Authors: Daren Matsuoka & Robert Hackett & Eddy Lazzarin
Compiled by: Deep Tide TechFlow
Two years ago, when we released the first annual (Cryptocurrency Status Report), the world was very different from now. At that time, cryptocurrency was not prioritized by policymakers. Bitcoin and Ethereum's exchange-traded products (ETPs) had not yet received SEC approval, and Ethereum had not transitioned to a more energy-efficient proof-of-stake model. The second-layer (L2) networks aimed at increasing capacity and reducing transaction costs were essentially inactive, and the transaction fees on them were much higher than now.
Today, the situation has changed, as shown in our newly released 2024 (Cryptocurrency Status Report). Our report covers the rise of cryptocurrency as a hot policy topic, the numerous technological improvements in blockchain networks, and the latest trends among cryptocurrency builders and users. The report also:
Delved into the emergence of key applications such as stablecoins—considered one of the 'killer applications' of cryptocurrency;
Explored the intersection of cryptocurrency with other technological trends such as AI, social networks, and gaming;
Provided new data on swing states' interest in cryptocurrency ahead of the U.S. election, etc.
The 2024 (Cryptocurrency Status Report) also revealed historic highs in crypto activity and analyzed the maturation of blockchain infrastructure, particularly with the recent scaling upgrades that significantly lowered on-chain transaction costs, leading to the rise of Ethereum L2 and other high-throughput blockchains.
This year, we also launched a new tool: the a16z Crypto Builder Energy Dashboard. For the first time, we share proprietary data based on our unique perspective, including where 'builder energy' is located. The dashboard integrates thousands of data points that have been aggregated and anonymized, sourced from our investment team research, our CSX startup accelerator program, and other industry tracking. With this tool, anyone can understand the activities and interests of cryptocurrency builders—from the blockchains they are building on to the types of applications they are developing and the technologies and locations they are using. We plan to update this data annually as a key component of our annual (cryptocurrency status) report.
7 Key Takeaways
Cryptocurrency activity and usage have reached historic highs
Cryptocurrency has become a key political issue ahead of the U.S. election
Stablecoins have found product-market fit
Improvements in infrastructure have increased capacity and significantly reduced transaction costs
Decentralized Finance (DeFi) remains popular and is growing
Cryptocurrency can address some of AI's most pressing challenges
More scalable infrastructure unlocks new on-chain applications
Cryptocurrency activity and usage have reached historic highs
The number of active cryptocurrency addresses reached an unprecedented level in September, with 220 million addresses having interacted with the blockchain at least once, a figure that has more than tripled since the end of 2023. (As a metric, active addresses are easier to manipulate than other measures. For more information on this point, see here.)
The surge in this activity is mainly attributed to Solana, which has approximately 100 million active addresses. This is followed by NEAR (31 million active addresses), Coinbase's popular L2 network Base (22 million), Tron (14 million), and Bitcoin (11 million). Among EVM chains, after Base, the most active is Binance's BNB chain (10 million), followed by Ethereum (6 million). (Note: EVM chains calculate the total of 220 million through public key deduplication.)
These trends are also reflected in our Builder Energy Dashboard. The category with the largest overall growth in builder interest is Solana. Specifically, the total share of founders indicating they are building or interested in building on Solana increased from 5.1% last year to 11.2% this year. The total share for Base increased from 7.8% last year to 10.7%, followed by Bitcoin, which increased from 2.6% last year to 4.2%.
In absolute numbers, Ethereum still attracts the most builder interest, accounting for 20.8%, followed by Solana and Base. Next is Polygon (7.9%), Optimism (6.7%), Arbitrum (6.2%), Avalanche (4.2%), and Bitcoin (4.2%).
Meanwhile, in June 2024, the number of monthly active mobile wallet users reached a historic high of 29 million. The U.S. accounts for 12% of monthly mobile wallet users, making it the largest market, but its share has declined in recent years due to the global growth of cryptocurrency adoption and more projects excluding the U.S. through geofencing in search of compliance.
