Binance Research Annual Report: 8 Key Highlights for 2024
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Binance Research Annual Report: 8 Key Highlights for 2024
Notable themes to watch: Bitcoin ecosystem, ownership economy, AI, RWA, on-chain liquidity, institutional adoption, security, account abstraction.
Navigating Web3 tides with focused insightsAuthor: Binance Research
Translation: Nan Zhi, Odaily Planet Daily
Review of 2023
2023 marked a year of recovery for the crypto market, with global cryptocurrency market capitalization growing approximately 109%. This remarkable growth was primarily driven by strong performance in the first and fourth quarters, which saw increases of 48.3% and 54.4%, respectively. This stands in stark contrast to 2022’s difficult period, when the market declined by about 64% due to a series of turbulent events including the UST depegging, multiple lending platform bankruptcies, and the FTX collapse.
Key drivers behind 2023’s strong performance included several major developments. Among the most significant were the optimism surrounding spot Bitcoin ETFs and anticipation of the upcoming Bitcoin halving. A robust macroeconomic backdrop—evidenced by resilient global GDP growth and slowing inflation—also created favorable conditions for cryptocurrencies in 2023.
Despite notable gains, 2023 was not without challenges. In March, turmoil in the banking sector spilled over into the crypto market, causing the USDC stablecoin to temporarily lose its peg. In August, traders suffered up to $1 billion in liquidations due to macroeconomic uncertainties related to China's economy and signals from the Federal Reserve suggesting further rate hikes. However, the crypto market demonstrated resilience, quickly recovering and regaining momentum in the following months.
As we look ahead to the future of the crypto market, lessons from 2023 highlight the industry’s ability to adapt, innovate, and grow in the face of adversity. The strong recovery in 2023 has laid the foundation for further breakthroughs, growth, and possibilities within the crypto space.
Outlook for 2024
Looking forward, we are encouraged by the market’s strong performance over the past year and are particularly excited about the following themes.
Bitcoin narratives remain front and center
Throughout 2023, Bitcoin remained in the spotlight thanks to various narratives such as Ordinals/BRC-20, the approval of spot Bitcoin ETFs, and anticipation of the 2024 halving. Ordinals and BRC-20 represented a zero-to-one innovation in Bitcoin’s evolution, enabling the deployment, minting, and transfer of fungible tokens on the Bitcoin network for the first time. These tokens quickly became alpha-generating investment targets within the Bitcoin ecosystem. Meanwhile, the recent approval of spot ETFs could bring substantial liquidity into the crypto market and marks a mainstream recognition of Bitcoin as a legitimate asset class.
Entering 2024, this momentum is likely to continue. The SEC’s final decision has been made, and it is likely positive. Historically, the crypto market has performed strongly in the year following Bitcoin halving events. Therefore, the recently approved spot ETFs and pre-halving optimism around April may trigger significant market volatility.
Moreover, given the relatively small market cap and meme-like characteristics of Ordinals and BRC-20, we might witness even more pronounced price swings if Bitcoin surges rapidly under certain catalysts. Further development of the Ordinals and BRC-20 ecosystems is expected. Notably, the launch of additional Bitcoin scaling solutions, such as Stacks’ sBTC, will be an interesting development that enhances Bitcoin’s functionality.
Ownership economy applications gain further traction
Blockchain technology enables users to reclaim sovereignty over resources traditionally controlled by large entities, including personal data, creative content, and computing power. For example, centralized storage services often require users to relinquish control over their data, exposing them to privacy breaches and single points of failure. Various projects are exploring alternative solutions that give users greater control over their assets and information. Two notable areas in this regard are Decentralized Physical Infrastructure Networks (DePin) and Decentralized Social Media (DeSoc).
Although the concepts of DePin and DeSoc have existed for some time, they only began gaining significant traction in 2023. This shift can be attributed to maturing infrastructure development, increased awareness, and the expanding user base within the crypto space. For DeSoc, Friend.tech was a key driver of growth in 2023, generating revenue comparable to some top-tier protocols. Friend.tech demonstrated the potential of decentralized social media by allowing creators to monetize their content without restrictions imposed by central platforms. In 2024, we may see similar applications emerge across different forms of social media, including music, video, and written content.
Meanwhile, DePin emerged as a prominent narrative toward the end of 2023. With vast addressable markets and the ability to scale rapidly through bottom-up growth strategies, these protocols are seen as having high growth potential. In 2024, we may witness accelerated adoption of DePin and DeSoc projects, leveraging their potential for growth and market penetration.
