State of Crypto 2024: Builder Energy, U.S. Election, Stablecoins, AI, More
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October thirty first, two thousand and eight, that was the date that the bitcoin White paper was released. And in the sixteen years, cents oh so much just changed. So where are we really today in the art of critical adoption, not only at the infrastructure level, but also the applications built on the top? In today's episode, you will get to hear a ic critical team drive into their new set of cypher report.

So how many real crypto users are there? Have gas Prices come down enough for real applications? People go on top and what is crypt his relationship to the national conversation?

Listening to find out, oh, in this epsom was originally published. Fire her sister podcast, web three with six. So if you are excited about the next generation of the internet, find up three with a sixteen cy. Whatever you get your podcast, of course you can. Finally, the state of script to report in archon ots now over the host robt t cache for more.

Welcome to web three with sixteen I robot tacket. And today, we've got a special episode we're taking you behind the scenes of our newly released annual state of crypto report, a sixteen egypto analysis of the latest data and trends that have defined the industry in twenty four.

This year's report features some brand new insights from estimating the number of real cyp to users globally to understanding how much interest in cryo swing states may have ahead of the us election. We also dig in to infrastructure improvements to block chains and key applications, including stable coins, ai and so called deepen. Be short of visit a sixteen ecr pda dotcom for all this and more, including a new builder energy dashboard, which will discuss on today's show.

Joining me to talk about the findings are our lead data scientists and report author darn mozilla a and C T O eda zarine. The first voice still here after mine is darns than edis. As always, none of the content should be taken as tax, business, legal or investment advice.

The sixteen z dot com flashed disclosures for more important information, including a link to a list of our investments. This is our third year doing this. We've put together three of these decrypt reports. Why do we do IT?

I think we like to use this report as an opportunity each year to really take a step back, kind of look at the industry holistically, analyze all of the data that we have access to. We consult with various experts across the industry, ultimately bring IT all together into a single perspective. Yeah.

I think it's right. And I don't want to get too lofty with this. But crypto as an industry was born in the social media age, and that means that information is constantly being streamed in real time. So i'd like to see the democrator report as a way too pause for a second and sort appreciate what's happened in the stream. You know when you're in the mix of IT and things are getting blasts to you multiple times a day, IT can be hard to get a sense of accumulative progress, let alone to remember what was getting extreamly to you at full speed a year or two years ago. So I think the democrat report is a chance for us to take a step out of the firehose and they take a look at what's actually transpired.

And to that point, like our goal is not to just say that the gypt of industry is great and get that message out regardless what we're seeing. We really try to be intellectually honest based on data and what we're seeing out there.

Another thing else says that curb to has a very over developed in group language, and not just because of the memes and the jokes and the personalities, but also because the technical complexity. All those things together create this really strong and group language. And I think of our report as a way to try to mainstream some of those big things. We try to avoid anger of language and make things very accessible to charge through very simple explanations. And it's an opportunity to do that too.

Also, it's a way to shift the way people talk about crypto u, because script T S just filled with like really difficult concepts and terms. And to be able to kind of peel back the layers and talk about what is actually happening in a way that people can understand is a unique chAllenge. Let's talk about how the report open.

So we're trying to summarize the state of crypto in the past year. So first stop is sized in the market because if we're talking about cyp to the first question you might have is what are we talking about here? How big is the industry? How big is the market? And so that's the first question that we tackle here that you want to hit us off.

sure. For many years in the past, we've been mostly focused on building the infrastructure to make all of this work. And so there really wasn't that big of a market for users of these crypto based applications.

But I think in twenty twenty four, we really did hit a tipping point with infrastructure improvements. These both chains are becoming more and more accessible. They're cheaper to use.

And as a result, we're starting to see applications come on mind. And now that we have these applications, I think it's, uh, really starting to come to life. And I think in the years to come, this will be an increasingly important question.

Yeah, I think that's right because beforehand, the technology is still come together. In many cases, IT is still coming together, but we are actually beginning to see some applications. And that's something that if you having been paying attention to cypher, you might not realize totally.

And I think the results speak for themselves, right? Active addresses across all of blockchain that we track in all time high this last month of two hundred and twenty million mobile wallet users. So data that we get from mobile APP stores that also recently hit an all time higher twenty seven million. And so you know, the numbers do kind of speak to this idea that we are now seeing some of these break out applications that are bringing real on chain transaction and usage.

Let's go through each of those. You mention that active addresses are at all time high. Now this is a kind of controversial metric. Not everybody loves talking about active addresses. One of the things they have going for them is that they are easy to measure is something that you can very easily quantify.

