Original author: Daren Matsuoka & Robert Hackett & Eddy Lazzarin
Compiled by: TechFlow
Two years ago, when we released our first annual State of Crypto Report, the world looked quite different. At the time, crypto was not a priority for policymakers. Bit and ETH exchange-traded products (ETPs) had not yet been approved by the SEC, and ETH had not transitioned to the more energy-efficient proof-of-stake. Second-layer (L2) networks aimed at increasing capacity and lowering transaction costs were largely dormant, with fees far higher than they are today.
Now, the landscape has shifted, as our newly released 2024 State of Crypto Report shows. Our report covers the rise of crypto as a hot policy topic, the many technical improvements to blockchain networks, and the latest trends among crypto builders and users. The report also:
Dives into the emergence of key applications like stablecoins - considered one of crypto's "killer apps";
Explores the intersections of crypto with other tech trends like AI, social networks, and gaming;
Provides new data on swing states' interest in crypto ahead of the US election, and more.
The 2024 State of Crypto Report also reveals record-high crypto activity, and analyzes the maturation of blockchain infrastructure, particularly the rise of ETH L2s and other high-throughput blockchains as recent upgrades have dramatically reduced on-chain transaction costs.
This year, we've also launched a new tool: the a16z Crypto Builder Energy Dashboard. For the first time, we're sharing proprietary data based on our unique vantage point, including the "location" of Builder Energy. The dashboard integrates thousands of data points, aggregated and anonymized from our investment team's research, our CSX startup accelerator program, and other industry tracking. Through this tool, anyone can understand the activity and interests of crypto builders - from which blockchains they're building on, to the types of applications they're developing, to the technologies and locations they're using. We plan to update these data annually as a key component of our annual State of Crypto reports.
7 Key Takeaways
Crypto activity and usage reach historic highs
Crypto has become a key political issue ahead of the US election
Stablecoins have found product-market fit
Infrastructure improvements have increased capacity and dramatically lowered transaction costs
Decentralized Finance (DeFi) remains popular and growing
Crypto can help solve some of AI's most pressing challenges
More scalable infrastructure unlocks new on-chain applications
Crypto Activity and Usage Reach Historic Highs
The number of active crypto addresses reached unprecedented levels in September, with 220 million addresses interacting with blockchains at least once, more than tripling since late 2023. (As a metric, active addresses are easier to manipulate than other measures. For more on this point, see here.)
This surge in activity is largely attributable to Solana, with around 100 million active addresses. Next are NEAR (31 million active), Coinbase's popular L2 network Base (22 million), TRON (14 million), and Bit (11 million). Among EVM chains, Base is the most active after Coinbase, with 10 million, followed by BNB Chain (10 million) and ETH (6 million). (Note: EVM chains are de-duplicated by public key to arrive at the 220 million total.)
These trends are also reflected in our Builder Energy Dashboard. The largest growth in builder interest share is in Solana. Specifically, the share of founders indicating they are building or interested in building on Solana grew from 5.1% last year to 11.2% this year. Base's share grew from 7.8% to 10.7%, followed by Bit, whose share grew from 2.6% to 4.2%.
In absolute numbers, ETH still attracts the most builder interest at 20.8%, followed by Solana and Base. Next are Polygon (7.9%), Optimism (6.7%), Arbitrum (6.2%), Avalanche (4.2%), and Bit (4.2%).
Meanwhile, in June 2024, monthly active mobile crypto wallet users reached a historic high of 29 million. The US accounts for 12% of monthly active wallet users, the largest market, but its share has declined in recent years due to global crypto adoption growth and more projects excluding the US for compliance reasons.
Crypto usage and influence continue to expand globally. Outside the US, the countries with the most mobile wallet users include Nigeria, which has provided a clearer regulatory environment through regulatory sandboxes and seen significant growth in bill payments and retail purchases. India is another key market due to its large population and mobile penetration, while in Argentina, many residents have turned to crypto, especially stablecoins, due to currency devaluation.
While active addresses and monthly active mobile wallet users are easy to track, accurately measuring the number of active crypto users is more complex. We estimate through multiple methods that there are around 30-60 million monthly active crypto users globally, only 5-10% of the 617 million global crypto holders estimated by Crypto.com in June 2024. (For more on the methods behind our estimates, see here.)
This gap suggests huge potential to engage with the passive crypto holders. As major infrastructure improvements bring entirely new, compelling applications and user experiences, more dormant crypto holders may become active.
Crypto Has Become a Key Political Issue Ahead of the US Election
In this election cycle, crypto has become a focal point of national discourse.
We measured the level of interest in crypto in swing states. In the two highly competitive states in November - Pennsylvania and Wisconsin - crypto search interest ranks 4th and 5th respectively in terms of total search share on Google Trends since the last election in 2020. Michigan saw the 8th largest growth, while Georgia remained flat. Meanwhile, Arizona and Nevada have seen a slight decline in interest since 2020.
