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

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 ⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Although we are still hoping to see really mainstream key applications that reach 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.

• 0:26Ryan Sean Adams?

  Welcome to Bankless, where today we explore the state of crypto for the year 2024. This is Ryan Chana. I'm here with David Hoffman, and we are 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 data sets 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.

• 1:11David Hoffman?

  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. Every game can launch its own rollup on base with very high TPS and near gasless transactions. And every game is horizontally interoperable with other B3 games. With this, they are building the homepage for on-chain gaming, which you can find at basement.fun. If you've ever played in the world of flash games or remember MiniClip Arcade, and now you're into crypto, you might find yourself at home on basement.fun.

• 1:56David Hoffman?

  Most games are hosted on B3, but the platform is actually chain-agnostic. That means games can come from any chain to be deployed on basement.fun. They've already partnered with game brands such as Parallel, Mighty Bear Games, and Nifty Island to their launch, and already Have over 800,000 players with a million wallets. Wow. Since it's on chain, you already know you're going to be earning tokens while you play. So check out basement.fund today to start building XP. You can get there at bankless.cc/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.

• 2:39David Hoffman?

  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. A16Z 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, I'm going to talk about some of these fantastic sponsors that make this show possible, especially Kraken, our preferred exchange for buying crypto and getting it on chain. If you do not have an account with Kraken, consider clicking the links in the show notes to get started with Kraken today. If you want a crypto trading experience backed by world-class security and award-winning support teams, then head over to Kraken, one of the longest-standing and most secure crypto platforms in the world.

• 3:22David Hoffman?

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• 4:05David Hoffman?

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• 4:49David Hoffman?

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• 5:31David Hoffman?

  Bankless Nation, it's once again time for the State of Crypto Report out of A16Z. We have returning back to Bankless, Eddie Lazzarin, the Chief Technology Officer for A16Z Crypto. Eddie, welcome back to the show.

• 5:43Speaker 00

  Thank you. Great to be here.

• 5:44David Hoffman?

  And getting tapped in for some extra support, Darren Matsuokic, data scientist, also at A16Z Crypto. Darren, welcome to the show for the first time.

• 5:51Speaker 03

  Thank you. It's great to be here.

• 5:53David Hoffman?

  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.

• 6:12Speaker 00

  I'd say cautiously optimistic, a little opaque for outsiders. You know, there's no one's clear signal that I think's come to the surface, but for those of us tracking how things have developed and evolved in the industry, definitely positive.

• 6:26David Hoffman?

  Darren, anything to add?

• 6:27Speaker 03

  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.

• 7:00David Hoffman?

  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?

• 7:19Speaker 00

  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. But 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, you know, whoever's looking at the space and trying to get that wide picture. Entrepreneurs are usually so specialized in their area and they're familiar with everything that's going on day to day, week to week. That's like where they live.

• 8:01Speaker 00

  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 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 faster, sometimes it's slower. This year, the last year, 18 months, I'd say, there's been pretty remarkable progress in infrastructure. That is why I think like the top line in my mind is that crypto activity 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.

• 8:44Speaker 00

  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.

• 9:16Ryan Sean Adams?

  So while we're still on the vibe check here, just 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 2023 version of this report. And can we just talk about the vibe in 2023 and the and the diffs? As I recall, I think we were still sort of recovering from a pretty brutal bear market. But what was the state of 2023? If you could kind of summarize that and then maybe talk about the the diff and what's different this year?

• 9:49Speaker 00

  Yeah, I think hard to say, you know, it's 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 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. That sure went away. Like, have you heard anybody?

• 10:28Ryan Sean Adams?

  No one talks about this.

• 10:29Speaker 00

  Right? No one talks about that, right? And why? Because the problem was totally and completely solved and probably won't come back. Or it definitely won't come back. And so I think we were definitely recovering from the bear market. There were some interesting trends and developments, but I think what was top of mind was upcoming infrastructural improvements and some new experimentation.

