State of Crypto 2024: Behind the Scenes on Stablecoins, AI, Builder Energy, More

Transcript

[Music] welcome to web 3 with a16z I'm Robert hackit and today we've got a special episode we're taking you behind the scenes of our newly released annual state of crypto report a16z crypto analysis of the latest data and trends that have defined the industry in 2024 this year's report features some brand new insights from estimating the number of real crypto users globally to understanding how much interest in crypto swing States may have ahead of the US election we also dig into infrastructure improvements to blockchains and key applications including stable coins Ai and so-called dpin be sure to visit a16z

crypto.com for all this and more including a new Builder energy dashboard which we'll discuss on today's show joining me to talk about the findings are our lead data scientist and Report author Darren matsuoka and CTO Eddie lazarin the first voice you'll hear after mine is Darren's then Eddie's as always none of the content should be taken as tax business legal or investment advice see az.com disclosures for more important information including a link to a list of our investments this is our third year doing this we've put together three of these state of crypto reports why do we do it I think we like to use this report as an

opportunity each year to really take a step back kind of look at the industry holistically analyze all of the data that we have access to we consult with various experts across the industry and ultimately bring it all together into a single perspective yeah I think that's right and I don't want to get too lofty with this but crypto as an industry was born in the social media age and that means that information is constantly being streamed in real time so I like to see the state of crypto report as a way to pause for a second and sort of appreciate what's happened in the Stream you know when you're in the mix of it and things are

getting blasted at you multiple times a day it can be hard to get a sense of the cumulative progress let alone to remember what was getting streamed to you at full speed a year or two years ago so I think the state of crypto report is a chance for us to take a step out of the fire hose and to take a look at what's actually transpired and to that point like our goal is not to just say that the crypto industry is great and get that message out regardless of what we're seeing we really try to be intellectually honest Based on data and what we're seeing out there another thing I'll say is that crypto has a very overdeveloped ingroup language right not

just because of the memes and the jokes and the personalities but also because of the technical complexity all those things together create this really strong ingroup language and I think of our report as a way to try to mainstream some of those big things we try to avoid ingroup language and make things very accessible through charts through very simple explanations and it's an opportunity to do that too also it's a way to shift the way people talk about crypto because crypto is just filled with like really difficult Concepts and terms to be able to kind of peel back the layers and talk about what is actually happening in a way that people can

understand is a unique challenge let's talk about how the report opens so we're trying to summarize the state of crypto in the past year so first up is sizing the market because if we're talking about crypto the first question you might have is what are we talking about here how big is the industry how big is the market and so that's the first question that we tackle here Darren you want to hit us off sure for many years in the past we've been mostly focused on building the infrastructure to make all of this work and so there really wasn't that big of a market for users of these crypto-based applications but I think in 2024 we really did hit a Tipping Point with infrastructure

improvements these blockchains are becoming more and more accessible they're cheaper to use and as a result we're starting to see applications come online and now that we have these applications I think it's uh really starting to come to life and I think in the years to come this will be an increasingly important question yeah I think that's right because beforehand the technology was still coming together and in many cases it is still coming together but we're actually beginning to see some applications and that's something that if you haven't been paying attention to crypto you might not realize totally and I think the results speak for themselves right active addresses across all of the blockchains that we track hit an alltime High this last month of 220 million Mobile Wallet

users so data that we get from mobile app stores that also recently hit an all-time high of 27 million and so you know the numbers do kind of speak to this idea that we are now seeing some of these breakout applications that are bringing real onchain transactions and usage let's go through each of those you mentioned that active addresses are at an all-time high now this is a kind of controversial metric not everybody loves talking about active addresses one of the things they have going for them is that they are easy to measure it's something that you can very easily quantify I think to really understand why active addresses has become such a

