By Alana Levin, Venture Partner at Variant Fund
Compiled by: 0xjs, Golden Finance
Every six months or so, I write an internal reflection on the current state of cryptocurrency and where it might be headed. I thought it would be worthwhile to publish my latest one for public reading.
This post is divided into three sections: what’s working, other things that have happened (or are happening), and new things I’m looking forward to.
I tried to base much of my analysis on data, but admittedly my opinions came through. Hopefully this was an interesting post. If the response is positive or the feedback is productive, I’ll consider sharing more of these internal reflections in the future.
Existing successful products
The good news is that a lot of things are working and going well, and the development of these things—many of which I call “big ideas” because they can effectively change the status quo—should create new opportunities as a secondary effect of their success.
For clarity, I use the term “what’s working” to refer to projects or trends that are showing signs of sustainable product-market fit, are scaling the crypto market, or both.
So what factors seem to be working or growing right now? I have listed 10 factors that I think are showing signs of “having a working product” (not an exhaustive list):
1. Stablecoins
2. Bitcoin as an alternative asset
3. Farcaster, an early but growing social network
4. Asset Creation
5. Community created and trained AI models
6、 Solana
7. Ethereum
8、 Zora
9、 Coinbase
10. On-chain exchanges
11、 Bonus ： Blackbird
1: Stablecoin
On-chain stablecoin supply has seen ~$25 billion in net supply inflows year to date. Overall, inflows have been positive since November 2023. Permissionless global access to the U.S. dollar continues to enjoy strong product-market fit.
2: Bitcoin as an alternative asset
Less than a dozen Bitcoin spot ETFs were approved in January. As of early June, the value of Bitcoin spot ETFs exceeded $80 billion. (I follow trackers from Block Works and The Block for data).
Gold seems like a powerful analogy for understanding institutional allocations to Bitcoin: whether or not you believe the asset represents a hedge against inflation, it is an alternative to traditional stocks and its value enjoys a degree of social consensus. One could argue that Bitcoin is so much better than gold — because it is more easily transferable, has a known supply cap, and the asset is adopted on the balance sheets of some companies and countries — that its market cap could one day surpass gold’s.
In the private markets, the first quarter was marked by a surge in projects aimed at extending Bitcoin’s utility. These projects include (many) Bitcoin smart contract layers, on-chain lending protocols, and explorations of how Bitcoin’s economic security budget can be used to help secure other chains. I’d guess that any fruits of these developments will likely come to fruition in the second half of the year.
3： Farcaster
Farcaster, a social network built on an open protocol rail, is starting to enjoy meaningful growth.
The turning point came in late January, with the launch of Frames, app-like widgets that people can share and interact with directly in the Farcaster client’s social feed.
4: Asset Creation
The number of newly created tokens continues to increase. One way to track this trend is to look at the number of new tokens appearing on DEXs (decentralized exchanges). Activity appears to be driven primarily by asset creation on Base and Solana.
On Solana specifically, over 10,000 new tokens have been created every day over the past few weeks.
Source: SolScan
Many of these new assets come in the form of meme coins (tokenized memes). I wouldn’t describe myself as an active person in the meme coin space, but I do recognize a very real and engaged group of users who are showing enthusiasm to participate.
It’s worth noting that the emergence of these new assets has had some unexpected but productive byproducts for the broader ecosystem. For example, we’ve seen more experimentation with new tools, like Solana’s token extensions. One token called $BERN leverages Solana’s new token extension to innovate token economics: if someone sells their tokens, 5% of that transaction is destroyed (as a redistribution mechanism to remaining holders). The popularity of $BERN became a mandatory feature for wallets to adopt token extension standards — standards that are productive because they enable complex payment splitting, confidential transfers, and more. Without $BERN, who knows how long adoption of token extensions would have taken.
Overall, my main point is that asset creation seems to be a trend that is going places. Regardless of your views on these assets, owning issuance and exchanges remain two excellent options for value flow.
5: Community-created and trained AI models
Clearly, we are heading towards a world with a large number of LLM opportunities, low creation costs and numerous choices. In that world, where does value accrue?
I believe that value is derived from scarce resources. So in a world with abundant computing, abundant content, and abundant tools, the question becomes: what is scarce? One answer is taste and attention. The difficulty is that taste and attention are fairly intangible resources. Even if we can measure them (e.g., "screen time" can be a measure of attention), it's hard to measure these metrics in dollars.
We’re beginning to see crypto play out by tightly integrating finance with the activities of taste and attention. Specifically, community-created and trained AI models that have some kind of productive output — such as a good or service that can be sold or licensed (e.g., art, movies, intellectual property, etc.) — can reward participants. For models with subjective outputs, community participants act as tastemakers by training the model to their cultural preferences. The incentive to choose good taste is strong: the more tasteful the output, the higher it should sell.
