Explore the State of Crypto 2024: New Data on Crypto Users, Builders, and Technologies

Transcript

hi everyone my name is Darren matsuoka I'm a data science partner on the a6c crypto team and I'm here to present the 2024 state of crypto report we first started doing this report 3 years ago back in 20122 and at the time we were excited about transaction fees being in the singled digigit dollars on a handful of brand new layer 2s these l2s accounted for just 1% of activity on ethereum there were no crypto ETFs and this technology was certainly not top of mind for policy makers ethereum was still consuming huge amounts of energy with proof of work as we're about to cover the world has changed a lot since

then we like to use this report as an opportunity each year to take a step back look at all the data that we have consult with various experts and ultimately bring it all together into a single perspective on the state of crypto today let's Jump Right In this report is divided into six sections we'll start by sizing up the industry we'll talk about how crypto has entered the main stage as an important political topic we'll discuss the infrastructure improvements the emerging applications we'll share some proprietary data that we have on Builders and then end with a few thoughts on where we're headed so how big is crypto today this is a question we get all the time as a starting point

you can see that monthly active addresses are at an all-time high and if you overlay a time- shifted plot of Internet users starting in 1992 you'll see that we're on a somewhat similar trajectory now I'll be the first to tell you that active addresses is not the best measure of real crypto users and in fact in the coming slides we'll unpack what's behind those addresses and provide an estimate of what we think the real number of crypto users is still monthly onchain usage is an intentionally strict measure of crypto adoption and there's plenty to be excited about with the all Trends here so we'll see what happens between now and 2031 on our path to what is hopefully a billion crypto users now which blockchains are these users transacting on of course there's a lot

of noise and sensitivity when it comes to comparing chains but I don't think it's unfair to say that base in salana were some of the top destinations for crypto users in 2024 now I'd caution you in drawing too many conclusions from this data alone but I think the bigger Point here is that we are in a multi-chain world and there's plenty of high quality block space to build on another data source that we like to look at is Mobile Wallet users which is harder to gain because it comes directly from the App Store and Google Play Store just like active addresses we recently hit an alltime high and if you look at the geographic Trends you'll see that countries like Nigeria India and Argentina are growing quickly you might also notice the US is diminishing market share over the last few years that's the

dark blue which has gone from a majority share to less than 20% as crypto becomes more Global here is an attempt to size up the crypto industry we believe that there are 30 to 60 million real users transacting monthly this is based on an internal analysis where we took a number of different approaches to the estimate we don't have time to go into the details here but we published a separate write up on our latest thinking around this topic if you're interested but if you compare the 30 to 60 million number with the 617 million people who own crypto you'll see that there's a huge growth opportunity to convert existing crypto owners into active users by bringing them on chain we are now just a few weeks out from the US presidential

election and it's clear that crypto has now become an important political issue there is a ton of noise out there but the truth is crypto has seen bipartisan support the quotes on this slide from Key political leaders including vice president Harris and former president Trump show that they're ready to pass legislation and give this industry much need needed regulatory Clarity I think our policy team would say there's still a lot of work to do but we're optimistic that the US will eventually get this right now I don't think it's a coincidence that all this support comes in an election year as we know this is shaping up to be a very tight race that will likely be decided by a handful of counties in a handful of Swing States as a result we did an analysis using Google

Trends data where we looked at the relative change in crypto search interest over a basket of terms from 2020 to 2024 and we found that Pennsylvania and Wisconsin are in the top five there are 40 million Americans who own crypto they're young bipartisan and could throw their weight behind crypto-friendly candidates election aside there are real crypto policy discussions happening around the world our team pulled together some data on crypto related consultations across topics authorities and jurisdictions and we found that jurisdictions like the EU and the UK are ahead of the United States States when it comes to public engagement all this work has put us on a good path toward

regulatory Clarity for the crypto industry the results speak for themselves Duna which recognizes Dows as legal entities was signed into law by the state of Wyoming in March this could become an industry standard for decentralized protocols fit 21 a bill that provides clear rules while promoting crypto innovation in America received support from 71 house Democrats in May the EU regulations are also coming online with Micah's full regulatory framework becoming applicable in December with the shifting political wins a headline story of 2024 was the surprise approvals of Bitcoin and ethereum ETFs or more properly stated etps while the inflow numbers haven't

been that high I've talked to some experts and they say that getting the Distributors activated is just something that's going to take time I think this is a big deal because it legitimizes crypto as an asset class and puts us on on a path to being a part of every Diversified portfolio there are National Security concerns for policy makers to consider as many of you know the US dollar status as a reserve currency gives the United States tremendous power but it's under threat from foreign Sovereign digital currencies since Russia invaded Ukraine and sanctions were imposed wholesale cbdc developments have doubled so what should the US do about this well the opportunity is right there over 99% of stable coin market cap is denominated in

