Coinbase Predicts Substantial Growth of Newer L1 Chains & Institutionalization of Regulated DeFi


Cryptocurrency exchange Coinbase is seeing a growing focus on Ethereum competitors, the institutionalization of decentralized finance (DeFi), and non-fungible tokens (NFT).

This week, Surojit Chatterjee, Chief Product Officer at Coinbase, released some predictions for 2022. It noted that while it is expecting Eth scalability to improve, with crypto going mainstream, scalability changes for ETH are likely to grow further.

“I am optimistic about improvements in Eth scalability with the emergence of Eth2 and many L2 rollups,” said Chatterjee. He also sees the emergence of new L1s besides the current competitors like Solana and Avalanche. This, in turn, will lead to improvements in speed and usability of cross-L1 and L1-L2 bridges.

Zero-knowledge proof (ZKP) technology is also predicted to get increased traction both from users and investors, said Coinbase. This has already been seen with Polygon and Starknet. With this, new privacy-centric use cases will emerge, bringing more regulatory attention to crypto as KYC/AML could be a real challenge in privacy-centric networks.

In the world of DeFi, Coinbase sees these protocols embrace regulation, have separate KYC user pools and insurance. The growth of regulated DeFi will result in institutions playing a much more significant role in this sector, who are attracted to much higher interest-based returns compared to traditional financial products.

As for NFTs, Chatterjee sees them continue expanding and becoming the next evolution of users’ digital identity to the metaverse. “We’ll see creator tokens or fan tokens take more of a first-class seat,” he added.

These metaverses created by users will become the future of social networks and start threatening today’s advertising-driven centralized versions of social networks.

Besides users, brands will also jump into NFTs for marketing and establishing loyalty. Already this year, tech giant Facebook (now Meta) has rebranded itself as a Web3 company, and Coinbase sees other big Web2 companies joining the Web3 and metaverse, but they will be centralized and closed networks.

The latest trend of decentralized autonomous organizations (DAOs) will also become more mature and mainstream, said Chatterjee. But as more people join DAOs, DAO 2.0 will take its place.

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