Bankless - A16z 2024 State of Crypto Report | Eddy Lazzarin & Daren Matsuoka

Episode Date: October 16, 2024

A16z’s 2024 State of Crypto Report is out! Bankless reviews these reports every year so we can get caught up on everything happening in Crypto. That's why we’re bringing a16z Crypto CTO Eddy Lazzarin and Data Scientist Daren Matsuoka. Expect to learn how 2024 contrasts to 2023, crypto adoption signals, innovations in every sector from policy to scaling and stablecoins to zk cryptography. And most importantly, why the price innovation cycle is here to stay. Enjoy! ------ 🎮 B3 | THE FUTURE OF ONCHAIN GAMING https://bankless.cc/b3  ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2    ⁠ 🦄UNISWAP | BROWSER EXTENSION https://bankless.cc/uniswap  🪄 MAGIC EDEN | HOME OF WEB3 https://magiceden.io/  🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle    🤖 0G | MAKING THE IMPOSSIBLE, INEVITABLE https://0g.ai/  ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/79?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E  ------ TIMESTAMPS 0:00 Intro 5:53 Vibe Check 7:00 Target Audience 9:16 2023 Contrast 12:14 How Big is Crypto? 21:23 Desktop vs Mobile Adoption 25:13 Crypto Policy 29:34 Stablecoins 36:24 Ethereum Gas Fees 46:09 Scaling 48:24 ZK Cryptography 58:30 Applications 1:00:23 Crypto x AI 1:06:23 DeFi vs Centralized Services 1:09:27 Builders 1:12:09 Price Innovation Cycle 1:16:14 Reflections on 2024 1:19:37 Closing & Disclaimers ------ RESOURCES A16z 2024 State of Crypto Report Eddy Lazzarin https://x.com/eddylazzarin   Daren Matsuoka https://x.com/darenmatsuoka  ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures ⁠  

Although we are still hoping to see really mainstream key applications that reach, you know, the total average user, we've seen a lot of the prerequisites for that snap into place. And things have gotten a lot better, a lot cheaper, a lot faster. And I think all those things together is what paints this optimistic picture. Welcome to Bankless, where today we explore the state of crypto for the year 2024. This is Ryan Sean Adams. I'm here with David Hoffman. We're here to help you become more bankless. So, bankless listener, what is the state of going bankless? How many people are in crypto?

How are we doing? How many builders are in this space? What are overall the big trends? What products are getting used? All of these questions and the answers to those questions are contained in the report that we're about to go through in today's episode. We have two guests from A16Z. Every year they put together a fantastic report. They chart the datasets over time and we get into that data.

There's a lot of visuals accompanying today's episode, so make sure you tune in via YouTube or the Spotify video feed so you can follow along with us. First, before we get into the episode, a message from our friends and sponsors over at B3. B3 games comes from the base team, and they're getting into the world of on-chain gaming. The base chain is pretty fast, but not fast enough to build on-chain games. So they left and built B3, a layer 3 ecosystem optimized for games. Think like the OP stack, but for on-chain games.

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going to be earning tokens while you play. So check out Basement.com fund today to start building XP. You can get there at bankless.c.c.c.combe slash B3. This is one of my favorite episodes that we do every single year because it's just a good checkpoint for how well we doing? How are we doing? What are the themes of the industry? What are the trends of the industry? Some of these trends are new, of course, like crypto AI. I think this is the first time AI is in the crypto report out of A16Z, but some trends are always the same, like active users of blockchains, developer mindshare of blockchains. So we start broad. We get pretty granular, get pretty detailed. A16C is as deep in the weeds as anyone. But then we also zoom back out and we kind of ask for a grade for how well 2024 went. And I will leave that to the suspense. of the listener. So let's go ahead and get right into the episode. But first, a moment to talk about some of these fantastic sponsors that make this show possible, especially Cracken, our preferred exchange for buying crypto and getting it on chain. If you do not have an account with Cracken, consider clicking the links in the show notes to getting started with Cracken today. If you want a

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Instead of hopping between countless sites and handling multiple wallets, just use Magic Eden. Save time and get to the meme coining faster. Plus, the M.E. token is coming out this quarter from the M.E. Foundation. If you've used any of their protocols, like the NFT platform, you can claim some. So check out Magic Eden today and watch them become a super Dap and the home of web. 3 in real time. You can get there at magic eden.io to get started. Bankless Nation, it's once again time for the state of crypto rapport out of A16Z. We have returning back to Bankless, Eddie Lazaran, the chief technology officer for A16Z crypto. Eddie, welcome back to the show. Thank you. Great to be

here. And getting tapped in for some extra support, Darren Matsuoka, data scientist, also at A16Crypto. Darren, welcome to the show for the first time. Thank you. It's great to be here. So there's a lot of content in here. And we're going to try and go through most. of it, if not all of it, but just kind of zooming all the way out and doing a vibe check before we get and dive in deeper into some of the more granular details. State of crypto 2024 vibe check. How would you guys summarize the vibe of this year? Eddie, let's start with you.

I'd say cautiously optimistic, a little opaque for outsiders. There's no one's clear signal that I think has come to the surface. But for those of us tracking how things have developed and evolved in the industry, definitely positive. Anything to add? Yeah. I mean, I think this report is kind of coming out at a good, interesting time. I mean, obviously, we're just a few weeks out from the election. We'll talk a little bit about some of the policy stuff that's in the report. Also, you know, there are just a lot of narratives in the crypto industry right now that I think, you know, has created some noise. And I think what we want to do with this report is to, you know, really take a step back, look at all the data that we have and kind of paint crypto, hopefully in the right light. based on everything that's going on. And who would you guys say that this is the target audience for this report? Who is the marginal person that you're hoping actually opens up this report and learns something?

Because, I mean, me and Ryan, we understand data like this. We look for data like this every single week. But I think we're trying to get a new audience to read this report. Who's the target audience here? That's a great question. I think in our minds, first, there's so much in the report that I hope everybody can pick and choose and find something that's interesting to them. that they think captures the last year.

But I'd say in crypto, we have so much going on, so much is transparent, but so much is hard to understand that I think the target audience for us is really mainstream people who kind of want a big picture view of what's happening in crypto, but also regulators, also influencers, whoever's looking at the space and trying to get that wide picture. Entrepreneurs are usually so specialized in their area. they're familiar with everything that's going on day to day, week to week. That's like where they live. But sometimes it's really valuable to take a step back and look at everything that's

really happened. It's really easy. I think you'll, I think you guys would agree that like it's really easy to take for granted how much progress actually happens when you look year over year. Sometimes it's in areas you didn't expect. Sometimes it's exactly what you were hoping for. Sometimes it's as fast or some as it's slower.

This year, the last year, 18 months, I'd say, there's a, been pretty remarkable progress in infrastructure. That is why I think like the top line in my mind is that cryptoactivity from a variety of different angles is at an all-time high, right? Depending how you measure it and I can say more about different ways we get to that. But that's only possible with meaningful infrastructural improvements across the space. And we have really, really seen that. Although we are still hoping to see really mainstream key applications that reach, you know, the total average user, which, you know, will be great. We've seen a lot of the prerequisites for that snap into place. And things have gotten a lot better, a lot cheaper, a lot faster. And I think

all those things together is what paints this optimistic picture. So while we're still on the vibe check here, before we get into some of the slides specifically. So you said, Eddie, you're cautiously optimistic, crypto activity at an all-time high. Let's just go back to the 20-23 version of this report. Can we just talk about the vibe in 2023 and the diffs? As I recall, I think we were still sort of recovering from a pretty brutal bear market. What was the state of 2023, if you could kind of summarize that? And then maybe talk about the diff and what?

different this year. Yeah, I think it's hard to say, you know, so hard to time, you know, time travel yourself into the past. But I think with 2023, we saw a bunch of interesting technical improvements on the horizon, right? That's what we were hoping for. I remember in 2023, much awaited in an Ethereum world, EIP 4844. People really, really wanted to see that. The merge had gone well. And so some key obstacles were out of the way. You know, if you recall, I think 2023 is the last time we heard people really explicitly complaining about, for example, Ethereum's energy usage. Like that sure went away.