Hot Topic recently I think we need to look at some of the historical context I think in traditional software most people tend to understand the basic concept of a user of course there's ways to measure the quality of the user there's a whole field of growth analytics around this topic but in its most simple form I think people can grock the idea of a daily active user or a monthly active User it's just you know the number of people that are using your product and service on a daily or monthly basis it's fairly straightforward but in crypto things are a lot trickier and the reason is because on blockchains user identities are synonymous this means that it's very

easy for one person to create and control a group of public addresses or identities this is called a Cil and up until recently a lot of the most popular blockchains had very limited capacity which resulted in high transaction fees which created this natural barrier for spinning up and using thousands or hundreds of of different addresses because it would come with significant monetary costs but recently we've seen that crypto infrastructure has become more scalable via l2s and new high throughput layer ones which has reduced the cost of transactions on many of these blockchains to nearly zero and maybe you might ask isn't it also near

zero costs to create multiple identities on traditional internet applications and I'd say yes that's true for the most part you know I can create multiple email addresses pretty easily but the key difference here is that in the crypto world we have very strong incentives for this type of behavior here yeah Google doesn't give you money for opening a new Gmail account unfortunately exactly and a lot of new tokens today actually bootstrap their circulating Supply by doing something called an airdrop where you're rewarding retroactively users of the protocol based on a predefined set of addresses and so as long as people believe that these tokens could be valuable there is a strong incentive for them to try to

game the system by creating and transacting under many different identities is commonly known as air drop farming yeah there's no reason that one person couldn't spin up hundreds of millions of addresses and just go wild engaging in totally useless and inauthentic activity in order to try to maximize their likelihood of extracting as many rewards as possible and what we've seen over the last four or five years that we've had airdrops and yield farms and so on there's been a profound professional ation of the efforts to pull out those rewards people have gotten really really really good and I

want to make it really clear to anybody who thinks that it is a gigabrain take to say monthly active addresses is cable yes we know that and if you have a better way to measure using public data you know that's verifiable by everyone or that is easy to trust I'd love to hear it tell me a better way thirsty for it tell me let's work together and let's figure it out because the space deserves really high quality transparent metrics and that's what we're trying to do yeah and so given what we know about these behaviors how many users are there right is it 10 million is it 50 million is it 100 million this is the question that we've put a lot of work in and we're

going to publish some of our thoughts around estimating that and we'll include that blog post in the show notes but maybe you could walk us through how you think about actually getting from this big number this 220 Million number if that's the number of addresses how do we get down to humans how do we reduce that to the number of users the actual Flesh and Bones on the other end of a screen I think one approach sounds kind of obvious which is you know we've got these 220 million monthly active addresses what if we could filter out what we suspect are Bots and sibles and the way that we can do this is some techniques using onchain analytics and forensics one method is to filter out

addresses that received funds from something called a dispersion contract this is a smart contract whose sole purpose is to take in funds and automatically distribute them across many different addresses of course there could be false positives here but the activity implies that the destination addresses all received funds from a single source and therefore they're connected in some way so there's certain types of filtering you can do around dispersion contracts specifically that can eliminate a lot of the Bots that you might see the other approach involves looking at addresses that have a near zero balance at both the beginning and end of the period that you're

aggregating over for example if you're trying to find the real number of monthly active users in September you can look at addresses that had a zero balance on both September 1st and September 30 this criteria implies that the addresses were transient in nature I think Bots and sibl typically want to clean up their balances after taking actions on chain whereas real human users usually like to keep some balance in their wallets to cover future transaction fees so this is like an address popped up and then within like some period of time people dumped into another thing and the address never was revived after that exactly this is the type of behavior

where it received a source of FS it took some action and then it pushed all of those funds outside so it's a very transient type of activity that's often associated with Bots and sibles the other thing that we've looked into is just like the frequency of transactions and so you can analyze these distributions to look at did the address transact one time two times three times four times five or more times during the period addresses that have just one or two transactions you know at best they're a lowquality user at worst they're a bot or a cble and especially over longer periods of time this type of analysis can help you in some of that filtering you can also specifically look at addresses that transacted very very

frequently over very short periods of time humans can only reasonably through a wallet or app interface process a certain number of transactions whereas Bots can do things much faster and so you can do some filtering there and then on the flip side you can optimistically include addresses that are tied to some sort of identity protocol that requires some sort of setup cost for instance addresses that are tied to an enss name or a forecaster ID or some other linked social identity offchain those are likely to be real human users so obviously it's very complicated requires a lot of onchain data and analytics and forensics but we've done an internal analysis taking this approach and uh I think we've come up with some decent

