Looking forward to the era of super applications: Top ten trends in blockchain development over the next three years

Author: Bi Lianghuan, Chief Researcher at OKLink Research Institute

• Decentralized finance will not be fortified against traditional finance; the boundaries between the two will gradually open up, potentially merging through synthetic assets and other means.
• More and more governments will not be satisfied with small-scale trials to improve administrative efficiency. Beyond enhancing efficiency and breaking data silos, digital identity, digital assets, and blockchain platforms related to these two areas will also attract the attention of more government agencies.

Since blockchain technology entered the public eye with Bitcoin over a decade ago, it has evolved into one exciting new engine after another, including virtual assets, digital collectibles, the metaverse, and Web 3.0. In addition to the continuous development of technology and applications, capital has also become restless. In early 2022, Sequoia Capital announced the launch of a $500 to $600 million Web 3.0 investment fund. As the main promoter of this fund, Michelle Bailhe stated that Sequoia Capital is focused on investing in the next technological era. The world's first stock exchange, established in Amsterdam in 1602, has been around for over 400 years, and after enduring the test of time, the securities industry has become an important channel for companies to expand financing. Similarly, the transformation and impact of blockchain technology on human life will also undergo long-term accumulation and continuous evolution, ultimately developing into the next wave.

Currently, the blockchain industry has entered the early adoption phase. According to Blockdata, the financing amount for the blockchain and cryptocurrency industry reached $29.9 billion in 2022, more than ten times that of five years ago. With the boost from capital, we are eagerly anticipating the upcoming blockchain super applications, hoping they can become giants in the Web 3.0 field, just like Tencent, Alibaba, and Amazon in the Web 2.0 era. This article will trace important milestones in the history of blockchain technology development and explore the top ten directions for the future development of blockchain applications along this historical trajectory.

Business Applications: Starting from Trust, Beyond Finance

In 1997, Nobel laureate Robert Merton believed that financial technology could neither replace trust nor create it. Trust encompasses two dimensions: reliability and competence. Blockchain technology is often referred to as a trust machine, inherently possessing attributes of the financial industry. Trust, as the foundation of transactional or exchange relationships in society, is of paramount importance, and the first large-scale application began here—attempting to solve the trust issue of third-party financial intermediaries. At the end of 2008, the concept of Bitcoin emerged, bringing blockchain technology into the public eye. "This new electronic currency system is entirely peer-to-peer and does not require a trusted third party." This was the first application of blockchain technology. All of this originated from the trust issues brought about by third-party intermediaries, and as the application of blockchain technology continues to evolve, its uses will undoubtedly extend beyond finance.

Trend 1: The Fusion and Coexistence of TradFi and DeFi

However, Bitcoin's positioning has inherent limitations. Thus, Ethereum, positioned as a general-purpose platform, emerged with smart contracts, aiming to allow all developers to build their own blockchain extension applications on it. This has also led to one of the largest application scenarios on Ethereum: decentralized finance (DeFi). This is entirely different from traditional finance, which provides trust through third-party intermediaries. From the native virtual asset AMM mechanism to the current compliant platforms that connect TradFi (traditional finance) to DeFi, the continuous innovation in decentralized finance has also attracted the attention of governments worldwide. For example, on November 3, 2022, the Monetary Authority of Singapore executed the first real-world use case of an institutional-level DeFi protocol, with participants including JPMorgan, DBS Bank, and SBI Digital Asset Holdings, who completed foreign exchange and government bond transactions using the AAVE protocol.

After several years of development, the application scenarios of DeFi have become increasingly rich, and data has witnessed the growth trajectory of DeFi. In 2023, the total asset scale on DeFi reached $28.6 billion (as of January 29, 2023), growing by 22.5% in just two months. During the same period, the Nasdaq index grew by 11.03%.

