Original title: State of Crypto Report 2024: New data on swing states, stablecoins, AI, builder energy, and more
Original author: Daren Matsuoka, Robert Hackett, Eddy Lazzarin, a16z

Original translation: TechFlow

Two years ago, when we first launched our annual State of Crypto Report, global attention to cryptocurrencies was not high. Exchange-traded products (ETPs) for Bitcoin and Ethereum had not yet been approved by the U.S. Securities and Exchange Commission (SEC), and Ethereum had not yet switched to an energy-efficient proof-of-stake mechanism. Second-layer (L2) networks designed to increase transaction capacity and reduce costs were barely widely used, and even when there were transactions, the fees were much higher than they are today.

Today, as we publish the 2024 State of Crypto Report, we see that the situation has changed significantly. The report discusses in detail how cryptocurrency has become a hot policy topic, the latest developments in blockchain technology, and new trends among cryptocurrency developers and users. The report also includes: · In-depth analysis of key applications such as stablecoins, which are considered one of the "killer apps" for cryptocurrency; · Exploring the intersection of cryptocurrency with other technology trends such as artificial intelligence, social networks, and games; · Providing new data on interest in cryptocurrency in swing states ahead of the US election, and more.

The 2024 report also shows that cryptocurrency activity has reached an all-time high. The report analyzes the maturity of blockchain infrastructure, especially the rise of Ethereum L2 and other high-throughput blockchains against the backdrop of recent scaling upgrades that have significantly reduced on-chain transaction costs.

This year, we launched a new tool: the a16z Crypto Developer Power Dashboard. For the first time, we share our unique perspective on the cryptocurrency space with the public, showing the distribution of "builder power." The dashboard combines thousands of aggregated and anonymized data points from research by the investment team, our CSX startup accelerator program, and other industry tracking tools. With this tool, anyone can understand the activities and interests of cryptocurrency builders, including the blockchains they use, the types of applications they develop, the technologies they adopt, and their geographical locations. We plan to update this data annually as part of our annual State of Crypto report.

Next, let’s look at some of the findings from the 2024 State of Crypto report.

7 Key Takeaways:

· Cryptocurrency activity and usage reached an all-time high

· Cryptocurrency has become an important political issue ahead of the US election

· Stablecoins have found product-market fit

· Infrastructure improvements have increased capacity and significantly reduced transaction costs

· DeFi remains popular and growing

· Cryptocurrency may solve some of AI’s most pressing challenges

· More scalable infrastructure has enabled new on-chain applications

1. Cryptocurrency activity and usage reached an all-time high

The number of monthly active crypto addresses has reached an all-time high. In September, 220 million addresses interacted with the blockchain at least once, a number that has more than tripled since the end of 2023. (It’s important to note that active addresses, as a metric, are more easily manipulated than other metrics. More on this in the Related Materials.)

The surge in activity was largely driven by Solana, which contributed about 100 million active addresses. It was followed by NEAR (31 million active addresses), Coinbase’s popular L2 network Base (22 million), Tron (14 million), and Bitcoin (11 million). Among Ethereum Virtual Machine (EVM) chains, the most active after Base is Binance’s BNB chain (10 million), followed by Ethereum (6 million). (Note: active addresses for the EVM chain are calculated by deduplicating public keys to arrive at a total of 220 million.)

These trends are also reflected in our Developer Power Dashboard. Solana is the blockchain that has seen the largest increase in builder interest this year. Specifically, the percentage of founders who indicated they are developing or interested in developing on Solana increased from 5.1% last year to 11.2% this year. Base had the second largest increase, increasing from 7.8% to 10.7% last year, followed by Bitcoin, which increased from 2.6% to 4.2%.

In absolute terms, Ethereum remains the blockchain that attracts the most interest from builders, accounting for 20.8%, followed by Solana and Base. Next in order are Polygon (7.9%), Optimism (6.7%), Arbitrum (6.2%), Avalanche (4.2%) and Bitcoin (4.2%).

Meanwhile, the number of monthly mobile crypto wallet users hit a new high of 29 million in June 2024. Although the United States has the largest share of monthly mobile wallet users at 12%, its share of total users has declined in recent years as cryptocurrencies have become more popular around the world and more projects have excluded the United States through geo-restrictions to achieve compliance.