Like, have you heard anybody? No one talks about this. Right. No one talks about that, right? And why? Because the problem was totally and completely solved and probably won't come back. Or definitely won't come back. And so I think we were definitely recovering from the bear market.

There were some interesting trends in developments. but I think what was top of mind was upcoming infrastructural improvements and some new experimentation. In early 2024, those improvements have really landed, not just 4844 and the growth of L2s and things like that in Ethereum world, but also new next generation of blockchains and their integration to the rest of crypto with bridges, with stable coins, better DAP infrastructure. All of those things have led to a... proliferation of very high quality block space. So the way I think about right now is that, unlike last year, we have that block space, and there's a little bit about that in the report, and we're just waiting for people to figure out what to do with it. We're back in a period,

in my mind, we're back in a period of experimentation. You can launch ADAP for hundreds of dollars and see what happens. Obviously, there's development effort and auditing and all these things that are complicated, but at least on the gas side, the block space side, there are very, very easy ways and straightforward ways to get a new DAP into your user's hands for pennies on the dollar. And that allows for experimentation, experimentation leads to new apps. So it's really a matter of time in my mind until we find all the interesting ways that entrepreneurs will and developers will consume that glut of high quality block space across blockchains. Yeah, it's definitely an exciting time. If I recall 2023 was, you know, partially that

the state of crypto was us telling the world, hey, we're still building. It's not dead yet. We're still doing stuff over here. And now maybe 2024 is we're beginning to see the fruits of that labor is an infrastructure focus. I mean, Dixon, Chris Dixon in the past has called this kind of like the high bandwidth era of crypto where we get really cheap block space. So let's start at maybe the beginning of this report, which is a perfect place to start in the foundation. And zoom out. and let's get the high-level story of how big crypto is today. And I think in one of these slides here, you've got a plot of internet users versus monthly active crypto addresses.

And internet users from kind of the early 90s, and it shows sort of a chart up, and that's the line in green, if folks are falling with us on YouTube or Spotify video. And then we've got in orange monthly active crypto addresses. This, of course, is in log scale. If it was linear scale, it's just like, wouldn't look as pretty, would it, Darren? So can you tell us what we're seeing here.

And I'm going to just maybe read the description before you illustrate this. Monthly active addresses hit an all-time high of $220 million with growth reminiscent of early Internet adoption. And for folks who can't see this on their screen, though, encourage you to go check out the video. We look kind of neck-in-neck-neck in crypto, at least in terms of active address. with the early internet? Is that what this is showing? Yes, that's exactly what it's showing. And I think this is a very good starting point, right? I think if you zoom out, right, which is what this attempts to do here, you know, I think it does show that we've continued to make progress. You know, there are people using these blockchains and the growth looks reminiscent of some

of the early days of the internet. Now, I'll be the first to tell you that monthly active addresses is probably not the best measure of real crypto users. And in fact, in the coming slides, We do our best to unpack what's behind those addresses. We've also published a separate write-up that kind of goes into this topic in great detail. Eddie and I have spent a lot of time kind of trying to kind of filter out bots and come up with the real number of crypto users. But I think from a starting point and a zoomed-out view, you know, this trend line does look very similar to the early days of the internet. You know, monthly on-chain usage is an intentionally strict measure of crypto adoption. and I think there's a lot to be excited about with the overall trends here.

Okay, yeah. So the internet usage user proxy versus monthly crypto addresses. Of course, like, we're all crypto users here. I bet people listening have multiple addresses. But I guess this is active crypto addresses. Maybe you could get into kind of the subtleties of this data point. Is this really measuring human beings or is this sort of, you know, like a proxy that's a little bit distant from that? Yeah.

So I think it's really important to understand. understand that this is a proxy. This is not a number of human beings. 220 is a number of addresses, not a number of human beings, right? There's a lot to unpack here. And like Darren mentioned, we have a post where we get into some of the nuances of how to interpret the different cuts that we use to try to get at overall activity and also to get at users. The way I'd think about these monthly active addresses now, they're just a measure of activity. Of course, in crypto, sometimes like other spaces, but especially in crypto, there can be. incentive programs that encourage the spinning up of many addresses. One person could control

hundreds or thousands of addresses. Now, of course, those incentive programs come and go, and the infrastructural capacity to absorb those extra addresses is continuing to grow. So I wouldn't say that we should totally discount the number of active addresses, but if that number is growing and other key indicators of genuine human use are growing with it, we can use them together to kind of get a view of how we're doing as an industry. Very good. There's this one space that's highlighted on the graph too, which is the $1 billion mark. Okay.

And in 2005, we had one billion internet users. And I guess if we plot this back to the early 90s, I guess it's, you know, people have always asked this question, what year is it in internet terms? And according to this chart, it looks like it's 1998 in crypto that year. So we're, you know, a few years away from hitting. 2005, which would be our 1 billion user mark, but we're right on track for that. One other way of measuring usage, and I don't know if you guys think this counts, is a number of people that just hold crypto assets, which is different. This is what you're measuring is kind of active

users on chain, right? Another way to sort of measure usage, if you consider holding crypto, using crypto, is the number of people who actually hold crypto. Is that relevant, a relevant data set that you guys have looked at, why did you do on-chain addresses rather than just users holding crypto? Well, so actually, there is another slide where we do have the number of users just holding crypto. I think that should be slide eight or so. But I want to make sure we have really clear is that when we hit a billion active addresses,

we will still be well shy of a billion active users. Right. Those are different numbers. And it's a little bit tempting, I know, to try to look at these lines and say, like, oh, this is like we're replaying history, history rhymes and so on. I totally get it. Although I'd say there's reasons to believe that the adoption patterns will be quite different, right? On the one hand, crypto industry adoption should be a lot easier because it's just software, right?

We don't fundamentally need to lay cables and so on, which was necessary for internet adoption. On the other hand, we already have the internet. We can adopt via the internet. Exactly right. But then on the other hand, there have been meaningful regulatory headwinds, and additionally, there are competing internet services that already offer some of the things that crypto services want to offer. So I think it's very nuanced, and it's the purpose of the trend line is just to show what does very rapid growth look like? What does very rapid growth of web scale technologies look like? So we can kind of, measure ourselves and get a sense of if there are huge meaningful differences. Regarding the number of crypto owners, this slide here for those watching shows the number of estimated global owners, monthly active addresses, and monthly mobile app users, which are all sort of declining in size, right?

Yeah, this is fascinating. So this is showing 617 million estimated global crypto owners. So that's the ownership metric that I was talking about. And it's a super set of these other metrics. Yeah, exactly right. And like for crypto owners, right, these are not monthly active users. This is a different set. These are just people that passively hold crypto.