We are starting to see some of these emerge in real, effective ways. Botto is my favorite example. It’s an autonomous artist where $BOTTO token holders can help train the model every week.
The quality of Botto’s artwork is high and getting better, as evidenced by the rising prices of Botto’s works at auction each week. At the same time, the network of owner participants is growing:
I think we’ll start seeing more AI models created and trained by the community, especially as known and working examples (like Botto) become more prominent.
Some businesses are responding to the attribution challenge from the top down, through litigation, data licensing agreements, or both. If we assume that the status quo represents less than 1% of model-based output five years from now, there is clearly room for other attempts to solve the attribution problem and assign contribution value. Crypto offers a unique and valuable solution. Crypto strengthens economic and creative attribution. Significantly, it also allows anyone, anywhere to participate.
Chris Dixon mused in an old blog post:
“There’s a famous quote: ‘The future is already here — it’s just not evenly distributed.’ An obvious follow-up question is: If the future is already here, where can I find it?”
Models created and trained by the community are one area where we have some small but growing projects underway that point the way to a broader future.
6： Solana
Daily active addresses interacting with Solana are 2-3x higher than the same period last year, roughly coinciding with the peak activity period of the 2021 cycle. The number of monthly active addresses has increased 3-4x over the same time frame and hit an all-time high in May 2024:
The network is also beginning to generate meaningful fee revenue, beginning to prove the hypothesis that Solana’s low fees will be offset by greater user activity/volume.
Conclusion: Solana’s trajectory shows that something is working, and working in a meaningful way. Solana is here to stay.
7: Ethereum
The Ethereum ecosystem has also made significant progress. There are two ways to describe this growth: focusing on Ethereum itself, and looking at the Ethereum chain system as a whole (i.e. including the Ethereum roadmap).
Ethereum itself has also seen significant growth in the number of monthly active addresses. The trailing 30-day average is up about 30% year to date and is only about 10% below its 2021 peak.
A more comprehensive look at the Ethereum ecosystem also shows significant signs of growth. I’ve summarized the daily active addresses for the five major Ethereum blockchains (Ethereum, Arbitrum, Base, Optimism, and Polygon) in the chart below. These five blockchains were chosen in part because of their rich application ecosystems and developers.
Key Points: Ethereum has been one of the most important ecosystems in the cryptocurrency space.
8： Zora
Zora Chain (also known as Zora Network) has been online for nearly a year. During this time, the network has been finding its footing. Weekly active users have grown by about 60% year-to-date, recently breaking a new high of 250,000. The chain also has a profit margin of about 34%, meaning that Zora can keep about a third of the ETH that users spend on transaction fees.
Zora Chain helps validate the idea that applications with sufficient distribution can begin to vertically integrate with other parts of the stack (such as blockspace) to unlock more compelling economics.
9： Coinbase
Coinbase also had a strong start to the year. It is listed as the custodian for 8 of the 11 Bitcoin spot ETFs. The exchange business also continued to make progress - trading volume reached a high of $157 billion, a number not reached since November 2021.
Trading fees still make up a large portion of Coinbase’s revenue. In the first quarter, the platform brought in more than $1 billion in trading fees (roughly two-thirds of its quarterly revenue).
But it’s also worth noting that Coinbase continues to diversify its revenue streams away from trading fees alone. Blockchain rewards revenue and custody fee revenue both doubled from last year. Stablecoin revenue is approaching $200 million, with growth in USDC circulation offsetting (slightly) lower interest rates. Coinbase’s membership suite, Coinbase One, has more than 400,000 users. Coinbase’s layer 2 protocol, Base, generates millions in on-chain fees each month.
Coinbase’s success proves what many assumed (until recently) is true: that many meaningful new business models can be built around cryptographic primitives.
10: On-chain exchanges
On the main Ethereum chain, Uniswap has roughly doubled the number of unique users (traders) compared to six months ago.
One definition of a successful protocol is that successful businesses can be built on top of it. We see this with on-chain exchanges, such as the revenue growth from Uniswap Labs’ interface:
The Uniswap protocol’s 7-day moving average of volume also recently surpassed Coinbase:
Importantly, the growth we see in on-chain exchanges is not exclusive to Ethereum. In Solana, the two leading DEXs – Orca and Raydium – also saw significant growth:
It’s no joke that on-chain protocols facilitate tens (if not hundreds of billions) of value exchanged each month. Protocols and interfaces are very real revenue generating projects. In the presence of centralized institutions (such as interface businesses), I hope we see a portion of these profits reinvested into improving security, robustness, and user experience.
