The Current State of the Encryption Industry in 2024: Supplementary Analysis Behind the Optimism

The latest annual "Cryptocurrency Status" report released by a16z has sparked widespread attention and discussion. Although the report conveys an optimistic message, we still need some additional context and data to fully understand the market situation.

![\Steady Dog Original] Supplementary Analysis Behind Optimism: a16z's 2024 Annual Encryption Report

The Adoption of Encryption Currency

The report begins by pointing out that "cryptocurrency activity and usage have reached an all-time high," and it shows the correlation between the growth of monthly active cryptocurrency addresses and internet users. However, it is important to note that one address does not always correspond to one user, and sometimes it may not represent anyone at all.

In-depth analysis reveals that wallet-to-wallet transactions are one of the most common types of transactions. It is noteworthy that the increase in the number of addresses on certain blockchains is closely related to activities involving meme coins. Active meme coin traders usually use multiple wallets instead of handling all transactions with a single wallet. Additionally, factors such as sandwich trading bots also have an impact.

As a more accurate indicator, checking the monthly visit volume of certain encryption data platforms may be more valuable for reference. Currently, one platform has a monthly visit volume of 73.96 million, while another platform has 22.8 million. Although some may say that more people are using other tools now, the visit volume of these emerging tools is also relatively limited.

![\Stable Dog Original] Supplementary Analysis Behind Optimism: a16z's 2024 Annual Encryption Report

Objectively speaking, some blockchains have indeed attracted new users, but we may not be in the golden age of Web3 adoption. On the contrary, long-term users seem to have developed a more comprehensive infrastructure. Given the current liquidity and fragmented user experience, this is inevitable. However, the overall number of retail investors does not seem to have significantly increased.

The data on mobile encryption wallet users in the report appears optimistic, but it is essential to consider that in some emerging countries, the proportion of mobile devices in network traffic is very high. This means that users in emerging countries are the primary users of mobile devices. As mobile wallets become more user-friendly and feature-rich, their market share is growing. Additionally, users often need to install multiple different wallets in the current blockchain environment.

These data more reflect the widespread adoption of encryption currency in emerging countries, which has always been the mission promoted by Web3 and DeFi, and this goal seems to be gradually achieved.

![\Stable Dog Original] Supplementary Analysis Behind Optimism: a16z's 2024 Annual Encryption Report

Killer Applications of Encryption Currency

The report identifies stablecoins as one of the most obvious "killer applications" of cryptocurrency. Stablecoins do have advantages in terms of fast transfer speeds and low costs. As many countries establish relevant legal frameworks, more and more businesses are beginning to use stablecoins to pay income tax. In the future, it is likely that more users will turn to using stablecoins instead of traditional remittance methods.

The fact that the trading volume of stablecoins surpasses that of certain payment giants is indeed noteworthy. However, it is important to note that stablecoins are primarily used for large transfers, while daily small payments still rely on traditional payment methods.

Although it cannot be denied that stablecoins are a killer application, it is somewhat disappointing to see the annual report emphasize stablecoins so much. A few years ago, we would mention DeFi here, which was indeed a groundbreaking innovation. Now we can only mention stablecoins, which seems to indicate that we have not been able to launch more innovative killer applications this year.

![\Stable Dog Original] Supplementary Analysis Behind Optimism: a16z's 2024 Annual Encryption Report

Infrastructure

The improvement of infrastructure is crucial for the next generation of decentralized applications and high-load applications (such as games, consumer applications, social applications, etc.). However, these advancements are currently mainly reflected at the technical level, and ordinary users have yet to experience significant benefits.

Although some blockchain games and native consumer applications have emerged, transaction processing capacity does not seem to be the main issue. For example, in the gaming sector, the primary use case is the tokenization of in-game assets and the open market trading of these assets, which do not require ultra-high transactions per second.

The advancements in infrastructure undoubtedly create opportunities for Web3 innovation and potential new use cases in the future, which is optimistic. However, considering that the most popular applications this year may be some simple games, a cautious attitude should still be maintained regarding the overall development of decentralized applications.

![\Stable Dog Original] Supplementary Analysis Behind Optimism: a16z's 2024 Annual Encryption Report

DeFi

The DeFi section of the report starts with "DeFi remains popular and is growing." This is indeed the case for 2023, but we have not yet reached the levels of 2022. In 2022, the total value locked in DeFi was nearly $180 billion, while now it is only about half of that. Even considering price differences, we have not returned to that level.

The growth of the industry is mainly attributed to new areas such as liquid staking, re-staking, and tokenization of physical assets. Institutional capital has finally started to flow into the DeFi market. However, looking at the monthly active user data of a major DeFi project, it is found that the current number of users per month is only close to 6,000.

What does this mean? In my opinion, the recent growth of DeFi can be attributed to several core factors: an increase in average deposit value and overall market capitalization compared to 2023.

![\Stable Dog Original] Supplementary Analysis Behind Optimism: a16z's 2024 Annual Encryption Report

AI x Crypto

Artificial intelligence and encryption together have tremendous potential, as they provide a decentralized economy that can drive more affordable, community-centered advancements in the field of artificial intelligence.

The correlation between artificial intelligence and encryption traffic may stem from their common characteristics: both are emerging and promising technological fields with significant speculative value. Web3 is at the forefront of technological innovation and has quickly begun to attract the interest of artificial intelligence users (and vice versa). These two industries share similar user bases and interests, both of which do not belong to conservative domains.

Some innovative projects have proposed concepts such as decentralized computing, internet resource sharing, and collaborative AI agents. These innovations have great potential and are worth paying attention to.

![\Stable Dog Original] Supplementary Analysis Behind Optimism: a16z's 2024 Annual Encryption Report

Summary

In 2024, the development of cryptocurrencies is primarily reflected in significant technological advancements behind the scenes. However, these innovations have yet to capture the attention of a broader Web2 user base, as they are often highly technical or designed for specific users, such as institutional investors.

For cryptocurrency newcomers looking to make quick profits, these advancements may not be very appealing. This explains why many are drawn to the meme coin craze and prediction markets.

In 2024, people's enthusiasm for airdrops and points programs has cooled down. Users now see them as a form of additional yield, which has driven liquidity shifts from more risk-tolerant investors following token generation events. Similarly, the excitement surrounding blockchain games has gradually faded. Although some games have successfully attracted users, none have reached the success level of traditional AAA titles. This is normal; innovation takes time to mature.

Overall, the industry outlook remains optimistic, but we have not yet entered the golden age of Web3. The development of technology and applications still takes time, and future opportunities will coexist with challenges.

![\Stable Dog Original] Supplementary Analysis Behind Optimism: a16z's 2024 Annual Encryption Report