As the largest application scenario, the future development of decentralized finance remains immeasurable. With various countries experimenting with decentralized finance applications and building regulatory frameworks for virtual assets, in the future, decentralized finance will not be fortified against traditional finance; the boundaries between the two will gradually open up, potentially merging through synthetic assets and other means. The CeFi (centralized finance) black swan event in 2022 heightened users' risk awareness, leading more users to shift towards diverse platforms, including decentralized finance. With more assets flowing in, the total asset scale of decentralized finance is expected to increase rapidly.

Trend 2: NFTs Rising to Corporate Strategy

In addition to decentralized finance, which has developed from the fundamental characteristics of blockchain, NFTs (non-fungible tokens) have become a vehicle for companies to advance their business model upgrades. In practical scenarios, NFTs are not limited to specific forms of digital assets; their application range is very broad and can include any form you can imagine, such as images, music, videos, online collectibles, or even a piece of text. In March 2021, the NFT digital artwork "Everydays: The First 5000 Days" sold for an astronomical $69.3 million at a Christie's auction, igniting global interest. In 2021, Ezek collaborated with Jay Chou's fashion brand PHANTACi to launch the NFT project Phanta Bear, which sold out in about 40 minutes.

The most fitting aspect of NFTs for companies is that they can carry brand value and create a network effect. Many well-known brands, including Nike, Adidas, Tiffany, and Starbucks, have launched their own NFT strategies and have already begun to turn a profit. Among them, Nike's performance stands out, with NFT revenue ranking first among all brands. As of now, Nike's total NFT revenue is $186 million, nearly eight times that of the second-place Dolce & Gabbana.

Launch status of major brand flagship NFT projects. Source: Messari

However, using NFTs to endow brand value and create a network effect cannot overlook the brand's image and the overall project design. For example, Porsche's first NFT series, launched on January 23, 2023, fell below the issue price on the first day of sale.

In addition to issuing NFT digital products that carry brand value around their own products, some companies have also used NFTs as membership tools. For instance, Starbucks has endowed its brand NFTs with a series of membership benefits: online coffee-making classes, artist co-branded products, and trips to the "Starbucks Hacienda Alsacia" coffee farm in Costa Rica.

Although the NFT market in 2022 did not reach the same level of enthusiasm as in 2021, this does not hinder industry giants from exploring the NFT path. Amazon is expected to launch its NFT program in the spring of 2023. The documentary "NFTMe," launched by the company at the end of 2022, has already showcased its open attitude towards NFTs. We observe that the journey of NFT tools will go through three stages: from managing core IP to rising as a brand corporate strategy, and then to deepening into the metaverse. In the future, in addition to early layout companies gradually turning a profit, more companies will use NFTs to endow value to their brands. In today's information-overloaded society, companies will use NFTs to enhance brand stickiness, create a network effect, and seek new growth points.

Trend 3: Continuous Upgrades of Metaverse Entry Hardware

People hope that decentralized finance can solve some existing financial pain points through innovative applications. In contrast, for the metaverse, which is based on blockchain technology, people expect it to create a whole new demand or a whole new world. The metaverse we envision is heavily reliant on hardware infrastructure. Citibank estimates that the content flow environment of the metaverse needs to increase computing efficiency to over 1000 times the current level. Significant investments are needed in computing, storage, network infrastructure, consumer hardware, and game development platforms. The rise of the metaverse not only requires higher demands for hardware but also has vast potential for improvements in networking and computing power.

Virtual reality, augmented reality, and the collective term mixed reality will be the "entrance" to the metaverse. The popularity of the metaverse concept has also propelled the aforementioned fields to mature year by year, supporting users' immersive experiences to continue upgrading. According to research firm Statista, the global AR (augmented reality) and VR (virtual reality) market is expected to reach $72.8 billion by 2024.

Smartphones have changed our way of life, and now technology companies are upgrading hardware related to the metaverse. "In the future, if you don't have augmented reality, your life will be disrupted, just as today, if we don't have the internet, we wouldn't know how to grow," expressed Apple CEO Tim Cook, sharing his excitement. Additionally, when Meta released its VR headset in 2022, Mark Zuckerberg predicted that the device would change the way people work. In 2023, Lenovo Group launched the Chronos motion capture device to enhance the metaverse, a gray box weighing over 3 kilograms. Project Chronos is referred to as the metaverse "portal," enabling real-time motion capture without wearable devices and synchronizing it to virtual characters for a fully immersive virtual reality experience.

