Original author: AllianceDAO
Compiled by: Zen, PANews
AllianceDAO is a leading crypto accelerator and founder community, attracting the best crypto startups in the industry to our accelerator program, receiving over 3,000 applications annually. As the AllianceDAO accelerator program runs twice a year, we report the data in two parts. In this report, Aliance provides insights observed from application data and supplements these trends with insights they may imply for the wider startup ecosystem.
Key highlights: Key trends observed in internal data from 2021-2024:
Blockchain
Ethereum remains the primary ecosystem for startups (currently about 2/3 of startups are building here), while Solana (currently at 18%, which once fell to 8% after the FTX collapse) and Bitcoin (today at 5%) have seen rapid growth over the past year and a half.
In the Ethereum ecosystem, 59% of startups are currently building on Optimism Rollup (Optimism, Base, and Arbitrum).
Polygon is gradually losing startups, and Polygon zkEVM is falling behind in competition with Optimism Rollup.
Base is the fastest-growing in all Ethereum L2s, now accounting for over 28% of startup activity, starting from zero in just one year.
What verticals are applicants building products in?
Verticals trending upwards: infrastructure, DeFi, payments, AI and crypto integration.
Verticals trending downwards: DAOs and NFTs.
Which continent are the founders located on?
Europe (31%), the U.S. and Canada (29%), and Asia (27%) are currently the top three regions where startups are building.
However, the proportion of startups from the U.S. and Canada has steadily declined over the past few rounds, while the proportion from Asia and Africa has been rising.
Keywords increasingly mentioned by project parties
Popular terms that have grown in the past 12 months include fully homomorphic encryption (FHE), chain abstraction, meme, SocialFi, prediction markets, liquid staking, restaking, RWA, stablecoins, L1, L2, and L3.
Founders' backgrounds & team composition
Currently, 30% of founders applying to join our accelerator have experience with large tech companies (S&P 500), and 12% studied at top schools (QS top 100 universities).
39% of startups are founded by sole founders, and among companies with multiple founders, the proportion of equal equity distribution has reached 50%.
72% of startups operate fully remotely (with no employees working on-site).
The following is the main report text.
Layer1: Ethereum dominates, with Solana and Bitcoin ecosystems to watch.
Ethereum remains the dominant ecosystem, attracting 62% of crypto startups applying to join Alliance. Additionally, Solana has recovered to an 18% application ratio after bottoming out in the second half of 2022. Interestingly, the Bitcoin ecosystem is also attracting an increasing number of developers, currently accounting for nearly 5% of all applications.
The number and quality of startups building in each ecosystem remain the best indicators for predicting the performance of that ecosystem in the next 1-2 years. After all, startups need to build products, and those products ultimately drive usage, on-chain metrics, attention, and price movements.
Solana is currently the most momentum-driven ecosystem. According to our data, the number of startups on Solana reached a low in the second half of 2022. This may be directly related to the collapse of FTX, as FTX played a crucial role in Solana's early development. Since then, both SOL's price and Solana's on-chain metrics have begun to rebound. Many of the top products built on Solana were actually established during the bear market and the FTX crisis. Tensor, Kamino, Solflare, and Pump are some popular applications built on Solana by Alliance alumni. Based on the current trends in startup selection, we believe Solana will continue to attract startups and users in the next 1-2 years.
Meanwhile, the Bitcoin ecosystem is attracting an increasing number of startups, which all started with the launch of Ordinals in 2023. The early hype around this non-fungible token standard has triggered various experiments with fungible token standards (like BRC20 and Runes). Efforts aimed at significantly enhancing Bitcoin's programmability, such as BitVM and several Bitcoin L2 solutions, have also emerged. We are also seeing many DeFi projects initially pioneered on Ethereum, such as decentralized exchanges, lending platforms, and stablecoins, starting to replicate on Bitcoin. While the hype in the Bitcoin ecosystem may peak after the latest halving in April 2024, it is also the time in Bitcoin's history when entrepreneurs' attention is the highest.
We are optimistic about the potential of Bitcoin as a startup ecosystem, as the current wealth stored in Bitcoin exceeds $1 trillion, prompting the market to explore meaningful or interesting ways to utilize this wealth. However, we must also note that Ethereum and Solana are still far ahead, and Bitcoin's technical limitations may prevent it from providing differentiated experiences for developers and users.
