Zero Knowledge Proofs (ZKPs) are a versatile tool that finds two primary applications in the field of blockchain: outsourced verifiable computation and private computation. We expect ZKP will continue to grow in the following areas.

￮ Layer 2 scaling: ZKPs enable Layer 2 scaling, which allows L1s to outsource transaction processing to off-chain high-performance systems. This makes it possible to scale blockchain without compromising security

￮ Private L1s: ZKPs allow L1 chains like Aleo, Mina, and Zcash to hide senders, receivers, or amounts using ZKPs, either by default (e.g., Aleo) or as an opt-in (e.g., Mina)

￮ Decentralized Storage: Filecoin uses ZKPs to prove that nodes in the network store data correctly.

￮ Blockchain Compression: Zero-Knowledge Proofs (ZKPs) can be used to compress the blockchain (e.g., Celo), allowing for synchronization to the latest state of the chain using a small proof.

Zero-knowledge proofs (ZKPs) have the potential to enable scalable and private payments as well as smart contract platforms. However, their adoption has historically been hindered by the non-trivial overhead they introduce. ZKPs are slow and will require hardware acceleration to be made feasible over complex computations in the coming year. We believe that field-programmable gate arrays (FPGAs) will matter most for ZK hardware acceleration. In addition, we also expect a decrease in the cost of generating proofs. A higher cost of proof generation can make transactions more expensive and potentially result in a longer time to achieve finality. Several improvements in proof generation costs are expected in 2023 and beyond, including prover-level optimizations (such as Hyperplonk and Caulk), general optimizations, and aforementioned ZKP-specific hardware. There is also a trend towards EVM compatibility, with different types of ZK-EVMs making tradeoffs between compatibility and proof generation costs. For example, a Type 1 ZK-EVM prioritizes compatibility over proof generation cost (e.g., Talking), while a Type 4 ZK-EVM prioritizes proof generation cost (e.g., Zksnyc). In addition, there will be a trend for Type 3-compatible systems to switch to Type 2 ZK-EVMs in the coming years (e.g., Polygon Zkevm, Scroll).

In the past 2022, a bunch of Black Swan events like FTX triggered a seismic shift in the global cryptocurrency community and we believe it will change the narrative of Exchanges in the crypto world in 2023. DEXs will have a higher market cap than before because of the growing demand for decentralization, security, and transparency. The trend of CEX being further challenged by DEX will be accompanied by the evolution of exchange mechanisms, moving from traditional order book-based models to automated market makers (AMMs), and eventually, to hybrid models that combine the best features of both order books and AMMs, addressing the issue of low fund utilization rate, the significant interest rate spread in borrowing and lending and excessive reliance on oracle price quotes. Regardless of DEXs, we will also see a huge oppertunity for the growth and development of decentralized protocols as liquidity providers in the crypto market. Aggregator protocols are utilizing DeFi liquidity to serve end-users, extending these services beyond the limited realm and providing cryptocurrency enthusiasts with top-notch, one-stop and comprehensive products and services through effectively improving the user experience without requiring direct interaction with the liquidity layer. Besides, we also anticipate further experimentation with stablecoins such as algorithmic stablecoins and collateralized stablecoins, which will have a more robust peg with USD or other primary legal tenders. Especially for algorithmic stablecoins with cross-chain deployment capabilities, they have the potential to achieve true decentralization, cross-chain interoperability, and infinite scalability by freely issued, transferred, and traded on any chain.

From the lending perspective, we expect more attempts like TrueFi on low-collateralized lending and collateral-free lending methodologies, which can decrease the lending cost of traders, promote the circulation and utilization of funds, improve capital efficiency, and increase arbitrage opportunities. However, some issues also need tackled, such as establishing on-chain financial credit for crypto users, fostering trust, promoting universal compatibility, and implementing governance and regulation. Besides, there is also a trend from spot to all kinds of derivatives including perpetual contracts, futures, options and so on. We expect new derivatives, insurances and new structural products to help users robustly hedge or speculate on the risk of a particular pegged asset such as stablecoins and major cryptocurrencies.

Notably, we have already seen remarkable projects like Starbucks Odyssey, which utilizes NFT to record scores and build a community with consensus on consistent royalty and high user retention. To further enhance this business scenario, we need more solutions for NFT-Gated Toolkits and healthy incentive mechanisms to optimize user experience in private communities while providing interaction with the public market. Regarding the market trend of specialization, the volume of NFT market has surpassed the threshold where general markets like Opensea have become impaired, and we are witnessing the rise of specialized markets like Blur. With the beginning of specialized NFT markets, we are looking forward to innovative directions and products that cater to specific user needs. Based on the content recording feature of NFT, we have endless expectations for applications of NFT in new standards which may cultivate new possibilities of records on more complex contracts or products with financial and legal effects, such as RWA like real estate and Treasury bonds, options, futures, bonds, rental contracts, etc. Lastly, we anticipate improvements in liquidity and price discovery for the entire NFT market through mechanisms such as lending, tax splitting, AMM trading, and more, as outlined by NFTFi.