As hardware and technology for the metaverse continue to upgrade, the development of "lightweight" or even "invisible" solutions has become a consensus for future development, which will also propel the metaverse towards a grander narrative.

Trend 4: Blockchain Applications Bring New Business Models

Decades from now, the online world of QR codes and text communication may become akin to a typewriter—an "antique." Gartner predicts that by 2026, 25% of people will spend at least one hour each day engaged in various activities within the metaverse. According to Global Data, the metaverse market is expected to reach $996.42 billion by 2030. Currently, well-known metaverse examples, such as the game "Fortnite," Sandbox, and Decentraland, are more involved in the gaming and entertainment sectors. Companies like Coca-Cola, Louis Vuitton, and Sotheby's have businesses in Decentraland. However, these are merely the "primary" games of the metaverse.

We are more optimistic about companies that leverage the metaverse to create new business models, not just limited to gaming, entertainment, or online office work; this is the "ultimate game." In e-commerce, as the traffic dividends of traditional e-commerce platforms fade, merchants' thinking has begun to shift towards private domain traffic operations. The virtual platforms of the metaverse can leverage Web 3.0 traffic, and business models combined with the metaverse can enhance user stickiness in private domain traffic. For example, Walmart launched Walmart Land on Roblox to capture the attention of the next generation of users, combining virtual products with a "selling" model, and introduced three experiences: Electric Island, Style Home, and Electronic Music Festival, using these new experiences to carry its brand value, achieving a coordinated unity of online and offline brand value, and continuously exploring future omnichannel shopping experiences.

Perhaps viewing the metaverse as a tool rather than an end goal will be more conducive to exploring future business growth.

Trend 5: Opportunities in Niche Tracks

In addition to mainstream tracks like DeFi, NFTs, and the metaverse, the development of blockchain technology applications naturally relies on development tools and information service tools. In the field of blockchain technology applications, people often focus more on platforms that support gaming, asset issuance and trading, and supply chain efficiency improvements. However, at the same time, some niche tracks in blockchain technology are also making strides.

Rootdata shows that there have been 53 investment projects in this field, mainly concentrated in the seed round stage. The sub-track of on-chain data & analysis has been the most active in terms of financing, with 36 deals accounting for 36.73% of the total financing amount in this field. Projects that raised over $100 million include blockchain data analysis company Chainalysis ($170 million) and crypto asset software company Lukka ($110 million).

Some tech companies provide different services based on on-chain data. Image source: OKLink Research Institute

Blockchain technology is inseparable from on-chain data. Regarding the relationship between the two, Zhang Chao, Vice President of OKLink and Executive Director of OKLink Holdings, described it as follows: "If we view the next-generation internet Web 3.0 as a person, then blockchain technology is the blood vessels connecting all organs, and on-chain data is the blood flowing through these vessels, delivering the necessary materials and energy to all cells."

In addition to the on-chain data track, there are other tool types. For example, the industry chaos in 2022 has created a new demand for virtual asset auditing companies, and capital has begun to make significant investments. "To do a good job, one must first sharpen their tools," which also reflects the true value of niche tracks like development tools and information service tools. Niche tracks are full of growth potential; what is niche today may become a major direction in the future.

Trend 6: Blockchain Technology Applications Become More "Green"

After a period of rapid growth, the issues accompanying this rapid development have gradually attracted industry attention. Regenerative finance (ReFi) has emerged as a new narrative, with various institutions interpreting it differently. However, it generally advocates for addressing climate change, supporting environmental protection and biodiversity, and creating a more equitable and sustainable financial system. This aligns with the increasing acceptance of environmental, social, and governance (ESG) metrics by mainstream venture capital and the launch of sustainability-focused funds.

