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2023 was a roller-coaster ride for the crypto sphere, marked by dynamic shifts, innovative advancements, and transformative trends that reshaped the industry’s landscape. As we delve into our Crypto Outlook Report for 2024, we reflect on the highs, lows, and pivotal moments that defined the past year, while also peering into the horizon to forecast the exciting potential and emerging patterns set to influence the year ahead, with insights from industry leaders at Stepn, Enjin, Hacken, SuperScrypt, and more.
This blog excerpt highlights select key findings, while the full report delves deeper into the intricate nuances and emerging trends shaping the crypto landscape.
The Rise of Bitcoin ETFs and Institutional Participation
Bitcoin’s price saw an upward trajectory following the submission of a spot BTC ETF application by BlackRock (AUM ~ $9.4 trillion) to the Securities and Exchange Commission in June ‘23. Subsequently, over a dozen major U.S. asset management firms, including Fidelity (AUM ~ $4.5 trillion), and Invesco Galaxy (AUM ~ $1.5 trillion) have filed similar proposals. While ongoing discussions between these firms and the SEC continue, a final decision has been deferred to January 2024.
Institutional firms increased their BTC holdings and participation in the ecosystem throughout 2023. For instance, MicroStrategy increased their BTC holdings to 174.5K at an average price of ~ $30.3K, which were at a ~ 32% profit as at the date of writing. Nomura, Japan’s largest investment bank, launched a Bitcoin Adoption Fund targeting institutional investors and providing long exposure to Bitcoin.
The Emergence of New Layer 1 Protocols
The new Layer 1 blockchains aim to tackle pressing issues prevalent in established blockchains. They strive to overcome the limited transaction throughput witnessed in prominent blockchains like Bitcoin and Ethereum, aiming to alleviate congestion and high fees during peak network periods. Additionally, these new entrants are seeking to improve cross-chain communication by enhancing interoperability.
Few emerging Layer 1s to watch out for are as follows:
- Aptos: It is a Layer 1 blockchain which employs the Block – STM algorithm and the BFT Consensus Mechanism allows for a 100% up-time in contrast to Solana. Parallel processing of the Aptos network enables the execution of a large number of transactions concurrently, resulting in a network pace of up to 160,000 TPS.
- Sui: It utilizes an object-centric model and harnesses parallel transaction execution driven by the Move programming language which enhances its throughput capabilities. It has garnered ~ 8.3 million users within a short span of time.
- SEI: It is a Cosmos-based layer-1 blockchain which through their Twin Turbo Consensus, powered by Cosmos SDK and Tendermint Core, aims to equip decentralized trading apps with unmatched speed, security, and capital efficiency for optimal performance. It is backed by the likes of Multicoin capital, Coinbase and more.
- Aleo: It operates as. a privacy-centric Layer 1 blockchain, leveraging zero-knowledge proofs (ZKPs) to facilitate confidential and secure transactions. It features SnarkVM which achieves scalability by offloading computations off-chain, requiring only proof of computation publication on-chain for enhanced efficiency. It is backed by SoftBank vision fund and Andreessen Horowitz.
The Resilience of DeFi
DeFi experienced a transformative phase, rebounding from a previous downturn. The TVL within the DeFi sector hovered around $47 billion at the time of writing. While this figure stands ~ 72% lower than its historical peak, the TVL exhibited noteworthy resilience throughout 2023. Ethereum maintained its leadership position with ~ 56.5% share in TVL, hosting approximately 957 applications on its chain.
Among the 319 lending protocols, AAVE held close to $5 billion in TVL throughout the year, while JustLend registered an exponential increase to $6 billion, a remarkable surge of ~ 68% from the start of the year.
Uniswap continued to dominate the DEX ecosystem commanding a staggering ~77% share in trading volume. PancakeSwap emerged as the closest competitor to Uniswap during the year with ~13% market share.
Derivative trading volume notably surged across dYdX, GMX and perpetual protocols throughout the year. In 2023, dYdX collected ~ $74.9 Mn in fees, while GMX collected a staggering ~ $122 Mn in fees.
Year 2023 has magnetized institutional interest for DeFi from leaders like Blackrock, Fidelity and others. With the industry leaders joining the forces, we anticipate other institutions to follow through and explore DeFi instruments for their capital deployment.
Liquid Staking Derivatives (LSDs) to the moon
The ETH staking landscape witnessed the rise of liquidity staking derivatives, enabling smaller validators to stake their ETH and generate profits. Anticipations surrounding the Shapella upgrade in April 2023 suggested a substantial outflow; however, contrary to expectations, there was a significant net inflow of ~ 179.5k ETH within just four days, signaling heightened activity around the network’s changes and potential investor movement. Post-update, the ability to withdraw ETH from the network was introduced.
