Working in the crypto industry has both upsides and downsides alike. In terms of upsides, it is an extremely fun, fast and exciting place to be in. And in terms of downsides, there is this obvious uncertainty about the future. But as long as you keep yourself updated with the latest trends in the industry, you should be good.
And the best way to do that is to read reports. LinkedIn posts and articles are good for building perspectives. However, reports are more data oriented. They would help you analyze and take smarter bets for the future. Out of multiple outlets providing well researched reports, one notable player is a16z.
For the uninitiated, Andreessen and Horowitz or a16z is a venture capital firm based out of silicon valley. Lately, they have been investing actively in crypto and web3 space. And if people are trusting them with their money, I think it is fair to assume that the data they would have gathered will have substantial credibility.
So in this post, I would talk about the key takeaways from one of their reports called ‘State of Crypto’. The report is 57 pages long and can be downloaded from here.
A. Price Innovation Cycle:
This is an interesting hypothesis I came across in this report. As per the ‘price-innovation cycle’, the entire industry (not specific to crypto) cuts through the cycles of
This is when the price of a specific asset class outperforms its peers and gains attention of enthusiasts across the board. Think of it like this. If BTC were trading at $1000, would you be as interested in it as today? All the technological revolution remains the same. But masses won’t have been there.
Any movement in prices creates interest where developers start taking notice of this space, enthusiasts start talking about it on Social media.
A.3 Ideas and Innovation:
This in turn leads to creation of an idea repository. People start figuring out the problems in this space and hence develop solutions around it.
A.4 Startups and Projects:
This finally paves the way for businesses to be centered around these new technologies. People go all-in, with an aim to take these innovations mainstream.
The report states that we are amidst the middle of the fourth price innovation cycle. This constant feedback loop has propelled the industry ever since the advent of Bitcoin.
B. Web3 and its potential:
Report highlights the key problems with the existing avatar of the internet. The current internet is either a digital authoritarianism (Eg. China, North Korea) or Oligopoly by big tech (Google, Meta).
And as the growth has stagnated over a period of time, these organizations have moved from a model of ‘attract’ to ‘extract’
As a result, users tend to make the least out of the value chain. Refer to the image below:
Web3 uses innovative models of token economy to safeguard the interests of everyone in the ecosystem. Which is why you would see such a stark difference, in the earnings and share, between the creator’s economy powered by web2 and web3 (refer to the image below).
C. Wen Eth2.0?
The report shows a clear dominance of Ethereum Blockchain when it comes to building in this space. Ethereum has far and away the most builders, with nearly 4,000 monthly active developers. This is way beyond the second best, Solana which has about 1000 devs.
This can be attributed to the early mover advantage and the immense network effects of the large community that backs up Ethereum.
However, with that being said, Ethereum faces a tough competition from multiple L1s out there like Solana, Avalanche, Fantom, BNB Smart Chain. These chains have tried to find a product market fit in a space where the end consumer does not care about decentralization.
Therefore, they are able to provide Blockchains that handle transactions faster and at a cheaper price.
Will the narrative stick to decentralization? Only time will tell.
D. DeFi and It’s Real World Impact:
Currently, about 1.7 bn people across the globe are unbanked. Sadder part is that about 1 bn of them have access to the internet. So there is no reason for them to miss the financial inclusion. Crypto and DeFi offers them the opportunity to leverage products like lending/borrowing/staking to grow their business and wealth.
This idea behind this realm is going mainstream faster than ever. DeFi protocols have already become the 31st largest bank in the world when compared on the basis of total assets under management.
E. To the Moon? Not So Soon!
When you work in the crypto industry, it is really hard to believe this. But we are still very early in this game. Report claims that this is a mere assumption based on certain number crunching but web3 would hit a critical mass of 1B users by 2031. They have done it by mapping the number of users with the adoption history of the internet.
What’s Your PoV?
Report also touches upon a few other areas like state of L2s, NFTs, Metaverse, DeFi and Stablecoins. It is definitely worth a read if you are really looking forward to planning your next moves in this bear market.
For now, keep calm and believe in the Blockchain tech!
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Until next time..
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