• 10:51Speaker 00

  In early 2024, those improvements have really landed, not just 4844 and, you know, 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, right? We're back in a period,

• 11:31Speaker 00

  in my mind, we're back in a period of experimentation. You can launch a DAP 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 users' 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.

• 12:14Ryan Sean Adams?

  Yeah, it's definitely an exciting time. If I recall, 2023 was, you know, partially 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 where beginning to see the fruits of that labor as an infrastructure focus. I mean, Dixon, Chris Dixon in the past has called this kind of like the 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 one of these slides here, you've got a plot of internet users versus monthly active crypto addresses. And internet users from

• 12:59Ryan Sean Adams?

  kind of the early 90s, and it shows Sort of a chart up and that's the the line in green. If folks are following 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, they'll encourage you to go check out the video. We look kind of neck and neck in crypto, at least in terms of active addresses with the early internet.

• 13:43Ryan Sean Adams?

  Is that what this is showing?

• 13:45Speaker 03

  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 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.

• 14:27Speaker 03

  But I think from a starting point and a zoomed out view, you know, this 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.

• 14:44Ryan Sean Adams?

  Okay, yeah, so the internet usage of 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 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?

• 15:08Speaker 00

  Yeah, I think it's really important to understand. And that this is a proxy. This is not a number of human beings. Two hundred twenty 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 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,

• 15:52Speaker 00

  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.

• 16:14Ryan Sean Adams?

  Very good. There's this one, you know, space that's highlighted on the graph too, which is the one billion mark. Okay. And in two thousand and five, we had one billion internet users. And I guess if we plot this back to the early nineties, 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's, it looks like it's nineteen ninety-eight in crypto that year. So we're, you know, a few years away from hitting two thousand and five, which would be our one 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 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?

• 16:58Ryan Sean Adams?

  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?

• 17:15Speaker 00

  Well, so actually, there is another slide where we do have the number of users just holding crypto. I think that's 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. But that is, 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.

• 17:57Speaker 00

  Right? We don't fundamentally need to lay cables and so on, which was necessary for internet adoption. On the other hand.

• 18:04Ryan Sean Adams?

  We already have the internet. We can adopt via the internet.

• 18:07Speaker 00

  Exactly right. And then, 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,

• 18:52Speaker 00

  and monthly mobile app users, which is, which are all sort of declining in size, right?

• 18:58Ryan Sean Adams?

  Yeah, this is fascinating. This is showing 617 million estimated global crypto owners. So that's the ownership metric that I was talking about, and it's a superset of these other metrics.

• 19:10Speaker 00

  Yeah, exactly, 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.

• 19:21David Hoffman?

  We can call them dormant users.

• 19:23Speaker 00

  Yeah, dormant users. They may have never used the blockchain, right? They, 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, you know, just holding some, you know, some crypto assets and that's it. They're not necessarily using the blockchain. They're not necessarily connecting to DApps, other things like that. Yeah, and that's, 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.

• 20:05David Hoffman?

  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% of crypto holders, people who already have crossed 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, my protocol.

• 20:28Ryan Sean Adams?

  Yeah, it's like converting a funnel, right? I mean, you're converting people from the top of funnel down funnel.

• 20:33Speaker 03

  Absolutely. And, 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 reengage some of these passive holders, you know, that only, you know, 5 to 10% and actually kind of see how do we bring people on chain?

• 21:14Speaker 03

  I, 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, for our industry.

• 21:23David Hoffman?

  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, it's 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 this slide tells us about just the adoption of crypto?

• 21:58Speaker 03

  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 US 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.

• 22:30David Hoffman?

  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. Is there any data that you can pull out here?

• 22:47Speaker 03

  Totally. We do actually have a slide on Argentina specifically, where we 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 stablecoins to protect their assets in a environment of rampant inflation. And I think, you know, you, you, you kind of see that throughout many countries that really need crypto and stablecoins as a way to kind of protect themselves from inflation and political uncertainty.

