In 2022, Blockchain and Distributed Ledger technologies continued their path of evolution and transformation along several lines. The Blockchain & Distributed Ledger Observatory, in this third year of activity, has studied the phenomenon in all its components: from business aspects to technological evolutions. One of the main blockchain trend that emerged is that, at the same time as the hype that characterized the previous years is thinning out, the market is increasingly focusing on the establishment of ecosystems that aim to create value through the creation of infrastructure platforms and applications based on them.
Blockchain: the hype is over, get ready for ecosystems
Blockchain ecosystems
Companies and public administrations around the world are beginning to understand the benefits of these technologies and work on developing concrete projects. This paradigm shift that started in the past years is consolidated in 2020, in fact, while international projects in 2020 grew by 59% compared to 2019, announcements dropped by almost 80%: a possible sign of the exit from the hype and the shift towards more concrete projects.
In Europe, too, companies are mainly focusing on starting operational projects. However, investments in Blockchain and Distributed Ledger by Italian companies declined by 23% in 2020. The reasons for the decrease in the market, which was booming in 2019, are mainly to be found in the impact of the Covid-19 pandemic on new projects: companies have focused on the development of projects already started before the pandemic, while few have launched new ones.
Blockchain and Distributed Ledger projects are characterized by the presence of different actors who collaborate with each other for the creation of platforms through which to obtain consensus on a shared vision of reality without resorting to the presence of intermediaries. These platforms, in which participants interact following common rules, give life to complex ecosystems oriented to the creation of value through the construction of applications. The set of platforms and applications constitute what can be called “Blockchain Ecosystems”.
Business platforms and applications
In 2022, a phase of increased platform maturity has begun: some have become operational and others will become operational in early 2023. We are seeing a gradual shift in the market from an “infrastructure” development phase to an application development phase. In fact, in 2020, the percentage of projects relying on existing platforms has risen further, continuing the trend that began in recent years.
To date, it is possible to divide the existing platforms into two categories:
- General purpose, which can be leveraged by companies in any industry to create different applications (they are divided into permissionless and permissioned);
- Application specific, which focus on a specific application or limited application scope.
Most of the projects developed by companies and public administrations, to date, refer to application-specific platforms, still making interoperability between applications difficult and reducing the potential offered by Blockchain ecosystems.
In many cases, companies, aware of the difficulties involved in developing a platform, deliberately choose to start with a simple application case that can garner a large number of participants in order to later develop more innovative solutions that allow the full potential of these technologies to be realized.
What is required for business application development?
To harness the potential of Blockchain ecosystems and create innovative applications, there are a few elements that have yet to be fully developed.
First, it is important that these ecosystems are not born closed, but must be able to accommodate new participants within a platform or application. In addition, the platforms must offer reliable performance in terms of both scalability and security.
Other key aspects relate to applications: these must be able to integrate with the information systems currently used by companies and must be able to rely on a regulatory framework that defines clear rules, while leaving open the possibility of innovation.
Finally, there is a need for applications to be able to leverage certain structural and enabling services that Blockchain and Distributed Ledger technologies enable, such as Self-Sovereign Identity or “cash on chain”.
The phenomenon of decentralized finance (DeFi): an example of a Blockchain ecosystem
An interesting example of how different applications, developed within the same Blockchain ecosystem, can interact to generate value is represented by DeFi, which in the last year has had a dizzying growth (the value invested in applications that are part of it has increased by more than 2,000%).
These decentralized applications (dApps), developed primarily on the permissionless Ethereum platform, are focused on offering financial services and products to the public. Currently, DeFi’s main solutions fall into four groups:
- stablecoins (e.g. Maker);
- decentralized exchanges (e.g. Uniswap);
- Services to lend cryptocurrencies and tokens (e.g., Compound and Aave);
- financial asset tokenization solutions (e.g. Synthetix).
Since most of these applications use the same platform (Ethereum) and are therefore based on the same code, developers can adopt a modular approach that allows each application to interact with the others, using their services.
However, it is important to understand that these dynamics are not to be considered confined to the financial sector alone; on the contrary, they may represent the vanguard of a technological evolution that we may see in the coming years in various sectors.
Future developments
The development of the enabling infrastructure for Blockchain ecosystems is not over yet: new platforms will emerge and existing ones will continue to improve. Permissioned and permissionless ecosystems will increasingly be able to communicate and will continue to converge.
Companies and public administrations will continue to develop more and more relevant applications even without waiting for the full maturity of the technology and indeed driving the technological evolution of Blockchain towards solutions that are more easily usable.
The development of platforms will then have to go hand in hand also with the evolution of Blockchain regulation, which is often still an obstacle to the development of the most innovative solutions.
Again, however, we expect that it is the applications that will push the regulator to define clear rules, as happened in the case of Diem, formerly Libra, and the Markets in Crypto Asset Regulation (“MiCA”).