They may have never used. We can call them dormant users. Yeah, dormant users. They may have never used the blockchain, right? In fact, the likely pattern, I think, if we wanted to sketch like a median user, It would be someone who has a crypto exchange account of some type or a simple crypto wallet and they received some somewhere. They purchased it. Maybe someone paid them.

Maybe they're just holding some crypto assets. And that's it. They're not necessarily using the blockchain. They're not necessarily connecting to DAPs, other things like that. Yeah. And that's the kind of biggest slice of people who we have a sense have interacted with crypto in some sense, no matter how. simple it is. I think if I'm a startup builder in crypto with a goal to get people on chain, this makes me very bullish. If there's 5 to 10 percent of crypto holders, people who already have

cross over the chasm to own a crypto asset, but they have not yet got on chain, that to me screams like an opportunity for my startup, my project, my protocol. Yeah, it's like converting a funnel, right? I mean, you're converting people from the top of funnel down funnel. Absolutely. And actually, if you look at the, there's another data point here, which is not on this slide, which is just the total number of internet users, and it's, you know, something like five plus billion. But if you look at the just total growth opportunity on a percentage basis of bringing people on chain, meaning converting the existing crypto owners into active crypto users, that opportunity is actually bigger than growing the whole pie of people who just simply buy and hold crypto, right? And so I think this data really presents

the opportunity for the industry to re-engage some of these passive holders, you know, that only, you know, five to 10 percent and actually kind of see how do we bring people on chain. I think this is one of the most surprising data points in the report for me and presents, I think, what the real opportunity is for our industry. Whenever, when I got into crypto, it has always been a heavily desktop dominated industry. And we've always known that whenever, however, mass adoption happens is going to happen through mobile. And in this report on slide seven, you guys have a mobile wallet usage actually dominated by Nigeria, India, and Argentina. And so I think it's pretty interesting to see the developing countries leading the charge on maybe mobile wallets, but also kind of just like using crypto.

as a whole. Darren, what would you say the slide tells us about just the adoption of crypto? Totally. I mean, I think crypto has become increasingly global, right? You can see it right here in the geographic trends on mobile wallet users. The U.S. once had a majority share. It's now less than 15%. You mentioned Nigeria, India, Argentina, some of these emerging markets really are capturing a majority of usage from the data that we can capture, which I just think goes to show that crypto is global. It has become more global. It's continuing to become more global. And I think that's actually something to be really excited about. It doesn't really have any data here in the slide. But is there anything that you can say about the differences of the way that different

parts of the globe are using crypto? The United States is using crypto in this one fashion and maybe Nigeria, India, Argentina are using crypto in a different fashion. There's any data that you can pull out here? Totally. We do actually have a slide on Argentina specifically where we should show a pretty stark negative correlation between the purchasing power of the Argentine peso and the country's stablecoin trading, which, you know, indicates that these people are turning to stable coins to protect their assets in a environment of rampant inflation. And I think, you know, you, you kind of see that throughout many countries that really need crypto and stable coins as a way to kind of protect themselves from inflation and political uncertainty.

Yeah, that's slide 19. But yeah, I'd say, so to totally agree with that point, it's hard to know exactly. I do know some sort of anecdotal things that I've seen little slices of data to support, but I've heard that internationally mobile wallet use is much, much, much more common than desktop use. and that the international payments and remittances, as well as stable coin holdings use cases, are very, very popular. And this makes sense. I mean, I was just talking to someone who runs a remittance business that is a business that helps facilitate payments between small businesses in Latin America. And they were explaining to me that a bunch of their customers, and keep in mind, this remittance business is not a crypto-specific business. they were telling me that a lot of their customers are coming and demanding to make stable coin payments with TRON, right? UST TRON payments. And what's very funny about that is that TRON, as we know, and UST have been around for quite a while. But they're far from the best in terms of gas costs, you know, transmitting some stable coin on TRON costs at least a couple dollars. But these small businesses saw that as a massive savings compared to their other.

other options. So it just makes me really excited because as we have even better technological options than that and better stable coin regulation and all these other things that would really increase the quality of that experience, I can only imagine how even smaller and smaller businesses, even larger businesses and even more sophisticated use cases, become something that becomes very attractive to international users. Okay. So the summary to the question of how big is crypto today is it's pretty darn big. But also, it's very early, right? So, Darren, you were saying there's about 5 billion people around the world who are online. Of that, we have 617 million who own crypto assets, and only 5 to 10 percent of those who own crypto assets are on chain. So we gave you

the numbers, the total active addresses, 220 million. But if you try to distill that down to actual real live people, you get somewhere in the range of 30 to 60 million estimated monthly active users. So 617 million of the 5 billion own crypto, 30 to 60 million are actually on chain, 27 million or so are monthly mobile wallet users. To me, this represents tremendous upside opportunity. It's interesting to see how large crypto is and yet how early we are at the same time. Let's swing back to the U.S. We're talking about this from a global perspective, and let's talk about politics in the U.S. Another question this report seeks to answer is, how big of a political issue is crypto actually? Where should we start this conversation? Should we look at the swing

states? I mean, it's election season. We are just one month out from an election at the time of recording presidential election, of course, in the U.S. And this is the title of the slide. Crypto interest is rising in several swing states. Pennsylvania and Wisconsin see top five biggest jumps. Now, there are those out there guys who say, nope, like the average American voter does not care about crypto, all right? They don't like this is just, you know, geek stuff. They're worried about other things.

What data sets have you uncovered in your report? What does the data say about, you know, how big of a political issue crypto actually is in the U.S.? Yeah, I mean, I think it is a huge political issue. now. You know, we see major politicians now talking about crypto as a key issue in their campaigns. You know, we're a few weeks out from the election. And I don't think it's a surprise that all of this political support comes in an election year. As we know, this is shaping up to be a very tight race that will likely be decided by a handful of counties in a handful of swing states. And so we wanted

to look at some data on those states. We pulled. Google Trends data where we looked at crypto-related search interest over a basket of terms from 2020 to 2024, specifically the change in rank. And we looked at all 50 states and pulled out the ones that had the most increase in interest and the ones that had the most decrease in interest from 2020, which was, of course, the last election. And we found that Pennsylvania and Wisconsin were top five biggest changes in this relative search interest. Michigan was a top 10 state, which I think just speaks to the fact that there are crypto supporters in these states.

And this may be why we're getting this, we're seeing these tailwinds on the policy side of things this year. Yeah, importantly, in these swing states, and I know this, following the lecture over the last like month or so, it's just gotten increasingly narrow. When you combine the relevance for crypto for voters in these swing states with the narrowing of the election, Darren, Eddie, is there any indications like, how could crypto decide this election? Like, how close is that statement to becoming true? Well, that's a pretty bold statement. But I'd say, I'd say this is that it's clear that it's

going to be a very close election and that every topic could end up being the marginal topic. It's hard to say. Of course, there's many, many critically important issues, and I don't know that the average American cares about idiosyncratic technical choices in blockchain, so that would shock me. But they do care about innovation. They do care about the quality of our regulations. They do care about maintaining the United States advantage in technology, which is paid dividends to our country. So I think, you know, it's not too surprising to me that it's, bubbled to near the top of issues that may be new types of issues that people are talking about. Flipping over to slide 17 here still in the politics category. I think this slide shows how and why

crypto is a political issue, both domestically and internationally. The title here, stable coins can strengthen the U.S. dollar's position as its global reserve currency status slips. And it kind of shows the status of the U.S. dollar in the global economy. but then it shows the share of U.S. dollar stable coins in the crypto economy. There's a very big discrepancy between these two things. Darren, maybe you can walk us through this gap here. Yeah, I think maybe to start, right, I think most people understand that the U.S. dollars status as a reserve currency gives the United States a tremendous amount of power.