• 23:23Speaker 00

  Yeah, that's slide 19. But yeah, I'd say, so 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 stablecoin 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

• 24:08Speaker 00

  remittance business is not a crypto-specific business. They were telling me that a lot of their customers are coming and demanding to make stablecoin payments with Tron, right? USDT Tron payments. And what's very funny about that is that Tron, as we know, and USDT have been around for quite a while. But they're far from the best in terms of gas costs. Transmitting some stablecoin on Tron costs at least a couple of dollars. But these small businesses saw that as a massive savings compared to their other options. So it just makes me really excited because as we have even better technological options than that, and better stablecoin regulation, and all these other things that would really

• 24:52Speaker 00

  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.

• 25:04Ryan Sean Adams?

  Okay, so the summary to the question of how big is crypto today is, it's pretty darned 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% of those who own crypto assets are on-chain. So we gave you the numbers, the total active addresses, 200 20 million, but if you try to distill that down to actual real life people, you get somewhere in the range of 30 to 60 million estimated monthly active users.

• 25:43Ryan Sean Adams?

  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 US. We're talking about this from a global perspective. And let's talk about politics in the US. 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 US.

• 26:28Ryan Sean Adams?

  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, 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 US?

• 26:57Speaker 03

  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.

• 27:42Speaker 03

  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, you know, I think, you know, just speaks to the fact that there are crypto supporters in these states and, uh, you know, may, this may be why, uh, we're getting this, uh, these, we're, we're seeing these tailwinds on the, the policy side of things this year.

• 28:22David Hoffman?

  Yeah. Importantly, in these, uh, swing states, and I know this, uh, the, following the election over the last like month or so, it's just gotten increasingly narrow. Uh, 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 is, could crypto decide this election? Like, how close is that statement to becoming true?

• 28:45Speaker 00

  Well, that's, 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, uh, 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, of our regulations. They do care about maintaining the United States advantage in technology, which has 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, uh, issues

• 29:30Speaker 00

  that may be, uh, new types of issues that people are talking about.

• 29:34David Hoffman?

  Flipping over to slide 17 here, still in the politics, uh, category. Uh, I think this slide shows how, how and why crypto is, uh, a political issue, both domestically and internationally. Uh, the title here, stable coins can strengthen the US dollar's position as its global reserve currency status slips. And it kind of, it kind of shows the status of the US dollar in the global economy, but then it shows the share of US 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.

• 30:07Speaker 03

  Yeah, I think maybe to start, right? I think most people understand that the US dollar's 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 stablecoins. Over 99% of stablecoins 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.

• 30:49Speaker 03

  And so rather than kind of the US developing its own central bank digital currency, why not embrace what's kind of sitting right, right there? Which is these crypto-stablecoins, which are already denominated 99% plus in USD to kind of strengthen the position of the US in an environment where it really is under threat. And I think that's what this, this slide and the data tries to show.

• 31:15David Hoffman?

  And following up to the next slide, slide 18, it shows stablecoins as the 20th largest holder of US debt. Now 20 is, 20 is not a high number, but also the existence of stablecoins is also very young. We are right ahead of stablecoins, is right ahead of Germany in terms of holding United States debt. And I'm assuming this number is going up, like soon we'll be 19, soon we'll be 18. That is my, that's my bias, that's my guess. Where do you think this number tops out at, Eddie? Do you think we, we, stablecoins, US dollar stablecoins comes in at number one in the future of the largest buyer of US debt?

• 31:52Speaker 00

  That's a wider ways in the future, but, but it's honestly, if we end up using stablecoin, if we end up using blockchains to track balances of stablecoins 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.

• 32:26Ryan Sean Adams?

  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 US debt, which would be absolutely crazy, phenomenal.

• 32:49David Hoffman?

  I personally prefer the internet holding United States debt much more than I do China holding the US debt.

