Written by: Daren Matsuoka, partner at a16z crypto
Compiled by: Luffy, Foresight News
2024 is an exciting year in the development history of the crypto industry. Activity and usage of cryptocurrencies have reached all-time highs, blockchain infrastructure has significantly improved, transaction costs have decreased, stablecoins have found product-market fit, and the intersection of cryptocurrency and artificial intelligence has become increasingly clear, with the approval of Bitcoin and Ethereum ETFs paving a positive path for legislative and regulatory environments in the crypto industry. All these factors set the stage for another exciting year.
When considering the next steps in the development of cryptocurrencies, here are five indicators we will closely monitor to track the ongoing progress of the industry.
Monthly mobile wallet users
To ignite the next wave of cryptocurrency user growth, we need to make the user experience closer to that of Web2 applications. Mobile wallets will play a crucial role: hundreds of millions of 'passive' cryptocurrency holders (those who own crypto but do not frequently engage in on-chain transactions) could convert into active users. To achieve this, developers need to continue innovating new consumer applications, while consumers need wallets to participate.
Last month, the number of mobile wallet users reached an all-time high, surpassing 35 million for the first time. This growth is attributed to the increase in users of well-known wallets like Coinbase Wallet, MetaMask, and Trust Wallet, as well as the contributions from new participants like Phantom and World App.
For developers, consumer wallets present some of the industry's toughest challenges, making it difficult to find the right balance between security, privacy, and usability. But now that blockchain infrastructure can support hundreds of millions to billions of people conducting on-chain operations, it is an excellent time to create the next generation of mobile wallets. In 2025, we will closely monitor these developments.
You can track the monthly number of mobile wallet users here.
Adjusted stablecoin transaction volume
With infrastructure developments significantly lowering transaction costs, activity in stablecoins increased in 2024. Notably, stablecoins are not only used for cryptocurrency trading but also for cross-border payments and remittances, purchasing goods and services, and as a store of value in countries experiencing severe inflation. Stablecoins have become the lowest-cost method for USD payments, and we expect more businesses to accept stablecoin payments.
Driven by these favorable factors, blockchain-based value settlements should continue to grow by 2025. While we can easily measure this transaction volume using on-chain data, it is challenging to separate the true usage of stablecoins. Transactions can be initiated manually by end users or automatically through bots, and some of these on-chain transactions do not resemble traditional settlement methods.
Fortunately, Visa has created a clear and straightforward method to showcase stablecoin usage while filtering out the impact of bot and other artificial inflationary activities.
If the adoption of stablecoins—one of the clearest use cases for cryptocurrencies—takes off in 2025, this indicator will be closely watched.
You can track stablecoin transaction volume here.
Net inflow of ETF funds
Last year, the U.S. Securities and Exchange Commission approved Bitcoin and Ethereum ETFs. This is a significant milestone that makes it easier for individual and institutional investors to access cryptocurrencies. However, it will take time to activate distributors like Goldman Sachs, JPMorgan, and Merrill, who will incorporate these products into retail investor portfolios.
One way to measure ETF activity is through 'net inflows,' which represent the number of bitcoins or ethers flowing into or out of an ETF. (This excludes previously existing products that ultimately convert to ETFs, such as Grayscale Bitcoin Trust and Ethereum Trust.) So far, there have been a net inflow of 515,000 bitcoins into Bitcoin ETFs and 611,000 ethers into Ethereum ETFs.
As more institutional investors seek to enter the crypto asset space, net inflows into ETFs should increase. By tracking the on-chain deposits and withdrawals from addresses identified as ETF custodians, we can monitor this data in real-time.
You can track net ETF fund inflows here and here.
Comparison of spot trading volume between decentralized exchanges and centralized exchanges
As users flock to the blockchain space, we expect the usage of decentralized exchanges (DEX) relative to centralized exchanges (CEX) to increase in cryptocurrency trading. After all, the core premise of cryptocurrency is decentralized finance (DeFi). With the growth of the DeFi ecosystem, the spot trading share of decentralized exchanges has steadily increased to about 11% over the past few years, and we expect this trend to continue in 2025.
Recently, as new users entered the space, the transaction volume on Coinbase's Base chain and high-throughput chains like Solana surged, driving the trading volume on decentralized exchanges to an all-time high.
As more new consumer applications go live, trading volume on decentralized exchanges may further increase.
This will be an important focus indicator as we monitor the balance shift between decentralized crypto-native activities and centralized cryptocurrency exchanges.
You can track the spot trading volume comparison between DEX and CEX here.
Total transaction fees on the blockchain
Total transaction fees (in USD) reflect the total demand for block space on a specific blockchain, representing real economic value.
However, this indicator has many nuances, as most projects are explicitly working to reduce costs for users. This is why it's also important to consider unit transaction costs (the cost of a specific amount of blockchain resources). Ideally, total demand (total transaction fees) increases while gas fees (cost per unit of resource usage) remain low.
In November 2024, Solana's fees surpassed Ethereum for the first time in history (see below). Notably, this milestone occurred even though Solana's unit transaction costs are significantly lower; sending USD stablecoins (USDC) on Ethereum incurs about $5 in fees, while it costs less than 1 cent on Solana. This is a significant milestone that we will continue to watch.
Many ecosystems and their associated fee markets are maturing, making this a good time to begin measuring the economic value facilitated by various blockchains. In the long run, the demand for block space (measured by the total fees paid in USD) may be the most important single indicator for tracking progress in the crypto industry. Why? It reflects the level of participation in valuable economic activities and the willingness of users to pay for it.
You can track the demand for block space through transaction fees here.
Summary
We have tracked multiple indicators in the crypto industry, but this year we will closely monitor these five indicators. With broader access channels for investors, mature infrastructure paving the way for new applications, and more popular products (such as stablecoins) emerging, the crypto industry is well-positioned to attract more users and developers. Let's see what new developments emerge this year that will ultimately drive changes in these indicators.
