a16z 2024 Crypto Industry Report: From Regulatory Breakthroughs to Infrastructure Upgrades, 7 Major Trends Interpreting the New Era of Crypto
In the past year, cryptocurrencies have made significant progress in various aspects such as policy, technology, and consumer adoption.
Original Title: "State of Crypto Report 2024: New data on swing states, stablecoins, AI, builder energy, and more"
Authors: Daren Matsuoka & Robert Hackett & Eddy Lazzarin
Compiled by: Deep Tide TechFlow
Two years ago, when we released the first annual “State of Crypto Report” , the world was very different from now. At that time, cryptocurrency was not a priority for policymakers. Bitcoin and Ethereum's exchange-traded products (ETPs) had not yet received SEC approval, and Ethereum had not yet transitioned to a more energy-efficient proof-of-stake model. Second-layer (L2) networks aimed at increasing capacity and reducing transaction costs were essentially inactive, and the transaction fees on them were far higher than they are now.
Today, things have changed, as shown in our newly released 2024 “State of Crypto Report.” Our report covers the rise of cryptocurrency as a hot policy topic, numerous technological improvements in blockchain networks, and the latest trends among cryptocurrency builders and users. The report also:
Delves into the emergence of key applications, such as stablecoins—considered one of the "killer applications" of cryptocurrency;
Explores the intersection of cryptocurrency with other technological trends, such as AI, social networks, and gaming;
Provides new data on swing states' interest in cryptocurrency ahead of the U.S. elections, and more.
The 2024 “State of Crypto Report” also reveals a historic high in crypto activity and analyzes the maturation of blockchain infrastructure, particularly following recent upgrades that significantly reduced on-chain transaction costs, leading to the rise of Ethereum L2 and other high-throughput blockchains.
This year, we also launched a new tool: a16z Crypto Builder Energy Dashboard . For the first time, we share proprietary data based on our unique perspective, including where "builder energy" is located. The dashboard integrates thousands of data points that have been aggregated and anonymized, sourced from our investment team's research, our CSX startup accelerator program, and other industry tracking. With this tool, anyone can understand the activities and interests of cryptocurrency builders—from which blockchains they are building on to the types of applications they are developing, as well as the technologies and locations they are using. We plan to update this data annually as a key component of our annual “State of Crypto” .
7 Key Takeaways
Cryptocurrency activity and usage have reached historic highs
Cryptocurrency has become a key political issue ahead of the U.S. elections
Stablecoins have found product-market fit
Infrastructure improvements have increased capacity and significantly reduced transaction costs
Decentralized finance (DeFi) remains popular and is growing
Cryptocurrency can address some of AI's most pressing challenges
More scalable infrastructure unlocks new on-chain applications
1. Cryptocurrency activity and usage have reached historic highs
The number of active cryptocurrency addresses reached unprecedented levels in September, with 220 million addresses interacting with the blockchain at least once, a figure that has more than tripled since the end of 2023. (As a metric, active addresses are easier to manipulate than other measures. For more on this point, see here .)
This surge in activity is primarily attributed to Solana, which has about 100 million active addresses. Following Solana are NEAR (31 million active addresses), Coinbase's popular L2 network Base (22 million), Tron (14 million), and Bitcoin (11 million). Among Ethereum Virtual Machine (EVM) chains, the most active after Base is Binance's BNB chain (10 million), followed by Ethereum (6 million). (Note: EVM chains calculate the total of 220 million through public key deduplication.)
These trends are also reflected in our Builder Energy Dashboard . The largest growth in total builder interest is seen in Solana. Specifically, the total share of founders indicating they are building or interested in building on Solana increased from 5.1% last year to 11.2% this year. The total share for Base grew from 7.8% last year to 10.7%, followed by Bitcoin, which increased from 2.6% last year to 4.2%.
In absolute numbers, Ethereum still attracts the most builder interest, accounting for 20.8%, followed by Solana and Base. Next are Polygon (7.9%), Optimism (6.7%), Arbitrum (6.2%), Avalanche (4.2%), and Bitcoin (4.2%).