USD this split is unusually high we know that the dollar dominates the global economy but not nearly to this level as you can see with foreign exchange reserves which are in Decline International debt loans and payments so rather than developing a US Central Bank digital currency why not Embrace what's already working stable coins are also a big source of demand for the growing US debt in less than a decade stable coins have become a top 20 holder of us treasuries this is ahead of entire countries like Germany stable coins are especially useful in countries with rampant inflation in Argentina for example there's a direct negative correlation between the purchasing power

of the Argentine peso and the country's stable coin trading these people are using stable coins to protect their assets we also wanted to show the consolidation of power happening across the US economy the number of US Banks is in steep decline with the top five now controlling close to half of all assets six tech companies are worth more than 50% of the NASDAQ 100 this consolidation is worrisome but crypto can help decentralize power now we can't talk about the state of crypto in 2024 without talking about all the infrastructure improvements that were made this year there are still lots of unknowns when it comes to blockchain scaling but I think one thing has become pretty clear the future of crypto is

multichain blockchains are becoming more and more interoperable and ethereum is serving as a central hub for flows speaking of ethereum the layer 2 Vision is finally becoming a reality for a long time now we've been tracking the percentage of L1 fees paid by rollups and that number was up only that is until earlier this year with EIP 4844 also called Proto Dan sharding which was an upgrade that significantly reduced costs for l2s we also show the eth denominated value on L2 which indicates the drop is a result of cost reduction not lack of L2 adoption but the important question to ask is how does this impact users let's look through the lens of trying to send US Dollars

internationally without crypto you could use a wire transfer and pay about $44 in 2021 you could have used usdc on ethereum and paid $112 today you can use usdc on ethereum and pay about $1 or you could use usdc on base a layer two and pay less than a cent this is a more than 99% cost reduction and it's what infrastructure improvements are all about of course ethereum and the l2s are not the only way to scale blockchains other high throughput blockchains like salana ton sui Aptos and near are gaining significant traction with users and developers another way to illustrate the progress is to look at the number of

actual transactions processed per second on January 1st 2020 less than 4 years ago since then we've more than 50x the transaction throughput which unlocks entirely new applications that are only now possible account abstraction and I'd say better user experiences more generally are a critical part of the infrastructure story using smart contract wallets can provide tremendous benefits for users this includes things like social recovery options sponsored gas fees and more efficient bundling in the last 3 months 10% of user actions on base were invoked by 4337 account abstraction zero knowledge proofs are another key unlock for crypto infrastructure it's potentially the

endgame solution for scaling privacy and interoperability we're seeing more and more ZK apps in production the ZK rollups are finally coming online and there are now over 250 active projects in the space ZK also unlocks a whole new programming Paradigm for developers by pushing a lot of the complex logic offchain and proving it onchain this can create a much richer design space for applic for example proving data from an existing web 2 service using something like ZK TLS or ZK Emil is extremely interesting ZK Tech has improved at a pace that I think few people would have imagined but our research and Engineering teams will be the first to

tell you we still have a very long way to go state-of-the-art ZK virtual machines have improved by roughly 10x in the last couple years but we're still in the 1960s era on the classic mors law chart for microprocessors humbling for our jolt team staking and more recently reaking has been an important Trend to watch since ethereum transitioned to proof of stake in 2022 currently 29% of all eth is Stak and 5% is restak mostly into the igen layer protocol this creates billions of dollars in security for the network now all these infrastructure improvements are for nothing if we don't have applications so what are the key

crypto apps that are emerging we can look at active addresses by different application categories and see that Defi and stable coins dominate activity today it's still early days for things like gaming and social but there are some promising emerging behaviors which we'll talk about one category that has found product Market fit is stable coins the stable coin Supply is back to all-time highs and today it's largely a two horse race between usdc and tether the fact that we can even put stable coins into a comparison against PayPal V Visa AC and the fedwire is mind-blowing it's becoming clear that stable coins are a killer app for crypto one criticism we've seen is that stable coins are just

used for crypto trading but the recent growth in stable coins is actually uncorrelated with crypto Market Cycles this shows that there is adoption Beyond just trading use cases another significant area of development has been at the intersection of crypto and AI it's no secret that AI training takes a huge amount of compute resources and only the biggest tech companies have access to those resources therefore AI is an extremely centralizing technology crypto can be a counterbalancing force and there are a number of interesting ideas the AI industry will face extraordinary challenges we're trending toward a world of endless deep fakes but crypto can help us track the authenticity and origins of the things