That being said, despite losing some attention to Solana and Bitcoin recently, Ethereum remains the most active ecosystem, capturing nearly 2/3 of Alliance applicants' attention. Currently, most startups are building products on Ethereum L2 in a highly competitive market.
Ethereum Layer 2: Base rises, Optimism Rollup continues to lead.
In the early history of Alliance, startups were almost entirely building on Polygon. However, Optimism Rollup (such as Optimism, Base, and Arbitrum) has consistently gained attention over the past three years. Today, they collectively account for 59% of the share of startups built on Ethereum L2. Notably, Base just launched in 2023 and currently accounts for 28% of startup activity on Ethereum L2.
According to our own data and data from L2Beat, Optimism Rollup has proven to be a better product than ZK Rollup. Overall, Optimism Rollup offers lower fees and a better developer experience, which in turn attracts more users and startups. Nonetheless, we have also encountered some outstanding founders building infrastructure and applications on ZK Rollup (such as Starknet and ZKSync). If the tooling improves, or if these founders find product-market fit, ZK Rollup may start attracting more founders and end-users, but given the current dominance of Optimism Rollup, this remains to be seen.
Polygon has gradually lost market share of startups building on Ethereum over the past three years. Polygon is not just a blockchain, but the vast majority of startup and user activity occurs on Polygon POS, which is a sidechain of Ethereum. The decline in market share is understandable, as Polygon POS was actually the only mature and available solution for scaling Ethereum a few years ago. Today, Polygon has invested significant resources in Polygon zkEVM, but it still lags significantly behind Optimism Rollup compared to other ZK Rollups.
Finally, it is worth mentioning Base. We knew a year ago that Base would become one of the most important L2s, thanks to Coinbase's brand and distribution capabilities. But they have exceeded our expectations, becoming the largest destination for Ethereum startups after Polygon.
Distribution of verticals: Infrastructure continues to grow, DeFi remains a focus.
Another interesting trend we can track from application data is what products startups are building. Please note that we are trying to categorize product verticals, which is obviously subjective and may not be perfect. For example, these categories are not mutually exclusive and are custom. A startup may operate in both the gaming and NFT spaces simultaneously. Therefore, while long-term trends are interesting, please be cautious with these numbers.
The public perception is that there is too much infrastructure and not enough applications, which aligns with our application data—indeed, the proportion of startups choosing to build infrastructure has continued to grow over the past three years.
One of the main reasons for the growth of infrastructure could be that historically, infrastructure tokens have been highly valued. This has led more startups to pursue infrastructure projects while attracting more venture capital to infrastructure, further driving more startups. This outcome is a misallocation of a large amount of knowledge and financial capital, but it has also led to more scalable blockchains, which should benefit future application developers.
Meanwhile, DeFi has become one of the most popular categories over the past year. Despite many venture capitalists believing that 'DeFi is dead', the number of DeFi startups has actually increased over the past 18 months. Nonetheless, DAOs and NFTs remain the least popular product categories. We think this makes sense, as many DeFi projects have experienced death in NFTs (many DAOs treat their NFTs as governance tokens), and the value of NFTs themselves seems unable to form in the market.
Nevertheless, NFTs still attract some very interesting startups, especially in the art sector, and we believe this influence will continue. We predict that future startups will focus on developing infrastructure for more applications and products, such as SocialFi, Web3 games, and on-chain data aggregation, which will further drive the sustainability of the Web3 ecosystem.
Geographical distribution: Eurasia is rising, North America's advantage is weakening.
One of the most interesting trends we analyzed is the primary geographical distribution of startup founders.
In the first half of 2024, we saw the proportion of founders from the U.S. and Canada drop to a historic low of just 29%. This proportion has decreased compared to the second half of 2021, when applicants from the U.S. and Canada exceeded 45%.