Increased integration of artificial intelligence (AI)
Since OpenAI’s ChatGPT sparked global interest in AI applications in 2023, the convergence of AI and crypto (AI x Crypto) has become one of the dominant narratives in recent months, with numerous projects emerging. We believe the integration of AI and crypto represents a promising growth area. While still in its early stages, incorporating AI into the crypto ecosystem opens up a range of potential use cases and offers alternatives to existing solutions.
Projects already integrating AI have begun offering services such as automated trading, predictive analytics, generative art, data analysis, and DAO operations. Looking ahead, many more use cases remain to be discovered.
For instance, training AI models requires massive data inputs and significant resources, typically limiting this activity to tech giants. This leads to reduced transparency and closed development. However, by leveraging decentralized storage for data management, we can achieve higher transparency and security. This democratizes the AI model training process, enabling broader participation and potentially sparking an explosion of innovation and advancement in the field.
Growth of real-world assets (RWA)
RWA tokenization showcases a powerful use case for blockchain technology. By bringing off-chain assets onto the blockchain, RWA tokenization offers greater transparency and efficiency while opening new possibilities in composability and potential applications.
Entering 2024, we expect RWAs to benefit from expectations of rising interest rates. Tokenized treasuries remain a standout, offering crypto investors an alternative and attractive source of yield. Additionally, as institutional adoption of RWAs accelerates, supporting infrastructure—including decentralized identity, oracles, and interoperability solutions—is also expected to gain momentum. These components are critical to building a comprehensive RWA ecosystem.
On-chain liquidity landscape flourishes
Liquidity is crucial for on-chain ecosystems, especially for DeFi. Since Uniswap introduced the AMM model, there has been significant progress. This evolution has led to multi-layered liquidity models supporting various on-chain activities, including token swaps, derivatives trading, and yield management.
As the market continues to gain momentum, on-chain liquidity and the scale of financial activity are expected to increase. Two categories worth watching are liquidity management and request-for-quote (RFQ) systems. Concentrated liquidity market-making (CLMM), popularized by Uniswap V3, addressed inefficiencies in capital utilization. However, issues such as impermanent loss (IL) and just-in-time (JIT) liquidity, which require active position management, still pose challenges for less experienced participants. This has led to the emergence of liquidity protocols designed to optimize CLMM liquidity provider positions using various strategies. Currently, Uniswap V3 alone holds a TVL of $2.4 billion, yet the total value managed by these liquidity management protocols amounts to only $400 million. This gap highlights significant growth potential, especially with the upcoming launch of Uniswap V4, which may introduce more advanced liquidity optimization features.
RFQ systems—represented by projects like Uniswap X, CoW Swap, and 1inch Fusion—facilitate matching between traders and market makers, often using mechanisms such as Dutch auctions to ensure competitive pricing. Advantages of the RFQ model include competitive pricing, MEV protection, zero slippage, and gasless order handling. As on-chain trading infrastructure continues to improve, the likelihood of wider adoption of these efficient models increases.
Accelerated institutional adoption
2023 witnessed the arrival of institutions, and we can expect more traditional players to enter the crypto space. During the previous bear market, reputable legacy asset managers such as BlackRock and Fidelity entered the crypto arena, signaling confidence in the industry’s long-term potential.
Security remains critical
In the crypto industry, security plays a vital role in establishing and maintaining user trust. According to DeFiLlama data, DeFi hacks resulted in losses exceeding $1 billion in 2023—a significant improvement compared to the approximately $3.28 billion stolen in 2022.
Given the importance of security, we expect continued focus on this area in 2024. This emphasis may manifest in various forms, including product innovation, educational initiatives, and improvements in user experience.
Account abstraction becomes increasingly important
To attract the next billion users and accelerate blockchain adoption, accessibility and inclusivity are essential. Ideally, users should be able to easily interact with DApps and perform any on-chain activity. However, in reality, there is still considerable room for improvement. For example, the majority of trading still occurs on centralized exchanges. Even at its peak in May 2023, decentralized exchanges accounted for only 20% of total CEX trading volume.
Several innovations make us optimistic about the future. For instance, account abstraction enables smart contract wallets with enhanced usability, including features like social recovery, significantly improving the overall user experience. Given the intense competition among wallet providers, we may see rapid advancements in this area.
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