State of Crypto 2024, a walkthrough and a Q&A with data analyst Daren Matsuoka

Transcript

hi everyone my name is Darren matsuoka and as Chris mentioned I'm here to present the 2024 state of crypto report we first started doing this report three years ago back in 2022 and at the time we were excited about transaction fees being in these single digigit dollars on a handful of brand new layer twos these layer tws accounted for just 1% of activity on ethereum there were no crypto ETFs and this technology certainly was not top of mind for policy makers and 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 let's dive

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 AG 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 that 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 user starting in 1992 you'll see that we're on a somewhat similar trajectory now I'll be the first first to tell you that active addresses is not the best measure of real crypto users

and in the coming slides we'll do our best to unpack what's behind those addresses and provide an estimate of what we think the real number is still monthly onchain usage is an intentionally strict measure of crypto adoption and there's plenty to be excited about with the overall trend here so we'll see what happens between now and 20131 on our path to what is hopefully a billion crypto users now which block chains are these users transacting on of course there is 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 is plenty of highquality 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 from the app store and Google Play Store just like active addresses we recently hit an all-time 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's an attempt to size up the 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 did publish a separate write up on our latest thinking around this topic if you're interested but if you take the 30 to 60 million number and you compare it to the 617 million people who reportedly own crypto you'll see that there's a huge growth opportunity to convert existing crypto owners into to active crypto users by bringing people 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 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 so 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 for and we found that Pennsylvania and Wisconsin are in the top five Michigan is in the top 10 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 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 actually ahead of the United 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 in the state of Wyoming in March we believe 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 70 won house Democrats in May the EU regulations are also coming online with Mika's full regulatory framework becoming applicable in December with the shifting political wins a headline story in 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 it on a path to being a part of every Diversified portfolio there are also 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 thee 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 that's 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 decentralized power now we can't talk about the state of crypto in 2024 without talking about all the infrastructure improvements 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 sharting which was an upgrade that significantly reduced costs for layers 2os we also show the eth denominated value on L2 which indicates that this 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 about $12 today you could use usdc on ethereum and P 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 this is what infrastructure improvements are all about of course ethereum and the l2s are not the only way to scale blockchains other high throughput layer one chains 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 four 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 is 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 roughly 10% of user actions on base were invoked by 4337

account abstraction zero knowledge proofs are also a 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 coming online and there are now over 250 active projects working 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 we can create a much richer design space for applications for example proving data from an existing web to service using something like ZK TLS or ZK email 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 that we still have a very long way to go state-of-the-art ZK virtual machines have improved proved by roughly 10x in the last couple of years but we're still in the 1960s era on the classic mors law chart for microprocessors 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 staked and 5% is restak mostly into the igen lay 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 different application categories by their number of daily active addresses today Defi and stable coins dominate activity 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 hor race between usdc and tether the fact that we can even put stable coins into a comparison against PayPal Visa a 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 that we've SE SE is 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 currently creators and data contributors are receiving 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 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 n F Market has not been quite as hot as AI we've seen a 90 plus% decrease in trading volume and 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 unique minors the trend is

very positive what's happened here is that l2's 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 environment a lot of the speculative nft activity from prior years shifted in 2024 into meme coins there are over 10,000 meme coins created daily and salana is the most popular trading venue Chris Dixon argues in his 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 tvl and the category leaders are emerging decentralized exchanges have grown their market share fairly steadily against centralized counterparts and now over 10% of spot trading is happening on dexas as default by 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 s ources 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 deepin 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 in the real

world helium is a Pioneer in this category with their decentralized lauran 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 you 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 ask Builders what chains they're interested in building on ethereum and the l2s capture a majority of Mind share today 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 we see that default blockchain infrastructure and deepin are the highest growth areas in 2024 getting one level deeper we can look at subcategories and we see that real world assets and payments seem to be attracting the most 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 picks and shovels projects and 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 we can see that

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 that 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 and the idea is that when prices go up people get interested developers build and then new products Kickstart the next wave we've seen this now four times since bitcoin's Inception the big question now is are we entering

the fifth wave while prices have gone up it's admittedly been a bit hard to tell if it's driven by net new interest and innovation or more external factors like the ETFs and the 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 and 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 we're now going to transition into a

quick Q&A and as part of that I'm going to invite uh our CTO Eddie Lin up to the stage what are you guys seeing maybe I missed it is there anything particularly on the Privacy side of use cases especially on the stable coins confidentiality yeah I have heard about a few confidentiality projects but as we know those aren't really live right now I I just don't know with I mean you saw most of the data here ended around September 30th but I have been hearing about a lot of projects where people do want to add a compliant uh privacy or you know confidentiality layer on top of payments on top of you know other types of things I I'm pretty confident that it's going to be a major category uh and you know hopefully there's enough data for us to

to tell that story next time yeah I think we have over here y um will from Syndicate um I found it interesting that you didn't cover very much Enterprise adoption of crypto um is that because it didn't rise to the level of notable changes in the report um or uh some other reason no well anecdotally I've been hearing a about a lot of really interesting Integrations in Partnerships honestly like if you to tabulated my personal number of introductions conversations high quality recommendations I've been making for people to select you know Enterprise vendors or make Partnerships that are really fruitful I'm definitely at an all-time high personally I just think as

a data set I don't know that there's like an obvious sort of public or quasi public data set to collect we'd have to kind of like pull portfolio companies or something like that but that's it's a good note to take into consideration I I personally think that that is also at an all-time high I think you see a lot on um real world assets or financial instruments like bonds equities and so on uh this is way harder in the US but a bunch of other countries are experimenting with this I'm curious how you guys think about it you know it was actually one of our top subcategories just looking at the data from builders that we collect um and we did notice that it was a uh a top subcategory in 2024 we saw a lot of growth into into that area specifically uh I think