The listing of Bitcoin and Ethereum exchange-traded products (ETPs) may have increased interest in cryptocurrencies this year. These ETPs have expanded investor participation, which may increase the number of Americans holding cryptocurrencies. Currently, Bitcoin and Ethereum ETPs 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 progress on cryptocurrency legislation. More and more policymakers and politicians in both parties are taking a positive stance on cryptocurrencies.
This year, the cryptocurrency industry has also sparked other important policy developments. At the federal level, the House of Representatives 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 Autonomous Organization (DUNA) Act, which grants legal status to decentralized autonomous organizations (DAOs), allowing blockchain networks to operate legally while maintaining decentralization.
The European Union and the United Kingdom have been the most proactive in engaging the public on cryptocurrency policy and regulatory issues. Compared to the U.S. Securities and Exchange Commission, various European institutions have issued more public consultations. Meanwhile, the EU's Markets in Crypto-Assets (MiCA) regulation is the first comprehensive cryptocurrency-related policy to be enacted through legislation, expected to take full effect 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 under consideration in Congress. In the U.S., one factor driving this trend is that stablecoins can help reinforce the international status of the U.S. dollar, even as the dollar's global reserve currency status has declined. Currently, over 99% of stablecoins are denominated in U.S. dollars, far exceeding the second-largest denomination, the Euro, at only 0.20%.
In addition to demonstrating the power of the U.S. dollar globally, stablecoins may also strengthen the country's domestic financial infrastructure. Although only a decade old, stablecoins have become one of the top 20 holders of U.S. debt, surpassing countries like Germany.
While some countries are exploring central bank digital currencies (CBDCs), the stablecoin opportunity in front of the U.S. has already matured. Given the discussions and the number of prominent political figures currently weighing in on cryptocurrency issues, we expect more countries to start seriously refining their cryptocurrency policies and strategies.
Stablecoins Have Found a Product-Market Fit
Stablecoins have become one of the most prominent "killer apps" in the cryptocurrency space by enabling fast, cheap global payments. As New York Congressman Ritchie Torres stated in a September op-ed in the New York Daily News, the proliferation of U.S. dollar stablecoins may be the biggest financial empowerment experiment for humanity, enabled by the ubiquity of smartphones and the cryptographic technology of blockchains.
Major scaling and upgrade efforts have significantly reduced the cost of cryptocurrency transactions, especially stablecoin transactions, in some cases by over 99%. For example, on Ethereum, the average Gas fee for USDC (a popular U.S. dollar-pegged stablecoin) transactions this month was $1, down from $12 in 2021. On Coinbase's L2 network Base, the average cost to send USDC is less than a penny.
In comparison, the average cost to send an international wire transfer is $44.
Stablecoins have simplified the process of value transfer. In Q2 2024 (as of June 30), their transaction volume reached $85 trillion, involving 11 billion transactions. Stablecoin transaction volume was more than double Visa's $39 trillion for the same period. Stablecoins are now on par with well-known payment services like Visa, PayPal, ACH, and Fedwire, demonstrating their utility.
Stablecoins are not just a fleeting trend. Comparing stablecoin activity to the volatile market cycles of cryptocurrencies, the two appear uncorrelated. In fact, the number of addresses sending stablecoins monthly has continued to increase, even as spot cryptocurrency trading volumes have declined. In other words, people seem to be using stablecoins for reasons beyond just trading.
The results of these activities are reflected in usage statistics. Stablecoins account for nearly a third of daily cryptocurrency usage at 32%, second only to decentralized finance (DeFi) at 34%, as measured by daily active address share. The remaining cryptocurrency usage is distributed across infrastructure (e.g., bridges, oracles, maximum extractable value, account abstraction, etc.), token transfers, and some other emerging applications like gaming, Non-Fungible Tokens, and social networks.
Infrastructure Improvements Have Not Only Increased Capacity but Also Dramatically Reduced Transaction Costs
One reason stablecoins have become so popular and easy to use is the progress in infrastructure. First, blockchain capacity is growing. Due to the rise of Ethereum L2 networks and other high-throughput blockchains, the number of transactions processed per second is over 50 times higher than it was four years ago.
Ethereum's most notable upgrade this year, "Dencun," also known as "protodanksharding" or EIP-4844, implemented in March 2024, significantly reduced L2 network fees. Since then, even as the value denominated in ETH on L2s has continued to rise, the fees paid on Ethereum have decreased substantially. This means the blockchain networks have not only become more popular but also more efficient.