11（ Bonus ）： Blackbird
Blackbird is a loyalty and rewards program for the restaurant industry, built with crypto. When a user checks in at a restaurant associated with Blackbird, the app mints them an NFT — a digital artifact of their visit and a data point for restaurants in the network to learn about their customers’ dining habits. Today, Blackbird is primarily present in New York City.
Daily check-ins among the Blackbird user base continue to grow.
Personally, Blackbird has changed my own dining habits: whereas I used to let my friends choose where we should eat, I’ve now become more active in recommending places for us (and mostly using the Blackbird app for guidance on where might be interesting places to eat).
Other things that happened
Other notable trends over the past two quarters include the rise of social finance and the proliferation of new chains (mainly L2 and L3 in the Ethereum ecosystem). While I think it’s too early to say whether they are indeed effective, it’s worth noting that these trends are having a significant impact on how users behave on-chain and how developers develop their business models.
#1: Growth of the Socialfi App
A ton of financialized social (“Socialfi”) apps have emerged. Several of them have generated millions in fees. Friendtech and FantasyTop are two of the most popular apps I know of. Clearly, some users find these apps interesting and want to participate in them. Providing users with new things to do on-chain is a good thing.
I’m skeptical about the sustainability of some of these business models. Speculation alone doesn’t seem enough to drive long-term success. But that’s okay. Some of these apps might just need a little tweaking to achieve more sustainable business models. Attracting attention—even if sparked by speculation—provides an opportunity to monetize that interest in a variety of other ways. However, that crucial second step is, of course, the hardest part.
#2: The proliferation of new chains
We also see the launch of many new chains (especially L2 and L3). For these chains in the Ethereum ecosystem, the underlying technology does not seem to be a substantial point of differentiation. Instead, brand and community trump everything. The launch of L2 Base by Coinbase may be the epitome of a strong brand. Even without the direct token incentives that other chains use to attract talent, the chain has a (rumored) growing developer ecosystem.
So far, we’ve seen chains attempt to differentiate themselves in three ways:
Underlying technology. For example, integrated chain Vs. modular chain, or optimistic Rollup Vs. zero-knowledge Rollup.
Chain Economics. To my knowledge, Canto is the first chain in recent years to experiment with redistributing transaction fees to developers in the ecosystem. Blast and Berachain are currently experimenting with various other types of revenue generation and economic distribution. It is unclear how sustainable these measures are — both from an overall economic perspective and from the perspective of providing long-term competitive advantage.
Brand and community. A chain’s culture and/or reputation can serve as a halo that attracts developers: it might reinforce the perception that developers will get more help (from the community or other developers) when building in the ecosystem, it can provide reputational protection in the eyes of certain consumers (“no one is going to get in trouble for choosing a MacBook” or something like that), and/or the values espoused by the chain’s community might align with the developer’s own ideology.
Mature blockchains have all three elements. Take the two blockchains I highlighted above as “already having results”: Ethereum and Solana. Ethereum pioneered the EVM, implemented EIP-1559 (using a portion of transaction fees as a mechanism for redistributing fees to ETH holders), and developed a strong developer community and ethos around its technology. Solana popularized integrated blockchains, was the first to make low fees commercially viable, and has a community that was truly forged in fire during the 2022-2023 downturn.
My hypothesis is that the next wave of blockchain differentiators will stem from external integrations. Examples might include seamless access to other funding sources (e.g. a Coinbase account), screens like KYC for wallets, or verifying that someone is a human. This is a very broad design space and one I’m excited to explore more deeply.
Looking ahead
Looking back over the past six months, my main takeaway is that we’re still talking about the same things we were talking about 6-12 months ago, but with more maturity in terms of “what already works.” With this maturity, many platforms should and will transform into opportunity creation platforms as a byproduct of their success. With growth comes growing pains, and those pains create space for third parties to provide solutions.
Projecting the growth of these major platforms can also provide a basis for us to think about future directions. What I’m most focused on are new forms of distribution and new building blocks.
New distribution and better building blocks
On the distribution side, some of the growth vectors I’m excited about include: Farcaster at a larger scale, the Telegram app with more robust wallet functionality, and interfaces like the World App continuing to attract more people (it’s already at 10 million now)
There are many exciting new building blocks. Coinbase launched a Smart Wallet that lets users pay directly from their Coinbase accounts. Reservoir’s Relay protocol helps eliminate the experience of users bridging funds between chains, making a “one-click” checkout experience on-chain finally possible. World ID continues to develop, promising a way to authenticate between people and agents. And much more.