The influence of cryptocurrencies is expanding overseas. After the U.S., the countries with the most mobile wallet users include Nigeria (which has seen significant growth in areas such as bill payments and retail purchases as it seeks regulatory clarity through initiatives such as the Regulatory Incubation Program), India (due to its large population and high mobile phone penetration), and Argentina (due to currency devaluation, many residents have turned to cryptocurrencies, especially stablecoins). While the number of active addresses and monthly mobile wallet users is easy to count, the number of actual active crypto users is harder to determine. Using a variety of methods, we estimate that there are approximately 30 million to 60 million monthly active crypto users worldwide, which is only 5% to 10% of the total number of 617 million cryptocurrency holders worldwide estimated by Crypto.com in June 2024. (For details on our estimation methodology, see Related Materials.)

This gap shows great potential to engage with and re-engage passive crypto holders. As major infrastructure improvements enable new and compelling applications and consumer experiences, more previously inactive crypto holders may be converted into active on-chain users.

2. Cryptocurrency Becomes a Major Political Issue Ahead of the US Election

Cryptocurrency has become a focal point of national discussion during this election cycle.

Therefore, we measured the level of cryptocurrency interest in swing states. Pennsylvania and Wisconsin, two key states expected to be closely contested in November, have risen to fourth and fifth place, respectively, in cryptocurrency search interest on Google Trends since the last election in 2020. Michigan ranks eighth in cryptocurrency search interest, while Georgia remains unchanged. Meanwhile, Arizona and Nevada have seen a decline in interest since 2020.

This year, the listing of Bitcoin and Ethereum exchange-traded products (ETPs) could be a significant factor in boosting interest in cryptocurrencies. As these ETPs provide investors with a wider range of investment channels, the number of people holding cryptocurrencies in the United States may increase. Currently, Bitcoin and Ethereum ETPs already have $65 billion worth of on-chain assets. (Note: Although commonly referred to as ETFs, these products are actually ETPs registered through SEC Form S-1, indicating that their underlying asset portfolio does not contain securities.)

The SEC's approval of the ETP marks a major development in crypto policy. Regardless of which party wins the election in November, many politicians expect the passage of bipartisan crypto legislation to further promote this trend. More and more policymakers and politicians in both parties have a positive attitude towards cryptocurrencies.

This year, the industry has also made other important policy developments. At the federal level, the House of Representatives passed the Financial Innovation and Technology for the 21st Century (FIT21) Act with bipartisan support, with 208 Republicans and 71 Democrats voting in favor. If passed by the Senate, the bill could provide much-needed regulatory clarity for crypto entrepreneurs.

Equally important, at the state level, Wyoming passed the Decentralized Unincorporated Nonprofit Association (DUNA) Act, a law that grants legal status to decentralized autonomous organizations (DAOs) and allows blockchain networks to operate legally without compromising decentralization.

The European Union and the United Kingdom have been the most active in engaging with the public on cryptocurrency policy and regulation. In contrast, European agencies have issued more draft proposals than the U.S. Securities and Exchange Commission. Meanwhile, the European Union’s Markets in Crypto-Assets Act (MiCA) became the first comprehensive crypto policy regime to be legislated and is expected to be fully effective by the end of the year.

Stablecoins, one of the most popular crypto products, are a hot topic of policy discussion, with several related bills being discussed in the U.S. Congress. In the U.S., one of the factors driving this discussion is the recognition that stablecoins can strengthen the U.S. dollar’s international influence even as its status as a global reserve currency declines. Currently, more than 99% of stablecoins are denominated in U.S. dollars, far more than the second-largest denominated currency: the euro, which accounts for only 0.20%.

In addition to strengthening the dollar’s influence internationally, stablecoins may also strengthen America’s financial foundation domestically. Despite being only a decade old, stablecoins have become one of the top 20 holders of U.S. Treasuries, surpassing countries like Germany.

While some countries are exploring central bank digital currencies (CBDCs), the stablecoin opportunity in front of the United States is ripe. Against the backdrop of these discussions and the growing number of high-profile politicians speaking out about cryptocurrencies, we expect more countries to begin seriously developing their crypto policies and strategies.