estimates okay so the first method is basically you're starting with the number of active addresses and you're trying to whittle It Down based on culling the wheat from the chaff culling out the addresses that seem transient botlike or low quality yeah so this is reducing the ceiling we know what the ceiling is if there's 220 million monthly active addresses then we're trying to lower the ceiling and then we can use other methods to try to get at a reasonable estimate of the floor okay so let's walk through method number two then so method number two says rather than look looking at active addresses let's look at some other sources of data that we might have access to particularly offchain data and I think an obvious place to start here is wallet

users for example in February metamask which is a popular ethereum wallet reported that they had 30 million monthly active users and specifically they Define an active user as someone who either loads a page within the metamask extension or opens the mobile app at least once during any 30-day period and assuming that we're looking to estimate transacting users we need to make some sort of assumption on what percentage of metamask users actually end up transacting and that requires some research I don't think we're going to find the perfect number we do have some sources that we can site that say that 30% of users of metamask at least on a daily basis actually end up

transacting and so let's say 30 to 50 million you can use some sort of assumption there and based on that you have 10 to 15 million users that we believe are transacting through the metamask wallet products and then all we need to do is try to understand what metamask market share in the wallet space is of course the exact data here is not going to be readily available but we can make some educated guesses based on what we know for example we do get pretty good estimates of metamasks market share on the mobile wallet Side based on some data that we get from sensor Tower and so once we are able to estimate what metamask market share is

we can simply extrapolate an estimate for the total number of crypto users from that 10 to 15 million that we discussed earlier and then compare the results to approach number one the filtering from active addresses to sort of triangulate on at least a range that we feel is in the right Ballpark and by the way it doesn't just have to be metamask we can also run this exact analysis for other wallet providers who have either reported their numbers publicly or are willing to share their proprietary data and then as I mentioned just kind of triangulate on a range based on all of the information that we have so we have done this we have done this internal analysis it is definitely not perfect I'm not claiming at all that

we are super super scientific about this but we feel comfortable saying that uh we think there are 30 to 60 million real monthly transacting crypto users today of course this is still a small percentage of the monthly active addresses uh it's 14 to 27% and an even smaller percentage actually of the total number of people who own crypto but do not necessarily transact with crypto it's actually only five to 10% of the 617 million reported by crypto.com which means there's a huge opportunity here right to convert existing crypto owners into active crypto users by bringing them on chain so the point is to say is

not that well the cibil analysis is perfect and we can end up at a you know Flawless classification of which addresses are real humans and not the point here is to get sort of an order of magnitude range so that we can look at growth that's the goal the goal is to be able to look back retrospectively and say we're bigger than we were last year we're bigger than we were the year before that and see approximately how things are developing I also have this kind of like funny way thinking about this too where I'm like well maybe we're entering this new internet world where actually Ai and Bots and these things that are farming right now for rewards and trying to snatch up incentives that

certain projects are offering maybe we're entering an internet where like Bots and AI are just infused everywhere like why why are humans the major metric yeah and look I don't want to get to sci-fi but everything is many to many now everything in a networked world is many to many by that I mean like does one person have a credit card no you have many is a credit card only used by one person no like there are many internet accounts cars just everything is totally intertwined and entangled and as we add AI agents and other such things it's going to get even crazier in a way what we really want is we want to measure the attentional

capacity that things Command right the the total amount of like cognitive bandwidth that they are commanding from the environment but that's a really like sci-fi way out there getting kind of cooky uh conversation I have Robert next year's state of crypto report can we measure cognitive bandwidth all right so if we're sizing up the market when we're looking at actual users and trying to think about the people who are using interacting with crypto on a monthly basis actual humans we're looking at around 30 to 60 million which is as you said 5 to 10% of the people who own crypto globally and also a fraction of the active addresses too why such a wide

range why 30 to 60 like can you not get any more precise about it I think if anybody has a problem after they hear the methodology they might complain that it's not wide enough right and maybe it should be wider maybe it's 20 to 70 or 20 to 80 or something it's hard to say exactly very open to that we're not pretending that this is a totally flawless analysis the reason for the range is just contained in Darren's reasoning right like we had to make some estimates there's some things you have to kind of guess like the ratio of monthly active users is reported by metamask to the proportion of them that actually do transact per month thereby becoming an active address right like those are just things that we have to estimate and I think it helps even just to think in