Meanwhile, in June 2024, the number of monthly active mobile crypto wallet users reached a historic high of 29 million. The U.S. accounts for 12% of monthly mobile wallet users, making it the largest market, but its share has declined in recent years due to the growth of global cryptocurrency adoption and more projects seeking compliance by geo-fencing out the U.S.
The use and influence of cryptocurrency continue to expand globally. Outside the U.S., the countries with the most mobile wallet users include Nigeria, which has achieved significant growth in bill payments and retail purchases through a clearer regulatory environment provided by regulatory incubation projects. India has become another important market due to its large population and smartphone penetration, while in Argentina, many residents have turned to cryptocurrency, especially stablecoins, due to currency devaluation.
While active addresses and monthly mobile wallet user numbers are easy to tally, accurately measuring the number of active cryptocurrency users is more complex. We estimate that there are approximately 30 million to 60 million monthly active cryptocurrency users globally, accounting for only 5-10% of the 617 million global cryptocurrency holders estimated by Crypto.com in June 2024. (For more information on the methods behind our estimates, see here .)
This gap highlights the enormous potential for engaging with passive cryptocurrency holders. As significant improvements in infrastructure bring new, engaging applications and user experiences, more dormant cryptocurrency holders may become active.
2. Cryptocurrency has become a key political issue ahead of the U.S. elections
In this election cycle, cryptocurrency has become a focal point of national discussion.
We measured the level of interest in cryptocurrency in swing states. In two key battleground states—Pennsylvania and Wisconsin—cryptocurrency search interest ranked fourth and fifth, respectively, in total search volume on Google Trends since the last election in 2020. Michigan's growth ranked eighth, while Georgia remained unchanged. Meanwhile, interest in Arizona and Nevada has slightly declined since 2020.
The listing of Bitcoin and Ethereum exchange-traded products (ETPs) may have boosted interest in cryptocurrency this year. These ETPs have expanded investor participation and may increase the number of Americans holding cryptocurrency. Currently, Bitcoin and Ethereum ETPs have $65 billion in on-chain assets. (Note: Although commonly referred to as ETFs, these products are actually registered as ETPs using SEC Form S-1, indicating that the underlying portfolio does not contain securities.)
The SEC's approval of ETPs marks an important milestone in cryptocurrency policy. Regardless of which party wins the election in November, many politicians expect bipartisan cooperation on cryptocurrency legislation to make progress. An increasing number of policymakers and politicians across both parties are taking a positive stance on cryptocurrency.
This year, the cryptocurrency industry has also sparked other significant policy movements. At the federal level, the House passed the Financial Innovation and Technology for the 21st Century (FIT21) Act with bipartisan support, with 208 Republicans and 71 Democrats voting in favor. If approved by the Senate, this bill could provide much-needed regulatory clarity for cryptocurrency entrepreneurs.
At the state level, Wyoming passed the Decentralized Nonprofit Corporation (DUNA) Act , which grants legal status to decentralized autonomous organizations (DAOs), allowing blockchain networks to operate legally while maintaining decentralization .
The EU and the UK have been the most proactive in engaging the public on cryptocurrency policy and regulatory issues. Compared to the U.S. Securities and Exchange Commission, various European agencies have issued more requests for comments. Meanwhile, the EU's Markets in Crypto-Assets (MiCA) Act is the first comprehensive cryptocurrency-related policy to pass legislation, expected to come into full effect by the end of the year.
Stablecoins have become one of the most popular cryptocurrency products and a hot topic of policy discussion. Several bills are currently under discussion in Congress. In the U.S., one of the factors driving this trend is that stablecoins can reinforce the international position of the dollar, even as the dollar's status as a global reserve currency has declined. Currently, over 99% of stablecoins are dollar-denominated, far exceeding the second-largest currency, the euro, which accounts for only 0.20%.
In addition to showcasing the dollar's strength globally, stablecoins may also enhance the country's financial foundation domestically. Despite being only a decade old, stablecoins have become among the top 20 holders of U.S. debt, surpassing countries like Germany.
While some countries are exploring central bank digital currencies (CBDCs), the opportunity for stablecoins in the U.S. has matured. Given the number of well-known politicians currently commenting on cryptocurrency issues, we expect more countries to begin seriously refining their cryptocurrency policies and strategies.