• 32:58Ryan Sean Adams?

  Yeah, it's very fascinating. So where's this stablecoin demand coming from?

• 33:02David Hoffman?

  I think this part of this section actually kind of reverts back to what we were talking about earlier with Argentina, which is where it's circling back to the next slide 19 here. Like, why, why is this dollar demand on internet blockchains such a, 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 in the United States over the last two years, which has like come down, but for example, Argentina inflation was like 80% year over year, I believe. So I kind of want to just full, full circle us back to the story of stablecoins. One of the main use cases of blockchains is providing currency debasement from fiat currencies.

• 33:40Speaker 00

  One of the core offerings of blockchains is to allow people disintermediated access to, 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, stablecoins or other types of assets is an incredibly high quality offering. And that's putting aside the fact that with contemporary infrastructure, trans, you know, 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.

• 34:14Speaker 00

  We have to take it in its full, in its full context. Stablecoins 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.

• 34:34Ryan Sean Adams?

  I can also, connecting this to the political discussion, can also see this being very attractive to US politicians who are looking for, you know, other purchasers of US 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 gotta do some deal making, we gotta get this stablecoin thing across the finish line. It does feel like that stablecoin 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 US bank in your account, which is pretty good if you live in Argentina. So I could see lots of global demand, I could

• 35:19Ryan Sean Adams?

  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 US to sort of invade their territories, right? Because you'd think many countries around the world want to maintain their sovereign, independent, you know, 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?

• 35:53Speaker 00

  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.

• 36:24David Hoffman?

  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 block space 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?

• 36:59Speaker 03

  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 rollups. And that number was really up only. I think it was like 1% in 2022, and then, you know, 5% in 2023, and then it was, you know, peaking at over 15%. And then it dropped off of a cliff, right, after EIP 4844 or proto-Dank sharding, which significantly reduced the costs for L2s, as we know.

• 37:35David Hoffman?

  Wait, are we seeing that in the chart, that drop, Darren?

• 37:38Speaker 03

  Yep, we are, yeah. It's the blue, the light blue line here, going up to 15%, and then just completely falling.

• 37:46David Hoffman?

  I was distracted by the ETH denominated. So in ETH-denominated terms, I guess it's not much of a change.

• 37:52Speaker 03

  Exactly. We also show 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. Fees, like L2 has continued to gain traction in the Ethereum world. EIP 4844 significantly reduced the costs for Layer 2s, but the value on L2s in an ETH-denominated manner has continued to go up. So I think this really tells the story of what has happened from an infrastructure standpoint.

• 38:35David Hoffman?

  What can we say happened as a reaction to this? Did we get more total activity across all of these Layer 2 networks? Or did, like, usage stay flat? When fees went down, what happened?

• 38:47Speaker 00

  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, 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. So, and that's, 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

• 39:31Speaker 00

  in Ethereum world, let alone the rest of, the rest of crypto.

• 39:34David Hoffman?

  Eddie, how would you explain that to somebody who doesn't know what gas is? Or really like EIP4844, 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?

• 39:48Speaker 00

  They made a faster computer.

• 39:50David Hoffman?

  Beautiful.

• 39:54Speaker 03

  And I would maybe also add that in, we have this slide here. I think the real important question to ask is like, what 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 US 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.

• 40:35Speaker 03

  This is a more than 99% cost reduction, and in my opinion, this is what infrastructure improvements are all about.

• 40:42Ryan Sean Adams?

  Wow, $44 for a wire transfer in kind of like TradFi world to less than a cent as a 99% cost reduction. Of course, that is 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 cases, 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 timeliness perspective. I want to go back to this chart that you were

• 41:21Ryan Sean Adams?

  showing, which is, you know, Ethereum L2 fees kind of going down, right, post this EIP 4844, but also showing total locked value inside of L2s going up. There's something hidden, I think, in this chart, which is 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 parasitic to Ethereum's ability to accrue value? And I think what you can see in this chart is actually, perhaps, now, this is ETH-denominated value, which is still useful, it's not just showing ETH, but it's also other token value, but perhaps the strategy

• 42:02Ryan Sean Adams?

