a16z 2024 Crypto Industry Report: From Regulatory Breakthroughs to Infrastructure Upgrades, 7 Trends Defining the New Era of Crypto
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a16z 2024 Crypto Industry Report: From Regulatory Breakthroughs to Infrastructure Upgrades, 7 Trends Defining the New Era of Crypto
Over the past year, cryptocurrencies have made significant progress in areas such as policy, technology, and consumer adoption.
Navigating Web3 tides with focused insightsAuthors: Daren Matsuoka & Robert Hackett & Eddy Lazzarin
Translation: TechFlow
Two years ago, when we released our first annual State of Crypto Report, the world looked very different from today. At that time, crypto was not a priority for policymakers. Exchange-traded products (ETPs) for Bitcoin and Ethereum had not yet been approved by the SEC, and Ethereum had not yet transitioned to the more energy-efficient proof-of-stake mechanism. Second-layer (L2) networks designed to increase capacity and reduce transaction costs were largely inactive, and their fees were significantly higher than they are now.
Today, things have changed, as shown in our newly released 2024 State of Crypto Report. Our report covers the rise of crypto as a hot policy topic, numerous technical improvements across blockchain networks, and the latest trends among crypto builders and users. The report also:
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Dives into the emergence of key applications such as stablecoins—one of crypto’s “killer apps”;
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Explores intersections between crypto and other tech trends like AI, social networks, and gaming;
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Provides new data on crypto interest in U.S. swing states ahead of the presidential election, among other insights.
The 2024 State of Crypto Report also reveals record-high levels of crypto activity and analyzes the maturation of blockchain infrastructure—especially with recent scaling upgrades that have drastically reduced on-chain transaction costs, fueling the rise of Ethereum L2s and other high-throughput blockchains.
This year, we’re also launching 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 where “builder energy” is concentrated. The dashboard aggregates thousands of anonymized and aggregated data points from our investment team research, our CSX startup accelerator program, and other industry tracking. With this tool, anyone can explore what crypto builders are working on—from which blockchains they’re building on, to the types of applications they’re developing, the technologies they’re using, and where they’re located. We plan to update this data annually as a core component of our annual State of Crypto series.
7 Key Takeaways
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Crypto activity and usage reach all-time highs
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Crypto has become a pivotal political issue ahead of the U.S. election
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Stablecoins have achieved product-market fit
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Infrastructure improvements have increased capacity and drastically lowered transaction costs
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Decentralized finance (DeFi) remains popular and continues to grow
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Crypto can address some of AI’s most pressing challenges
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More scalable infrastructure unlocks new on-chain applications
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Crypto Activity and Usage Reach All-Time Highs
The number of active crypto addresses hit an unprecedented level in September, with 220 million addresses interacting with a blockchain at least once—a figure that has grown more than threefold since the end of 2023. (As a metric, active addresses are easier to manipulate than others. See here for more on this point.)
This surge in activity is largely driven by Solana, which accounts for about 100 million active addresses. It is followed by NEAR (31 million), Coinbase’s popular L2 network Base (22 million), Tron (14 million), and Bitcoin (11 million). Among EVM chains, BNB Chain by Binance comes after Base (10 million), followed by Ethereum (6 million). (Note: EVM chains are deduplicated via public keys to arrive at the 220 million total.)
These trends are also reflected in our Builder Energy Dashboard. Solana saw the largest growth in share of builder interest. Specifically, the overall share of founders indicating they are currently building or interested in building on Solana rose from 5.1% last year to 11.2% this year. Base’s share grew from 7.8% to 10.7%, followed by Bitcoin, whose share increased from 2.6% to 4.2%.
In absolute terms, Ethereum still attracts the most builder interest, accounting for 20.8%, followed by Solana and Base. After them come Polygon (7.9%), Optimism (6.7%), Arbitrum (6.2%), Avalanche (4.2%), Bitcoin (4.2%), and others.
Meanwhile, in June 2024, monthly mobile crypto wallet users reached a record high of 29 million. The U.S. accounted for 12% of monthly mobile wallet users—the largest market—but its share has declined in recent years due to global crypto adoption growth and increasing numbers of projects geo-restricting the U.S. to comply with regulations.
Crypto use and influence continue to expand globally. Outside the U.S., countries with the highest mobile wallet user counts include Nigeria, where regulatory sandbox programs have created clearer oversight and significant growth in bill payments and retail purchases. India is another major market due to its large population and high mobile penetration, while in Argentina, many residents have turned to crypto—particularly stablecoins—amid currency devaluation.
While active addresses and monthly mobile wallet users are relatively easy to count, accurately measuring the number of active crypto users is more complex. Using multiple methods, we estimate there are approximately 30–60 million monthly active crypto users worldwide—only 5–10% of the 617 million global crypto holders estimated by Crypto.com in June 2024. (For more on the methodology behind our estimates, see here.)
This gap highlights a massive opportunity to engage passive crypto holders. As major infrastructure improvements bring entirely new, compelling applications and user experiences, more dormant crypto holders may become active.