I think to really understand why active addresses has become such a hot topic recently, I think we need to look at some of the historical context. I think in traditional software, most people tend to understand the basic concept of the user. Of course, there's ways to measure the quality of the user.

There's a whole field of growth analytics around this topic. But in its most simple form, I think people can rock the idea of a daily active user or a monthly active user is just the number of people that are using your product and service on a daily or monthly basis. It's fairly straight forward.

But in cyp du, things are a lot trigger. And the reason is because on block chains, user identities are synonymous. This means that is very easy for one person to create and control a group of public addressers, or identities called the simple.

And up until recently, a lot of the most popular block chains had very limited capacity, which resulted in high transaction fees, which created this natural barrier for spinning up in using thousands or hundreds of of different addresses because IT would come with significant monetary costs. But recently, we've seen that cyp to infrastructure has become more scalable, the belt s and new pytho at later ones, which is reduced the cost of transactions on many of these lock chains to nearly zero. And maybe you might ask, isn't IT also near zero costs to create multiple identities on traditional internet applications? And i'd say, yes, that's true for the most part. You know, I can create multiple email addresses this pretty easily. But the key difference here is that in the crypt, the world, we have very strong incentives for this type of behavior.

Yeah, google doesn't give you money for opening a new gmail aco. Unfortunately, exactly.

And a lot of new tokens today actually boot trapped the circulating supply by doing something called an air drop where you're rewarding retrolental vely users of the protocol based on a predefined set of addressers. And so as long as people believe that these tokens could be valuable, there is a strong incentive for them to try to game the system by creating and transacting under many different identities. This is commonly known as air drop farming.

Yeah, there is no reason that one person couldn't spend up hundreds of millions of addresses and just go wild and engaging in totally useless and in authentic activity in order to try to maimie their likelihood of extracting as many roles as possible. And what we've seen over the last four or five years that we've had air drops and yell farms and so on, there has been a profound professionalized of the efforts to hold out those rewards.

People have gotten really, really, really good. And I want to make IT really clear to anybody who thinks that IT is a gig brain. Take the same monthly active addresses is simple, able? Yes, we know that.

And if you have a Better way to measure using public data, you know, that's verifiable by everyone, honor, that is easy to trust. I'd love to hear IT tell me a Better way. And thirsty for IT tell me, let's work together and let's figure out because the space really high quality, transparent metrics, and that's what we're going to do.

Yeah, it's so given what we know about these behaviors, how many users are there? right? Is ten million. Fifty million is a one hundred. And this is the question that we put a lot of work in and we're going to publish some of our thoughts around estimate men and will include .

that blog post in the shoots. But maybe you could walk us through how you think about actually getting from this big number, this two hundred twenty billion number. If that's the number of addresses, how do we get down to humans? How do we reduce that to the number of users, the actual flesh and bones on the other end of the screen?

I think one approach sounds kind of obvious, which is now we've got these two hundred and twenty million monthly active addresses. What if we could filter out what we suspect, our bots? And and the way that we can do this is some techniques using on chain analytics and forensics.

One method is to filter out addressers that received funds from something called the dispersion contract. This is a smart contract to sole purpose is to take in funds and automatically distribute them across many different addresses. Of course, there could be false positives here, but the activity implies that the destination addresses is all receive funds from a single source and therefore, they're connected in some way.

So there's certain types of filtering you can do around disturbing contract specifically that can eliminate a lot of the box that you might see. The other approach involves looking at addresses that have a near zero baLance at both the beginning and end of the period that you're aggregating over. For example, if you're trying to find the real number of monthly active users in september, you can look at addresses that had a zero baLance on both september first and september thirty. This criteria implies that the addresses were transient in nature. I think boss and sibs typically want to clean up their baLances after taking actions on chain, where as real human users usually like to keep some baLance in their wallets to cover future transaction fees.

So it's like an address popped up and then within like some period of time, people dumped into another thing and the address never was revived after that.

Exactly, this is the type of behavior where IT received the source of funds. IT took some action and then IT pushed all of those funds outside. So it's a very transient type of activity that's often associated with bots and sibs.

The other thing that we've looked into is just like the frequency of transactions. And so you can analyze these distributions to look at did the address tract one time, two times, three times, four times, five or more times during the period addresses that have just one or two transactions. You know, at best, there are low quality user.