3. Stablecoins Find Product-Market Fit

Stablecoins have become one of the most attractive “killer apps” in the cryptocurrency space due to their fast, low-cost global payment capabilities. As New York Rep. Ritchie Torres put it in a New York Daily News op-ed in September, “The widespread use of dollar-denominated stablecoins — fueled by the ubiquity of smartphones and the cryptographic power of blockchain — could become humanity’s greatest experiment in financial empowerment.”

Through major scaling upgrades, the cost of performing crypto transactions, especially stablecoin transactions, has dropped dramatically, in some cases by more than 99%. On the Ethereum network, the average fee for a transaction using USDC, a popular dollar-pegged stablecoin, has dropped from $12 in 2021 to $1 this month. And sending USDC on Coinbase’s popular L2 network, Base, costs less than a penny on average. (Note that these figures may not include some initial and exit costs.)

Compared to the average $44 fee for an international wire transfer, stablecoin fees are extremely low.

Stablecoins greatly simplify the transfer of value. In the second quarter of 2024, stablecoins saw $8.5 trillion in transaction volume, across 1.1 billion transactions. This volume is more than double Visa’s $3.9 trillion in transaction volume during the same period. The fact that stablecoins are on par with established payment services like Visa, PayPal, ACH, and Fedwire speaks volumes to their usefulness.

Stablecoins are more than just a fad. Even during crypto market volatility, stablecoin usage has not been significantly correlated to market cycles. In fact, the number of monthly stablecoin sending addresses has continued to increase, even as spot crypto trading volumes have fallen. In other words, people are using stablecoins for more than just trading.

All of this activity is reflected in usage statistics. Stablecoins account for nearly a third of daily cryptocurrency usage at 32%, second only to decentralized finance (DeFi) at 34%, as measured by the proportion of daily active addresses. The rest of cryptocurrency usage is spread across infrastructure (such as bridges, oracles, maximum extractable value, account abstraction, etc.), token transfers, and other emerging application areas such as gaming, NFTs, and social networks.

4. Infrastructure improvements increase capacity and significantly reduce transaction costs

Part of the reason why stablecoins are so popular and easy to use is due to advances in the underlying infrastructure. First, the processing power of blockchains is constantly improving. Thanks to the rise of Ethereum L2 networks and other high-throughput blockchains, blockchains can process more than 50 times the number of transactions per second than they did four years ago.

Even more surprising is that Ethereum’s major annual upgrade, Dencun, also known as “protodanksharding” or EIP-4844, launched in March 2024, significantly reduced fees on the L2 network. Since then, even as the value of Ethereum on L2 has continued to rise, the fees paid on Ethereum by L2 have dropped significantly. In other words, blockchain networks are becoming more popular and more efficient.

A similar trend is happening with zero-knowledge (ZK) proofs, a technology that has important implications for blockchain scalability, privacy, and interoperability. Even as the monthly fees spent verifying ZK proofs on Ethereum are decreasing, the value of Ethereum on ZK rollups is growing. In other words, the cost of ZK proofs is decreasing while their popularity is increasing. (We use zero-knowledge as an umbrella term here to refer to cryptographic techniques that can succinctly prove that computations performed on a rollup network are correct.)

ZK technology is promising, providing developers with a new path to cheap and verifiable blockchain computation. However, ZK-based virtual machines (zkVMs) still have a long way to go in terms of performance to catch up with traditional computers - a humbling observation.

With these infrastructure improvements, it’s easy to see why blockchain infrastructure remains one of the most popular areas for developers, and why L2 is one of the top five development subcategories we track.

5. DeFi remains popular and continues to grow

The only area that attracts developers more than blockchain infrastructure is decentralized finance (DeFi), which also accounts for the largest share of cryptocurrency usage, with 34% of daily active addresses related to DeFi. Since the rise of DeFi in the summer of 2020, decentralized exchanges (DEXs) have grown to account for 10% of spot crypto trading activity, which was conducted on centralized exchanges four years ago.

Currently, more than $169 billion in funds are locked in thousands of DeFi protocols. Among them, staking and lending are some of the main DeFi subcategories.