orders of magnitude like what we're looking at here the fact that active monthly users of crypto is about tens of millions and Global owners of crypto is hundreds of millions there's a gap there's a gulf there but we're beginning to see the sort of outline of the market that we're trying to size up here that's right one thing that will be apparent to anybody who looks at this report is that it's not just that active addresses are at an all-time high it's that there are a few blockchains that are driving this one of them is salonus Lana is Far and Away got the most active addresses of any blockchain network that we looked at it's got 100 million or

so what's going on there well I think the obvious answer here is that uh the blockchains that have the most active users are the ones that it's cheapest to transact on right and so you know blockchains like salana are very very cheap which means it's very low cost to set up Bots and sibles we also got some interesting data from the emis team and we have found that on blockchains like salana a large portion of the activity is simply onetime use or two-time use which indicates that there is a larger percentage of bots and sibles on these low cost chains and so I would take all of the face value monthly active addresses by Chain data with a big grain

of salt because there of course is lots of nuance associated with this but with all that being said B and salana were some of the top destinations for crypto users in 2024 I don't want to take away from the great growth and development that those ecosystems have seen this year yeah base has the most active addresses of any ethereum chain that we looked at at 22 million exceeding even ethereum which has six million so clearly they've struck a chord totally um I was also interested to see Bitcoin up there like bitcoin's got 11 million by our account totally and you know to keep going on this point like the cost to transact on bitcoin is not near zero

right which means there is likely to be less Bots and sibles on the Bitcoin blockchain and so you know you can kind of take that number more at face value certainly Bitcoin has been an ecosystem that we've seen more Builders actually try to build new products and applications on the Bitcoin blockchain and I think it's gotten very mainstream attention with a lot of top politicians talking about it so I think uh definitely a good year for Bitcoin definitely I mean like the Strategic Bitcoin Reserve once a niche idea is becoming more mainstream yeah and to add to Darren's Point all in all I think it's a lot more

difficult to look at Bitcoin activity and say that it's largely driven by sibles I think that's just a lot more difficult to believe so if activity is posit POS on bitcoin the implication is that there's probably an increase in real activity across the rest of the space I mean take with a grant of salt but I think that that's likely to be true so we're talking about some of these blockchain networks that have had a lot of activity and interest over the past year we mentioned Solana base even Bitcoin one of the most exciting things I think about this year's state of crypto report is this segment that we've dedicated to Builder energy this idea of looking at everything that

Founders are telling us about where they're building what they're interested in and where their activities and energies are directed toward I think that that is going to be a Mainstay feature of future reports the big context is that I think the heartbeat of the crypto industry is of course all of the builders who are building the products and infrastructure to make this all work and we meet with and engage with thousands of ianes every year as part of our course of business through investment team research our crypto startup accelerator we do some external deal tracking and for the first time we now have a lot of tools internally that

allow us to normalize a lot of that data aggregate it in a way that we can share some of that data externally so that people could see the bigger Trends here across blockchains geographies Technologies and categories and we've done that we've made actually a dashboard that we call the Builder energy dashboard it has some very cool interactive data visualizations around all this data and you can check it out at Builder energy. a6z crypto.com one thing I'll point out is we were talking about blockchains that have the most active addresses and it's interesting to me that it sort of lines up with where Builders are interested in building on and what they are building on we've seen

more and more Builders interested in salana and actually building projects on salana that was the biggest jump in interest that any blockchain had seen between this year and last year base as well super high up there and even Bitcoin in in slot number three had a really big bump and people who want to build on it yep and maybe just to add one clarifying Point here the way that we Source this data comes from a question that we ask Founders and Builders we ask them simply what blockchain ecosystems would you be interested in building on so it does not mean that there are this many Builders specifically deploying contracts or that there are a certain number of protocols on these blockchains it simply just

means kind of where generally speaking are these Builders interested in building on and I'd say still today ethereum and all of the layer tws including Bas and arbitrum and optimism and ZK sync and the others still capture a majority of the Builder mind share so I think those were the key takeaways from that data but you can check it out yourself by looking at the dashboard excellent so this is an election year and crypto has become a part of the national conversation people are talking about it politicians are talking about it candidates for the Office of the President are talking about it what have we found about how crypto has sort of changed from last year when we did the

report to this year when it comes to a policy perspective yeah so crypto has become political in this sense that the crypto industry believes that political engagements can help resolve some of its major challenges and a big question is whether that has made it to the mainstream or not have the crypto Industries issues become something that some voters or enough voters care about probably for me the most interesting slide in the policy section of this report is this analysis of the crypto interest that we're seeing within various states of the Union walk us through this analysis that you did