This may sound a little vague. I sometimes get frustrated when I read something that seems more like abstract hope than reality, so I’m going to try to illustrate here with a concrete example of what these building blocks and new distribution channels can enable.
Take modern advertising, a multi-billion dollar market that touches nearly every business. I’d guess that despite decades of improvements in attribution and targeting, it’s still inefficient. Now imagine what an “ad” on Farcaster would look like:
Companies can send coupons directly to target customers’ wallets (since every account has an associated wallet).
Coupons may be based on mentions of similar products in posts created by consumers, or posts liked by users.
Businesses can operate with confidence that data will always remain open and accessible (i.e. no need to worry about APIs being shut down or prices being jacked up), allowing them to invest in improving the effectiveness of this distribution channel.
Budget is spent only when a consumer converts into a sale (i.e. uses the coupon).
Overall, this seems to be a win-win for businesses and consumers, thanks to open social graphs, embedded payment channels, and verifiable digital identities.
Mature blockchain points to the future
Another noteworthy takeaway from the “What’s Already Done” section is that there are now several solid and growing ecosystems (Ethereum, Solana, Bitcoin). These three ecosystems compete on unique differentiators, and each ecosystem’s respective strengths create production pressure on the others to continually improve. For example, Solana’s success with low fees and high throughput has driven Ethereum to continually innovate at the base layer and L2. Similarly, Ethereum’s having multiple clients may set a goal for Solana to achieve client diversity (e.g., the upcoming Firedancer client). Bitcoin was the first to achieve true institutional adoption, but has begun experimenting with implementing new programmable elements (with Ordinals, Runes, and potential OP_CAT upgrades). Broadly speaking, I would summarize this as each ecosystem continually trying to achieve roughly the same functionality as the others. Looking at where each ecosystem currently stands — and the positive relative characteristics exhibited by its peers — can serve as a guide to improvements that each ecosystem might try to implement.
This feels very positive-sum. I’m a tennis fan, so I’ll use a tennis analogy. If Federer, Nadal, and Djokovic weren’t competing against each other, they probably wouldn’t have reached the same level of athleticism. Everyone pushed everyone else to improve their level, and the result is really great tennis. I think the same is true of what we’re seeing today on different chains in crypto. Everyone is making more progress faster because there’s production pressure to improve. The result is hopefully a net gain for the industry as a whole.
Some new ideas
There is still a lot of ideal infrastructure and applications to be built. I am interested in some untapped areas with great potential:
Different forms of credentials. Credentials (certificates, attestations, etc.) are valuable resources that are placed on-chain: putting a credential on a public ledger has the benefit of both marking the time of issuance and verifying the issuer. An example of such a credential might be a workplace verification — a receipt from an employer proving that someone has worked at a certain company for a certain period of time. I’ve seen many attempts at attestation in the crypto industry. I think the key here is to identify credentials that have real economic value — like employment verification — and focus on those markets.
Price Differentiated Assets (PDAs). These are goods that have real economic value, but there are large differences in the willingness to pay for them among market participants. Restaurant reservations are a great example. There was an article recently that went viral about the underground reservation market in NYC: popular reservations were being hacked by bots and resold for thousands of dollars on exclusive secondary markets. To me, if one believes that this financialization is inevitable, then making these “assets” as transparent and accessible as possible seems to be good for both diners and restaurants. Restaurants can more easily see the transfer history of a reservation, and more potential consumers can participate. Tokenizing reservations could even enable some kind of programmatic price cap, or revenue sharing with restaurants. This is just one example. There are many more markets where real assets with fundamental economic value are mis- or inefficiently priced due to opaque or limited access to the market.
A new form of token distribution. There are many opportunities to drive existing behavior through token rewards as a by-product of activities they would otherwise do. Blackbird is the first and most obvious example: Eating out is already a common activity, but the presence of Blackbird rewards may have changed where and how often some users choose to eat. This can be applied more broadly to areas where people are already spending time and money but lack consistency or loyalty in their consumption activities. In particular, I would look for categories where merchants could benefit from some kind of alliance or collaboration effect (in terms of more data/insights into consumer behavior between merchants) and where there is a strong opportunity to increase customer loyalty (by driving nudge - style incentives )).
Admittedly, whether any of these ideas have unique “prevalence” is an open question. They mostly strike me as ideas that have been around for a while but haven’t been fully explored (and therefore deserve further experimentation).
in conclusion
This reflection represents a lot of what I think has been happening in the crypto space recently, but importantly not all of it. Some areas it doesn’t cover but could (or should) include the growth of permanent storage solutions like Arweave, the maturation of DeFi protocols into true financial platforms like Morpho, and Telegram’s impressive push for TON.
