State of Crypto 2023: Market Report by a16z

A new study of a modern market statement, statistics, and forecasts has been published today by venture capital Andreessen Horowitz (a16z). In this article, we’ve collected the key points & metrics for ReHold users.

State of Crypto today

The key provisions of the crypto market today can be represented in the form of several theses:

— Development. More developers are moving to web3, academic research on the topic, and new products are emerging. An example is the transition of Ethereum to an energy-saving "Proof-of-Stake".

— Failures in 2023. The end of the previous year and the beginning of 2023 are associated with the collapse of several large projects, a drop in the capitalization of the cryptocurrency market, and a decrease in activity in DeFi and NFT.

— Market cycles. The “price-innovation” cycle is still leading: price growth is a leading indicator of innovation.

— Regulation. At the legislative level, there are prerequisites for the regulation of the cryptocurrency market.

The current situation determines the growth of web3 technologies. Their importance to the Internet is determined by the following reasons.

Why Web3 needs to be mass adopted

First of all, web3 is the latest generation, which combines the features of previous systems. This is not only an opportunity to receive information and publish it, but also fully own it.

In the Web2 space and familiar traditional social networks, network owners receive from 25 to 100% of the income from users, fully regulating the development of products. In the decentralized web3 space, blockchains transfer consolidated power from legal entities to users, making systems open and all participants equal.

The crypto market is growing rapidly

From 2009 to 2023, the market went through 4 cycles, each of which was larger than the previous one. These are the indicators of the positive adoption of crypto technologies: — Price (Global crypto market cap) — Interest (Social media activity) — New ideas (Developer activity) — Startups / Projects (Funding activity)

If you visually evaluate these indicators, you can see the beginning of the rapid growth of each of them starting in 2018. The crypto market reaches its peak just in 2021-2022, and in the future, we can judge a greater increase in all these metrics.

Trends and prospects

Some sustainable development trends have already been established in the modern crypto market, in particular, the scaling of blockchains, the popularity of NFT and GameFi projects, the growth of DAO, as well as the emergence of discussions about government regulation of cryptocurrencies. Let's take a closer look at each of the parameters.

Blockchain scaling

The most important event regarding blockchain technology was the Ethereum Merger on September 15, 2022. The new network consensus mechanism has provided a high energy efficiency for the ecosystem. In addition, ~7% of all Ethereum fees are paid by L2 rollups.

Network scaling is a necessary measure not only for development but also for the mass adoption of blockchain. Now this process occurs in several ways:

— New Layer 1s. These blockchains are expanding the set of possible infrastructure choices for builders and can be built on multiple blockchains communicating seamlessly. — Application-specific. Solutions for working with a specific application. Computation and storage resources are then not shared with other applications. — Optimistic rollups. Layer2 solutions extend the functionality of L1 without losing the same level of security. However, some online transactions can be challenged. — Zero knowledge rollups. State transitions are computationally verified by generating off-chain validity proofs here. — Data availability. Solutions for expanding the capabilities of the blockchain for data storage and access to them. This will help reduce the transaction costs of phasing out “Layer 2”, which are critical for increasing the scalability of blockchains.

Uses for zero-knowledge (ZK) proofs are becoming tangible

This method of proving the truth of a statement, which preserves private information, is becoming more widespread. Currently, developments are underway in such areas as:

— Decreasing of hardware costs — Development of educational materials (online courses, tutorials, etc.) — Work on high-level programming languages (Noir, Leo) — Run multiple ZK-EVM* projects including ZK Sync, Polygon zkEVM, and Scroll

The incredible rise of NFTs and GameFi

Quite consistent, in our opinion, is the adoption of NFTs and GameFi. Digital art creators have earned $1.9 billion in royalty revenues in just a couple of years, and it's not just digital artists and hobbyists who are joining the industry.

It is known that the world's major brands also create their own collections to attract users. Among the most famous are Adidas, Gucci, Nike, Porsche, Starbucks, Time, etc.

The a16z fund is calling Web3 "a huge opportunity to welcome new users to crypto" and this is true. Such a concept is designed to attract a wide audience of users, where cryptocurrency technologies will be intuitive and exciting.

It is noteworthy that consumers spent an estimated $67.9 billion on digital in-game purchases in 2022. Web3 games generate 23x more on-chain transactions than DeFi.

DAO voting is growing too

Another essential and growing trend of web3. The infographic below gives an idea of how user engagement in DAO has changed. Growth trends are clear.

State regulation

Finally, another growing trend is government interest in cryptocurrencies. From the understanding of what constitutes assets to the introduction of special rules of use, there are numerous debates.

The main indicators of the modern crypto market

Let's immediately note that for all the parameters described in the study, there is a natural increase in the indicators of Supply (Innovation) and Demand (Adoption).

The supply indicators on the crypto market include the following: — Active developers — Interested developers — Contract deployers — Verified smart contracts — Developer Library downloads — Academic publications — Job search interest

Demand is formed by the following parameters: — Active addresses — Transactions — Transaction fees paid — Mobile wallet users — DEX volume — NFT buyers — Stablecoin volume

a16z studied the presented metrics for the period from 2016 to 2023, and we will briefly describe some of them:

Active Developers: the indicator has grown more than 4 times, starting from <10K in 2016 and reaching >35K in 2022.

The number of unique GitHub users who have starred, committed to, or forked a public crypto repository, during the month:

The number of verified smart contracts from 2016 to 2023 stands out in particular:

As for Demand, the trends are similar. For example, this is the growth schedule for active addresses:

According to statistics, it is noticeable that in 2021 blockchains experienced a real explosion of user interest:

As a DeFi platform, we couldn’t help but notice the surge of interest in decentralized exchanges, which gradually began to subside:

You can see other key metrics of the state of the market in the full version of the study at the link.

Main conclusions

The a16z study showed how close we have come to the mass adoption of web3 technologies over the past few years. However, do not forget that this is still a developing industry, and in the near future, work will be carried out to introduce such technologies as iconic web3 products, Big Tech, DeFi, bipartisan crypto regulation, on-chain games, etc.