here and what you found I think everybody knows that this presidential election is shaping up to be a very tight race I think it will likely be decided by a handful of counties and a handful of Swing States and so you know we wanted to at least understand is the interest based on some of the data that we have is it growing or shrinking across these different states and so we basically used Google Trends data we looked at a basket of Search terms that were relevant to crypto so we looked at Bitcoin ethereum and crypto and we looked specifically at the relative change in search interest as defined by Google Trends from 2020 to 2024 and we looked at which ones increased in rank

and which states decreased in rank and then we basically plotted that on a map and showed which ones had the highest growth which ones had the highest declines and then basically ploted all of that data and I think if we look at the swing States specifically I think the most interesting takeaway is that Pennsylvania and Wisconsin actually had top five I think they were fourth and fifth in the ranks by change in this relative crypto related search interest since 2020 and these are some of the tightest races currently as indicated by various prediction markets and so I think there is many different factors at play and you need to be careful in what you conclude from a very simple analysis

like this alone but I think there is some evidence to suggest that crypto is relevant here and could have an impact yeah I mean it's not a sentiment analysis so we don't know exactly what those people who are searching for these crypto terms actually think about crypto but we do know that they are searching for crypto terms which just kind of indicates general interest and is pretty interesting to note in and of itself you mentioned Pennsylvania and Wisconsin in the top five Michigan is I believe number eight so that's in the top 10 and then there were some declines some states saw a little bit of a drop in interest one of those is Nevada a place that has the city of Las Vegas which is

often associated with gambling so if there's less crypto interest in Nevada I don't know that that's necessarily a bad thing but it is really interesting to see that yeah this election could come down to a few counties in a few States and these are places where there is increasing interest in crypto especially since last election in 2020 and just to add clarifying detail all of this data is by default from Google Trends population adjusted so they are representing this data as a percentage of the total searches in the region we don't actually visibility into the actual total numbers by state that's right and total numbers anyway would be

sort of skewed just toward the states that have the biggest populations which wouldn't be extremely informative another really big thing that happened this year from a policy perspective was the Bitcoin and ethereum exchange traded products were approved and I'm deliberately calling them exchange traded products etps and not ETFs because ETFs while they are a form of ETP the underlying portfolios of them would have Securities whereas in this case these crypto etps were registered with the SEC in a way that indicates the underlying portfolios are not Securities anyway that's a really important point but it is the first time we've ever had these market products accessible on

major stock markets it's kind of a big deal I think it's a very big deal I think it legitimizes crypto as an asset class I think it puts us on a path to really having crypto be a part of every Diversified portfolio then just makes it much more accessible which I think is a good thing you know in the report we do look at these kind of net inflow numbers because crypto is all on chain we can see when the ETFs are accumulating and distributing crypto out of these products they haven't been all that high relative to expectations maybe it has underwhelmed a bit but I have talked to some experts and they do say that getting the Distributors activated is just something that's going to take time

you need to go through a long process you need to get it into the model portfolios you need to discuss it with your clients and I think that could be a multi-year process and so i' keep an eye on those inflow numbers over the next few years because now that we have them I think uh tremendous Tailwind for the industry yeah I think it absolutely does broaden access to a whole new segment of investors that otherwise would not have dabbled with crypto beforehand you know I'm thinking about my dad for one he's like where's the ETF where's the ETP as it were CU he's probably not going to set up a hardware wallet all right okay anyway so let's dig into some of the other things we found in this report people always ask this question where are the crypto applications but there's one that's kind of been staring people

in the face for a long time and that is stable coins stable coins are a product that people are using a lot it's a crypto product I think people discount that well stable coins have been in crypto for a long time in the earlier days people used to think of them as something that would end up being for payments and uh very interestingly what we found in 2021 2022 as the stable coin supplies really started to pop off was that they were primarily being used as a means of settlement between centralized exchanges and also as collateral for D5 protocols something people could Supply

and lend in a protocol and then enable other people to borrow and create debts denominated in dollars which is a lot easier to reason about than a debt denominated in ethereum or some other volatile asset another reason why stable coins make a lot of sense as collateral is that if you're borrowing a fair amount on chain it may be totally reasonable to pay a 30 50 or even $100 transaction fee to perform that borrow because it still may be meaningfully more affordable than other ways to engage in an over collateralized loan and uh that is really the type of use case that we saw for people in 20121

