How will the DeFi & NFT perform in 2023?

2022-12-21, 05:57

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![](https://gimg2.gateimg.com/blog/1673333078476625239HowwilltheDeFiNFTperformin2023_web.jpg)

**<font size=3>[TL;DR]</font>**
🔹 DeFi saw about a 70% drawdown since the second quarter of 2022.
🔹 From January to September 2022, NFT trading volume fell by 97%.
🔹 Volatility, dubious activities, complexity, and limited acceptance are major reasons for the decline in NFT and DeFi in 2022
🔹 Developing new and more innovative financial products, and services might be a development opportunity for DeFi in 2023.
The use of NFTs to represent and trade digital assets, such as collectibles and virtual real estate, is anticipated to increase in 2023.

<_iframe_ title="Metaverse, NFTs & Web 3.0: What you NEED to know" src="https://youtube.com/embed/yRdrpZyUh1o" allow="autoplay; encrypted-media" allowfullscreen="true" data-time="588" data-date="2022-10-12" data-desc="On this episode, we will see how Metaverse, Nfts and Web 3.0 are connected. The endless possibilities and what to expect in the near future" data-thumb="https://gimg2.gateimg.com/blog/1674037259246953269MetaverseNFTs Web3.jpeg">
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## Overview of DeFi and NFT
Sales of NFT soared from $59.3 million in 2020 to nearly $12 billion in 2021, rocking the crypto industry. Every aspect of the cryptocurrency business, from cutting-edge crypto protocols to established centralized exchanges, has developed features focused on NFT use cases. NFTs are more than pricey Profile Pictures (PFPs)—they open up a wide range of use cases across several applications and will be a crucial primitive for the metaverse (read our metaverse primer.) While we majorly used NFTs as profile photos and digital avatars up until now, we predict that their use will eventually go well beyond these basic use cases.

Financialization will be essential to unleashing this additional benefit from NFTs as the ecosystem matures and NFTs become more widely accepted and utilized. To that aim, an intriguing synergy between NFTs and DeFi has given rise to several cutting-edge applications in the field. We mention key protocols and current difficulties as NFTs introduce more common consumers to DeFi via these innovative apps. Correct pricing and liquidity are the major barriers to NFT adoption in the DeFi ecosystem. These two significant headwinds are being addressed by DeFi, with variable degrees of effectiveness.
## Defi Performance in 2022
This section examines the most important trends and KPIs for the DeFi ecosystem in 2022. Bridges became a vital hub as the primary sectors of DeFi continued to expand, with Bridges becoming a central node. DeFi protocols showed resiliency in the face of hardship, while many centralized institutions failed to adapt to the price decline caused by heavy leverage.
### State of the MarketState of the Market
**Price Movement**
Since the market meltdown in January 2022, the price of DeFi tokens has continued to plummet. The average "blue-chip" DeFi token is currently 90% below its high in May, with the vast majority of DeFi tokens seeing even bigger drawdowns1. The significant decline seen over the last year is likely attributable partly to the exceptional price performance in 2020/21, which led to profit-taking and subsequent de-risking. The second quarter of 2022 was one of the worst quarters for DeFi tokens, as the average price of "blue chip" tokens fell almost 65% vs USD while being steady against ETH. Utilizing the DeFi Pulse Index (DPI) as a stand-in for the "high-quality" market, we display the price movement for DeFi tokens.

![](https://gimg2.gateimg.com/image/article/1671601939111.png)<font size=1><center/>Source: Coinshares</center></font>

### Total Value Locked (TVL)
TVL is a term used to describe the total amount of assets submitted via the DeFi protocol. Users of the dApps looking for a return on their investment deposit these assets, which are not necessarily the protocol's property. Protocols often provide tokens as an incentive to users that increase their TVL. A big TVL may draw more funding and lessen the need for unsustainable incentives since we can see large TVL protocols as more reliable (although this is not always the case). A big TVL increases the number of possible use cases and aids in liquidity. As of Q2 2022, TVL was $70 billion, down 70% from the previous quarter. We can see the latest quarter's development of TVL below.