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Crypto Has Become a Pivotal Political Issue Ahead of the U.S. Election
In this election cycle, crypto has moved to the center of national discourse.
We measured crypto interest levels in swing states. In two key states expected to be fiercely contested in November—Pennsylvania and Wisconsin—crypto search interest ranks fourth and fifth respectively since the last election in 2020, based on total search proportion in Google Trends. Michigan ranks eighth in growth, while Georgia remains flat. Meanwhile, interest in Arizona and Nevada has slightly declined since 2020.
The launch of Bitcoin and Ethereum exchange-traded products (ETPs) may have boosted interest this year. These ETPs broaden investor access and could increase the number of Americans holding crypto. Currently, Bitcoin and Ethereum ETPs already hold $65 billion in on-chain assets. (Note: Though commonly referred to as ETFs, these products are technically registered as ETPs using SEC Form S-1 because the underlying portfolios do not contain securities.)
SEC approval of ETPs marks a milestone moment for crypto policy. Regardless of which party wins in November, many politicians expect bipartisan crypto legislation to make progress. An increasing number of policymakers and politicians across both parties are taking positive stances on crypto.
This year, the crypto industry has also sparked other important developments on the policy front. At the federal level, the House passed the Financial Innovation and Technology for the 21st Century (FIT21) Act with bipartisan support—208 Republicans and 71 Democrats voted in favor. If approved by the Senate, this bill could provide much-needed regulatory clarity for crypto entrepreneurs.
At the state level, Wyoming passed the Decentralized Unincorporated Nonprofit Association (DUNA) Act, a law granting legal status to decentralized autonomous organizations (DAOs), enabling blockchain networks to operate legally while maintaining decentralization.
The EU and UK have been the most proactive in engaging the public on crypto policy and regulation. Compared to the SEC, European institutions have issued more requests for comment. Meanwhile, the EU’s Markets in Crypto-Assets (MiCA) regulation is the first comprehensive crypto-related policy to pass into law and is expected to fully take effect by year-end.
Stablecoins have become one of the most popular crypto products and a focal point in policy discussions. Several bills are under discussion in Congress. One factor driving this trend in the U.S. is that stablecoins can reinforce the dollar’s international standing—even as its position as the world’s reserve currency faces pressure. Currently, over 99% of stablecoins are denominated in USD, far surpassing the euro—the second-largest denomination—at just 0.20%.
Beyond projecting dollar strength globally, stablecoins could also strengthen the nation’s domestic financial foundation. Despite having only a decade-long history, stablecoins have already become one of the top 20 holders of U.S. debt—outpacing countries like Germany.
While some nations are exploring central bank digital currencies (CBDCs), the opportunity for stablecoins is already ripe in the U.S. Between these discussions and the growing number of prominent political figures voicing opinions on crypto issues, we expect more nations will begin seriously refining their crypto policies and strategies.
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Stablecoins Have Achieved Product-Market Fit
By enabling fast, low-cost global payments, stablecoins have emerged as one of crypto’s most prominent “killer apps.” As New York Congressman Ritchie Torres wrote in the New York Daily News in September, the proliferation of dollar-backed stablecoins could become humanity’s greatest experiment in financial empowerment—powered by smartphone ubiquity and blockchain cryptography.
Major scaling upgrades have dramatically reduced the cost of crypto transactions, especially for stablecoin transfers—by over 99% in some cases. For example, on Ethereum, the average gas fee for USDC (a popular dollar-pegged stablecoin) transactions was $1 this month, down from $12 in 2021. On Coinbase’s L2 network Base, sending USDC costs less than one cent on average.
By comparison, the average cost of sending an international wire transfer is $44.
Stablecoins simplify value transfer. In Q2 2024 (through June 30), stablecoin transaction volume reached $8.5 trillion across 1.1 billion transactions. That’s more than double Visa’s $3.9 trillion transaction volume during the same period. Stablecoins now rank alongside well-known payment services like Visa, PayPal, ACH, and Fedwire—proving their utility.
Stablecoins are not just a passing fad. Comparing stablecoin activity against crypto’s volatile market cycles shows little correlation. In fact, even as spot crypto trading volume declines, the number of addresses sending stablecoins monthly continues to rise. In other words, people seem to be using stablecoins for reasons beyond mere trading.
These activities are reflected in usage statistics. Stablecoins account for nearly one-third of daily crypto usage—32%—just behind decentralized finance (DeFi) at 34%, measured by share of daily active addresses. The rest of crypto usage is distributed across infrastructure (such as bridges, oracles, MEV, account abstraction, etc.), token transfers, and other areas including emerging applications like gaming, NFTs, and social networks.
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Infrastructure Improvements Have Not Only Increased Capacity But Drastically Lowered Transaction Costs
One reason stablecoins have become so popular and accessible is infrastructure progress. First, blockchain capacity is growing. Thanks to the rise of Ethereum L2s and other high-throughput blockchains, blockchains now process over 50 times more transactions per second than four years ago.