At worse, there, a bot or a civil, and especially over longer periods of time, this type of analysis can help you in some of that filtering. You can also specifically look at addresses that transacted very, very frequently. Over very short periods of time, humans can only reasonably throw a wallet or APP interface process a certain number of transactions where as bots can do things much faster.

And so you can do some filtering there. And then on the flip side, you can optimistically include addresses that are tied to some sort of identity protocol that require some sort of set up cost, for instance, addressers that are tied to an E N S name or a forecast I D, or some other linked social identity of chain. Those are likely to be real human users. So obviously, it's very complicated, requires a lot of on chain data and analytics and forensics, but we've done in internal analysis taking this approach, and I think we've come up with some decent estimates.

okay. So the first method is basically you're starting with the number of vacation addresses and you're trying to wide IT down based on calling the weed from the chef, calling out the addresses that seem transient bot like or low quality.

Yes, this is reducing the ceiling. We know what the ceiling is. If there's two hundred twenty million monthly active addresses, then we're trying to lower the ceiling and then we can use other methods to try to get at a reasonable estimate of the floor.

okay. So let's walk through method number to them.

So met number two says, rather than looking at active addresses, let's look at some other sources of data that we might have access to, particularly off chain data. And I think an obvious place to start here is wallet users. For example, in february, meta mask, which is a popular thorium wallet, reported that they had thirty million monthly active users.

And specifically, they define in active user as someone who either loads a page within the metam asc extension or opens the mobile APP at least once during any thirty day period. And assuming that were looking to estimate transacting users, we need to make some sort of assumption on what percentage of metal max users actually end up transacting, and that requires some research. I don't think we're going to find the perfect number.

We do have some sources that we can cite that say that thirty percent of users of meta asked, at least on a daily basis, actually end up transacting. And so what's say thirty to fifty million? You can use some sort of assumption there.

And based on that.

you have ten to fifteen million users that we believe are transacting through the mad mask wallet products. And then all we need to do is try to understand what meta masks market share in the wallet spaces. Of course, the exact data here is not going to be readily available, but we can make some educated guess based on what we know. For example, we do get pretty good estimates of meta masks market share on the mobile wallet side based on some data that we get from sensor tower.

And so once we are able to estimate what meat mass market share is, we can simply extrapolate an estimate for the total number of cyp to users from that ten to fifty million that we discuss earlier and then compare the results to approach, number one, the filtering from active addressers to sort of train you late on, at least they range that we feel is in the right bowl park. And by the way, doesn't just have to be met of mass. We can also run this exact analysis for other wallet providers to previous reported their numbers publicly or are willing to share their proprietary data.

And then as I mentioned, just kind of try angulation on arrange based on all of the information that we have. So we have done this. We've done this internal analysis. IT is definitely not perfect. I'm not claiming at all that we are super, super scientific about this, but we feel comfortable saying that, uh, we think there are thirty to sixty million real monthly transacting crypto users today.

Of course, this is still a small percentage of the monthly active addresses at fourteen to twenty seven 2。 And in even smaller percent, that is actually of the total number of people who own crypto but do not necessarily transact with crp du s. Actually only five to ten percent of the six hundred and seventy million reported by crypto dot com, which means there is a huge opportunity here, right, to convert existing cyp to owners into active crypto users by bringing them on chain.

So the point is to say is not that well, the civil analysis is perfect and we can end up at a, you know, flaws class fiction of which addresses are real humans and nab. The point here is to get sort of an order of magnet de range so that we can look at growth. That's the goal. The goal is to be able to look bad retrospectively and say we're bigger than we were last year, we're bigger than we were here before that and see approximately how how things are developing.

I also have this kind of like funny way of thinking about this too, where i'm like, well, maybe we're entering this new internet world where actually A I and bots and these things that are farming right now for rewards and trying to snatch up incentives that certain projects are offering. Maybe we're entering an internet where like botts and eye are just infused everywhere. Like why? Why are humans the major metric?

Yeah, I look, I do not want to get to size. I, but everything is many to many now, everything in the network world, as many to many by that. I mean, like as one person have a credit card.

No, you have many is a credit card only used by one person? No, like there are many internet accounts, cars, just everything is totally intertwined and entangled. And as we add A I agents and other such things, it's gonna even crazy.

In a way, what we really want is we want to measure the attentional capacity that things command, right, the total amount of like cognitive bandwidth they are commanded from the environment. But that's a really excited y way out there getting kind of cookie uh conversation. However.

next year, the state of script report can, 但是 i banded IT are IT。 So we're sizing up the market when we're looking at actual users and trying to think about the people who are using interacting with crypto on a monthly basis. Actual humans, we're looking at around thirty to sixty million, which is, as you said, five to ten percent of the people who own cyp to globally and also a fraction of the active addresses to why such a wide range y thirty to sixty. Like can you not get any more precise about IT?