  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 basically like, you trade off the fees in the short run, but you export Ether 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?

• 42:33Speaker 00

  Yeah, I feel pretty strongly that the idea that 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.

• 43:13Speaker 00

  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 or bust 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

• 43:58Speaker 00

  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 to 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.

• 44:41David Hoffman?

  New projects are coming online to the mantle layer To 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 on to the Mantle Layer 2 to capture some of the highest yields available in DeFi 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 you're a user looking to claim some ownership on Mantle's DeFi apps, click the link in the show notes to getting started with Mantle.

• 45:25David Hoffman?

  Imagine a future where AI and blockchain converge, where decentralized intelligence operates transparently with Web 3 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 Web 3 can reshape the future? You can visit zeroG.ai to explore the infrastructure of revolutionizing decentralized AI.

• 46:09David Hoffman?

  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 DeFi 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 1 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 many transactions per second than they did just four years ago. Wow. And we have not just Ethereum and not just Ethereum Layer 2s,

• 46:51David Hoffman?

  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.

• 47:05Speaker 03

  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, 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 block space and therefore the transaction throughput that we're seeing.

• 47:47Ryan Sean Adams?

  Darren, in the Solana part of that graphic, do you know if that contains a vote transactions or not?

• 47:53Speaker 03

  I believe it excludes the vote transactions.

• 47:55Ryan Sean Adams?

  Okay, cool.

• 47:56Speaker 03

  That is my understanding.

• 47:57Ryan Sean Adams?

  So these are raw, organic, real Solana transactions?

• 48:00Speaker 03

  Yep.

• 48:00Speaker 00

  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 DApps 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 the, you know, the total amount of gas essentially, which is very hard to do across blockchains, it would be even bigger than 50x.

• 48:24Ryan Sean Adams?

  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 May Be The Endgame 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 cryptoeconomic computer that we're building from Bitcoin on forward, 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

• 49:05Ryan Sean Adams?

  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?

• 49:25Speaker 00

  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,

• 50:08Speaker 00

  and I think we showed 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

• 50:48Speaker 00

  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 ZK VMs, 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.

• 51:32Ryan Sean Adams?

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

• 52:06Speaker 00

  It's a bit different. This is actually a really interesting question that we could talk about for some time. I think it will remain very quick for a while, for the next few years, potentially. But unfortunately, it does reach a limit. There is a point where it's impossible, of course, for ZK proving to be faster than just natively executing code. So 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

• 52:50Speaker 00

  that proof in many settings, means you could actually end up cutting the amount of compute expended radically. So it doesn't actually need to be faster than native computer in order to provide extreme economic savings.

• 53:07Ryan Sean Adams?

  Darren, you're smiling there. What would you add to this?

• 53:10Speaker 03

  I'm smiling because I think this is 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 show it on a graph in the pre-1960s mainframe era on the classic Moore's law chart for microprocessors. And so I think it's a bit of a humbling slide.

• 53:35Ryan Sean Adams?

  We're in 1998 with respect to crypto. Maybe we're in the 1960s with respect to ZK technology, huh? Something like this.

• 53:43Speaker 03

  Yeah, that's right. With the nuances that Eddie, of course, described here. But it is a bit of a fun, humbling slide.

• 53:51David Hoffman?

  It's hard to really capture this in the 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 GetCoin. 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 just production readiness. But the vibe, again, I'm gonna have to check you guys because this is a report with like stats and numbers and facts, but 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 more fact-based rather than vibe-based?