The use and influence of cryptocurrency continue to expand globally. Outside the U.S., the countries with the most mobile wallet users include Nigeria, which has provided a clearer regulatory environment through regulatory incubation projects and has seen significant growth in bill payments and retail purchases. India has become another important market due to its large population and smartphone penetration, while in Argentina, many residents are turning to cryptocurrency, especially stablecoins, due to currency devaluation.
While active addresses and monthly mobile wallet user numbers are easy to tally, accurately measuring the number of active cryptocurrency users is more complex. We estimate that there are approximately 30 to 60 million monthly active cryptocurrency users worldwide, accounting for only 5-10% of the 617 million global cryptocurrency holders estimated by Crypto.com in June 2024. (For more information about our estimation methods, please see here.)
This gap illustrates the immense potential for engaging with passive cryptocurrency holders. As significant improvements in infrastructure bring about new, attractive applications and user experiences, more dormant cryptocurrency holders may become active.
Cryptocurrency has become a key political issue ahead of the U.S. election
During this election cycle, cryptocurrency has become the focal point of national discussions.
We measured the interest level in cryptocurrency in swing states. In the two key states of Pennsylvania and Wisconsin, which are expected to be competitive in November, cryptocurrency search interest ranks fourth and fifth, respectively, measured by the total search proportion in Google Trends since the last election in 2020. Michigan's growth ranks eighth, while Georgia's remains unchanged. Meanwhile, interest in Arizona and Nevada has slightly declined since 2020.
The listing of Bitcoin and Ethereum Exchange-Traded Products (ETPs) may boost interest in cryptocurrency this year. These ETPs broaden investor participation and may increase the number of Americans holding cryptocurrency. Currently, Bitcoin and Ethereum ETPs already have $65 billion in on-chain assets. (Note: Although commonly referred to as ETFs, these products are actually registered as ETPs using SEC Form S-1, indicating that the underlying investment portfolio does not contain securities.)
The SEC's approval of ETPs marks an important milestone in cryptocurrency policy. Regardless of which party wins the election in November, many politicians expect bipartisan cooperation on cryptocurrency legislation to make progress. An increasing number of policymakers and politicians across both parties hold positive attitudes towards cryptocurrency.
This year, the cryptocurrency industry has also triggered other significant policy movements. At the federal level, the House passed the 21st Century Financial Innovation and Technology (FIT21) Act with bipartisan support, with 208 Republicans and 71 Democrats voting in favor. If approved by the Senate, this act could provide much-needed regulatory clarity for cryptocurrency entrepreneurs.
At the state level, Wyoming passed the Decentralized Non-Profit Organizations (DUNA) Act, which grants legal status to Decentralized Autonomous Organizations (DAOs), allowing blockchain networks to operate legally while remaining decentralized.
The EU and the UK are the most proactive in engaging the public on cryptocurrency policy and regulatory issues. Compared to the U.S. SEC, various institutions in Europe have issued more calls for input. Meanwhile, the EU's Markets in Crypto-Assets (MiCA) is the first comprehensive cryptocurrency-related policy to pass legislation, expected to be fully effective by the end of the year.
Stablecoins have become one of the most popular cryptocurrency products and a hot topic of policy discussion. Multiple bills are currently under discussion in Congress. In the U.S., one of the driving factors behind this trend is that stablecoins can reinforce the international status of the dollar, even as the dollar's status as a global reserve currency has declined. Currently, over 99% of stablecoins are dollar-denominated, far exceeding the second-largest currency denomination, the euro, which accounts for only 0.20%.
In addition to showcasing the power of the dollar globally, stablecoins may also enhance the country's financial foundation domestically. Despite being only a decade old, stablecoins have become one of the top 20 holders of U.S. debt, surpassing countries like Germany.
Although some countries are exploring Central Bank Digital Currencies (CBDCs), the opportunity for stablecoins facing the U.S. has matured. Given the number of well-known political figures currently commenting on cryptocurrency issues, we expect more countries will begin to seriously refine their cryptocurrency policies and strategies.