through 2023 period for stable coins but as a result of the infrastructural improvements in 2024 where Lots has come online not just 4844 but the proliferation of l2s in ethereum World generally 4844 being the denune upgrade that ethereum went through in March of this year also called Proto sharding yeah so as a result of those infrastructural improvements as well as increasing adoption in newer generation newer architecture blockchains like salana sui many others now sending stable coins in a single transaction often costs a penny or less

so because of this so just this year because of these improvements I think a lot of people are talking about stable coins as a medium for payment again it's really interesting to me because I can't emphasize enough how in 2022 this was just a non-star everyone had given up on it I don't think I heard the word payment in 2022 except to debunk the possibility that stable coins were being used for payments whereas now it's something that I'm hearing about all the time time and it's not just in a conventional you know pay for your coffee with crypto setting although that is actually a real possibility coinbase had a pay for coffee with usdc day in New York not long ago it was a lot of fun but more concretely now people can

play with blockchains as a piece of infrastructure to potentially bring down interchange fees and you know Merchant Network fees all the types of fees that go into settling and actual consumer payment for something I just pre-ordered a book from stripe press with the new stripe pay with crypto feature usdc on salana was fantastic it was just a really straightforward experience for me of course I already have crypto in my wallet so that made it pretty convenient but these are real things right this is because you got to still on board to like a layer 2 Network say an L2 a roll up where the fees would be lower but

once you're there it comes quite seamless to transact and move around yeah and they're still very meaningful ux challenges but the point is to say is like now this is in the story and there's a lot of crypto projects that are interested in trying to improve payments or aspects of payments or take advantage of the ease of settling payments internationally computationally there's all kinds of ways that payments really ought to be programmed and experimented with and now just this year that's a possibility so just to set people's expectations like the way I like to think about about it is now that there is a glut of supply for being able to transact stable coin dollar denominated payments how long will it take for Builders to consume

that extra Supply in terms of interesting applications it's not instant people don't realize this people kind of like see new technology it sort of appears but from my perspective it takes at a minimum six months to start to see people really talk about it and then it takes about two years for people to soak up all of the the excess this reminds me a lot of the midwit meme where it's like maybe it is as simple as just you know when the fees come down stable coins work well right when the fees are really high stable coins kind of suck and so I think to all of the points that Eddie made in 2024 we made a ton of infrastructure improvements it

brought fees down just to share some data from our report on this in 21 to send usdc on ethereum using the average gas price it was about $12 that's like that's a lot of money that was like my lunch that I just had today yeah and as people took for granted like that's obviously totally unacceptable for a payment setting unless you're moving like tens of thousands of dollars then it actually may be better but there's a smaller number of people who are in that situation definitely today if you use usdc on ethereum post EIP 4844 it's like $1 but if you use usdc on base which is a layer two it's less than a cent right and so that makes all the difference

when it comes to stablecoin adoption and it's no coincidence that 2024 was the year that stable coins found product Market fit and it's I think because it's as simple as just the infrastructure got better fees came down and now it works it's really amazing to wrap your head around this that just a few years ago it cost $12 to transact exactly it totally changes the applications that are possible and I think there's a number of examples that we can point to that are only now possible in a low fee environment and uh we do our best to highlight those emerging applications in the report this doesn't just speak to stable coins it also speaks to other sorts of applications that weren't

possible before I mean I would say the most striking thing to me in this report compared to past reports was look nfts were going crazy a few years ago the secondary markets you know nfts were trading on them for billions of dollars regularly that activity has subsided but now because fees have come down we're seeing totally different sorts of consumer behaviors arise around nfts I think a lot of people might think that nfts happened and then they went away and they're over andone and you're sort of mainstream listener here might not realize that they've actually stuck around and they're just gaining Traction

in a completely different context being honest the nft market has faced some pretty tremendous challenges there was a lot of speculative activity in Prior years very high trading volume high- priced premium collections we definitely got over our skis a bit as an industry as a result we've seen a 90 plus% decrease in trading volume over the last few years there's been a ton of drama around how creators can enforce royalty and so we have faced a lot of challenges and I think there are some data points that you can look at that say wow the nft market really is not what it once was and I think that is very true in all senses but I think what's also happened at the same time is to the point we were