3. Stablecoins have found product-market fit
Stablecoins have become one of the most significant "killer applications" in the cryptocurrency space by enabling fast, cheap global payments. As New York Congressman Ritchie Torres stated in a September op-ed in the New York Daily News, the proliferation of dollar stablecoins could represent humanity's largest experiment in financial empowerment, thanks to the ubiquity of smartphones and blockchain's cryptographic technology.
Major scaling upgrades have significantly reduced the cost of cryptocurrency transactions, especially stablecoin transactions, with reductions exceeding 99% in certain cases. For example, on Ethereum, the average gas fee for USDC (a popular dollar-pegged stablecoin) transactions this month was $1, down from $12 in 2021. On Coinbase's L2 network Base, the average cost of sending USDC is less than one cent.
In contrast, the average cost of sending an international wire transfer is $44.
Stablecoins simplify the process of value transfer. In Q2 2024 (ending June 30), their transaction volume reached $8.5 trillion, involving 1 billion transactions. The transaction volume of stablecoins is more than double that of Visa's $3.9 trillion during the same period. Stablecoins are on par with well-known payment services like Visa, PayPal, ACH, and Fedwire, demonstrating their utility.
Stablecoins are not just a fleeting trend. A comparison of stablecoin activity with the volatile market cycles of cryptocurrency reveals that the two seem to have no correlation. In fact, even as spot cryptocurrency trading volumes decline, the number of addresses sending stablecoins monthly continues to rise. In other words, people seem to be using stablecoins not just for trading.
The results of these activities are reflected in usage statistics. Stablecoins account for nearly one-third of daily cryptocurrency usage, reaching 32%, second only to decentralized finance (DeFi) at 34%, as measured by the share of daily active addresses. The remaining cryptocurrency usage is distributed across infrastructure (such as bridges, oracles, maximum extractable value, account abstraction, etc.), token transfers, and some other areas, including emerging applications like gaming, NFTs, and social networks.
4. Infrastructure improvements have increased capacity and significantly reduced transaction costs
One reason stablecoins have become so popular and easy to use is the progress in infrastructure. First, the capacity of blockchains is growing. Thanks to the rise of Ethereum L2 networks and other high-throughput blockchains, the number of transactions processed by blockchains per second is over 50 times what it was four years ago.
Ethereum's most notable upgrade this year, " Dencun ," also known as " protodanksharding " or EIP-4844, implemented in March 2024, significantly reduced fees on L2 networks. Since then, even as the value denominated in ETH on L2 continues to rise, the fees paid on Ethereum for L2 have significantly decreased. This means that blockchain networks have not only become more popular but also more efficient.
Zero-knowledge (ZK) proofs are also showing similar trends, as this technology has significant implications for blockchain scalability, privacy, and interoperability. While the monthly costs for verifying ZK proofs on Ethereum have decreased, the value on ZK rollups denominated in ETH has been increasing. In other words, the costs of ZK proofs are decreasing while their popularity is rising. (Here, we use zero-knowledge as a general term for cryptographic technology that can succinctly prove that computations offloaded to rollup networks are executed correctly.)
ZK technology holds great potential, offering developers a new way to achieve cheap, verifiable blockchain computation. However, the performance of ZK-based virtual machines (zkVMs) still has a long way to go to catch up with traditional computers, which is a humbling observation.
With improvements in infrastructure, blockchain infrastructure has become one of the most popular categories among developers, and L2 has become one of the top 5 hot subcategories we track.
5. DeFi's popularity continues to grow
The only category attracting developers more than blockchain infrastructure is decentralized finance (DeFi), which also accounts for the largest share of cryptocurrency usage, at 34% of daily active addresses. Since the emergence of DeFi in the summer of 2020, decentralized exchanges (DEXs) have captured 10% of spot cryptocurrency trading activity, whereas four years ago, all of this activity occurred on centralized exchanges.
Currently, over $169 billion is locked in thousands of DeFi protocols, with some major DeFi subcategories including staking and lending.