Meanwhile, the proportion of startups from Asia and Africa has reached historic highs, at 26% and 5%, respectively. Overall, North America, Europe, and Asia still dominate, with startup application proportions in each region ranging between 25% and 33%. The decline in U.S. applicants is a concerning trend, which could be attributed to two reasons. First, increasing regulatory uncertainty in the U.S. and the 'enforcement-centric' strategies of the SEC, CFTC, and U.S. Treasury have led U.S. founders to relocate abroad or pivot to other industries (like AI). Secondly, the real-world adoption rate of cryptocurrency in developing countries is continually rising, particularly stablecoins as a hedge against local fiat currencies and as a form of cross-border and censorship-resistant payment. This further attracts more startups from these regions.
Whether the first trend will continue remains to be seen, especially if the upcoming elections in November lead to a new government. However, the second trend is unlikely to slow down in the short term, as stablecoins are indeed solving real problems for everyday people in developing countries. This is particularly important because discussions dominated by the public and social media often center around the U.S., viewing cryptocurrency strictly as a tool for speculation. While speculation has driven cryptocurrency adoption in the Global North, in the Global South, stablecoins are pushing the adoption of cryptocurrency.
Buzzwords among startups: fully homomorphic encryption, chain abstraction, meme
The cryptocurrency space has experienced multiple hype cycles, typically every four years. However, within each cycle, there are also multiple smaller hype cycles across various product domains.
By analyzing the keywords mentioned in alliance applications, we gained insights into popular trends for a specific period. We call these keywords 'crypto buzzwords' and categorize them for a more detailed visualization of their trends. Please note that all charts in this section are on a logarithmic scale. Zero-knowledge proofs (ZK), fully homomorphic encryption (FHE), trusted execution environments (TEE), and multi-party computation (MPC) are some key privacy-related technologies used in crypto. Notably, while ZK can be used for privacy protection (e.g., in Zcash and Tornado Cash), its current main application is scalability.
Privacy
ZK has remained the most mentioned term for some time. FHE has risen over the past year. This data aligns with the trends we see in public discourse. The first application of ZK in crypto was in Zcash in 2016. However, it wasn't until 2021 that it became a household name. In fact, in 2021, Vitalik wrote, 'optimistic rollups are likely to win out in general EVM computation, but in the medium to long term, ZK rollups will win across all use cases.' In our view, the consistent rise of ZK from 2021 to 2023 can be traced back to this single event.
User experience
The mentions of 'bridging' have remained relatively stable over the past three years. Meanwhile, 'account abstraction' saw a significant rise in the second half of 2021, while 'chain abstraction' grew rapidly in 2022. The mentions of 'intent-based' have recently risen sharply but seem to have peaked. 'Chain abstraction' is actually a renaming of cross-chain bridging. Therefore, its rise is not unrelated to the stagnation of 'bridging'. At the same time, the emergence of 'account abstraction' is related to Vitalik's popularization of EIP-4337 in 2021. Many crypto buzzwords trace their origins back to the founders of Ethereum.
Consumer applications
In consumer applications and gaming, 'NFT', 'metaverse', and 'GameFi' peaked in the second half of 2022 but then saw a sharp decline. 'X to earn' also saw a similar downward trend, though the decline was smaller. 'SocialFi' and 'meme' are some new terms that emerged in 2021 and continue to show growth.
The speculative frenzy around NFTs in 2022 has likely been replaced by memecoins, which have lower unit prices and higher liquidity due to their fungibility. 'X to earn' and 'GameFi' peaked with the momentum from Axie Infinity, but surprisingly, the decline in 'X to earn' was not significant. Finally, 'SocialFi' saw a resurgence in the second half of 2023, likely related to the success of Friend.tech.
Yield
'Liquid staking' has been gaining attention since 2021, while 'restaking' has been rising steadily since 2022. On the other hand, mentions of 'lending' have remained relatively stable in timing, although it peaked in the second half of 2022.
Trading
'Automated Market Makers' (AMM), 'Derivatives', and 'Decentralized Exchanges' (DEX) have generally shown an upward trend over the past 3.5 years. In contrast, 'Maximal Extractable Value' (MEV) peaked in the second half of 2022 and has since lost popularity among entrepreneurs. Launchpads gained momentum again after a slight slowdown in 2023. Overall, trading-related keywords are on the rise, as these are among the few applications in crypto with clear product-market fit. The recent rise of 'launchpads' may be related to the success of Alliance alumni Pump.fun.