But a lot of that is actually under threat from these foreign sovereign digital currencies, these CBDCs. And I think this slide shows that the opportunity for the United States is kind of sitting right in front of us and it's crypto-based stable coins. Over 99% of stable coins are denominated in USD. This split is unusually high, as you can see, with the foreign exchange reserves, which are in decline, international debt, loans, and payments. And so rather than kind of the U.S. developing its own central bank digital currency,

why not embrace what's kind of sitting right there, which is these crypto stable coins, which are already denominated 99 plus percent in USDA to kind of strengthen the position of the U.S. in an environment where it really is under threat. And I think that's what this slide and the data tries to show. And following up to the next slide, slide 18, it shows stable coins as the 20th largest holder of U.S. debt. Wow. 20 is not a high number, but also the existence of stable coins

is also very young. We are right ahead of stable coins is right ahead of Germany in terms of holding United States debt. And I'm assuming this number is going up, like soon will be 19, soon will be 18. That is my bias. That's my guess.

Where do you think this number tops out at, Eddie? Do you think we, stable coins, U.S. dollar, Stable Coins comes in at number one in the future of the largest buyer of U.S.N. Well, that's wider ways in the future. But it's honestly, if we end up using stable coin, if we end up using blockchains to track balances of stable coins and they serve some very significant advantages for their holders, then there's little reason to believe that they wouldn't want to, that countries wouldn't want to hold on blockchains as well. That could be a potentially attractive option. I don't know where this tops out, but given the trend.

given the advantages of having things on chain and what that affords to countries, I think it's going, it's definitely going to increase. Yeah, it's pretty, like, if this continues on a log pace, right, you know, we're 10x away from being basically number two, just behind Japan. So if we cross a trillion or so, then we might be getting close to ahead of China as far as, like, a holder of U.S. debt, which would be absolutely crazy, phenomenal. I personally prefer the Internet holding United States debt much more than I do China holding the United States debt. Yeah, it's very fascinating.

So where's this staple coin demand coming from? I think this part of this section actually kind of reverts back to what we were talking about earlier with Argentina, which is circling back to the next slide 19 here. Like, why is this dollar demand on Internet blockchains such a, you? such a strong force. Well, there's so many stories of inflation, of currency inflation across the world, much not just the inflation that we're experiencing the United States over the last two years, which is like I come down. But for example, Argentina inflation was like 80% in a year over year, I believe. So I kind of want to just full, full circle us back to the story of

stable coins. One of the main use cases of blockchains is providing currency debasement from fiat currencies. One of the core offerings of blockchains is to allow people disintermediated access to digital assets. And you can imagine for someone who doesn't have a high-quality bank account, being able to just go and buy, just by having internet access, stable coins or other types of assets,

is an incredibly high-quality offering. And that's putting aside the fact that with contemporary infrastructure, transacting it to other people, could cost less than a penny, put those things together, and you have what is a very, very high-quality internet product.

right. We have to take it in its full context. Stable coins are, in my opinion, are just the beginning. And you could imagine all kinds of different exposure to all kinds of different assets across all kinds of different jurisdictions being very attractive to people who don't have a very sophisticated financial infrastructure at their disposal. I can also, connecting this to the political discussion, can also see this being very attractive to U.S. politicians who are looking for, you know, other purchasers of, of U.S. debt and to maintain dollar dominance. I recall in a congressional hearing, David and I watched just a few weeks ago, Maxine Waters even, you know, said something about, hey, you know, we've got to do some dealmaking. We've got to get this stable coin thing across the finish line.

It does feel like that stable coin legislation is increasingly moving in a bipartisan way. And of course, if you're in a country like Argentina, where you've got massive currency debasement, you know the old promise of crypto, which is like Swiss bank in your account? Well, this is actually a U.S. bank in your account, which is pretty good if you live in Argentina. So I could see lots of global demand. I could see bipartisan support. I could see this just getting started. One monkey wrench in like the works here might be, do other countries actually want the U.S.

to sort of invade their territories, right? Because you'd think many countries around the world want to maintain their sovereign, independent, you know, a fiat system. They don't necessarily want to dollarize. And yet, if the dollar is kind of invading via route of the internet, do you think there might be some reaction to that, some legislation to try to keep it out and push it out? Yeah, you know, it's a great question. And of course, Darren and I do not represent the State Department. So we can't speculate on exactly, exactly what they would prefer to do. But I would say at a very high level, offering people more choice may force governments to compete to give them better services, better monetary policy,

better access to financial services in general. And I think that that's, that is probably a global positive, although of course it's very nuanced and, you know, we'll have to see how it plays out. All right, getting into what Eddie here called the vibe of 2024 infrastructure, some crypto-native trends here. I want to ask what the state of the Ethereum fee economy is because I know that this was a big theme starting pretty aggressively in 2021 and 2022. And then kind of went away with the bear market. But since demand for Blockspace has returned, we've actually been able to see a new equilibrium in terms of the fee economy in the Ethereum ecosystem.

Darren, can you kind of just walk us through the state of the Ethereum fee structure as it has been over the last year? Sure. Well, one data point that we've been tracking, we've actually included it in every state of crypto report that we've done for the last three years. is the percentage of fees, of total L1 fees paid by roll-ups. And that number was really up only. I think it was like 1% in 2022, and then 5% in 2023, and then it was peaking at over 15%.

And then it dropped off of a cliff, right, after EIP 4844 or Protonk sharding, which significantly reduced the costs for L2s, as we know. Wait, are we seeing that in the chart, that drop, Darren? Yep. We are, yeah. It's the the blue, the light blue line here going up to 15% and then just completely falling. I was distracted by the ETH denominator. So in ETH denominated terms, I guess it's not much of a change. Exactly. We also show that that figure because we want to make it clear that this drop was a result of cost reduction, not lack of L2 adoption. And I think the overlay here between those two numbers really

paint the picture of what has transpired here. Fee, like L2 has continued to gain traction in the Ethereum world. EIP 4844 significantly reduced the costs for layer two's, but the value on L2s in an e-denominated manner has continued to go up. So I think this really tells the, the story of what has happened from an infrastructure standpoint. What can we say happened as a reaction to this? Did we get more total activity across all of these layer two networks or did like usage stay flat? When fees went down, what happened? Well, at first, right, because it's early and it's hard to take advantage of that extra supply, there is a modest increased sideways, right? But that happened right in late March. But I think if you

track the mega gas per second consumed by all the L2s on Ethereum, there has been a significant growth in how much state, in the capacity that's being utilized. And that's just a general pattern in how new supply is adopted and incorporated in technology in general. This is just always the case. We're definitely near or at all-time highs in terms of how much gas is being consumed in Ethereum world, let alone the rest of the rest of crypto. Eddie, how would you explain that to somebody who doesn't know what gas is? Or really like EIP 48444, dang sharding, all of these kind of crazy crypto terms, if like your mom or grandma or cousin or somebody was asking like what this means,

how would you explain it to them? They made a faster computer. Beautiful. And I would maybe also add that we have this slide here. I think the real important question to ask is like, does this actually mean for the end users of these blockchains, right? And I think it becomes very clear when you just take the simple example of trying to send U.S. dollars internationally, right? Without crypto, you could use an international wire transfer and pay, you know, roughly $44.