• 54:33Speaker 00

  Yeah, yeah, I'd say just two years ago, there were no open source ZK VMs. That is to say, virtual machines where you can write general code and out, after you execute the code in that ZK VM, 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, there are at least three or four, and they're high quality, and they're getting way, way faster. Projects like Risk Zero and Succinct have developed their ZK VMs, which are fantastic.

• 55:16Speaker 00

  Of course, selfishly, we have a ZK VM 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, 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 ZK VMs when they did not exist even a year and change ago.

• 55:46David Hoffman?

  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 like 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?

• 56:11Speaker 00

  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?

• 56:52Speaker 00

  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, deepfakes 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,

• 57:33Speaker 00

  makes it very easy to know and to verify that exactly what happened on the other line.

• 57:39Ryan Sean Adams?

  Yeah, I think ZK is going to be absolutely transformational. I think crypto natives might see it like in smaller ways, like 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 rollups. And it's like the tangible benefit for a crypto user is of course with the optimistic rollup. 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 rollup, that's pretty much instant. Like you're talking within minutes. You have that, you know, like

• 58:20Ryan Sean Adams?

  Fully proven. So we'll see it impact us in marginal ways, too. Although that's like pretty, that's a pretty big delta from seven days down to like, you know, minutes. Okay, so let's talk about the 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 wallets, that sort of thing, 14%. Token transfers, 13%. Centralized exchanges, 3%. Gaming, 2%. NFTs, 1%. Social, under 1%.

• 59:03Ryan Sean Adams?

  Summarize the 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? This, 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 the finance thing. But what are your takeaways from compiling this data, Darren?

• 59:27Speaker 03

  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 DeFi and and stable coins. They make up a majority of 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

• 1:00:12Speaker 03

  and the infrastructure improving. But I think today, it's fair to say that DeFi and stable coins still dominate most activity on the main blockchains.

• 1:00:23David Hoffman?

  Something that's been a pretty big narrative this last year is this crypto AI intersection. So this is slides 37, 38 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?

• 1:00:54Speaker 00

  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.

• 1:01:40David Hoffman?

  Wow.

• 1:01:40Speaker 00

  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 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.

• 1:02:25Speaker 00

  And thankfully, blockchains are probably the best way to do that.

• 1:02:30Speaker 00

  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, a, you know, and Microsoft or OpenAI or, you know, other, other type of data center. And that's great and they provide a very high-quality service.

• 1:03:11Speaker 00

  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 you use for increasingly valuable economic things? There's of course transparency, ownership. I talked about transparency earlier.

• 1:03:53Speaker 00

  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.

• 1:04:27Speaker 03

  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

• 1:05:11Speaker 03

  in terms of using chat GPT, which indicates that, you know, 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.

• 1:05:32Ryan Sean Adams?

  Yeah, I can just also say from personal experience, all my crypto homies are also into AI, like 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, you know, we were talking about crypto acting as sort of a counterballast for AI. But like, 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 1,000 new problems. Right. Centralization type problems, problems like, you know, is this a human or a robot? Like, it's passed the Turing test. I don't know. And so crypto acts as a counterballast for a subset of those 1,000 new problems.

• 1:06:13Ryan Sean Adams?

  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 my heart, which is this idea of going bankless. This is a metric that we track often, like almost on our weekly basis. So it doesn't change that much on a weekly basis. This is The market share of decentralized spot trading versus centralized spot trading since the birth of DeFi. So this is only like a four-year-old metric. You know, DeFi, summer 2020, basically, you know, DEX trading as a percentage of centralized exchange trading. I refuse to say sex, but I'll say it here.

• 1:06:56Ryan Sean Adams?

  Sex trading is like, it used to be 0% in 2020. It 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 DeFi eating SeFi, 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 this 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%, 60%. I can even see it going 80% plus. Of course, we are bankless. We are biased towards, you know, DEX trading, of course.

• 1:07:38Ryan Sean Adams?

  But yeah, do you have any perspective on this, on this data set? And where do you see it going?