just discussing about the infrastructure getting better these infrastructure improvements enabled nfts to be exchanged and traded and interacted with at much lower costs which really kind of shift Ed the behavior away from these high volume high price speculative secondary markets into these newer lowcost social collecting experiences for example if you look at the number of nft collections with 50 plus unique mentors the trend is actually very positive it means that you know people are still interacting and using these nfts and collecting these nfts but they're doing it much different than they had in Prior years and this is only possible in a Loy environment you can

look at products like Zora today you can look at products like Rodeo today and there are some really fascinating cool new emerging cultural behaviors around this social collecting that I think uh many people would find really interesting and so I would say the nft market is very much alive but I think Behavior has shifted and I think it's all driven by the infrastructure developments in 20124 yeah I don't know that there's a perfect way to communicate what this new behavior is other than like people like to collect stuff and on a social network you're probably familiar with liking posts and I've heard people describe this new sort of social collecting experience as a kind of superlike behavior where you are just expressing

that you're interested in something and critically it's on the order of magnitude of like one to two cents per collecting in Prior years we were paying tens of thousands or hundreds of thousands of dollars which of course only very few people can afford but now we're opening it up to a much broader audience which I think is a net positive for the nft market we got to recall that the way crypto has developed is the first thing that you can do and actually the simplest thing to do computationally is just to buy and own the thing that is the novel component is being able to directly own the underlying asset on this big shared State computer doing more complicated things

like transacting or mutating the state of a program these require much more computational capacity in addition to creativity from application designers in addition to user experience improvements to make it easier to do those things we're seeing advances on all of those fronts and so you should expect the complexity of what people do with blockchains to increase over time starting from the simplest which is just owning and moving to the more complex things interacting with programs even just the mental shift that it takes to understand what is activity on a blockchain it's affected by this Evolution where it's not just a money payment system it's actually a shared

State computer as you called it Eddie and these interactions can be interactions with applications just like people are interacting with like websites or something all these interactions can be much more expansive than this sort of limited view of crypto just as like a money thing yeah and I want to sketch out like there's a pattern to how these things unfold right just buying an nft when the costs are very high that's the simplest thing you can do that's the best supported thing you can do and that's probably the only thing that's reasonable to afford but nfts are programmable experimenting with what that looks like requires low gas fees so what I expect like the exact pattern I would expect would be

speculative boom with very simple uses where most of the interesting things that happen in the very very earliest stages are actually the themes and the ideas that come through as people sort of Imagine what's possible you see glimmers of the very exciting things of course then they run into the pragmatic reality that it's too expensive it's developing too slow there are certain pragmatic limits as those things scale then experimentation returns and then as experimentation develops more complex and interesting applications start to take place we just describ that with stable coins the exact same thing is going to happen with nfts and with all

these different settings it's not a crypto specific thing I think that's how AI is developing as well because you mentioned AI I think people listening will recognize that AI is one of the biggest trends of the past year but what's interesting is that it's not just a trend within Tech it's also a trend within crypto you know maybe it's unsurprising that crypto influence are talking about AI but what is more surprising is that the people likest to visit the websites of various AI tools like chat GPT are also the likeliest to visit some of the top crypto websites out there and that goes to this sort of inference that could possibly be drawn that there is strong overlap between the user bases of these kind of Frontier

Technologies yeah I mean definitely it's a hot area and AI was clearly the Breakaway narrative in 2024 even among crypto Social Circles relative to other topics and so clearly people are thinking about this and a lot of the top crypto sites are highly highly overlapping with chat gp.com which indicates that there may be an overlap in crypto and AI users and the fact that there is I do think reinforces this point that it's a hot area and I think we should expect to see more innovation in this pocket of crypto specifically so let's cover some more emerging applications the cost of transacting on blockchain networks is coming down like

we said it can cost as little as cents on the dollar now or even less than a cent just a tremendous plummeting of costs there what other territory does this open up yeah some areas that have popped up include deepin there are new forming marketplaces for energy for wireless bandwidth for mapping for weather for food delivery this is decentralized physical infrastructure networks so it's where the digital world meets the physical world like using a digital overlay to manage resources in the physical world yeah and the difference you know of course we have these things like with Uber andyt and so on you could call those like web to