In 2021, you could have used USDC on Ethereum mainnet and using the average gas price paid roughly $12. Today, you can use USDC on Ethereum Mainnet and pay about $1, or you could use USDC on base, a layer two, and pay less than a cent. This is a more than 99% cost reduction, and in my opinion, this is what infrastructure improvements are all about. Wow, $44 for a wire transfer in kind of the TradFi world to less than a cent as a 99% cost reduction. Of course, that's less than a cent.

It's instantaneous. The wire transfer is quite a pain in the ass, and it takes three to five days to actually settle. When I say pain in the ass, I mean, we're talking like full, you know, like maybe in some case you have to go to your bank branch and actually present your ID in order to transfer these funds depending on the amount. You can't do it on weekends. Sorry, banker hours, right? This is a much better product from a cost perspective, but like just also from a, you know,

timeliness perspective. I want to go back to this chart that you were showing, which is, you know, Ethereum L2 fees kind of going down, right, post this EIP 4844, but also showing a total locked value inside of L2s going up. There's something hidden, I think, in this chart, which is a, there's an interesting debate in crypto, which is like, uh-oh, did Ethereum just like, you know, outsource its execution layer to L2s that are, you know, parasitic to Ethereum's ability to accrue value. I think what you can see in this chart is actually perhaps, now this is aith denominated value, which is still useful. It's not just showing eth, but it's also

other token value. But perhaps the strategy is working where Ethereum transaction fees go down for L2s, but it's able to export ether into these various economies as a unit of value. And these economies grow and grow and continue to expand and start to consume more ether. That is like the Ethereum bull case right now, which is a unit of value. And this economy is, is basically like you trade off the fees in the short run, but you export ether as as a monetary asset and seems to be, maybe I'm reading too much into this, but seems to be what this graph is actually showing. Do you have any thoughts on this? Yeah, I feel pretty strongly that the idea that, you know, oh, you know, Ethereum shouldn't have turned the fees down so much. I think that's

a pretty silly idea. I think it's very clearly the case that entrepreneurs and new startups in the space when they choose their infrastructure, they want to look a few years ahead and build places where they know it will remain affordable for them and their users. It's a critical, critical decision when developing an application that you want thousands or millions or billions of people to use. Even today, some people worry that there is not enough capacity on Ethereum L2s. So the idea that fees would be maintained artificially high, and that would be a long-term benefit. It's kind of absurd to me. The reason why fees are so low now is just that it hasn't been very long since we got blob space, the extra sort of fast lane for, or bus lane, so to speak,

for capacity in Ethereum. And we still haven't reached the target where all of that extra blob space is consumed. But based on the current trend, and we don't have a graph on this in the report, but you can find it yourself somewhere. Based on that trend, we will reach the point where that extra blob space is being consumed very soon, maybe in a matter of months, maybe early next year. I'm not exactly sure, but we undoubtedly probably need more.

Some leaders in the Ethereum space have called for an expansion of the blob target, so actually increase that capacity even more, despite the fact that right now we're not utilizing all of it. And that's specifically because of what I was saying, new projects want to see that there will remain capacity when they bring all their users and usage online. So to me, there's just no question. There ought to be more capacity as much as possible.

There is no such thing as too much supply in a space of software and creative space where people will figure out how to use it. Mark my words. That is like the clearest thing I could say. People will figure out how to use the space. New projects are coming online to the mantle layer two every single week. Why is this happening? Maybe it's because Mantle has been on the frontier of Layer 2 design architecture since it first started building Mantle DA powered by technology from EigenDA.

Maybe it's because users are coming onto the mantle layer two to capture some of the highest yields available in Defy and to automatically receive the points and tokens being accrued by the $3 billion mantle treasury in the Mantle reward station. Maybe it's because the Mantle team is one of the most helpful teams to build with giving you grants, liquidity support, and venture partners to help bootstrap your mantle application. Maybe it's all of these reasons all put together. So if you're a dev and you want to build on one of the best foundations in crypto or your user looking to claim some ownership on Mantle's Defy apps,

click the link in the show notes to getting started with Mantle. Imagine a future where AI and blockchain converge, where decentralized intelligence operates transparently with Web3 infrastructure, unlocking boundless human potential. And that future is here with Zero Gravity, the first decentralized AI operating system. Zero gravity isn't just faster, it's 50,000 times faster and 100 times more cost-efficient than current alternatives,

unleashing the power of high data applications and modular AI. With unrivaled throughput, limitless scalability, and a verified AI framework, Zero Gravity, is turning the dream of on-chain AI into reality. Curious about how AI and Web3 can reshape the future, you can visit 0.g.a.i to explore the infrastructure, as revolutionizing decentralized AI. I think going back to 2021, we were all shocked by how fast

demand came. Demand in 2020 was just limited to just crypto natives playing some fun defy games. And in 2021, we got far more users on chain than we had ever had possible. Ethereum fees got up to $600. And then this is when kind of the very fast layer one blockchain era in crypto came, which is actually kind of where I want to turn to next. On slide 26, it says blockchains now process 50 times as, as many transactions per second than they did just four years ago. Wow. And we have not just Ethereum and not just Ethereum Layer 2s, but Bitcoin, Tron, and Solana also

contained here. Darren, this is a secular trend, not just across the Ethereum Layer 2 space, but across all of crypto, right? Just talk about the global scaling of the entire industry for us. Yeah. I mean, I think this is just another way to illustrate it, right? Just simply looking at the actual number of transactions that were processed per second, you know, four years ago, January 1st, 2020, it's, you know, versus today, it's grown by more than 50x, right?

So just the total amount of throughput that we can have on a transaction level has increased by 50x in four years, which I think is really impressive. And it's, like you said, the result of both Ethereum scaling via L2s and then also these alternative L1s like Solana that are contributing to just the increase in, in block space and therefore the transaction throughput that we're seeing. Darren, in the Salana part of that graphic, do you know if that contains a vote transactions or not? I believe it excludes the vote transactions. Okay, cool. That is money.

So these are raw, organic, real Salana transactions. Yep. Yeah, and it also, of course, doesn't represent the complexity of those transactions. And, of course, as we all know, there are many more DAPs and smart contracts and sophisticated ways to make a transaction today. So I'm willing to bet that if we were to compare the block space, which is there are the, you know, the total amount of gas essentially, which is very hard to do across blockchains, it would be even bigger than 50x. I want to get to a nerdy slide really quick, which is

the ZK slides here. So there's a slide titled Zero Knowledge Proofs maybe the end game for blockchain privacy, scaling, and interoperability. I mean, David and I believe so too. And ZK is just in its infancy. If you think about the entire like crypto economic computer that that we're building from Bitcoin on Ford, all these crypto projects really powered by breakthroughs in cryptography. And we're just at the very early stages of seeing this next generation breakthrough, which is like ZK cryptography. Like it's so early on this. You know, Vitalik has talked elsewhere about ZK itself being at least as big or perhaps bigger than blockchain in and of itself. Anyway, I'm hyping this up.

What are you guys seeing in the data? This is the amount spent monthly to verify ZK proofs on Ethereum. We've got a chart on this. And yeah, like what's your overall sense of ZK? Well, we're huge fans. We've been banging the drum for a while, and it's been incredible to see how much the space has evolved. I think we're just getting to the point

where it may be possible to verify blockchains like Ethereum in near real time, you know, for a fair amount of money, but close to being close to economically superior, just to prove them. If that's the case, then everything changes, right? Because one of the core challenges in blockchains is that many of the validators on an L1 have to re-execute all the underlying transactions.