In September 2022, the World Economic Forum launched the Crypto Sustainability Alliance, focusing on accelerating the adoption of ReFi. Elon Musk also founded the X Prize Foundation, which is currently venturing into ReFi. Moreover, many L1 and L2 blockchains, such as Cosmos, Polygon, and Near, have explicitly stated their commitment to promoting and supporting a low-carbon green economy. Currently, there are multiple applications in the ReFi track. Regen Network focuses on helping companies purchase, trade, and recycle carbon credits on-chain. Additionally, several ReFi games launched in early 2023 aim to incentivize users to engage in environmentally beneficial behaviors, such as Pozzle Planet and WheelCoin. The blockchain application Icago from the Industrial and Commercial Bank of China rewards users who use energy-efficient vehicles.

In the future, more applications will enter the ReFi space, proving that the development of blockchain has indeed moved beyond the "land grab" era. They will attract companies and users to participate in solving global issues and use tokens to calculate their contributions and provide economic returns, or incorporate sustainable and green concepts into their projects or enterprises. Currently, many L1 and L2 blockchains are also providing special funds to encourage more developers to enter this field.

Trend 7: Mergers and Acquisitions Accelerate Blockchain Applications into the Super Application Era

The application of blockchain technology in different scenarios relies on the power of capital. With the industry's development, mergers and acquisitions in the capital market are accelerating. According to publicly available data, there have been a total of 129 merger transactions in the blockchain industry over the seven years since 2013, with a transaction scale of approximately $2.6 billion. According to Blockdata, there were 251 mergers in the year from August 2021 to August 2022. Most of these were concentrated in trading platforms, NFT markets, and blockchain development platforms and infrastructure tools. During a significant market downturn, the blockchain industry is expected to see a surge in merger activities from the second half of 2022 to 2023.

In 2022, some companies saw their valuations drop by 70%, making them attractive acquisition targets. There are typically two types of acquirers: one type consists of companies with strong financial capabilities that continuously expand their market scale through mergers; the other type consists of companies looking to enter new businesses through such means. For example, in December 2021, American sportswear giant Nike announced the acquisition of the crypto fashion brand RTFKT, and within a week of launching RTFKT's first virtual avatar project CloneX, the trading volume exceeded $140 million. eBay acquired the NFT trading platform KnownOrigin in June 2022. In addition to other industries acquiring blockchain companies, there are also reverse acquisition cases. The NFT project Doodles announced in early 2023 the acquisition of the Emmy-nominated animation studio Golden Wolf.

In the future, we will see more bilateral acquisitions, with blockchain application companies seeking more resource integration and business expansion from other industries. These acquisitions will undoubtedly accelerate the pace of blockchain technology application development.

Government Applications: Efficiency and Transformation, Blockchain Applications Join Top-Level Design

Blockchain technology is no longer a novelty, but it has undergone a long exploration before achieving concrete applications and effectively solving problems. The unchanging intention across various sectors is to use appropriate technology to solve different problems, rather than using technology for its own sake. As early as 2019, countries such as Germany, the United States, and China had elevated blockchain to a national strategic level, and the Monetary Authority of Singapore referred to blockchain technology as the "foundation" of economic development. So, three years later, how have governments progressed in promoting blockchain at the governmental level?

Trend 8: Government Affairs Transition from Trials to Top-Level Design

The existing government systems face many issues, such as departmental collaboration, data linkage, efficiency, and difficulties in data rights and responsibilities. Haidian District in Beijing has opened a "Blockchain Zone" on the Haidian Tong App, allowing direct handling of public rental housing subsidies and the approval of high-skilled talent training subsidies in Haidian District. In Jiangsu, the first nationwide transaction of idle residential usage rights based on blockchain technology was successfully completed. There are many such application cases across the country. Not only in China, but in Switzerland, the famous tourist town of Witzikon issued tokens to stimulate local consumption and help local small and medium-sized enterprises emerge from the shadow of the pandemic. France has also launched blockchain-based projects based on the advantages and structure of its industrial sector, promoting industrial transformation and upgrading through technological empowerment.

Seoul City Government launches the first phase of the Seoul Metaverse.