I think if anybody has a problem after they hear the methodology, they might complain that it's not widely enough, then maybe you should be wider, maybe it's twenty to seven years to twenty eight years. It's hard to say exactly very open to that when not pretending that this is a totally fall less analysis. The reason for the range is just contained in their reasoning, right? Like we had to make some estimates. There are some things you have to kind of guess, like the reissue of monthly active users is reported by minimize to the proportion of them that actually do transact a month, therefore, by becoming an activate dress, right? Like those are just things that we have to estimate.

And I think IT helps even just to think in orders of magnitude, like what we're looking at here, the fact that active month users of crypto o is about tens of millions and global owners of cypher is hundreds of millions. There is a gap. There's a golf there. But we're beginning to see the sort of outline of the market that we're trying to size up here.

That's right.

One thing that will be apparent to anybody who looks at this report is that it's not just that active addresses are at an all time high. It's that there are a few block changes that are driving this. One of them is salona salon.

As far, n away got the most active addresses of any blockchain network that we looked at. It's got one hundred million or so. What's going on there?

Well, I think the obvious answer here is that a the block chains that have the most active users are the ones that is cheapest to transact on, right? And so you block chains like so on. A are very, very cheap, which means it's very low test tube set up pots and civil.

We also got some interesting data from the artist st team and and we have found that unbox chains like sona, a large portion of the activity is simply one time use or two time use, which indicates that there is a larger percentage of box and sibling on these low cost chains. And so I would take all of the face value monthly active addresses by chain data with a big grain of salt because there, of course, lots of new ones associated with this. But with all that being said, base and sona were some of the top destinations for crypto users in twenty twenty four. I don't want to take away from the great growth and development that those ecosystems have seen this year.

Yeah base has the most active addresses of any theory um chain that we looked at, at twenty two million exceeding even a theory um which has six million. So clearly they've struck a cord totally. I was also interested to see bitcoin up there like bitcoins got eleven million by account totally.

And you to keep going on this point like the cost to transact on bitcoin is not near zero, right, which means there is likely to be less bots and cbs on the bitcoin blockchain. And so no, you can kind of a take that number more at face value. Certainly, bitcoin has been an ecosystem that we've seen more builders actually try to build new products and applications on the bitcoin blockchain. And I think it's gotten me very mainstream attention with, uh, lot of top politicians talking about IT. So I think a definitely a good year for bitcoin.

definitely. I mean, like the strategic bitcoin reserve, once a nish idea is becoming more mainstream yeah .

and to at the dance point, all in all, I think it's a lot more difficult to look at big coin activity and say that it's largely driven by cbs. I think there's just A A lot more difficult to believe. So if activities positive on bitcoin, the implication is that there is probably an increase in real activity across the rest of the space. I mean, take with a grandness saw, but I think that, that's likely to be true.

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your podcast. So we're talking about some of these blogg chain networks that have had a lot of activity and interest over the past year. We mentioned salona by evan bick coin one. The most exciting things, I think, about this year's data grip to report is this segment that we've dedicated to build energy. This idea of looking at everything that founders are telling us about, they're building, what they're interested in and where their activities and energies are directed toward, I think that, that is gonna be a mainstay feature of future reports.

The big context is that I think the heart beat of the crypto industry is, of course, all of the builders who are building the products and infrastructure to make this all work. And we meet with and engage with thousands of companies every year as part of our course of business investment team research. Are crp to started pic celery or we do some external deal tracking.

And for the first time, we now have a lot of tools internally that allow us to Normalize a lot of that data aggregated in a way that we can share some of that data externally so that, uh, people could see the bigger transfer cross block chains, geography technologies and categories. And we've done that. We've made actually A A dashboard that we call the build their energy dashboard that has some very cool interactive data visualization around all this data. And you can check IT out at dollar energy dot asic scene y cyp t to dot com.

One thing all point out is we were talking about block chains that have the most act of addresses. And it's interesting to me that it's sort of lines up with where builders are interested in building on and what they are building on. We've seen more and more builders interested in salona and actually building projects on salona.

That was the biggest jump in interest that any blockchain had seen between this year and last year. Base as well super high up there. And even bitcoin in in flight, number three, had a really big bump in people who want to build on IT you.

