Key Takeaways 

• Narratives in cryptocurrency refer to the trending ideas, stories, or beliefs that shape how people perceive and value cryptocurrencies – they can influence investor sentiment, market trends, and the adoption of new technologies. 

• Layer 1s, Layer 2s (Optimistic rollups and ZK rollups), artificial intelligence, liquid staking derivatives, real-world assets, Chinese coins, decentralized stablecoins, blockchain interoperability, and BTC Ordinals are the top 10 crypto narratives for 2023.

• Crypto narratives can also be misleading or even harmful based on false assumptions or hype. Therefore, it’s important to critically evaluate narratives and base your investment decisions on sound analysis and research.

Market participants are always looking for trends to better understand what is taking place, why it’s taking place, and its potential impacts. Historically, they use the dynamics of market cycles to act more proactively in future market environments. From Elon Musk’s tweets moving the price of DOGE, to believing in the Bitcoin halving driving bull runs every four years, many investors use crypto narratives to predict price action. 

Now, there are multiple emerging trends and themes that are trying to define 2023 and potentially present the next opportunities for big gains. We’ll look at the top 10 crypto narratives making headlines in 2023 in this guide. 

What are Narratives in Cryptocurrency?

Narratives in cryptocurrency refer to the trending ideas, stories, or beliefs that shape how people perceive and value cryptocurrencies. These narratives can influence investor sentiment, market trends, and the adoption of new technologies. 

For example, the narrative of cryptocurrencies as a store of value has attracted many investors who view cryptocurrencies as a hedge against economic uncertainty. Similarly, the narrative of blockchain as a disruptive technology has attracted many entrepreneurs and developers working to build new applications on the blockchain.

Crypto narratives emerge from a combination of factors, including the technological capabilities of cryptocurrencies, social and economic events, and the beliefs and motivations of the individuals involved in the cryptocurrency industry. For instance, the launch of ChatGPT in November 2022 started the Artificial Intelligence (AI) narrative that led to substantial gains in AI-related coins. Mainstream media, social media, online forums, influencers, and market trends can fuel narratives.

Narratives are important because they play a significant role in shaping public perception and subsequently market movements. They provide a framework for people to understand the potential risks and rewards of different types of cryptocurrencies, and they can influence the trajectory of the entire cryptocurrency industry. 

However, crypto narratives can also be misleading or harmful based on false assumptions or hype. As such, it’s important to critically evaluate narratives and base your investment decisions on sound analysis and research.

These are the top 10 crypto narratives to check out in 2023:

Layer 1s

Layer 1s are the fundamental base architectures upon which other blockchain applications, like smart contracts, are built. They perform most on-chain transactions and act as public blockchains’ sources of truth. Traditional L1 blockchains, like Ethereum, tend to experience slow transaction speeds, low scalability, and high gas fee issues. This is where Layer 2 blockchains come in, as they handle the execution of transactions, leaving the L1 to focus on issuing and verifying these transactions on the blockchain. However, new L1 networks are changing the game regarding transaction speed, cost, and interoperability. 

Below are some examples of L1 projects to keep an eye on as the Layer 1 narrative heats up:

Celestia 

Celestia is the “first modular blockchain network to power scalable, secure web3 apps.” It does this by “decoupling consensus from the execution layer,” where Celestia fulfills the core function of a consensus system, which is to order transactions and ensure their availability, leaving executing and validating transactions to the clients that run on Celestia.  Celestia aims to enable projects to seamlessly deploy their own networks without the need to bootstrap a new consensus. Moreover, the project has an impressive team led by Mustafa Al-Bassam, who has a Ph.D. in blockchain scaling. This is definitely one of the L1 projects you should watch, especially with plans to issue their native token in the works. 

Sui

Sui is a “boundless platform to build rich and dynamic on-chain assets from gaming to finance.” It’s the first permissionless L1 network designed from the bottom to help creators and developers create experiences that serve the upcoming billion users in web3. Sui was established by a team of former Meta engineers operating as Mysten Labs.

Sui scales horizontally with no upper limit to meet application demand while ensuring cost-effective transaction costs. Furthermore, it significantly improves scalability by facilitating parallel agreement on simple transactions, like minting and transferring a non-fungible token (NFT). Complex transactions, like asset management and DeFi applications, are processed by Narwhal and Bullshark DAG-based mempool and Byzantine Fault Tolerant (BFT) consensus.

Layer 2s: Optimistic Rollups

Layer 2s are protocols built on top of L1s to scale and grow them further. They minimize computations of L1s by moving transactions off-chain, significantly improving their throughput. L2s total value locked (TVL) has been steadily growing, snubbing the overall DeFi market sentiments and the total cryptocurrency market capitalization. 

Optimistic rollups are L2 scaling solutions that strive to increase transaction throughput and lower fees while maintaining the security guarantees of the underlying blockchains. They leverage a trust-based model to confirm transactions off-chain and add them to the underlying blockchain after being confirmed by a small group of “witnesses.”