RWA
Startups applying for the alliance mention a rising trend in 'payments', 'stablecoins', and 'RWA'. As mentioned, stablecoin-based payments are among the few applications in crypto that have demonstrated product-market fit, especially in emerging markets.
Scalability
In the scalability sector, 'L2' and 'L3' show strong growth trends, while 'L1' peaked in the second half of 2022 and has started to stagnate. Since the second half of 2021, new buzzwords have emerged, including 'data availability', 'appchain', and 'sidechains'.
The efforts made in scalability by blockchains, particularly in the case of Ethereum, have increasingly leaned towards modularity in recent years. Vertically, we are gradually moving towards L2 and L3 layers while expanding downwards to specialized data availability layers. Horizontally, an increasing number of application chains are emerging. Finally, the rise of 'sidechains' in this data is relatively surprising, perhaps related to the success of Polygon and Ronin.
Founders' backgrounds & team composition
Founders' backgrounds: the most successful founders rarely have elite backgrounds.
In our latest cohort of applications, approximately 30% of applicants reported having experience at large tech companies (note: we define 'large tech companies' as those in the S&P 500). This proportion has remained relatively stable since 2022; however, compared to 2021, when nearly 50% of applicants came from large tech companies, this figure has significantly decreased.
Why is there a decrease? This may be related to the reduced number of applicants from the U.S. due to regulatory issues (where many large tech companies are based). Additionally, the 2021 bull market was more like a 'gold rush', attracting many people from outside the crypto space trying to profit. Finally, attention to cryptocurrency among tech workers may be rapidly shifting to other industries like AI in 2024. In fact, during the last bull market, we saw several Alliance startups pivoting to AI.
Additionally, among our applicants, the proportion of founders who graduated from 'top schools' (QS top 100 universities) peaked in 2021 and has since remained steady. The trend for top schools has been strikingly similar to that of large tech companies over the past few years, remaining largely unchanged, so there isn't much discussion-worthy trend.
However, are founders from elite educational and professional backgrounds more likely to succeed?
If you look at the sample of founders across all crypto domains, it is evident that having attended top schools or worked at large tech companies correlates with future success. However, when we observe the most successful companies in our accelerator and across the entire crypto industry, very few come from elite backgrounds.
We discuss potential reasons in (What does it take to be an excellent crypto founder?). In short, cryptocurrency is a counterintuitive technology, and many founders from traditional elite backgrounds may struggle to understand it from first principles. While this situation may change over time, this perspective remains valid for now.
Team composition and working model: nearly 75% work fully remotely.
Analyzing the team composition in our data can help us understand the structure of crypto startups. While this doesn't necessarily reveal which composition will produce the most successful teams, we share what is generally considered ideal based on experience.
In our latest cohort of applications, 39% of startups were founded by independent founders. Historically, independent founders have faced bias from venture capitalists; however, data shows they can produce extraordinary outcomes: research has found that about 20% of unicorn companies are founded by independent founders. Additionally, they often have key employees who may not be designated as co-founders but still have significant influence in some cases.
Among startups with two or more co-founders, approximately half (45%) of the equity is evenly distributed, while the other half is not. When equity distribution is uneven, startups with exactly two founders are most likely to distribute equity as 60-40 or similar ratios, such as 51-49, followed by 70-30.
In startups with three or more founders, we observe that almost any form of equity distribution is acceptable; however, equal distribution or majority ownership (≥50%) by a single founder is the most common scenario. The primary reasons for unequal equity distribution among founders are to reward those i) who initially funded the startup with personal resources; ii) who proposed the idea (including efforts and contributions); or iii) who will hold the most decision-making power.
We don't have a strong opinion on this, but for founders who start their ventures around the same time, we generally prefer to advise them to distribute equity evenly, as successful entrepreneurship is a decade-long journey. However, it is understandable that in certain cases, equal distribution is not always reasonable, as mentioned above.
Our data indicates that today, about 75% of startups operate fully remotely (i.e., with no employees working on-site). This proportion is quite large overall, though not surprising considering the global nature and relative scale of the crypto industry.
The COVID-19 pandemic may have changed our way of working, but at Alliance, we prefer face-to-face teams or at least co-located co-founders and key employees. Communication within face-to-face teams is more efficient and faster, which in turn fosters a stronger team culture, creativity, and accountability.