Stablecoins have found product-market fit
Stablecoins have become one of the most significant 'killer applications' in the cryptocurrency field by enabling fast and inexpensive global payments. As New York Congressman Ritchie Torres said in September's (New York Daily News)
As mentioned, the proliferation of dollar stablecoins may represent the largest experiment in financial empowerment for humanity, thanks to the proliferation of smartphones and blockchain encryption technology.
Major scaling upgrades have significantly reduced the costs of cryptocurrency transactions, especially for stablecoin transactions, with reductions exceeding 99% in some cases. For example, this month, the average Gas fee for USDC (a popular dollar-pegged stablecoin) transactions on Ethereum was $1, down from $12 in 2021. On Coinbase's L2 network Base, the average cost of sending USDC is less than one cent.
In contrast, the average cost of sending an international wire transfer is $44
Stablecoins have simplified the process of value transfer. In the second quarter of 2024 (ending June 30), their transaction volume reached $8.5 trillion, involving 1 billion transactions. The transaction volume of stablecoins is more than double that of Visa's $3.9 trillion during the same period. Stablecoins are on par with renowned payment services such as Visa, PayPal, ACH, and Fedwire, proving their practicality.
Stablecoins are not just a fleeting trend. Comparing stablecoin activity with the volatile market cycles of cryptocurrency reveals that the two seem to have no correlation. In fact, even as spot cryptocurrency trading volume declines, the number of addresses sending stablecoins each month continues to increase. In other words, people seem to use stablecoins not just for trading.
The results of these activities are reflected in usage statistics. Stablecoins account for nearly one-third of daily cryptocurrency usage, reaching 32%, second only to Decentralized Finance (DeFi) at 34%, measured by daily active address share. The remaining cryptocurrency usage is distributed across infrastructure (such as bridges, oracles, maximum extractable value, account abstraction, etc.), token transfers, and some other areas, including emerging applications like gaming, NFTs, and social networks.
Improvements in infrastructure have not only increased capacity but have also significantly reduced transaction costs
One reason stablecoins have become so popular and easy to use is due to advancements in infrastructure. First, the capacity of blockchains is increasing. With the rise of Ethereum L2 networks and other high-throughput blockchains, the number of transactions processed by blockchains per second is now more than 50 times greater than four years ago.
Ethereum's most notable upgrade this year, 'Dencun', also known as 'protodanksharding' or EIP-4844, will be implemented in March 2024, significantly reducing fees on L2 networks. Since then, even as the value on L2 priced in ETH continues to rise, the fees paid on L2 in Ethereum have significantly decreased. This means that blockchain networks have not only become more popular, but have also increased efficiency.
Zero-Knowledge (ZK) proofs are also showing similar trends, which have significant implications for blockchain scalability, privacy, and interoperability. Despite the declining costs used to verify ZK proofs on Ethereum each month, the value on ZK rollups priced in ETH is increasing. In other words, the cost of ZK proofs is decreasing while their popularity is rising. (Here, we refer to zero-knowledge as a general term for encryption technology that can concisely prove that computations offloaded to rollup networks are executed correctly.)
ZK technology has great potential, providing developers with new, inexpensive, and verifiable blockchain computing pathways. However, ZK-based virtual machines (zkVMs) have a long way to go to catch up to the performance of traditional computers, a humbling observation.
With improvements in infrastructure, blockchain infrastructure has become one of the most popular categories for developers, and L2 has become one of the top five hot developer subcategories we track.
The popularity of DeFi continues to grow
The only category attracting developers more than blockchain infrastructure is Decentralized Finance (DeFi), which also occupies the largest share of cryptocurrency usage, accounting for 34% of daily active addresses. Since the emergence of DeFi in the summer of 2020, decentralized exchanges (DEXs) have accounted for 10% of spot cryptocurrency trading activities, whereas all these activities took place on centralized exchanges four years ago.
Currently, over $169 billion is locked in thousands of DeFi protocols, with some major DeFi subcategories including staking and lending.