similar to what Eddie said about the last question uh it's a bit hard to get data on some of these things and we really tried to make this a data focused report um and so I think it was more just a a function of that than anything but definitely an area that we're excited about and one that we've seen attract a lot of Builders uh I'm curious what goes into the framework where you def Define a user active versus just a wallet like just the high level principles that you use yeah so high level there's there we we did publish a separate write up on this and so you should definitely check it out uh high level though there's a few different numbers that that we have right one is the 67 million people who just kind of own crypto but aren't actively using

crypto uh and then we kind of stay that 5 to 10% of those you know 30 to 60 million are what we think are real people that are actively transacting monthly and the way that we get to that number we basically take uh two different approaches one is you know filtering the active addresses based on different types of onchain activity that uh makes it suspected of being a bot or a transient address or you know some someone that is trying to to game the the numbers and so we do kind of a lot of different filtering there's a number of methodologies that we have pursued to get to to to the number and then we triangulate with uh another approach where we look at some of the reported wallet data that we get from metamask and other uh other companies and kind of

some market share estimates that we have on the mobile wallet side to try to hone in on uh on the specific number but uh we did an analysis we we posted about it and the result was 30 to 60 million people that we think are transacting onchain monthly which is just 5 to 10% of the people who own crypto which I think for the industry presents a big opportunity right to bring these people on chain convert those owners into users what do you all think of the developing Bitcoin ecosystem Bitcoin l2s Bitcoin staking everything that's going on in that area as you saw in the report it actually is a source of growing Builder interest which you know is it's just interesting to see how when you see stuff on crypto Twitter sometimes there

is a relationship with reality uh I I I like that yeah I think it's I think it's early of course as we all know bitcoin's relatively limited programmability makes it hard to build serious applications on top of there are a few efforts like light spark I'm sure is here who are trying to make that happen but it is it is challenging most of the Builder energy we saw is directed at these uh you know Bitcoin l2s as they call them like you could there's some questions about how to specifically Define what that means but they do offer increasing programmability that has some some infrastructural connection to to bitcoin that's most of the interest uh Matt

co-founder xmt so you had along the lines the Builder question uh a chart that showed that active developers are somewhere at the 2021 level now so it went down a good bit but you also showed that the US percentage was a good bit higher how much of that could be attributed to just say the rest of the globe maybe softening on uh developing in crypto or is there some indication that some more regulatory Clarity uh is uh putting a bit more confidence in us-based developers and therefore they're uh coming in and developing more

yeah I think there's actually a number of different factors at play here um you know of course the I think the the developer number going going down you know that's something that we've looked into quite a bit I think uh part of what is happening there is uh just as crypto as an industry matures a lot of the development activity now is happening more in private repos as opposed to public repos that are often associated with more of the infrastructure layer and so I think a lot of it is just we're unable to detect a lot of the development activity that's happening uh and then in terms of the the globalization uh again uh the Builder energy data that we present is kind of very much our data which is uh representative of our point of view the

companies and projects that we meet with we do you know attempt to to track it uh in other areas as well but there may be you know admittedly a slight bias towards just the types of companies that that we meet with but on the wallet side you know we are very much seeing the US uh lose market share relative to to the rest of the world and so I think there's there's a number of different factors it's hard to tease them all out uh certainly actually do a quick mini poll is who could you raise your hand hand if either most of your development effort happens in private repos or if you have you most of your development effort has shifted into private repos so who private yeah just not visible on GitHub okay yeah pretty good

number okay just curious okay interesting I will ask some of you more later we could uh yeah another one uh two two questions um also I have to say after doing all Q&A it's really fun to be on this side of it um first can you elaborate a little bit more about where you think we are in the market cycle in terms of bull market bare market and I know no like no one knows but if you just give us your best guess second um Talk us through if each each of the different candidates for president wins um especially in the KLA case like what does that look like uh to your guys best knowledge so I'm going to punt on the second question because we have a great conversation on that I'm going to punt on that totally uh the on the first

question in terms of where we are in the cycle obviously I'm totally making this up and literally inventing this totally so there's no there's no advice in this but uh I I I personally think as Darren highlighted we're in a period where we have a lot more uh high high quality block space more capacity right that capacity takes time to be absorbed and to be used creatively and productively by Builders it's not like the block space lands and you know these high quality blockchains new programming environments new expanded l2s it's not like that happens and then people just like immediately know how to consume it they need to experiment like a great example I think is that nft slide right in the nft slide because of the

increased capacity you can finally have again people doing all kinds of goofy silly experiments at a very very low cost and those goofy experiments are what's going to lead to the new products of the future that end up utilizing that new block space so if you think of the block space as having kind of come online middle of this year like obviously EIP 4844 was late March uh combined that with all the new blockchains that have launched I think it's reasonable to assume it might take a year maybe two years maybe a little longer who knows for people to figure out how to use that so I'd say we're probably like six months in a into six months into a 2-year period where people

figure out what to do with the extra capacity do you think it's more it sounds like you think it's more like Technology based than like financial markets or interest R uh personally I think it's technology is the prime mover and that the financial markets are important but Technology's effect is smooth out over a much longer time and of course it can be hindered and it can be aided by favorable financial markets but that's that's the pattern that's my personal thought yeah I agree I think we're out of time yeah we out of time so thank you very much thank you he