we see online a good example is the ctpa standard for signed digital media and using ZK proofs to show that only certain modifications were made we're also trending toward a world of growing compute costs and GPU shortages but companies like Jensen can help democratize access to the longtail of otherwise idle resources we know that trust in AI companies is falling but crypto can make things more transparent and auditable blockchains like near are doubling down building the infrastructure to make this possible and finally AI will be big but creators and data contributors currently receive nothing companies like story protocol are using blockchains as a global coordination layer for data and IP the crypto industry is clearly thinking

about this AI was the Breakaway narrative among crypto Social Circles in 2024 and our web traffic data indicates that there may be a large overlap between crypto and AI users as a result we expect to see significant development at the intersection of these two technologies the nft market has not been quite as hot as AI we've seen a 90 plus% decrease in trading volume in creators have faced some very unique challenges around enforcing royalties but the reality is that the nft market is very much alive however Behavior has shifted and it's all driven by infrastructure developments if you look at the number of nft collections with 50 plus mentors the trend is very positive what's happened here is that l2s unlocked

cheaper fees which shifted us from high-priced high volume speculative secondary markets to lowcost social collecting experiences and this is only possible in a low fi environment a lot of the speculative nft activity that we saw in Prior years shifted in 2024 into meme coins over 10,000 meme coins are created daily and salana is the most popular trading venue Chris Dixon argues in an oped that this type of speculative activity is proliferating because there are less regulatory hurdles compared to crypto with more productive use cases speculation still has its place in defi but the space has matured quite a bit since that Crazy Summer of 2020 there are now thousands of protocols

controlling billions of dollars staking and reaking as we discussed earlier captures a majority of tbll and the category leaders are emerging decentralized exchanges have grown their market share fairly steadily against centralized counterparts and over 10% of spot trading now happens on dexus as defi security measures developed we've seen that hackers may have turned their attention back to more centralized Services most crypto theft now happens on centralized services not defi platforms prediction markets have been another hot area in 2024 volume on poly Market has skyrocketed ahead of the election and its use as a forecasting tool has gotten mainstream attention we expect to see more innovation in this

pocket of crypto for Builders Dow treasuries may be one of the more underappreciated sources of funding Dows hold 15 billion in liquid tokens today which is more than the entire amount of VC investments into crypto companies in the last year these War chests if deployed effectively can be used to fund ecosystem development for years to come one of the most interesting emerging categories in crypto has to be deep in it's still early days and there are some particularly hard challenges to solve but there are promising attempts being made to decentralize critical physical infrastructure networks in the real world helium is a Pioneer in this category with their decentralized lauralan and 5G wireless networks and we're now seeing Innovation across new

categories like mapping weather vehicle and Mobility data energy and food delivery to name a few history has shown us that games have long been a key source of innovation in software now in the crypto Space onchain games are pushing blockchain scaling to its limits if we look at a leaderboard of blockchain resources consumed it's mostly gaming Focus chains just like web 3 gaming and dpin it's early days for decentralized social but the doo experiment is underway and forecaster is leaving the charge there are vibrant developer ecosystems emerging around these open protocols and lots of smart developers are launching new products every day we know that the heartbeat of the crypto industry is of course the

builders a16z crypto tracks thousands of companies through investment team research crypto startup accelerator applications and industrywide tracking and we now have some new tools that allow us to share aggregated data starting with blockchains we asked Builders what chains they're interested in building ethereum and the l2s capture a majority M share with base in particular being a breakout ecosystem in 2024 but not all Innovation is happening around ethereum in fact salana and Bitcoin saw some of the biggest increases in Builder interest this year we can also look across categories and see that defi blockchain infrastructure and dpin are some of the highest growth areas in 2024 going one level deeper looking at

subcategories we can see that areas like real world assets and payments have been really popular among Builders we can also look at the intersection of Applied Technologies and project categorization as you might expect we saw a surging interest in AI which is commonly used by infra Defi dpin and pix and shovels projects lastly we can look at the geographic Trends to see where crypto Founders report being based crypto is clearly International with the US Europe and Asia as the most significant markets getting more granular New York and San Francisco are some of the fastest growing crypto hubs if you're interested in digging deeper we released the Builder energy dashboard it includes some cool interactive visualizations

around all this data and you can check it out at Builder energy. a6z crypto.com so what's next for crypto the way we think about crypto markets is that while they look chaotic from the outside there's actually an underlying order to the madness we call this the price Innovation cycle the idea is that when prices go up people get interested developers build and new products Kickstart the next wave we have seen this now four times since bitcoin's Inception but the big question is are we entering the fifth wave while prices have gone up it's admittedly hard to tell if it's driven by net new interest and Innovation or more external factors like the ETFs and political Tailwinds even if we're not in the fifth wave the

quality of Builders and the product pipeline that we have visibility into is strong as chat GPT showed us it only takes one product to shift in entire industry if we take a step back and we look at the state of crypto in 2024 we should be proud of how far we've come and I hope this report shows that thank you