The TVL across LSD protocols increased steadily in 2023 as a result of the Ethereum update and surged to an all-time high of $24 billion. With $17.5 billion locked in, Lido led the TVL space commanding a ~ 77% market share. Next up was RocketPool, with a ~ 9% market share amounting to ~ $2.05 billion in TVL.
Tokenization of Real World Assets
Tokenization emerged as a major trend in 2023. Tokenization of Real-World Assets (RWAs) involves converting physical assets, such as real estate, commodities, or other tangible assets, into digital tokens on a blockchain.
The total value locked in leading RWA protocols surged significantly in 2023 and reached a new peak in October ‘23. MakerRWA registered a record TVL of $3.12 billion and also emerged as a leader in this category with a share of ~ 51.8%, closely followed by StUSDT with a share of ~42.4%.
In terms of tokenizing government securities like T-bills, Franklin templeton leads the pack with a huge market share of ~ 40.9% followed by Ondo Finance which has a ~ 21.9% market share.
The Intersection of AI and Web 3
2023 could be described as the year of AI as its amalgamation with Web 3 took center stage, which sparked a wave of innovation, opening up a plethora of exciting possibilities and transforming the digital landscape across industries with projects operating in this domain raising more than ~ $520 million.
Decentralized AI emerged as the biggest trend in 2023. It has the potential to solve various traditional problems such as enhancing data privacy by distributing information across multiple nodes, managing vast datasets and complex tasks using distributed computing and much more.
Web3 projects increasingly utilized AI to craft advanced analytics tools. For instance, Alchemy introduced the GPT-4 plugin designed specifically for blockchain analysis. Solana unveiled a ChatGPT plugin, enabling users to purchase NFTs, transfer tokens, and analyze on-chain data.
The integration of large language models (LLMs) with zero-knowledge proofs (ZKPs) – ZKML could be a major trend in 2024. Anticipated advancements in models such as GPT-5 and Llama3 are set to amplify LLM capabilities. ZKML could help to compact proofs and enable ethical AI and privacy-preserving verifications, reshaping decentralized systems.
Fundraising Activity: 2023
In Q1, $3.06 billion flowed into 351 deals, primarily directed toward trading, exchange, investing, and lending, with wallets also garnering notable interest from VCs and Angels. Moving into Q2, $2 billion was invested across 274 deals, maintaining focus on trading, exchange, investing, and lending, while also expanding into areas like NFTs, Gaming, DAOs, and the Metaverse.
Further, Q3 marked a new low, witnessing investments of $1.44 billion across 223 deals. It was the lowest since Q4 2020, with a consistent focus similar to Q2. Q4 saw $2.41 billion being injected into over 276 deals. As seen in the chart above, Blockchain Services emerged to be the winner being the vertical that raised the highest amount of funding in every single quarter of the year.
Despite the ongoing regulatory challenges in the US, projects operating within US jurisdiction managed to raise funds through 261 funding rounds, accumulating a total of $2.77 billion, followed by the United Kingdom, where projects raised a staggering $866 million across 55 funding rounds. Interestingly, projects with undisclosed jurisdictions secured funding through 404 rounds, amassing a total of $1.94 billion during the same period.
Hacks and Exploits
The year 2023 witnessed a relentless onslaught of cyberattacks within the crypto landscape, painting a concerning picture of vulnerability across various protocols and platforms. A staggering $1.35 billion was stolen till Q3, with $417 million being pocketed from Ethereum. The Lazarus Group continued their reign of terror and accounted for hacks amounting to ~ $292 million.
A staggering $1.35 billion was reported stolen in ~ 600 incidents from the Web 3 protocol until Q3’23. The months of March, July, and September saw the highest losses, highlighting the vulnerability of smart contracts to hacks and exploits.
Private key compromise and Exit scams emerged as the most prominent types of hacks, resulting in gigantic losses of $204 million and $156 million respectively.
In 2024, the crypto landscape is likely to witness enhanced security measures, regulatory adaptations, and technological innovations. We can also expect greater emphasis on user education, collaborative efforts, and advanced defense strategies to curb cyber threats.
Closing Thoughts
As we conclude this brief glimpse into the Crypto Outlook Report 2024, it’s evident that 2023 was a year of pivotal growth and transformation within the crypto landscape. From the dramatic rise in Bitcoin’s value following ETF applications to the emergence of innovative Layer 1 protocols, the resilience of DeFi, and the tokenization of real-world assets, each development signifies an industry evolving at breakneck speed.
This report is an invitation to delve deeper, offering an in-depth exploration of the trends, challenges, and opportunities that defined the past year while shedding light on the potential advancements, regulatory shifts, and technological innovations expected to shape the future of crypto in 2024.
For an in-depth exploration of the Crypto Outlook Report 2024 and to dive into the complete analysis, click here.