Source: Beat

Below are some L2 optimistic rollups projects to watch out for in 2023:

Base

In February 2023, Coinbase launched Base, an L2 blockchain designed to serve millions of upcoming web3 users using Optimism’s OP Stack. The network will provide a secure, cost-effective, developer-friendly solution for creators to build web3 applications. Furthermore, Coinbase has created the Base Ecosystem Fund to support Base startups. 

Arbitrum 

Arbitrum is an L2 scaling solution leveraging optimistic rollups to achieve high throughput and lower user transaction costs. Even after The Merge, Ethereum’s speed and gas fees are still high compared to other networks, like Arbitrum. This has led many web3 users and creators to shift networks, causing Arbitrum’s TVL to hit highs of $3.2B in November 2021. 

The recent ARB airdrop has injected much liquidity into the Arbitrum network. Many users who received ARB tokens were incentivized to use them to trade, stake, or provide liquidity on various decentralized exchanges and protocols built on the Arbitrum network. The airdrop has also helped to increase awareness of the Arbitrum network and its potential as an L2 scaling solution for Ethereum. 

Optimism 

Optimism defines itself as a “fast, stable, and scalable L2 protocol developed by Ethereum developers, for Ethereum developers.” It’s designed as a minimal extension to the current Ethereum blockchain to scale Ethereum applications seamlessly. Unlike the more common EVM-compatible chains, Optimism is EVM-equivalent, which means that Optimism is in full compliance with the formal specifications of the Ethereum blockchain, where Optimism moves in accordance with Ethereum. In August 2022, Optimism saw its TVL hit a high-time high of $1.15B, according to Defillama.  

Layer 2s: ZK Rollups

Zero knowledge rollups (ZK rollups) are Layer 2 scaling solutions that improve Layer 1 throughput by taking computation and state storage off-chain. This way, they can process numerous transactions in batches and post summary data on-chain. Zero knowledge rollups allow you to prove knowledge of something without revealing it. This makes them an attractive solution for applications where privacy is paramount, such as digital identity verification and confidential transactions. 

Here are examples of ZK rollups to watch out for in 2023:

Polygon zkEVM 

Polygon has launched its zero-knowledge Ethereum virtual machine (zkEVM) Mainnet Beta on March 27, 2023, which is a big step towards scaling Ethereum and achieving mainstream web3 adoption. Like Optimism, the Polygon zkEVM is EVM-equivalent, which means that most Ethereum-native applications can function on the zkEVM and developers do not need to modify or reimplement code.

Scroll

Scroll is an L2 solution striving to offer unlimited scalability, high throughput, full decentralization, and trust-minimal privacy. It aims to achieve this by leveraging ZK rollup and high-performance off-chain decentralized systems. 

zkSync Era

zkSync Era is another L2 rollup that leverages zero-knowledge proofs to scale Ethereum without sacrificing security and decentralization aspects. It processes computations and stores most data off-chain. Using zkSync, you enjoy the Ethereum security but at a higher transaction speed and lower cost. 

Starkware

Since its establishment in 2018, Starkware has built L2 ZK rollups, like StarkNet and StarkEx. Like zkSync, Starkware products roll up transactions into batches and confirm their validity via cryptographic proofs.  

Artificial Intelligence

In the past two years, artificial intelligence (AI) has experienced significant growth. ChatGPT has been in the headlines since November 2022, and the competition between Google and Microsoft is getting stiff with Microsoft’s $10B investment in OpenAI and Google’s release of its chatbot, Bard. This has led to a rising interest in AI coins, with their prices assuming upward trends, as seen in the chart below. 

Source: How have ChatGPT and Bard Impacted Artificial Intelligence Tokens?

AI tokens are digital currencies designed to power AI-based projects, like decentralized AI marketplaces, AI-powered portfolio management platforms, prediction platforms, image generation, and more.

Liquid Staking Derivatives

Liquid staking derivatives (LSDs) are cryptocurrencies issued by liquid staking platforms, allowing stakers a means to unlock their illiquid-staked assets and generate more yield. With standard staking, stakers secure proof-of-stake (PoS) blockchains by depositing assets in a protocol. But this presents the issue of capital inefficiency as stakers miss the opportunity to generate extra yield when their assets are illiquid and locked up. 

This is where liquid staking comes in. The value of the derivative asset is pegged to the underlying asset (locked when staked on a proof-of-stake blockchain), where it continues to accumulate rewards and grow in value with time.  Meanwhile, the derivative token can be used to engage in other DeFi activities like lending and providing liquidity. In return, most liquid staking providers take a share of 5-10% of the staking rewards as their revenue.

LSDs solve capital inefficiency, lower staking entry barriers, and improve network security and stability. Check out the top liquid staking tokens by market cap if you are interested in the liquidity staking narrative. 

Real World Assets

Real World Assets (RWAs) are assets existing in the physical world or off-chain but are tokenized and transferred on-chain to act as a source of yield in DeFi. These include real estate, precious metals, commodities, and art. RWAs are a core element of the global financial system; in 2020, for example, global real estate was valued at $326.5T while the gold market cap stood at $12.39 T. 