And if you can get to the point where a set of very powerful computers can do that, you can avoid redoing a lot of work. So although, and I think we show this in slide 30 here, although, of course, ZK proving is very slow compared to conventional computing, much, much, much slower, in fact, it may still be economically superior at the limit for distributed systems where you would otherwise have to re-execute the same computation. In other words, imagine this very slow computer, but it runs one time and many, many, many, many other computers never need to run it again, right? There's like this weird kind of effect.

where it ends up actually paradoxically being faster despite the fact that it is in its initial pass slower. Yeah, if you go back to 28, you'll see there are more and more applications that are crunching ZK proofs on Ethereum. That will definitely be the case across blockchains. You know, ALEO is a recent project that is a blockchain entirely composed of ZK proofs, partly, you know, in order to create privacy for its users. but the development of ZKVMs,

all kinds of specialized ways to develop, to write ZK software, I think we're going to see a tremendous amount of ZK specific hardware, proving networks, all kinds of interesting stuff in order to bring this technology to its full effect in crypto.

This chart is very interesting where you're plotting kind of ZKVMs on the line comparing that to like, tell CPU clock speed, like, you know, from the, you know, the 1970s onward. Do you really think, like, does it follow this kind of log scale path, the same sort of path that, like, I guess this is Moore's law, basically, that, you know, CPU clock speed followed, or is it a bit different than that? Is it, like, a bit more, I guess, just, like, radical in terms of a step function type

of change? It's a bit different. This is actually a really interesting question that we could talk about. about for some time. I think it will remain very quick for a while, right, for the next few years, potentially. But unfortunately, it does reach a limit. Like, there is a point where it's impossible, of course, for ZK proving to be faster than just natively executing code. So it just, there's just no chance that it's ever going to be faster. However, like I was saying a little bit earlier, if it is only, let's say, 100x slower,

which would be, to be clear, a very significant advancement from where it is today, if it's only 100 times slower, then the ability, that economy of scale, the ability to reuse that proof in many settings, means you could actually end up cutting the amount of compute expended radically. Right?

So it doesn't actually need to be faster than a native computer in order to provide extreme economic savings. Darren, you're smiling there. What would you add to this? I'm smiling because I think this is a somewhat of a humbling slide. Eddie and his team have been working really hard on these ZK virtual machines. And there's a lot of really smart people working on these problems. But it's funny to kind of show it on the graph in the kind of pre-1960s mainframe era on the classic Morsla chart. for microprocessors. And so I think it's a bit of a humbling slide. We're in 1998 with respect

to crypto. Maybe we're in the 1960s with respect to ZK technology, huh? Something like this. Yeah, that's right, with the nuances that Eddie, of course, described here. But it is a bit of a fun, humbling slide. It's hard to really capture this in this slide. But ZK has been a term thrown around in crypto as long as I've been in crypto in 2017. I think the first time I even used a ZK application was ZK Sync in 2019 to donate to Gitcoin. But even since then, ZK really hasn't been broadly deployed just because it's needed to have a lot more of like research development and and just production readiness. But the vibe, again, I'm going to have to check you guys because this is a report with like stats and numbers and facts. But my my vibe is that really like ZK is

really starting to actually hit the pavement. Like the rubber is meeting the road here in 2024. Is there anything you can add to that to make that a little bit of a little bit? more fact-based rather than vibe-based? Yeah, yeah, I'd say just two years ago, there were no open-source ZKVMs. That is to say, virtual machines where you can write general code and out, after you execute the code in that ZKVM,

out comes a proof of the execution, a proof of what happened in that program, a very succinct proof. There were zero of them two years ago. Of course, there were a few efforts to develop them, but that none of them were out there, none of them were open source. Today, they're at least three or four

and they're high quality, and they're getting way, way faster. Projects like Risk Zero and Sysinct have developed their ZKVMs, which are fantastic, of course, selfishly. We have a ZKVM called Jolt, another open source one, using a different set of cryptographic technologies

than the others. But it's now become a thing that is possible to develop by relatively small teams. They're getting way, way faster, way easier to use. And I genuinely expect that in the next year, we'll see a handful of very high-quality applications

that use these ZKVMs when they did not exist even a year-in-change ago. I think reasoning about ZK and imagining what ZK can do can kind of be kind of hard for somebody that hasn't pounded their head into white papers and podcasts for 10 hours, 100 hours in a row.

Eddie, Darren, could you guys just like, illustrate what frontier we're unlocking when we have production ready, efficient ZK VMs? Like what's out there that's useful and cool and impactful upon the internet? Well, the high-level principle is that you'll be able to prove what a computer did when it gives you a result. That's it. You can just know what it did. Of course, in a blockchain context, knowing exactly what a computer did is a critical part of security, right? It's knowing that things went according to plan and that the blockchain or the program ran according to its specification.

That's one of the core value propositions of blockchains generally. But maybe more intuitively, you can think about this applying to artificial intelligence or something. When you give an AI a prompt, whether it's for an image or for some text, how is it that you know, how do you know that this is exactly what that AI model was supposed to put out, as opposed to having its output influenced by an attacker or someone trying to influence you or even an advertiser, right? You want to know how this thing came about, what the program was that did it, without having to just trust the data center

or the computer that it came from. You know, I don't know if you guys follow this stuff at all, but there's a lot of very spooky stuff out there with, for example, you know, deep fakes and impersonators. That kind of highlights to me that you never really know what's on the other end of the line. so to speak, and ZK, at least by its succinctness property, makes it very easy to know and to verify

that exactly what happened on the other line. Yeah, I think ZK is going to be absolutely transformation. I think crypto-natives might see it in smaller ways earlier than they may think as well. It's like I was just talking to the co-founder of succinct at a conference. They've like teamed up with conduit. And they've got a way to just like basically convert optimistic rollups, like on the OP stack, to ZK roll-ups. And it's like the tangible benefit for a crypto user's course with the optimistic roll-up, if you

ever want to withdraw, there's like a seven-day waiting period for fraud proof. If that just gets converted to a ZK roll-up, that's pretty much instant. Like you're talking within minutes. You have that, you know, like fully proven. So we'll see it impact us in marginal ways, too. although that's a pretty big delta from seven days down to like, you know, minutes. Okay, so let's talk about the apps now, the key applications. Everyone's like, hey, where are the apps?

What's crypto doing? This slide is very interesting. And it sort of denominates crypto usage by category. So we see decentralized finance, 34%. We see stable coins, 32%. We see infrastructure that contains bridges, oracles, you know, smart contract, wallet, that sort of thing, 14%, token transfers, 13%, centralized exchanges, 3%, gaming, 2%, NFTs, 1% and social under 1%.

Summary this slide for us. First of all, how did you acquire it? This is based on daily active addresses and sort of what types of things they're doing on chain, what types of activities they're getting up for, you know, getting up to. And what does this say? I mean, to me, this kind of looks like, oh, it's still about, you know, money. It's still about going bankless. it's still about like the finance thing.