Since Ethereum completed its transition to proof-of-stake just over two years ago, the network's energy consumption and environmental footprint have significantly decreased. Since then, the share of staked Ethereum has risen from 11% two years ago to 29%, greatly enhancing the network's security.
While still in its early stages, DeFi offers a hopeful alternative to address the trends of centralization and power concentration in the U.S. financial system, where the number of banks has decreased by two-thirds since 1990, with fewer and fewer large banks dominating assets.
6. Cryptocurrency can address some of AI's most pressing challenges
AI is one of the hottest trends this year, not only in the broad technology space but also in the cryptocurrency sector.
AI is one of the trends widely discussed by cryptocurrency influencers on social media. More surprisingly, chatgpt.com has a high overlap in visitors with top cryptocurrency websites, indicating a close connection between cryptocurrency and AI users.
The connection between cryptocurrency developers and AI is also strong. According to our Builder Energy Dashboard , about one-third of cryptocurrency projects—34%—indicate they are using AI, regardless of the category they are building in, an increase from 27% a year ago. The most popular category for applying AI technology is blockchain infrastructure projects.
Given that the cost of training cutting-edge AI models has quadrupled annually over the past decade, we believe AI may lead to further concentration of power on the internet. Without intervention, only the largest tech companies may have the capability to train the latest AI models.
The centralization challenges faced by AI are almost the opposite of the decentralization opportunities offered by blockchain. Currently, some cryptocurrency projects are attempting to address these challenges, such as Gensyn (democratizing AI computing usage), Story (compensating creators through intellectual property tracking), Near (running AI on open-source, user-owned protocols), and Starling Labs (validating the authenticity and provenance of digital media).
In the coming years, the intersection of cryptocurrency and AI may become even closer.
7. More scalable infrastructure unlocks new on-chain applications
As transaction costs decrease and blockchain capacity increases, many potential cryptocurrency consumer applications become possible.
For example, the NFT market has undergone significant changes. A few years ago, due to high cryptocurrency transaction fees, people traded NFTs on secondary markets for billions of dollars. As transaction fees have decreased, this activity has diminished, giving rise to a new trend of minting low-cost NFT collectibles on social applications like Zora and Rodeo.
Social networks are another example. Although they currently account for only a small portion of daily on-chain activity, they have attracted significant attention from developers. According to our Builder Energy Dashboard , 10.3% of cryptocurrency projects in 2024 are social-related. In fact, projects related to social networks, such as those associated with Farcaster, are among the top five hottest developer subcategories this year.
As developers and consumers explore more social experiences, on-chain gaming is challenging the scalability of blockchains. For example, the rollups used by the role-playing game Pirate Nation from Proof Of Play consistently consume the most gas among Ethereum rollups.
With the November elections approaching, cryptocurrency-based prediction markets are rising, despite being illegal in the U.S., while the overall prediction market is gaining momentum. For instance, Kalshi, a non-cryptocurrency prediction market registered with the U.S. Commodity Futures Trading Commission, recently won support from a lower court in a federal lawsuit attempting to list election contracts. (As of now, registered exchanges are allowed to offer traditional futures contracts based on elections.)
Consumers are beginning to exhibit new behavior patterns. When blockchain infrastructure is cumbersome and transaction costs are high, these emerging experiences are difficult to realize. With improvements in blockchain along the classic technology price-performance curve, these applications are expected to thrive.
Where does this leave us? Over the past year, cryptocurrency has made significant progress in policy, technology, consumer adoption, and more. Policy advancements include the rapid approval and listing of Bitcoin and Ethereum ETPs, as well as the passage of important bipartisan cryptocurrency legislation. Major improvements in infrastructure include scaling upgrades and the rise of Ethereum L2 and other high-throughput blockchains. New applications are also continuously being developed and utilized, from the growth of mainstream products like stablecoins to explorations in emerging areas like AI, social networks, and gaming.
Whether we have entered the fifth wave of the price-innovation cycle remains to be seen. Regardless, as an industry, cryptocurrency has made undeniable progress over the past year. As demonstrated by ChatGPT, it only takes one breakthrough product to change an entire industry.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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