Crypto market is ‘healthier’ than prices may indicate, a16z report says

Crypto prices are falling far below the dizzying heights of 2021, even with Bitcoin’s (BTC) price breaking the $30,000 mark. And yet, despite the crypto winter of last year, the market has matured and made progress, according to a16z’s latest ‘State of Crypto’ report.

In a blog post on April 11, a16z noted:

“… the report reflects a healthier industry than market prices might indicate, and a steady cycle of development, product launches and ongoing innovation.”

Here are some key takeaways from the report that highlight the strength of the industry:

Active users on blockchains have increased

The report indicates that blockchain adoption has increased with more and more new users interacting with blockchain applications. Last month, the number of active addresses reached a record high of 15 million – almost double the number of active addresses two years ago.

A plausible explanation for this peak is that users have increasingly more ways to engage with blockchains and Web 3.0, the report noted. With the expansion of decentralized finance (DeFi) and 700 new Web 3.0 games launched last year, users have more ways than ever to interact with blockchains.

Furthermore, the development of scaling solutions has lowered gas fees and attracted more users – blockchain transactions have increased by 50% in the past two years, noted a16z.

DeFi and NFT transactions are increasing

According to the report, decentralized exchange (DEX) Uniswap has recorded higher trading volume than Coinbase in the past two months. Collectively, DEXs saw monthly trading volumes in excess of $100 billion last month, a16z noted. This indicates that the popularity and adoption of DeFi is on the rise.

Non-fungible tokens (NFTs) are also gaining momentum as the speculation period cools down. The number of NFT buyers has increased while NFT creators have earned over $1.9 billion in royalties over the past two years, according to the report.

The number of active developers remains stable

Developers were drawn in during the 2020 bull run and have stuck around, a16z noted. There were nearly 30,000 active developers last month – indicating a 60% growth since the start of the 2020 tour, according to the report.

Furthermore, nearly 50,000 unique addresses implemented smart contracts last month – a growth of 40% this year. Also, the number of confirmed smart contracts has reached an all-time high, indicating that there is a pipeline of product launches. Core usage of the crypto developer library has also increased, a16z said.

Blockchain scaling solutions and promising technologies are growing

Currently around 7% of all fees on Ethereum are paid by layer 2 rollovers. This has grown from just 1.5% of all Ethereum fees last year. This indicates that more and more applications now prefer to build on L2s.

In addition, zero-knowledge technology has evolved from theory to practice in recent years. This has the potential to not only solve blockchain’s scalability problem, but has led to the proliferation of new use cases, such as applications that protect privacy, the report noted.

The US’s role in Web 3.0 is diminishing

The share of crypto developers based in the US compared to the rest of the world fell by 26% between 2018 and 2022. This indicates that the US lead in the Web 3.0 space may slip, the report noted. This is mainly due to a lack of regulatory clarity, according to the report.

What awaits in 2023

According to a16z, some of the most promising crypto products will be built during the crypto market downturn. In addition, the VC firm expects the need for decentralized social media to grow amid growing concern about social media giants.

The adoption and use of zero-knowledge technology will continue to increase, which will drive the development of hardware optimized for zero-knowledge proofs, a16z said. In addition, a16z also anticipates proliferation of non-speculative use cases for tokens amid the increasing affordability of block space.