![](https://gimg2.gateimg.com/image/article/1671602131222.png)<font size=1><center/>Source: stelareum.io/ DeFi TVL<center></font>

## NFT Performance in 2022
The bear market has significantly affected the NFT market in 2022. Trading-related activities are now unprofitable for the first time in the history of NFTs. Despite a complex economic environment, NFTs continue to surprise us, and we notice significant Metaverses and Utility trends over time, stimulating the markets. With speculation in a tailspin, the sector has again entered a low-key construction period.

NFT 2022 performance
![](https://gimg2.gateimg.com/image/article/1671602175333.png)<font size=1><center/>Source: NFT<center></font>

NFT transaction volume overall drastically decreased in 2022.

NFT trading volume fell by 97% between January 2022 and September 2022, from $17 billion in value to barely $466 million.

A total of 19,000 transactions, valued at about $13.8 million, were made in June 2022. Total NFT market value decreased by 40% from March to June 2022, while trading volume decreased by 66%. These declines were perfectly timed with declining [Ethereum price](https://www.gate.io/trade/ETH_USDT)s.

The single-highest value trading day in NFT history occurred on May 1, 2022, when 118,577 NFTs were sold for a combined value of $780.4 million. NFT pricing and transactions have not shown any meaningful indications of recovery as the cryptocurrency market has persisted in a "crypto winter."

![](https://gimg2.gateimg.com/image/article/1671602205444.png)<font size=1><center/>NFT performance 2022<center></font>

Google revealed that searches for NFTs had decreased by 88% in less than a year in November 2022, which is the most practical indication of how interest in the industry is dwindling.

## Reasons for the performance
Here are some reasons for NFT and DeFi performance in 2022
Dubious activities: The NFT industry is especially rife with fraud. The year has seen numerous frauds and rug-pulls among NFTs & DeFi assets. This has greatly impacted the trust for these class non-traditional assets

Volatility: DeFI and NFT's values may swing dramatically over short periods if they are very volatile. This is because their value is based on speculation and is impacted by the overall performance of the crypto market.

Complexity: DeFi and NFT may be complicated and difficult to comprehend, particularly for people with no background in technology or finance. Because of this, some users may find them mysterious and inaccessible.

Limited acceptance: Compared to centralized currencies, DeFi and NFT are not as commonly recognized as a means of payment. Because of this, using them in routine transactions may be challenging.

## How will NFT & DeFi perform in 2023?
Since the performance of the dominant crypto assets still has an overwhelming impact on Decentralized finance & NFTs, it may be difficult to predict their performance independently. However, DeFi and NFTs will continue to expand and gain mainstream adoption through unique & more user-friendly Dapps & products.

Developing new and more innovative financial products and services might be a development opportunity for DeFi in 2023. For instance, new DeFi protocols may arise that provide users access to various financial instruments, such as derivatives and insurance products. Additionally, the adoption of DeFi for real-world applications like supply chain financing and cross-border payments may rise.

Undoubtedly, the NFT market suffered a significant setback in 2022, but some  optimistic experts and business insiders believe the sector will recover significantly in 2023. This optimism is based on the fact that NFTs are a critical component of the digital economy, which seems destined to grow even if it doesn't develop into the "parallel universe" that some believe would be similarly significant to the current market. The use of NFTs to represent and trade digital assets, such as collectables and virtual real estate, is anticipated to increase. This might lead to NFT-specific financial goods and services and new markets and platforms for NFTs. In addition, enterprises and organizations might boost their use of NFTs to tokenize and monetize their digital assets.
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## Conclusion
Despite NFTs and Defi assets have tanked this year, the exploration in the industry has enough room to accommodate more liquidity as the entire market recover. It may also see the greatest innovation in tokenomics and incentive structures over the next several years. In the near future, we expect to witness innovation in several initiatives, including NFT collections experimenting with DeFi 3.0 primitives. Platforms built on top of NFT-native AMM exchanges and risk-hedging protocols that use well-known or newly developed NFT derivatives may also surface in 2023.

<div class="blog-details-info">
<div>Author:** M. Olatunji**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>