It’s been more than two years since Ethereum completed its transition to a proof-of-stake mechanism, which significantly reduced the network’s energy consumption and environmental impact. Since then, Ethereum’s stake ratio has risen to 29%, up from 11% two years ago, which has greatly enhanced the network’s security.

Although still in its early stages, DeFi offers a viable alternative to the growing problems of centralization and power in the U.S. financial system. Since 1990, the number of banks in the U.S. has fallen by two-thirds, with assets increasingly concentrated in a small number of large banks.

6. Cryptocurrency could solve some of AI’s pressing challenges

Artificial intelligence is one of the hottest trends this year, not only in the tech space, but also in the cryptocurrency space.

On social media, AI is one of the hottest topics among cryptocurrency influencers. Even more surprising is the large overlap between users visiting chatgpt.com and those visiting top cryptocurrency websites, showing a strong connection between cryptocurrency and AI users.

Crypto developers also have a strong connection to AI. According to our Developer Power Dashboard, approximately 34% of cryptocurrency projects say they are using AI, an increase from 27% a year ago. The most common area where AI technology is being applied is in blockchain infrastructure projects.

Given that the cost of training cutting-edge AI models has quadrupled annually over the past decade, we believe AI could lead to further concentration of power on the Internet. If left unchecked, only the largest tech companies are likely to be able to train the latest AI models.

The challenges of centralization in AI are almost in stark contrast to the opportunities for decentralization offered by blockchain networks. Crypto projects are already working to address these challenges, such as Gensyn by democratizing access to AI computing, Story by tracking intellectual property to help compensate creators, Near by running AI on an open-source, user-owned protocol, and Starling Labs by helping to verify the authenticity and provenance of digital media.

The marriage of cryptocurrency and AI is likely to intensify in the coming years.

7. More efficient infrastructure drives new on-chain applications

With lower transaction costs and higher blockchain capacity, many potential consumer applications for cryptocurrencies become possible.

Take NFTs as an example. A few years ago, people traded NFTs for billions of dollars on secondary markets due to high crypto transaction fees. Today, this phenomenon has subsided, replaced by a new trend of minting low-cost NFT collections on social applications such as Zora and Rodeo. This marks a major shift in the NFT market, which was unimaginable before transaction fees were significantly reduced.

Social networks are also a typical example. Although they currently account for a small proportion of daily on-chain activity, they are attracting a lot of developer attention: according to our Developer Energy Dashboard, 10.3% of crypto projects in 2024 will be social related. In fact, social networking-related projects like Farcaster have become one of the hottest developer subcategories this year.

As developers and consumers explore more social experiences, on-chain games are pushing the blockchain’s scalability to its limits. Take Proof Of Play’s sea adventure role-playing game Pirate Nation, for example, which uses Rollups that consume the most gas per second on Ethereum.

As the November election approaches, cryptocurrency prediction markets are growing rapidly, even though they remain illegal in the U.S. Kalshi, a non-crypto prediction market registered with the CFTC, won a lower court victory last month in its federal lawsuit surrounding election contracts. (Registered exchanges are currently allowed to offer traditional election-based futures contracts.)

New consumer behaviors are beginning to emerge. All of these emerging experiences were difficult to achieve in the past when blockchain infrastructure was cumbersome and transaction costs were high. As blockchain technology continues to improve along the classic price-performance curve, expect more of these applications to flourish.

So where are we now? Over the past year, cryptocurrencies have made significant progress in policy, technology, consumer acceptance, and more. On the policy side, multiple milestones were achieved, including the sudden approval and listing of Bitcoin and Ethereum ETPs, and the passage of important bipartisan crypto legislation. On the infrastructure side, there were also major improvements, from the improvement of scaling capabilities to the rise of Ethereum L2 and other high-throughput blockchains. In addition, there are new applications being developed and used, from the growth of mainstream products such as stablecoins to the exploration of emerging fields such as AI, social networks and games.

Whether we have entered the fifth wave of the price and innovation cycle, a framework that helps us understand the ups and downs of the cryptocurrency market, remains to be seen. Regardless, as an industry, cryptocurrency has made indisputable progress in the past year. As ChatGPT shows, it only takes one breakthrough product to change an entire industry.

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