds and frauds.
We already touched upon it briefly, but interoperability will also be a keyword for the coming bull run. There are several approaches: the DeFi one from Chainlink, the gatekeeper Quant, the entirely DeFi Axelar, and several projects that make the token completely chain-agnostic. This is even more important in NFTs, which will play a big part in the coming cycle, but not in the form you know them: ERC721 tokens on Ethereum, with pixelated images of weed-smoking forest creatures. In fact, we at Uphold predict that a mere 20% of existing top 200 crypto projects by market cap will still be around in 7 years. Many will die a slow and embarrassing death. This week, Polkadot laid off 20% of its workforce as projects using parachains are dwindling in size, importance and profitability. (If they are good, they set out on their own very quickly, like Bittensor TAO). Interoperability, chain-independence, account abstraction, and, of course, artificial intelligence are the main topics of the next bull run, not the Bitcoin halving, the next meme coin, or the speed or throughput of your favourite project. As blockchain enters the mainstream, crypto will slowly change. Parts of the ill will be (rightfully) discarded as garbage, and others will succeed beyond expectation. The differentiator will be usefulness. And “usefulness” is our bread and butter at Uphold Institutional.
Crypto's future is all about blockchain adoption, not specific cryptocurrencies. Big players like JP Morgan and Deutsche Bank are building their own blockchain systems, shunning existing crypto projects. Companies prioritize security and privacy, not public blockchains with crypto associations. Expect a selective crypto market, with only a few projects thriving. Interoperability, security, and real-world use cases are in, while meme coins fade. Blockchain's entry into the mainstream marks a pivotal shift, where utility is the name of the game, as “usefulness” is our bread and butter at Uphold Institutional.