deepin networks the key difference is that in a blockchain there's a degree of credible neutrality about the underlying platform that means that people who build on top of it including not just the suppliers of the good and not just the people buying it but also people who build applications to make the whole thing work better can take for granted what they're building on and not risk being rent collected or sherlocked by the underlying platform and if you can make payments affordably if you can update reputation systems incorporate all kinds of interesting identity systems all these things that these marketplaces need then they can finally exist so those have been emerging

maybe a final category which we give a little glimpse of in the report is uh decentralized social networks foraster which is another portfolio company of ours it's an incredible place for Builders to experiment with different types of tools different types of toys to extend and improve the experience for all types of users and I know for a fact just having spent a bunch of time with the foraster team that they are totally capacity limited they're working really hard to allow the network to post more and more people while remaining totally decentralized and you can see in the report a lot of projects where people

have been experimenting with software on top of this network Even in our Builder energy dashboard we're seeing that a lot of Builders are interested in social networks I think 10% of the founders that we've talked to and looked at are building social related projects so I think people see this opportunity and they expect that it's going to be a thing given how big it was in in web 2 yeah then there's prediction markets of course those have been huge this year no surprise given the incredible Dynamics and volatility related to the election yeah prediction markets is an idea that people have been talking about for decades but have been hamstrung and um people are actually coming around to

their value an ability to Source up Knowledge from disperate parts of the world and kind of get a better more informed picture of the state of the world and how things might shake out it's interesting to see that it's actually finally getting some traction when it's a very old idea that has been stalled for so long all right Eddie we've been putting out reports for three years what's been most surprising looking at this year's report compared to earlier reports I don't know stepping back I'd say when we're deep in the mix like we are it often feels like nothing is coming fast enough I feel that all the time I want

it right now right I want it right now I'm sick of waiting and there are some areas that have definitely lagged but at the same time it is a little bit unbelievable when you look back at the progress you know let's be very conservative in our estimates and let's say we have 30 million monthly active users of blockchains that's pretty damn good like I'm pretty happy with where that is given the historical infrastructural limits like about a year ago we were all debating how long it would take things to start to heat up in terms of onchain usage and where I ended up was that six months after Denon 6 months after

4844 is when we'd start to see like new types of stories because that's about how long it takes and we're just like six months after and I think that that's exactly what's happening like I think the payments thing is one of those things and I think some of these new networks some of these like deepin networks are examples of that so it feels very on track to me and I'm very pleased with that that's kind of surprising maybe in a certain way that is surprising to me that it feels very kind of like we are thinking it's going to unfold if you had to cast your prediction a year ahead what do you think is going to be the theme of state of crypto 2025 I hope that all the extra

block space is filled with something something productive that's what I hope it's about it's about what fills that block space we just started creating all these l2s and new blockchains and maybe something that we didn't put in the report because it can be challenging to present in a very straightforward way but bridges are great for people in crypto you you know that three years ago there were very few Bridges and they were terrible and they were slow and they were expensive and they were error prone there's just a lot wrong with them now Bridges there's Myriad options really high quality fast super affordable great connectivity it's like no question anyone in crypto would agree with that well now that we have good

Bridges and now who get l2s we're getting tons more l2s and tons more bridges and tons of more interoperability questions and fragmentation so as always happens with technology you solve one problem you create another I'm beginning to see signs that there are really really great strategies to solve interoperability and so I hope the combination of good interoperability plus good block space means finally great user experience for a family of applications if that was the case at the end of 2025 I'd be uh really pleased that's great for the wish list I really hope that in the coming years our

section on infrastructure gets smaller and our section on applications gets bigger I think you know there's still a place to report on Key infrastructure developments which I think will continue to happen over the coming years but I think it should be hopefully more about how do we just overall improve the user experience you know there's you know count abstraction protocols interoperability various developments that we can report on but I hope that that that's not the main story I hope the main story of 2025 and the years following is that we now have a new set of applications that are proving to be real use cases for this technology that uh is attracting people and so that is my My Hope for the years to come we've

made a lot of progress on infrastructure but uh you know hopefully from here going forward the improvements are more on the margin maybe in the years ahead there won't even be a need for us state of crypto report we will all just be using these applications and won't even know that there's crypto on the back end could be we'll have to wait to know for sure thank you both for joining thank you Robert thank you Robert [Music]