2024 marks the 10th anniversary of the Ethereum Initial Coin Offering (ICO). In order to learn from front-end developers and network with like-minded venture capitalists and ecosystem users, several investment analysts from HTX Ventures attended EthCC, Europe’s largest annual Ethereum event, last week. This article outlines some of our observations on the current market conditions.
1. Ethereum optimization direction
Vitalik Buterin delivered a keynote speech in Brussels titled "Enhancing L1: Optimizing Ethereum as a Highly Robust, Reliable, and Permissionless L2 Base Layer". In the speech, Vitalik reiterated Ethereum's roadmap, which is to provide the most decentralized and secure settlement Layer 1 for various Layer 2s, and outlined five major directions for improvement of Ethereum:
1) Decentralized DeFi: In order to maintain the decentralized nature of the Ethereum network, it is crucial to encourage individual staking. This can be achieved by simplifying node operations and lowering the threshold for staking funds. At the same time, liquidity staking risks and related MEV (miner extractable value) risks also need to be considered.
2) Layer 2 Solutions: In order to achieve Ethereum’s roadmap, we need to focus on increasing the data availability bandwidth of Layer 2 storage and reducing the storage cost on Ethereum.
3) Security and privacy protection: Vitalik encourages validators to respond by automatically coordinating on the same minority fork when a 51% attack occurs. He also proposed potential solutions to deal with quantum attacks in the future.
4) Light Clients: Promote the adoption of Layer 1 light clients like Helios and develop similar solutions for Layer 2 to ensure users’ secure blockchain interactions without relying on centralized servers.
5) Protocol Simplification: To ensure Ethereum remains a robust base layer, its technical debt needs to be reduced.
2. Investment slowdown
Venture capital firms have temporarily slowed their pace of investment due to market liquidity uncertainty, IPO trends/macro conditions, and high FDV (fully diluted valuation) VC rounds. As the market corrects and political and economic conditions become clearer in the second half of 2024, we expect venture capital firms to resume a more active pace of investment.
3. Inconsistent investment direction
Having strong consumer applications is critical to getting more people to use blockchain technology. However, the direction of existing venture capital funding tells a different story. Currently, most funds are still flowing towards infrastructure, especially AI, security, privacy and blockchain. This investment trend is particularly pronounced in the Ethereum ecosystem. The current inconsistency in investment direction is partly due to the lack of innovative narratives in consumer applications.
4. Alternative ecosystem concerns
Outside of the main Ethereum ecosystem discussion, three other main types of blockchains have gained attention:
1) Community-driven blockchains: Blockchains such as TON focus on creating a good user experience and consumer applications that can be used by millions of non-crypto users.
2) Parallel EVM blockchains and modular solutions: Solutions such as Monad and Avail build on Ethereum’s existing resources while providing functional improvements on top of them.
3) BTC ecosystem: The Bitcoin ecosystem is also exploring user applications.
5. Macroeconomic expectations
The crypto market is increasingly in sync with the traditional financial system due to the launch of blockchain ETFs. The upcoming US presidential election and the expected Fed rate cuts will affect crypto regulations, economic direction, and the liquidity of the US dollar and related pegged currencies. Currently, as the probability of Trump winning the election increases, the market is optimistic about the prospects of the crypto market after the end of 2024.
HTX Ventures’ participation
In addition to attending the main event, HTX Ventures also sponsored and spoke at multiple side events such as the LSDFI Summit and VC<>Startups Connect. Our researchers and managing partners shared insights on “Heavy Staking Development” and “How to Successfully Launch a Web3 Ecosystem”.
This year’s EthCC conference demonstrated the unshakable position of the Ethereum ecosystem and provided forward-looking technical discussions and application explorations. HTX Ventures is committed to supporting the long-term development of the Ethereum ecosystem and continues to seek technologies and projects that can enhance the user experience of crypto users.
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About HTX Ventures
HTX Ventures is the global investment arm of HTX, integrating investment, incubation and research to identify the best and most promising teams around the world. As an industry pioneer, HTX Ventures has an 11-year history and excels at identifying cutting-edge technologies and emerging business models within the industry. In order to promote the development of the blockchain ecosystem, we provide comprehensive support to projects, including financing, resources and strategic advice.
HTX Ventures currently supports more than 300 projects covering multiple blockchain fields, some of which are already traded on the HTX exchange. In addition, as one of the most active fund of funds (FOF) investors, HTX Ventures works with top global blockchain funds including Dragonfly, Bankless, Gitcoin, Figment and Animoca to jointly build a blockchain ecosystem.
If you need investment and cooperation, please feel free to contact VC@htx-inc.com.