Ethereum’s most notable upgrade this year—“Dencun,” also known as “protodanksharding” or EIP-4844—was implemented in March 2024 and significantly reduced L2 fees. Since then, even as the ETH-denominated value on L2s continues to rise, the fees paid by L2s on Ethereum have dropped substantially. This means blockchain networks are not only becoming more popular but also more efficient.
Zero-knowledge (ZK) proofs show a similar trend—this technology holds significant implications for blockchain scalability, privacy, and interoperability. Despite declining monthly fees for verifying ZK proofs on Ethereum, the ETH-denominated value on ZK rollups continues to grow. In short, the cost of ZK proofs is decreasing while their popularity rises. (Here, we use zero-knowledge as an umbrella term for cryptographic techniques that succinctly prove computations offloaded to rollup networks were correctly executed.)
ZK technology holds great promise, offering developers new, affordable, and verifiable paths for blockchain computation. However, ZK-based virtual machines (zkVMs) still have a long way to go before matching the performance of traditional computers—a humbling observation.
With infrastructure improving, blockchain infrastructure has become one of the most popular categories for developers, and L2s have become one of the top five hottest development subcategories we track.
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DeFi Remains Popular and Continues to Grow
The only category attracting more developer attention than blockchain infrastructure is decentralized finance (DeFi), which also accounts for the largest share of crypto usage—34% of daily active addresses. Since DeFi emerged in the summer of 2020, decentralized exchanges (DEXs) have captured 10% of spot crypto trading activity, whereas four years ago all such activity occurred on centralized exchanges.
Currently, over $169 billion is locked across thousands of DeFi protocols, with major subcategories including staking and lending.
Just over two years since Ethereum completed its transition to proof-of-stake, the network’s energy consumption and environmental footprint have plummeted. Since then, the share of staked Ethereum has risen from 11% to 29%, greatly enhancing network security.
Though still early, DeFi offers a hopeful alternative to the trend of centralization and concentration of power in the U.S. financial system, where the number of banks has declined by two-thirds since 1990, and fewer large banks dominate assets.
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Crypto Can Address Some of AI’s Most Pressing Challenges
AI is one of the hottest trends this year—not just broadly in tech, but within crypto as well.
AI is one of the trends widely discussed by crypto influencers on social media. More surprisingly, chatgpt.com shows high visitor overlap with top crypto websites, indicating a close connection between crypto and AI users.
Crypto developers are also closely tied to AI. According to our Builder Energy Dashboard, about one-third of crypto projects—34%—say they are using AI, regardless of category, up from 27% a year ago. The category most actively applying AI technology is blockchain infrastructure projects.
Given that the cost of training cutting-edge AI models has grown fourfold annually over the past decade, we believe AI could lead to further centralization of internet power. Left unchecked, only the largest tech companies may be able to afford training the latest AI models.
The centralization challenges facing AI are almost the inverse of the decentralization opportunities offered by blockchains. Today, some crypto projects are attempting to tackle these challenges—such as Gensyn (democratizing AI compute), Story (tracking IP to compensate creators), Near (running AI on open-source, user-owned protocols), and Starling Labs (verifying authenticity and provenance of digital media).
In the coming years, the convergence of crypto and AI may grow even tighter.
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More Scalable Infrastructure Unlocks New On-Chain Applications
With lower transaction costs and increased blockchain capacity, many previously impractical consumer crypto applications are now feasible.
For example, the NFT marketplace has shifted significantly. A few years ago, people traded NFTs worth billions on secondary markets despite high crypto transaction fees. As fees have decreased, that activity has waned, giving way to new trends like minting low-cost NFT collections on social apps such as Zora and Rodeo.
Social networks are another example. Though they currently represent only a small fraction of daily on-chain activity, they attract significant developer attention. According to our Builder Energy Dashboard, 10.3% of crypto projects in 2024 are related to social. In fact, projects related to social networks—such as those around Farcaster—are among the top five hottest developer subcategories this year.
As developers and consumers explore richer social experiences, on-chain gaming is pushing the limits of blockchain scalability. For instance, the rollups used by Proof Of Play’s seafaring RPG Pirate Nation consistently consume the most gas among Ethereum rollups.
As the November election approaches, prediction markets—though illegal in the U.S.—are gaining traction, and prediction markets overall are gaining momentum. For example, Kalshi, a non-crypto prediction market registered with the CFTC, recently won lower court support 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. These emerging experiences were difficult to achieve when blockchain infrastructure was clunky and transaction costs were high. As blockchains improve along classic technology price-performance curves, these applications are poised to thrive.
Where does this leave us? Over the past year, crypto has made remarkable strides across policy, technology, and consumer adoption. Policy advances include rapid approval and listing of Bitcoin and Ethereum ETPs, as well as passage of significant bipartisan crypto legislation. Major infrastructure improvements include scaling upgrades and the rise of Ethereum L2s and other high-throughput blockchains. New applications are being developed and adopted—from mainstream growth in products like stablecoins to exploration of emerging areas like AI, social networks, and gaming.
Whether we’ve entered the fifth wave of the price-innovation cycle remains to be seen. Either way, as an industry, crypto has made undeniable progress over the past year. As ChatGPT showed, it only takes one breakthrough product to transform an entire sector.
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