Industry gained considerable attention throughout 2021. Accordingly, these developments pave the way for a brighter future in 2022.

Labs recently released a market report identifying potential trends and forecasts that could materialize in the coming months.

Infrastructure is still a problem

Although competition among infrastructure providers increases significantly in 2021, important bottlenecks still need to be addressed. For example, to be leading to development (decentralized application) but suffers from severe network congestion and high transaction fees. Some layer 2 solutions have somewhat solved this problem, but there are still many challenges for them to achieve lasting traction. The same goes for most of the “competitors of the , because it's all just in its infancy. It is therefore imperative to address these constraints by 2022 and beyond.

Many people expect Ethereum 2.0 release should help alleviate some concerns. Accordingly, implementing sharding solves network congestion, transaction fees, and low throughput. Unfortunately, that rollout will be in stages and probably won't be complete in 2022. Other networks like , and will continue to attract users and developers as long as Ethereum The whole problem has not been solved yet.

However, it's important to note that layer 2 solutions will follow the same path as Ethereum. It is only a matter of time until gas prices on these layers begin to rapidly increase, putting them at a disadvantage in the process of becoming Ethereum's transaction fee avoidance solution. Unless developers can find a creative solution, that will also affect any cross-chain bridges using layer 2 networks.

NFT and Metaverse in 2022

The role of the irreplaceable token in the field will become clearer in 2022. Market Currently being divided into artwork, collectibles and gaming. But there will be many new initiatives and vehicles using non-fungible token standards hitting the market soon. Besides, will support activities including avatars, virtual space, economic activity, etc. In essence, Metaverse can help perfect scenarios for NFT's development, while tokens are non-fungible. will push the Metaverse to grow stronger and stronger.

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Talking about Metaverse, currently this field mainly revolves around gaming. However, it has great potential to blur the line between real-world and virtual-world activities. Projects that create private, isolated Metaverse are the necessary first step towards that goal. Then, connecting these virtual worlds will be a major hurdle to overcome and eventually culminate in the creation of a Multi-Metaverse space.

Two other Metaverse trends are expected to be the role of and cross-chain bridging. Decentralized finance has proven to be efficient and stable, serving as a solid foundation for economic Metaverse operations. More, and NFT form a solid combination and apply to many Metaverse use cases. Metaverse is the equivalent of empowering users. Offering a broader range of assets, products and services will pave the way to broader financial inclusion.

Developers can make a lot of progress on the cross-chain bridge front for Metaverse. Current initiatives focus on one , giving rise to the problem of "ecological islands". Furthermore, most public chains try to grow on the infrastructure front, reducing the appeal of Metaverse projects using their technology. Cross-chain bridges can overcome these challenges and bring better performance to Metaverse, NFT, and decentralized finance.

Regulatory trends

Like in previous years, regulation for the crypto industry remains a pressing topic. Most countries around the world are still undecided on this. The lack of a clear framework can stifle innovation and should be avoided at all costs. Besides, the process of regulating the industry has become even more difficult due to innovative concepts such as DeFi, NFT, Metaverse, etc.

Regulators and policymakers need to focus on creating regulatory frameworks for Metaverse. This technology has received mainstream interest from enthusiasts and many companies. Clear guidance on what can and cannot be done in the virtual world will help legitimize such efforts. Analysts of KuCoin Labs hopefully things will improve significantly on this front. Furthermore, the report suggests policymakers should issue some guidance soon. For example, it can be applied to decentralized identity, an identity method to use Metaverse in different activities.

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Regulations DeFi

Decentralized finance is sure to attract interest from regulators as well. However, protecting investors without compromising innovation and decentralization is a major barrier that needs to be addressed. In addition, current regulatory guidelines cannot be applied to the DeFi industry. Therefore, a new regulatory model is needed, depending on how , BIS or FATF industry approach.

Furthermore, the way DeFi protocols are governed poses an unprecedented regulatory hurdle. Holders holding large amounts of tokens gain more voting power, showing a degree of centralization. To date, the possibility of achieving decentralized governance has proven to be virtually impossible, but Decentralized Autonomous Organizations () can assist. Labs hope will be a major trend in the DeFi sector for 2022, although new mechanisms may emerge.

One final topic to consider is merging decentralized finance with KYC (identity verification) and user privacy requirements. Some level of regulatory compliance needs to be set. DeFi solutions need permission, like Arc, is an intriguing approach to this problem. However, the KuCoin team expects both institutional and non-organizational DeFi users to comply with the regulations sooner or later. On-chain KYC could be an option, although developers will find many more ideas this year.

Security outlook blockchain

The year 2021 is once again filled with many blockchain security incidents, from DeFi carpet pulling to exchanges being hacked and smart contract mining. Therefore, it is necessary to change a few things in 2022 and the coming years. Unfortunately, that's easier said than done, especially when blockchain transactions are irreversible. Beyond that, there are no real “protections” for affected users, although insurance protocols may provide a solution.

Code audits need to become the norm by 2022 in the broader blockchain industry. Many audit firms have been established, including CertiK, SlowMist, etc. Audits can help detect any bugs or issues before smart contracts are deployed in a live environment. As audit firms get better funded, they will help eliminate more risks in the blockchain industry. However, it is up to the developers and programmers to edit the code and not everyone does it.

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Coverage protocols can provide an extra layer of protection and security. There are several such protocols in DeFi today and they are mainly focused on mutual fund pools or financial derivatives. Unfortunately, their growth is stifled by high fees, KYC requirements, no cross-chain support, and inefficient use of capital. However, according to the report, attracting institutional players will force better and more efficient insurance protocols.

One final aspect to consider is transaction privacy. Public blockchains allow the use of aliases, but do not provide privacy or anonymity. Even private computing protocols – Manta, , zkSync… also sacrifices decentralization to increase computing power. The need for transaction privacy will increase as blockchain and cryptocurrencies evolve, requiring more and more innovative private computing initiatives.

2022 may be challenging, but productive

2022 is expected to bring many much-needed changes to the broader industry. Ongoing developments to bring decentralized technology into the mainstream is one of the avenues to look forward to. But unfortunately, this innovation will require some regulation to convince mainstream followers. Whether regulators will ultimately make the tough decisions remains unclear, but they cannot postpone these decisions forever.

On the industrial front, it is still important to address existing infrastructure bottlenecks. Innovative ideas like DeFi, NFT and Metaverse can't come true through the lines existing infrastructure. Inefficiencies and high costs need to be eliminated without compromising decentralization.

In summary, there is much to look forward to in 2022, but there is also much more to do.

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