But what are your takeaways from compiling this data, Darren? Yeah. So first of all, the data came from Artemis, which tracks a number of different blockchains, although I will say some of the kind of emerging behaviors in terms of gaming and social tend to happen on specialized chains at this point, which may not be included in the full data set. But I do think, right, it is pretty clear that the main types of activity today in crypto are still defy and stable coins. They make up a majority of share. And things like gaming and NFTs and social still are very much emerging. And there's actually some interesting new behaviors that we're starting to see that we talk about later in the report as a result of things getting

cheaper and the infrastructure improving. But I think today it's fair to say that defy and stable coins still dominate most activity on the main blockchains. Something that's been a pretty big narrative this last year is this crypto AI intersection. So this is slides 3738 for people following along. The title here, Blockchain can address some of the most pressing challenges facing the AI industry. And also at the same time, if you are deeply crypto-native, you know that there's also a lot of, call it fluff in the AI crypto space.

how would you articulate the reality of the AI crypto intersection? Is this a meme? Is this real innovation? What's going on over here? A lot of people are excited about the intersection of AI and blockchains. And there are some key themes that are already coming up that I think are really important. The first is that we've all seen on Twitter everywhere else. We've seen all this really, really high quality generated content.

A key question that's going to emerge, I have this like actually have this ongoing Twitter thread that I keep appending new posts to every month or two as new things develop. How much more convincing generated images, generated videos, generated voice are, I think I just posted one like less than 12 hours ago where MKBHD, right,

the well-known tech reviewer had someone synthesize his voice and use it for a product promotion. Wow. And he wasn't involved at all, just to kind of legitimize it more, right? people will want to understand authenticity and legitimacy, right? Those are critical, critically valuable things that we take for granted, just because

you'd need a whole product studio to synthesize someone's voice or image or something like that. Now it's becoming incredibly cheap. And when it's cheap to synthesize these very valuable things, they can erode the commons, right? They can erode. And when I say the commons, I mean the fact that we all recognize MKBHD's voice. right, that's a thing we can all kind of enjoy and take for granted and know that it's legitimate, but that starts to disappear. We need technology to allow us to trace that authenticity again.

And thankfully, blockchains are probably the best way to do that. Cryptographic signatures and being able to trace people's IDs plus a censorship-resistant bulletin board where you can post attestations and relationships between identities, all those types of things, Those are almost certainly key ingredients in being able to solve the authenticity problem. So many people are exploring that intersection. I think that's a very fruitful one. With regard to democratization, think about how you use AI models today. You use them through a big data center, you know, in Microsoft or OpenAI or, you know, other type of data center.

And that's great. And they provide a very high-quality service. But if you're concerned about directly controlling that system and having unfettered access to it for the foreseeable future, then you probably want there to be some type of decentralized AI infrastructure that you can access as you want. In other words, blockchain as a disintermediating technology may also help disintermediate people's relationships with increasingly important AI agents. Right. AI agents now do all kinds of cool stuff, but they're brand new. they're only going to get more important. Aren't you going to value having total access to your agents and to your data and those types of things that use for increasingly valuable economic things?

There's, of course, transparency, ownership. I talked about transparency earlier. That's like knowing what model actually generated that answer for you. And I promise you, the more valuable it becomes to hear that answer from an AI model, the more valuable it will be for someone to try to influence that answer. and you're going to want transparency in that. Although technologically we're in the earliest innings of being able to solve these problems, I think that it's totally clear that the intersection of AI and crypto is where they will be solved,

probably not in AI in its own. We need every technological tool possible. And sometimes when you have these intersecting technologies, it's good to just kind of think about, are there smart people that are working on these problems? Right. And I think when we look at the crypto industry, you know, we're seeing a lot of overlap with AI both on the builder and user side of things. AI, even in crypto social circles, was the breakaway narrative of 2024 based on some data that we have. We also looked at web traffic data and found that there's a high overlap between crypto and AI users based on kind of specific overlap trends with chatGPT.com.

these top kind of crypto websites are right up there with the AI companies themselves in terms of using chat GPT, which indicates that both crypto and AI are frontier technologies. And as a result, there's likely to be a large overlapping user base, which I think just speaks to the fact that we will likely continue to see a lot more people building at the intersection of these two technologies. Yeah, I could just also say from personal experience, all my crypto homes, are also into AI, just like all of them, right? There's a massive overlap here. Actually, I was talking to Dixon again after the conference last week,

and we were talking about crypto acting as sort of a counter ballast for AI. It's the case that AI is going to create like 10,000 new economic opportunities or like more, but it's also going to create a thousand new problems, right? Centralization type problems, problems like, you know, is this a human or a robot? like it's past the turning test, I don't know. And so crypto acts as a counter ballast for a subset of those 1,000 new problems. We're going to need crypto for all of these new AI, like both opportunities and problems that they essentially cause. Okay, well, let's go to something that is near and dear to David and Meyer's heart, which is this idea of going bankless.

This is a metric that we track often, like almost on our weekly basis, though it doesn't change that much on a weekly basis. the market share of decentralized spot trading versus centralized spot trading since the birth of defy. So this is only like a four-year-old metric. You know, Defi summer 2020. Basically, you know, Dex trading is a percentage of centralized exchange trading. I refuse to say sex. I'll say it here. Sex trading is like it used to be 0% 2020. And now has climbed to above 10%. It's almost hit upwards of 15%. It's on a steady trajectory upwards. And again, this is like a defy eating C-Fi, which you love to see it.

Software eats the world. We like when decentralized software protocols, eat centralized software protocols. That's what this entire crypto movement is all about. I just wanted to pull the slide up and just like show it again because I think this number is going higher. I think this number is going to go 30%, you know, 40%, 50%, 50%, 60%. I can even see it going 80% plus. Of course, we are bankless.

We are biased towards, you know, dex trading, of course. But do you have any perspective on this data set? And where do you see it going? Well, there's a few key limiting factors, right, that for decentralized exchange trading. There's always been the gas cost, which is like an extra fee, right, on top of the swap. There's the challenge in the U.S. And just figuring out, like, how do I handle my wallets and custody and things like that? Where do I find the liquidity and all those things?

Every one of those dimensions has improved over last year. And as those dimensions continue to improve, it's hard to imagine why it wouldn't, you know, why decentralized exchanges wouldn't continue their growth in market share, particularly because they have, they provide so many safety benefits, right? That's the interesting thing, right? Is you don't need to take that exchange for granted. Think about other failures in centralized exchange we've seen over the years. I can't think of one.

I can't think of one. I can't think of a single one. There have been a few. There have been a few small ones. But, you know, needless to say, decentralized exchanges totally solve that issue, right? And they also don't require, you know, specific trust in jurisdictions,

let alone the exchanges themselves. I definitely see the number going up. I don't know about going up to 100%, right, because what's more likely in my mind is that they specialize, right, is like the centralized exchanges offer services, that a small group, you know, a single group of people running a company can offer on top of that that exchange mechanism. And then the decentralized exchanges may be specialized toward the cases where, you know, you want to minimize your trust assumptions, maximize security, maximize composability

with the rest of crypto, things like that. So, but I definitely see this number going up as those obvious points of friction disappear. Guys, this has been really great. I've already learned quite a lot about what's going on in the last year or so. But I will say that all metrics, that we've looked at so far are downstream of this next metric that we're going to look at right now. And that is builders, the builder interest inside of crypto. If crypto is nothing, if there are no builders, no software developers, building cool things to do on top of these blockchains, using up block space, changing the internet. What can we say about the state of builders in 2024? Because if I recall, actually, 2023 might have been crypto's first

ever down year in crypto net crypto interest among builders. Maybe you guys can clarify that if that was true or not. But what can we say about the state of building in crypto in 2024? Yeah, well, one thing I'll say is that, I mean, of course, we know that builders are the heartbeat of the crypto industry. And A16C crypto meets with thousands of builders every year in different contexts. And we've finally kind of built the tools internally. to be able to share some aggregated proprietary data around where the builder energy is. And so we have a new dashboard that we're calling the builder energy dashboard, which allows you to look at the market share of builders across blockchains, categories,

technologies, and geographies. And you can check that out at builderenergy.a16crypto.com. But I guess starting with blockchains, we can kind of show, and we do on the slide here, the kind of the percentage split between where builders are interested in building from an ecosystem standpoint. I mean, we see that Ethereum and the L2s capture a majority of mine share among builders today. Base in particular was a breakout ecosystem in 2024 showing high growth. You know, not all of the builder activity is happening on Ethereum. Bitcoin and Solana also saw kind of big increases in builder interest, but Ethereum and the L2 is still kind of majority mine share in 2024.