Since Ethereum completed its transition to Proof of Stake just over two years ago, the network's energy consumption and environmental footprint have significantly decreased. Since then, the staked share of Ethereum has risen from 11% two years ago to 29%, greatly enhancing the network's security.
While still in its early stages, DeFi offers a hopeful alternative to address the trends of centralization and power concentration in the U.S. financial system, where the number of banks has decreased by two-thirds since 1990, and an increasingly smaller number of large banks dominate assets.
Cryptocurrency can address some of AI's most pressing challenges
AI is one of the hottest trends this year, not only in the broad technology field but also in the cryptocurrency space.
AI is one of the trends widely discussed by cryptocurrency influencers on social media. Surprisingly, chatgpt.com has a high overlap in visitors with top cryptocurrency websites, indicating a close connection between cryptocurrency and AI users.
There is also a close connection between cryptocurrency developers and AI. According to our Builder Energy Dashboard, about one-third of cryptocurrency projects—34%—indicate that they are using AI, regardless of the category they are building in, an increase from 27% a year ago. The most popular category for applying AI technology is blockchain infrastructure projects.
Given that the cost of training cutting-edge AI models has quadrupled each year over the past decade, we believe that AI could lead to further concentration of power on the internet. If left unchecked, only the largest tech companies may have the capacity to train the latest AI models.
The centralization challenges faced by AI are nearly the opposite of the decentralization opportunities provided by blockchain. Currently, some cryptocurrency projects are attempting to address these challenges, such as Gensyn (democratizing AI computation use), Story (compensating creators through intellectual property tracking), Near (running AI on open-source, user-owned protocols), and Starling Labs (verifying the authenticity and provenance of digital media) among others.
In the coming years, the combination of cryptocurrency and AI may become even closer.
More scalable infrastructure unlocks new on-chain applications
As transaction costs decrease and blockchain capacity increases, many potential consumer applications for cryptocurrency become possible.
For instance, the NFT market has undergone significant changes. A few years ago, due to high cryptocurrency transaction fees, NFTs were traded in the secondary market for billions. As transaction fees have decreased, this activity has diminished, instead giving rise to a new trend of minting low-cost NFT collectibles on social applications like Zora and Rodeo.
Social networks are also an example. Although they currently account for only a small portion of daily on-chain activity, they have attracted significant attention from developers. According to our Builder Energy Dashboard, in 2024, 10.3% of cryptocurrency projects are related to social aspects. In fact, projects related to social networks, such as those associated with Farcaster, are among the top five most popular developer subcategories this year.
As developers and consumers explore more social experiences, on-chain gaming is challenging the scalability of blockchain. For example, the Rollups used in the maritime adventure role-playing game Pirate Nation from Proof Of Play consistently consume the most Gas among Ethereum Rollups.
As the November elections approach, despite being illegal in the U.S., cryptocurrency-based prediction markets are emerging, while the overall prediction market is also gaining momentum. For example, Kalshi is a non-cryptocurrency prediction market registered with the U.S. Commodity Futures Trading Commission, which recently won support in a lower court in a federal lawsuit attempting to list election contracts. (As of now, registered exchanges are allowed to offer traditional futures contracts based on elections.)
Consumers are beginning to exhibit new behavior patterns. These emerging experiences are difficult to realize when blockchain infrastructure is cumbersome and transaction costs are high. With improvements in blockchain on the classic technology price-performance curve, these applications are expected to flourish.
Where does this leave us? Over the past year, cryptocurrency has made significant progress in policy, technology, consumer adoption, and more. Policy advancements include the swift approval and listing of Bitcoin and Ethereum ETPs and the passage of important bipartisan cryptocurrency legislation. Significant improvements in infrastructure include scaling upgrades and the rise of Ethereum L2 and other high-throughput blockchains. New applications are also continuously being developed and utilized, from the growth of mainstream products like stablecoins to the exploration of emerging fields such as AI, social networks, and gaming.
Whether we have entered the fifth wave of the price-innovation cycle remains to be seen. Regardless, as an industry, cryptocurrency has made undeniable progress over the past year. As demonstrated by ChatGPT, a single breakthrough product can change an entire industry.