However, governments are no longer satisfied with merely trialing blockchain applications in administrative affairs; integrating blockchain technology into the top-level design of the entire government or central bank has become the next research direction for various countries. One successful case is our digital renminbi. As of the first half of 2022, pilot areas in 15 provinces and cities had completed approximately 264 million transactions using digital renminbi, amounting to about 83 billion renminbi, with the number of merchant stores supporting digital renminbi payments reaching 4.567 million. Regarding the application of blockchain for digital identity, South Korea plans to launch a blockchain-based digital ID for citizens in 2024, allowing activities such as applying for national welfare, transferring funds, and even voting with just a personal identification code or fingerprint. The World Bank calls digital identity a "game changer." On January 30, 2023, the Dubai International Financial Centre announced the launch of the DIFC Metaverse platform, aiming to better provide services in the metaverse and further advance Dubai's metaverse strategy.

More and more governments will not be satisfied with small-scale trials to improve administrative efficiency. Beyond enhancing efficiency and breaking data silos, digital identity, digital assets, and blockchain platforms related to these two areas will also attract the attention of more government agencies.

Trend 9: Diverse Applications of Blockchain in National Defense and Military

In addition to government affairs, national defense and military have also become application scenarios for blockchain technology. Blockchain technology has been applied in areas such as military supply chains, battlefield material support and rescue, data security, and crimes related to virtual assets.

Statistics show that the United States, Russia, and NATO are the most active countries and regions in the application of blockchain in defense/military, with applications covering military-civil integration, command and control, communication, operations, and military logistics. Each country has its focus; for example, the United States emphasizes data protection. In March last year, SpiderOak collaborated with Lockheed Martin to develop a blockchain solution to ensure satellite communication security, including developing a multi-domain command and control platform to provide interoperable and collaborative secure communication systems for the Department of Defense and its allies. In China, the military often uses integrated software and hardware solutions, rarely employing purely online products like BaaS.

Although blockchain technology has enhanced the data management capabilities of military defense, its inherent technical limitations still restrict large-scale military applications. Therefore, breaking the bottleneck of blockchain technology for large-scale applications will be the next goal for military defense applications. Given the security requirements of military defense, the integration of blockchain software and hardware will be an important development direction in the future.

Trend 10: Technological Regulation to Fill Cybersecurity Regulatory Gaps

As technology continues to develop, the amount of money involved in virtual currency crimes is also on the rise. Some new forms of crime are diverse and highly liquid, leading to huge amounts of money involved, numerous victims, and regulatory difficulties.

Currently, some tech companies in the industry are using technology to fill regulatory gaps in cybersecurity and cybercrime. Taking OKLink as an example, based on the data from multiple mainstream public chains, through deep data mining and modeling with machine learning and pattern recognition algorithms, the platform's extensive address label database can automatically generate fund flow diagrams, thereby expanding analytical thinking and achieving technological assistance for law enforcement.

Future regulatory systems will move towards a distributed model, combined with technological regulation, such as collaborating with multiple professional on-chain data analysis and tracking institutions, not only regulating from a financial system perspective but also providing early warnings based on on-chain data and technology. Additionally, some regulatory provisions can also be combined with smart contract technology. To address the current challenges of cross-border regulation, a decentralized organizational structure could be established, operated by an international regulatory committee to fill this gap.

The Uneven Future of Blockchain Applications

Blockchain has come a long way from its initial concept to application trials in different scenarios over the decades. The technology has undergone continuous upgrades, integration, and innovation, finding application scenarios and accumulating successful practical experiences. Many industry pioneers may have forgotten that this is a lengthy process, and this is just the first step in changing people's lives. When futuristic films come to life, only those players who have long adhered to their original intentions will qualify to remain at the "table."

"The future is here; it's just unevenly distributed," said science fiction literary pioneer William Gibson. The future of blockchain is not a castle in the air or a mirage; it is transitioning from application trials to a flourishing landscape and will ultimately usher in the super application era of the blockchain industry, just like the internet did in 2010.