As a normal user, have you ever found your account being disabled suddenly? Or if you are a creator on social media, have you ever considered why the Web2 platforms can easily shadow-ban your content while it is creators like you who are producing content to make the platform thrive? If so, this is just the problem that community tools and SocialFi applications are dedicated to solving. Nowadays, the Web2 era is full of centralized platforms, where a single trusted party can dominate the network, inevitably resulting in problems such as privacy infringement, algorithm abuse, and data monopoly. This is why people choose to march towards a decentralized future, thoroughly from underlying technologies to the application layer. For example, inspired by the original RSS standard, RSS3 protocol proposed a new feed standard that aims to achieve efficient and decentralized content distribution. There are also some notable examples trying to redefine the social networks and graphs. Nostr is building a network where "relays" are in charge of storing and broadcasting the messages to clients, while Lens Protocol aims to redirect the value of data to its owner via the Web3 social graph achieved by turning the user profile into NFT and introducing modularity. These protocols pave the way for the development of Social/Community Dapps such as Damus the Nostr-based social media platform. We value the open-source and trustless features of these Dapps, which may relieve the creator's concern of being treated unfairly. But we still recognize that it may be hard to recommend high-quality content because it allows everyone to make use of the rating rules to benefit their content. We are also expecting these Dapps to set new paradigms to acquire, activate and retent users with examples like Galxe and QuestN that are used to acquire users and launch marketing campaigns. Meanwhile, along with decentralization comes the lack of efficiency, which is why we expect community toolkits to boost effective coordination and operation within Web3 communities. For example, Utopia is designed for DAO to manage the treasury and send salaries, and Dework helps DAO to conduct task management and provide contributors with grants and bounties in an efficient way. In addition, with the revolutionary development of artificial intelligence, AIGC and its related creator economy will be the pioneer power in next round of crypto innovation. With AIGC lowering the technical bar and largely cutting the workload, more people are enabled to participate in the creator economy and its market efficiency is also expected to be boosted with AIGC-supported tools. It is noteworthy that the benefits of AI also ripples to other segments apart from creator economy, such as NFT curation and on-chain game rendering.

It is expected that GameFi Infrastructure will lay a solid foundation for the next scale and level of GameFi. For example, dedicated to building decentralized cloud computing infrastructure, Phala Network enables game projects to employ cloud resources with computing speeds comparable to large centralized providers but without compromising the data privacy. As for rendering, we expect projects like Caduceus to provide distributed rendering computing power with low latency and high throughput. As a major difference from traditional off-chain games, the management of NFT also needs infrastructure to boost efficiency and credibility. This is supported by projects like Enjin and Forte to assist games in launching, utilizing and trading NFT. In addition to the infrastructure, we also expect on-chain games in diverse genres to be the next smash hit. One of the promising genres is the fully on-chain game. We particularly think gambling games like Dark Forest and poker are highly suitable to be fully on-chain. Due to the immutability and consensus mechanism, the randomness of shuffling and dealing can be guaranteed, which eliminates the player's concern on fairness. Besides, casual games, which are easy to develop and play to some extent, are expected to attract more players in the global market and bring playability back to the GameFi market which is currently filled with fortune-seeking speculation. As another promising genre, although X-to-Earn has been criticized for potential ponzi schemes and attracting speculators instead of loyal players, we still expect new paradigms to fix loopholes and continue the propitious story. Similarly, we also have faith in publishing platforms specialized in Web3 games, as well as 3A games such as Illuvium to unlock fascinating gameplay and even push us further into metaverse with highly immersive user experience. In addition, we also expect the improvement of in-game economic models. We emphasized how token utilities can meet the consumer's demand, how tokens can carry the value from and out of protocol, and how the token model ensures a sustainable pipeline from minting to burning. Last, we will also keep track of where the guilds will stand on the wave of GameFi. Although many guilds' aim is to gain profit by providing liquidity and lending NFT assets, such as Yield Guild Games (YGG), we recognize the limitation that it may attract speculators and harm player loyalty, which is in conflict with the interest of the game company who aims for long-term growth. So we also expect guilds with other goals such as player participation, marketing, community and esports, as well as the win-win collaboration between guilds and the game company. With the increase in popularity, infrastructure and underlying tools for guilds will also be new growth points. Examples are open-source guild management scripts, guild incubators and guild comparison services for earners.

In the auditing sector, we expect growth in B2C solutions and the application of new technology in B2B solutions. We will closely follow the B2C auditing platform that provides customers with dynamic risk detection on their digital assets, as well as other scenarios that arouse customers' concern, such as anti-phishing sites, phishing emails and community fraud. Apart from pre-chain testing and on-chain monitoring, we also value the specialized application of innovative technologies in B2B auditing, such as sybil attack detection. Apart from auditing, we consider the payment tools as another focus. With the advantages of reducing settlement time and eliminating the need for third-party verification, it is promising to serve as an alternative solution in places with high inflation in fiat money or difficulty in cross-board payment. It will also become a rigid demand with the development of Web3 industry. However, we still identify its limitations, such as the safety concerns and the difficulty of changing user habits. To tackle these problems, we expect a crypto-oriented KYC/AML regulation system to be established and also relative tools to provide reliable KYC/AML services. Also, to fit into current user habits, creating specialized cryto payment tools may be another promising trend. For example, focusing on Web3 payroll solution, Zebec turns payments into continuous streams and allows workers to leverage the time value of their wages. Many exchanges also collaborate with credit card issuers to launch crypto credit cards, like Binance Pay, which can be used for offline purchasing as long as a user has an account on Binance. In addition, we also closely keep track of other compliance-related topics such as disclosing the use of client's data. In terms of NFT, we expect a clearer distinction between re-creation and plagiarism infringement, as well as a precise clarification of what legal rights should be granted to a NFT holder. We will also keep an eye on whether institutions like SEC will consider crypto and its related services, such as lending and staking, to be securities, in which case stricter regulatory requirements may be unavoidable.