Membrane CEO, Carson Cook, and CIO, Lawrence Richardson give their predictions for Crypto in 2023.

Carson Cook, Chief Executive Officer

The “great unbundling” will begin, as crypto institutions move away from a vertically integrated model. Companies will begin to specialize in individual pieces of crypto infrastructure, such as execution, brokerage, clearing, settlement, custody, etc. rather than housing all of these functions in one entity.

Traditional finance institutions from Wall Street will step in to fill the void left from the shakeup of 2022. These players will see a unique opportunity to dominate the industry after the gains of the last bull run have been erased.

The SEC will begin to assert primary regulatory authority over tokens, while the CFTC will step in as the primary regulator over DeFi. In the world of CeFi, the SEC will continue to cover spot markets and the CFTC will continue to cover derivatives.

The worlds of CeFi and DeFi will blur, as the space in between is explored. “HyFi”, or Hybrid Finance, will emerge where centralized components are used in tandem with smart contract backends for specific functionality. KYC will be commonplace across CeFi, HyFi, and even parts of DeFi.

Lawrence Richardson, Chief Innovation Officer

Bad actors have abused the lack of oversight with financial products involving crypto. We have fast-tracked the lessons learned over the past 200 years in finance to the past decade, and the industry knows that regulation is coming and welcomes it. However, not much will change for the US, as regulatory agencies continue to move at a glacial pace in ‘23, with no clear guidance on who should write the rulebook for US-based crypto entities.

Proposals will be drafted, but they will not be passed, causing unclear best practices to be relied upon. This, in turn, will stunt product development in DeFi that could have been integrated into traditional banking systems. Products will continue to be built, but access will remain outside the US as a precautionary measure for non-domestic companies. US-based companies looking for regulation will not see it in 2023.

Unlike the burdens placed on non-qualified investors, larger independent financial institutions have more leeway with their allocations.

The now old-new guard of crypto institutions, which have failed spectacularly in 2022, arose in part due to access to cheap capital and a knowledge of an arcane asset. Their failures will spur interest from traditional hedge funds, who both have the capital and resources to institute regimented controls.

New counterparties for crypto, but old hats in tradfi, will quickly dominate volume and take over from the wreckage of 2022.

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