The potential impact that RWAs can have on DeFi seems huge:

• They can provide a source of sustainable and reliable yield to DeFi, as they are backed by traditional assets.

• They can help DeFi to become more compatible with the traditional financial markets, ensuring more liquidity, capital efficiency, and investment opportunities. 

• They can bridge the gap between DeFi and traditional finance (TradFi).

Maple Finance (MPL), Goldfinch (GFI), Realio (RIO), Centrifuge (CFG), and Blocksquare (BST) are examples of RWAs you can have a look at. 

Chinese Tokens

The history of Chinese digital assets dates back to 2011, when China’s first crypto exchange, BTC China (BTCC), was launched. Some years later, other exchanges, including Huobi and OKCoin, also launched in China. But in 2017, the Chinese government banned crypto activities, including initial coin offerings (ICOs). The ban led to a total closure of all crypto exchanges in China. However, instead of closing down, some exchanges shifted their operations to other crypto-friendly countries. 

In February 2023, China eliminated its “Zero Covid” policy and injected 600B yuan into its economy. This is potentially increasing interest and prices of risk assets, such as cryptocurrencies – specifically Chinese-associated coins. Furthermore, Hong Kong’s recent announcement to let retail investors invest in digital assets from June 1, 2023, is projected to bring more investors to the market, driving the demand for Chinese-based tokens. 

Examples of Chinese-related coins to consider include NEO (NEO), BitDAO & Mantle (BIT), VeChain (VET), Conflux Network (CFX), IRIS Network (IRIS), and OK Exchange (OKX).  

Decentralized Stablecoins

Stablecoins are digital currencies whose value is usually pegged or tied to underlying assets, like fiat currencies, commodities, precious metals, or even a basket of other cryptocurrencies. They track the value of the underlying assets to minimize volatility, and help to make cryptocurrencies ideal for daily use. There are two main types of stablecoins, such as USDC and USDT, which are centralized, where they are issued by a central entity, and decentralized stablecoins. 

Decentralized stablecoins have total transparency and are non-custodial, implying a company or third party doesn’t hold the collateral. Decentralization ensures a trust-minimal and secure system with no censorship and mismanagement of the collateral, as smart contracts and algorithms manage the asset’s supply.

There has been an increasing interest in decentralized stablecoins, despite the TerraUSD (UST) fall on May 7, 2022. Some interesting upcoming decentralized stablecoins to look at include GHO and crvUSD. 

Blockchain Interoperability

Blockchain interoperability has been trending in cryptocurrency in the past few years and may eventually become a game-changer. This will undoubtedly drive blockchain growth and innovation and accelerate the technology’s mainstream adoption globally. So, what is blockchain interoperability?

Blockchain interoperability is the ability of a blockchain to communicate/share data with other blockchains seamlessly. This has been a major pain point for a long time as crypto users found it challenging to seamlessly transfer bitcoin (BTC) to a BNB Smart Chain wallet, for instance, or at least not without complex and insecure wrapping or bridging processes. 

Though blockchain interoperability is still a work in progress, multiple projects strive to make it a reality. They include LayerZero, Polkadot (DOT), Cosmos Hub (ATOM), Cronos (CRO), Flare (FLR), Quant (QNT), and more. 

NFTs: BTC Ordinals 

Ordinals are among the latest trends taking Bitcoin by storm. In January 2023, software engineer Casey Rodarmor deployed the Ordinals protocol on the Bitcoin blockchain, enabling NFT minting on the mainnet. The move spiked mixed reactions from the Bitcoin community. Some saw the move as a threat to the Bitcoin blockchain, while others were excited and started crafting Inscriptions – Bitcoin’s version of NFTs.  

Just like NFTs, Ordinal Inscriptions are digital assets inscribed on a Satoshi, the smallest denomination of a BTC. However, unlike an NFT which utilizes a decentralized file storage system, Ordinals are directly stored on-chain. The inscriptions are made possible by the Taproot upgrade introduced into the Bitcoin blockchain in November 2021.  

The number and order of BTC Ordinals have been closely monitored, and there are some noteworthy collections and high-priced sales made so far. They include Ordinal Punks, Taproot Wizards, Bitcoin Rocks, Timechain Collectibles, Ordinal Loops, Ripcashe’s Power Source, Bitcoin Shrooms, The Shadow Hats, The Dan Files, and Toruses.

To date, there are almost 650,000 Ordinal inscriptions on the Bitcoin blockchain.

Source: https://dune.com/dgtl_assets/bitcoin-ordinals-analysis 

Conclusion

Layer 1s, Layer 2s (Optimistic rollups and ZK rollups), artificial intelligence, liquid staking derivatives, real-world assets, Chinese coins, decentralized stablecoins, blockchain interoperability, and BTC Ordinals are some narratives that may potentially impact the cryptocurrency market for the rest of 2023 (and possibly beyond). Beyond the short-term forethought of these narratives in 2023, it would be prudent to think of their long-term future before diving into them

Remember, this article is only for educational purposes and should not be taken as financial advice. Please do your own research (DYOR) before investing in any asset.