Binance Research Annual Report: 8 Key Focuses for 2024

Binance Research

24-01-17 20:00

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Original Title: "Full-Year 2023 & Themes for 2024"

Original Author: Binance Research

Original Translation: Odaily Planet Daily Nan Zhi

2023 Review

2023 marks the year of the recovery of the cryptocurrency market, with a global market cap growth of approximately 109%. This remarkable growth is mainly attributed to significant progress made in the first and fourth quarters, achieving growth of 48.3% and 54.4% respectively. In stark contrast to the difficult period of 2022, which was driven by a series of turbulent events such as the UST anchor, bankruptcy of multiple lending institutions, and the FTX scandal, resulting in a market decline of approximately 64%.

The key factors that will drive strong performance in 2023 include a series of significant developments. The most critical of these is the optimistic sentiment brought by the spot Bitcoin ETF, as well as the anticipation of the upcoming Bitcoin halving. A strong macroeconomic backdrop, with resilient global GDP growth and slowing inflation, also creates a favorable environment for cryptocurrencies in 2023.

Despite significant gains, 2023 is not without challenges. In March, the chaos in the banking industry affected the cryptocurrency market, causing the USDC stablecoin to temporarily lose its peg. In August, traders suffered losses of up to $1 billion due to liquidation, as a result of macroeconomic uncertainty related to the Chinese economy and signs that the Federal Reserve was considering further interest rate hikes. However, the cryptocurrency market has shown resilience, quickly recovering and regaining momentum in the following months.

When we look to the future of the cryptocurrency market, the lessons of 2023 highlight the industry's ability to adapt, innovate, and grow in the face of challenges. The strong recovery in 2023 provided a foundation for breakthroughs, growth, and possibilities in the cryptocurrency field.

2024 Outlook

Looking ahead to the future, we are pleased with the excellent performance of the market over the past year and are particularly excited about the following themes.

Bitcoin narrative still at the forefront

Throughout 2023, thanks to various narratives, Bitcoin has been the focus, such as Ordinals/BRC-20, spot Bitcoin ETF approval, and the halving in 2024. Ordinals and BRC-20 mark the 0 to 1 innovation in Bitcoin's evolution, introducing the deployment, minting, and transfer of homogenized tokens on the Bitcoin network for the first time. These tokens have also quickly become alpha investment targets for Bitcoin ecosystem investors. At the same time, the recently approved spot ETF may introduce a significant amount of liquidity to the crypto market and signal mainstream recognition of Bitcoin as a legitimate asset.

Entering 2024, the momentum may continue. The final decision of SEC has been released and is likely to be positive. Historically, the cryptocurrency market has performed well in the year following the Bitcoin halving event. Therefore, the recently approved spot ETF and the optimistic sentiment before the halving in April may trigger significant market volatility.

In addition, due to the small market capitalization and meme attributes of Ordinals and BRC-20, we may witness more intense price fluctuations if Bitcoin rises rapidly in response to corresponding events. It is expected that the Ordinals and BRC-20 ecosystems will further develop. Most notably, the launch of more Bitcoin scaling solutions, such as sBTC from Stacks, will be an interesting development that will help enhance Bitcoin's functionality.

Ownership economy gains further momentum in application

Blockchain technology enables users to regain sovereignty over resources traditionally controlled by large entities, including personal data, creative content, and computing resources. For example, centralized storage services may require users to relinquish control over their data, exposing them to privacy breaches and single point of failure risks. Various projects are exploring alternative solutions that give users greater control over their assets and information. In this regard, two notable areas are decentralized physical network infrastructure (DePin) and decentralized social media (DeSoc).

Although the concepts of DePin and DeSoc have existed for some time, they did not begin to gain significant momentum until 2023. This shift can be attributed to the maturity of infrastructure development, increased awareness, and growth in the user base of the cryptocurrency field. For DeSoc, Friend.tech was the main growth driver in 2023, generating huge revenues comparable to some top protocols. Friend.tech demonstrated the potential of decentralized social media, allowing users to profit from their creations without restrictions imposed by a central platform. In 2024, we may see similar applications exploring various forms of social media, including music, video, and written content.

Meanwhile, DePin became a popular narrative at the end of 2023. Due to its large market and ability to rapidly expand through a bottom-up growth strategy, these protocols are seen as having high growth potential. In 2024, we may witness the accelerated adoption of DePin and DeSoc projects, leveraging their potential in growth and market penetration.

Artificial Intelligence (AI) Integration Increased

Since OpenAI's ChatGPT sparked strong attention to AI applications globally in 2023, AI x Crypto has become one of the main narratives in recent months, with numerous projects continuing to emerge. We believe that the integration of artificial intelligence and cryptography is a growth area worth paying attention to. Although it is still in its early stages, integrating artificial intelligence into the cryptographic ecosystem has opened up a series of possibilities for potential use cases and provided alternatives to existing solutions.

The projects that have already started integrating artificial intelligence have provided services such as automated trading, predictive analysis, art generation, data analysis, and DAO operations. Looking ahead, there are still more use cases waiting to be discovered.

For example, training AI models requires a large amount of data input and resources, which is usually limited to technology giants. This leads to reduced transparency and closed development. However, by utilizing decentralized storage for data management, we can achieve higher transparency and security. This democratizes the process of AI model training, allowing for wider participation, which may lead to a surge in innovation and development in the field.

Real World Assets (RWA) Growth

RWA tokenization demonstrates the powerful use case of blockchain technology. By bringing off-chain assets onto the blockchain, RWA tokenization provides greater transparency and efficiency, and opens up new possibilities in terms of composability and potential use cases.

Entering 2024, we expect RWA to benefit from the boost of interest rate expectations. Tokenized treasuries remain a major highlight, providing an alternative and attractive source of income for crypto investors. In addition, as institutions adopt RWA at an accelerated pace, the development of related infrastructure, such as decentralized identity, oracles, and interoperability solutions, is also expected to gain momentum. These elements are crucial for building a comprehensive RWA ecosystem.

Chain-based liquidity pattern is booming

Liquidity is crucial for on-chain ecosystems, especially for DeFi. Since Uniswap introduced the AMM model, there has been significant development. This evolution has spawned multi-layered liquidity models that support various on-chain activities, including token swaps, derivative trading, and yield farming.

With the market gradually gaining momentum, it is expected that the scale of on-chain liquidity and financial activities will increase. Two categories worth paying attention to are liquidity management and request for quote (RFQ) systems. The centralized liquidity market maker (CLMM) promoted by Uniswap V3 solves the problem of capital inefficiency. However, issues such as impermanent loss (IL) and just-in-time (JIT) liquidity that require active position management still pose challenges for less experienced participants. This has led to the emergence of liquidity protocols that optimize the position of CLMM liquidity providers using various strategies. Currently, the TVL of Uniswap V3 alone has reached $2.4 billion, but the combined value managed by these liquidity management protocols is only $400 million. This gap highlights the growth potential, especially with the upcoming Uniswap V4, which may introduce more advanced liquidity optimization features.

RFQ system, representing projects including Uniswap X, CoW Swap, and 1inch Fusion, facilitates matching between traders and liquidity providers, typically utilizing mechanisms such as Dutch auctions to ensure competitive pricing. The advantages of the RFQ model include competitive pricing, MEV protection, zero slippage, and gasless order processing. With the continuous improvement of on-chain trading infrastructure, the likelihood of adopting this efficient model is likely to increase.