Key points:
Stablecoin activity surges: Stablecoin user activity surged 42% month-over-month, driven by a combination of factors including the approval and listing of spot Bitcoin ETFs, the April Bitcoin halving, outflows from hyperinflationary fiat currencies, and the DeFi resurgence.
Reignite the "Summer of DeFi": In the first quarter of 24, DeFi entered a new era characterized by optimism, risk awareness, and sophisticated innovation. DeFi user activity increased by 291% month-on-month, and the market rekindled the hope of the "Summer of DeFi".
Web3 games are heating up: the number of active addresses increased by 155% month-on-month, and the significant increase in player participation demonstrates Web3’s ability to attract and retain a growing number of players.
Layer2s Rapid Expansion: The rapid expansion of Layer2 marks a key step forward in the expansion of Web3 in the past 6 months. In particular, the substantial growth in TVL of platforms such as Base shows that the market is still interested in expanding on-chain liquidity.
User Activity
Stablecoins
For five consecutive quarters, USDT has the most active addresses, accounting for more than 41% of all daily active addresses (DAA). USDT continues to dominate stablecoins, accounting for about 75% of the total stablecoin market value. In the first quarter of 24, the market value of USDT exceeded $100 billion for the first time.
Although USDT processed more than 10 times the number of transactions as USDC in Q1’24, USDC is ahead in terms of transaction volume and average transaction size.
DeFi
DeFi saw a 291% increase in daily active addresses quarter-over-quarter in Q1. This growth represents a recovery in capital inflows and the emergence of new yield-generating protocols that have fueled growth in user activity.
DeFi has truly entered a new era in Q1’24, with a massive increase in developer and user activity, especially on Solana and Base Network. Staking, liquidity staking, re-staking, and liquidity re-staking have all been catalysts for DeFi’s recent explosive growth, which explains why staking now accounts for a large portion of DeFi’s TVL.
While stablecoins still top the list of address activity, DeFi surpassed stablecoins in terms of transaction count, averaging nearly 7 million daily transactions at the end of the quarter. The TVL of yield-generating protocols has steadily climbed from $26.5 billion in Q3’23 to $59.7 billion in Q1’24. This rebound indicates a return of confidence and liquidity in the DeFi market.
Web3 Games
The Web3 gaming track has experienced significant growth, surpassing stablecoins in transaction volume and becoming the fastest growing Web3 category year-on-year. Compared with the fourth quarter of 2023, the daily active addresses of Web3 games in the first quarter of 24 increased by 155%, reaching a peak of 747,000. The number of transactions on the Web3 game track increased by 370% year-on-year.
Centralized social platform
Decentralized social networks experienced rapid growth in the first quarter of 24, with user activity increasing by 425%, indicating a growing market interest in blockchain-based social platforms, with mainstream platforms including Farcaster, Lens, friend.tech and Tomo.
Historically, initial user engagement for decentralized social networks has declined as the novelty of being “unique and new” wears off. However, the gradual increase in active users after the Q1 peak suggests that user engagement is more stable over time, which could be a potential sign of increasing user adoption.
NFT Market
In 2023, Ethereum far outpaced other chains in terms of NFT market transaction volume, but in Q1 24, Solana NFT market transaction volume and activity soared. While OpenSea and Magic Eden have historically dominated the daily NFT active addresses and NFT transaction counts, respectively, this trend was surpassed by Tensor in Q1 24, indicating a change in user preferences and platform performance.
Public Chain
Layer2 and Sidechains
The Layer2 solution significantly improved blockchain scalability in Q1’24, with faster transaction speeds and lower costs, helping to solve key challenges such as congestion and high transaction fees on major networks. The Layer 2 market continues to expand, with new chains launched every quarter.
Decision
Despite the fierce competition, Arbitrum has long been the leader in L2 with 44% of TVL among all Ethereum Layer 2s.
In the first quarter of 2024, Arbitrum experienced two major events within a few days. The first event was the Ethereum network Dencun upgrade on March 13, which cut L2 transaction fees by 98%.
According to is data, average daily transaction volume nearly doubled, up 96.2%, and average transaction fees fell 93.5% (i.e., the average Arbitrum transaction fee fell from $0.3 to $0.01 almost overnight), but revenue only fell 62.6%. In short, the Ethereum upgrade makes Arbitrum more adaptable to mass-market applications.
The second event was the large-scale token unlocking of Arbitrum on March 16. 1.1 billion ARB tokens worth $2.32 billion were unlocked, and the circulation of ARB tokens almost doubled. After the unlocking, ARB was sold by some whales (Note: According to Lookonchain monitoring, after the large-scale unlocking, 11 whales deposited a total of 34 million ARBs, about $58 million, to the exchange). Then some big investors sold, although Arbitrum's TVL remained basically unchanged, while the daily active addresses and transaction volume surged.
Base
Coinbase's new L2 network Base reached an important milestone in the first quarter of 24, with TVL exceeding $1 billion. After the Ethereum upgrade, the daily trading volume of Base's DEX reached its highest level ever in March, soaring 487%, and the daily trading volume exceeded $1 billion for the first time.
Although Uniswap is the largest DEX trading platform on Base to date, Base has become a fertile ground for the development of emerging DEXs. In particular, Aerodrome has become the second-ranked DEX in terms of transaction volume and TVL on the Base network. Base has also achieved huge growth in areas such as decentralized social applications, such as Farcaster, which achieved great success in the first quarter. In addition, Memecoin has gradually been regarded by large ecosystems as one of the ways to attract new users and gain community attention.
Polygon
Polygon launched AggLayer v1 Mainnet on February 23, which introduced the aggregation layer (AggLayer). This cross-stack communication tool aims to unify split blockchains into a network of zk-secured L1 and L2 chains that feels like a single chain.
In addition, Polygon is using its Chain Development Kit (CDK) to verify the configuration of the transition from sidechain to L2 network. Although the number of active developers of Polygon continues to decline, it still maintains the second position.
Solana
In Q1 24, the Solana Foundation launched a token extension that provides a range of configurable features for stablecoin issuers such as GMO Trust and Paxos. Solana has gradually become a paradise for retail investors, DeFi innovators, NFT minters, airdrop opportunists, and Memecoin traders in Q1 24. The influx of new address activity has increased Solana's average daily DEX trading volume by 180% month-on-month to $1.2 billion.
Solana’s revenue (in USD) surged 597% quarter-over-quarter, from $7.1 million in Q4 2023 to $49.5 million in Q1 2024. The Solana ecosystem’s stablecoin market capitalization also grew 49.4% quarter-over-quarter, from $1.9 billion to $2.9 billion.
Financing Review
In addition to the 36% month-on-month increase in the number of financings, Web3's total financing amount increased by 55% compared with the fourth quarter of 23. The number of seed round financing increased the most significantly, with a month-on-month increase of 53%. Series A and seed funding increased significantly, almost doubling the previous quarter. Among the funding categories, the field of AI was the most popular, demonstrating the market’s strong interest in exploring how AI can become a key value driver for Web3.
In contrast, funding and volume in areas such as developer tools and deals increased only slightly, suggesting investors were more cautious, perhaps due to uncertainty or lower short-term returns in these areas.
Overall, the Web3 VC market has resumed growth and highlighted a strategic shift in the industry that VCs believe will have a significant impact and drive the evolution of the blockchain landscape.