What about net aggregate builders at large over the whole entire crypto industry? Did that go up in 2024? I believe it did just in terms of the overall numbers of builders that we engaged with in this data specifically here. I will say it went up. We aren't speaking to any of the actual raw numbers because we feel the need to aggregate. into percentages only, but I think we can say that it went up. Guys, this is a fantastic report.

The visuals are absolutely stunning. Bankless listeners will include a link in the show notes so you can go download this and scan through it yourself. I think that's the way you're going to get all of the material here. Let's talk about what's next for crypto. And one of the, I think, mental models that A16C has pioneered is there's basically different adoption waves for crypto. And this is shown in slide 56 here toward the end.

So we've been through where in our fifth wave, like kind of fifth wave question mark of adoption. And we've had wave one, wave two, wave three, wave four. And now we are in wave five. And you could sort of see this in the graph when you look at total crypto market cap, the different waves of like just up bull markets and then like busts. And then you like down. And then a new wave begins.

That's kind of been the trend here. And you can see that by global crypto market. at search interest in crypto, active crypto developers, crypto startup fundraising rounds. What can you say about this? Because this is very near and dear to everybody listening. We're always wondering, like, okay, was that it? Like, are we in? What part of the cycle are we in?

Is there going to be another cycle? Are we going to go up again, at all-time highs? Are they in the future? How big could this grow? Any reflections on this fifth wave that we're in? First of all, is the data basically pinpointing that we're going? We're in a fifth wave of adoption, and like, where does this lead? I think the markets, you know, from an outsider's point of view, the markets look very chaotic.

But I think the way that we think about these markets is that there's actually some underlying order to all this madness. We call it the price innovation cycle. And the idea is that when prices go up, people get interested, developers build, and the new products kickstart the next wave. We've seen this now four times since Bitcoin's inception. And I think there is a question of are we in the fifth wave? And I think it is actually a little bit hard to tell because while prices have gone up, it's hard to say, is it a function of net new interest and innovation? Or is it more of the external factors like the ETFs and the political tailwinds.

So I think there is a question, which is why we have the question mark there, of are we in the fifth wave or not. But I do think the quality of builders that we're seeing, the product pipeline that we have visibility into is very strong. And as chat, GPT showed us, it really only takes one product to kickstart an entire industry. And so we'll see what happens. I think the jury is still out there.

What do you think, Eddie, Fifth Wave? Yeah, I'm not sure that we are, to be honest. I mean, it looks impossible to say, right, you can only kind of know in retrospect. So take everything I'm saying with a grand wave. assault. But I tend to think that right now we've had some very positive developments, like the ETPs and so on, like Darren alluded to. But we have a lot of very powerful headwinds, like regulatory challenges and lack of clarity, you know, upcoming elections, people are holding their

breath, right? Lots of price volatility as a result of macroeconomic volatility. I think that it's hard to say, I tend to think that we've mostly just gotten over the doom and gloom of 2022 and 23, right? There was some very, very serious. We were in the middle of recovering from some centralized exchange meltdowns. We were realizing how challenging the regulatory environment was going to be. And I think those things really dampened interest. And I think we've kind of gotten over that now. But we are still a little bit of a ways away from those.

breakout applications that lead the way that show people exactly what it means like to make a breakout application that creates a ton of value for users that mainstream people can access and use that really is global and decentralized in the way that we all aspire to. So I'm not quite sure we're there yet. Hard to say. Being in crypto feels like we are fighting a war on 17 different fronts all at once. And 2023 and 2024, we're definitely emblematic of that. We had the political front. We had the infrastructure front. We had the app front.

We had just like the user mind share front. And each one of these things, I think we made varying degrees of progress, as you kind of just noted, Eddie. But when you summate the year as a whole, how would you say, how strong of a victory or lack of victory did we have? Like, did we have a 10 out of 10 dub? Maybe a 4 out of 10 could have done better. How would you summarize how well we have done on the list of 20? two-dos, the very long list of two-dos that we have as an industry in 2024. I think we've done extremely well in terms of scaling blockchain so far and adjacent technology,

like ZK, that's exceeded my expectations. I think we have not done as great as I wanted, but positive in terms of improving the U.S. By improving the U.S., I mean, of course, like, abstracting gas completely, abstracting and simplifying custody, simplifying the way people interact with multiple networks, right? Like those problems are in some ways getting better, in some ways getting worse, right? I think we've done better than I thought on stable coins. And we've done a lot better than I think everybody expected in terms of regulation. You know, we didn't really highlight that in this conversation, but the passage of the

Fit 21 bill in the House of Representatives with the support of 71 Democrats was a totally surprising and incredible move. I think it's undeniable evidence that things are probably headed in the right direction, and everybody should feel really, really good about that. There's also the Duna legislation, the entity for Dow's out of Wyoming. That's a very positive development. And there's been early indicators of bipartisan support for stable coin legislation. All those fronts are totally, if you told me that a year ago, I would have been totally shocked. So that's way ahead of expectation. Yeah, that's kind of a quick summary. So I'd say positive in many fronts with some noticeable areas for improvement. Yeah, I would just add, I really do think we're at kind of an

inflection point in the crypto industry, right? Like the infrastructure has just now become, it has just now gotten to the point where we can start to see these new types of applications emerge, right? Like, I think the stable coin example is pretty simple, right? When fees go down, stable coins become a very good product. When fees are high, stable coins are not a very good product. I think we're seeing new types of emerging behavior in things like NFTs and social and gaming that are really only now this year possible. And so I try to have as much patience as possible when it comes to this stuff because, you know,

we are just now at this point where we're going to start to see these experiments. You know, builders are going to build. these new products that are only now possible in a low-fee environment. And I look forward to reporting on all this next year because I think we need to give builders a chance to build. And I think we're really well positioned to see that takeoff next year. Really well positioned for takeoff in 2025. I can't wait to have you guys back next year. It seems like from my reading of this, we have product market fit in a number of categories, you know, defy, stable coins, among other. So good product market fit.

We're sort of waiting for regulatory market fit or regulator market fit and like making some progress as you both pointed out there. So we'll see what that brings in the next year. Very excited to have you both with us. And for bankless listeners, of course, there's a link in the show notes for the 2024 crypto report, state of crypto report from A16C crypto. Darren, Eddie, thank you so much for joining us. Thank you.

Got to let you know, of course, Bankless Nation, crypto is risky. you could lose what you put in, but we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.