Zero-knowledge (ZK) proofs have also shown a similar trend, with this technology having a significant impact on blockchain scalability, privacy, and interoperability. While the monthly cost to verify ZK proofs on Ethereum has decreased, the value denominated in ETH on ZK rollups has been increasing. In other words, the cost of ZK proofs is decreasing while their adoption is rising. (Here, we use "zero-knowledge" as a general term for the cryptographic technology that can concisely prove that offloaded computations on rollup networks were executed correctly.)
ZK technology has great potential, providing developers with a new, inexpensive and verifiable path for blockchain computing. However, the observation that ZK virtual machines (zkVMs) still have a long way to go to catch up with the performance of traditional computers is a humbling one.
With improvements in infrastructure, blockchain infrastructure has become one of the most popular categories for developers, with L2 being one of the top 5 hottest developer subcategories we are tracking.
The popularity of DeFi continues to grow
The only category that attracts more developers than blockchain infrastructure is decentralized finance (DeFi), which also accounts for the largest share of cryptocurrency usage, at 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 activity, compared to all of this activity occurring on centralized exchanges four years ago.
Currently, over $169 billion is locked in thousands of DeFi protocols, with some of the major DeFi subcategories including staking and lending.
In just over two years since Ethereum's transition to proof-of-stake, the network's energy consumption and environmental footprint have been significantly reduced. Since then, the staked Ethereum share has risen from 11% two years ago to 29%, greatly enhancing the network's security.
While still in its early stages, DeFi provides a hopeful alternative to the trend of centralization and concentration of power in the U.S. financial system, where the number of banks has decreased by two-thirds since 1990, with fewer and fewer large banks dominating assets.
Cryptocurrencies can solve some of AI's most pressing challenges
AI is one of the hottest trends this year, not only in a wide range of technology fields, but also in the cryptocurrency space.
AI is one of the trends that is widely discussed by cryptocurrency influencers on social media. More surprisingly, the visitor overlap between chatgpt.com and top cryptocurrency websites is high, indicating a close connection between cryptocurrency and AI users.
The connection between cryptocurrency developers and AI is also very close. According to our Builder Energy dashboard, about one-third of cryptocurrency projects - 34% - indicate they are using AI, regardless of the category they are building, up from 27% a year ago. The category of blockchain infrastructure projects is the most popular for applying AI technology.
Given that the cost of training leading-edge AI models has grown fourfold annually over the past decade, we believe AI may lead to further concentration of power on the internet. If left unchecked, it may be only the largest tech companies that have the capability to train the latest AI models.
The centralization challenges facing AI are almost the opposite of the decentralization opportunities provided by blockchain. Currently, some cryptocurrency projects are trying to address these challenges, such as Gensyn (democratizing the use of AI computing), 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).
In the coming years, the integration of cryptocurrencies and AI is likely to become even tighter.
More scalable infrastructure unlocks new on-chain applications
With lower transaction costs and increased blockchain capacity, many potential cryptocurrency consumer applications have become possible.
For example, the Non-Fungible Token (NFT) market has undergone a significant transformation. A few years ago, due to high cryptocurrency transaction fees, people were trading NFTs in the secondary market for billions of dollars. With the reduction in transaction fees, this activity has decreased, and a new trend of minting low-cost NFT collections on social apps like Zora and Rodeo has emerged.
Social networks are another example. Although they currently account for only a small portion of daily on-chain activity, they have attracted a significant amount of developer attention. According to our Builder Energy dashboard, 10.3% of cryptocurrency projects in 2024 will be related to social. In fact, projects related to social networks, such as those related to Farcaster, are one of the top five hottest developer subcategories this year.
As developers and consumers explore more social experiences, on-chain gaming is also challenging the scalability of blockchains. For example, the sea adventure role-playing game Pirate Nation by Proof Of Play, which uses Rollups, has consistently been the highest Gas consumer among Ethereum Rollups.
With the approach of the November elections, prediction markets based on cryptocurrencies are emerging, although they are illegal in the United States, while the prediction market as a whole is also gaining momentum. For example, Kalshi is a non-cryptocurrency prediction market registered with the U.S. Commodity Futures Trading Commission, and has recently won support from a lower court in a federal lawsuit, seeking 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 behavioral patterns. When blockchain infrastructure was cumbersome and transaction costs were high, these emerging experiences were difficult to realize. With improvements in blockchains along the classic technology price-performance curve, these applications are poised to thrive.
Where does this leave us? Over the past year, cryptocurrencies have made significant progress in policy, technology, and consumer adoption. Policy advancements include the rapid approval and listing of Bitcoin and Ethereum ETPs, as well as the passage of important bipartisan cryptocurrency legislation. Major infrastructure improvements include scaling upgrades and the rise of Ethereum L2 and other high-throughput blockchains. New applications are also constantly being developed and used, from the growth of mainstream products like stablecoins to explorations 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. Nonetheless, as an industry, cryptocurrencies have made undeniable progress over the past year. As demonstrated by ChatGPT, a breakthrough product can change an entire industry.