• 1:07:43Speaker 00

  Well, there's a, there are 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 UX 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 the 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, that's the interesting thing, right? Is you don't need to take that exchange for granted.

• 1:08:28Speaker 00

  Think about other failures in centralized exchanges.

• 1:08:32Ryan Sean Adams?

  Oh, I'm thinking about one big one.

• 1:08:34Speaker 00

  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, 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 the security,

• 1:09:19Speaker 00

  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.

• 1:09:27David Hoffman?

  Guys, it's 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 like clarify that if that was true or not.

• 1:10:12David Hoffman?

  But what can we say about the state of building in crypto in 2024?

• 1:10:16Speaker 03

  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 A16Z crypto meets with thousands of builders every year in, 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.com.

• 1:10:56Speaker 03

  a16zcrypto.com. But I guess, starting with 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 mind 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 L2s still kind of majority mind share in 2024.

• 1:11:40David Hoffman?

  What about net aggregate builders at large over the whole entire crypto industry? Did that go up in 2024?

• 1:11:47Speaker 03

  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.

• 1:12:09Ryan Sean Adams?

  Guys, this is a fantastic report. The visuals are absolutely stunning. Bankless listeners, we'll include a link in the show notes, so you can go download this and scan through it yourself. I think that 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 a16z 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, we're 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

• 1:12:52Ryan Sean Adams?

  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 cap, search interest in crypto, active crypto developers.

• 1:13:06Ryan Sean Adams?

  Crypto startup fundraising rounds. What can you say about this? Because there is, like, this is very near and dear to everybody listening. We're always wondering like, ah, okay, was that it? Like, are we in it? 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 in a fifth wave of adoption? And like, where does this lead?

• 1:13:35Speaker 03

  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 then 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, you know, I think it is actually a little bit hard to tell because, you know, 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?

• 1:14:21Speaker 03

  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 ChatGPT showed us, it really only takes one product to kickstart an entire industry. And so we'll, we'll see what happens. I think the jury's still out there.

• 1:14:44Ryan Sean Adams?

  What do you think, Eddie? Fifth wave?

• 1:14:46Speaker 00

  Yeah, I'm not, I'm not sure that we are, to be honest. I don't, I mean, it looks impossible to say, right? You can only kind of know in retrospect. So take everything I'm saying with a grain of salt. 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.

• 1:15:14Speaker 00

  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 2023. 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

• 1:15:57Speaker 00

  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.

• 1:16:14David Hoffman?

  Being in crypto feels like we are fighting a war on 17 different fronts all at once. And 2023 and 2024 were 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 mindshare 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 four out of 10, could have done better? How would you summarize how well we have done on the list of to-dos, the very long list of to-dos that we have as an industry in 2024?

• 1:16:59Speaker 00

  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 UX. By improving the UX, 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 stablecoins. And we've done a lot better than I think everybody expected in terms of regulation.

• 1:17:40Speaker 00

  You know, the, we didn't really highlight that in this conversation, but the passage of the Fit21 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 DAOs out of Wyoming. It's a very positive development. And there's been early indicators of bipartisan support for stablecoin legislation. All those fronts are totally, if you'd 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, a quick summary.

• 1:18:24Speaker 00

  So I'd say positive in many fronts with some noticeable areas for improvement.

• 1:18:30Speaker 03

  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 stablecoin example is pretty simple, right? When fees go down, stablecoins become a very good product. When fees are high, stablecoins 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, I, I try to have as much patience as possible when it comes to this stuff because,

• 1:19:13Speaker 03

  you know, we, we are just now at this point where we're gonna 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, we need to give builders a chance to, to build. And I think we're really well positioned to, to see that take off next year.

• 1:19:37Ryan Sean Adams?

  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, DeFi, stable coins, among others. 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 A16Z Crypto. Darren, Eddie, thank you so much for joining us.

• 1:20:15Speaker 03

  Thank you.

• 1:20:16Ryan Sean Adams?

  Gotta 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.