And maybe just to add one clarifying point here. The way that we source this data comes from a question that we ask founders and builders.

We ask them simply, what blockchain ecosystems would you be interested in building on? So IT does not mean that there are this many builders specifically deploying contracts or that there are a certain number of protocols on these block chains is simply just means aware, generally speaking, are these builders interested in building on and i'd say still today, a theory um and all of the layups, including base and arbitrary and optimism and Z K sink and the others still capture a majority of the builder mindshare in those with the key away from that data. But you can check IT out yourself by looking at the dashboard.

excEllent. So this is an election year, and critter has become a part of the national conversation. People are talking about IT. Politicians are talking about IT. Candidates for the office, for the president are talking about IT. What have we found about how crypto has sort of changed from last year when we did the report this year when IT comes to a policy perspective? yeah.

So crypto has become political in the sense that the gypt industry believes the political engagement can help resolve some of its major chAllenges. And a big question is whether that has made IT to the mainstream or not have the cypher industry's issues becomes something that some voters or enough photo care about?

Probably for me, the most most interesting slide in the policy section of the report is the analysis of the crudo interest that we're seeing within various states of the union. What is through this analysis that you did hear in what you found? I think .

everybody knows that this presidential election is shaping up to be a very tight race. I think IT will likely be decided by a handful of counties in a handful of swing states. And so, you know, we wanted to at least understand, is the interest based on some of the data that we have is IT growing or shrinking across these different states.

And so we basically use google trends data. We looked at a basket of search terms that were relevant to crypto a. So we looked at biton, etherium and cyp to and we looked specifically at the relative change in search interest as defined by google trends from twenty twenty to twenty twenty four.

And we looked at which ones increased in rank, in which states decrease in rank, and then we basically plotted that on a map and showed which one's had the highest growth, which one had the highest declines, and then basically padded all that data. And I think if we look at the swing states specifically, I think the most interesting take away is that pennsylvania and wisconsin actually had top five. I think they were fourth and fifth in the ranks.

By change in this relative gypo related search interest sense twenty twenty. And these are some of the tightest races currently as indicated by various prediction markets. And so I think there is many different factors at play, and you need to be careful in what you conclude from very simple analysis like this alone. But I think there is some evidence to suggest that crypto is relevant here and could have an impact.

Yeah I mean, it's not a sentiment analysis. So we don't know exactly what those people who are searching for the crypto terms actually think about crp to, but we do know that they are searching for crypto terms, which just kind of indicates general interest and is pretty interesting to note in and of itself. Imagine pensylvanicum was concerned in the top five.

Michigan is, I believe, number eight. So that's in the top ten. And then there were some declines. Some states saw little bit of a drop in interest. One of those is nevada, a place that has the city of lost bigger, which is often associated with gambling surplus, less crypt to interest in nevada. I don't know that that's necessarily a bad thing, but IT is really interesting to see that yeah, this election could come down to a few counties in a few states. And these are places where there is increasing interest in crypto to especially since last election in twenty.

And just to add clarifying detail, all of the data is by default from google trends, population adjusted. So they are representing the data as a percentage of the total searches in the region. We don't actually have visibility into the actual total numbers by state.

that's right. And total numbers is anyway would be sort of skilled just toward the states that have the biggest populations, which wouldn't be extremely informative. Another really big thing that happened this year from a policy perspective was the bitcoin in the syrian exchange traded products were approved.

And i'm deliberately calling them exchange traded products E, T, P, and not etf, because e, tf, while they are a form of etp, the underlying portfolios of them would have security wear, as in this case, these crp O E T P S were registered with the S, C C in a way that indicates the underlying portfolio OS are not security. Anyway, that's a really important point. But IT is the first time we've ever had these market products accessible on major stock markets. Kind of a big deal.

I think it's a very big deal. I think that legitimizes script as an asic class. I think IT puts us on a path to really having crypt to be a part of every diversified portfolio, then just makes IT much more accessible, which I think is a good thing.

You know, in the report, we do look at these kind of net inflow numbers because crypt to is all on chain. We can see when the etf are accumulating and distributing crypto o out of these products. They haven't been all that high relative to expections.

Maybe IT has underwhelmed a bit, but I have talked to some experts and they do say that getting the distributors activated is just something that's DNA take time. You need to go through a long process. You need to get IT into the model portfolios.

You need to discuss this with your clients. And I think that could be a multi year process. And so I keep an eye on those info numbers over the next few years because now that we have them, I think, uh, tremendous talent for the industry.

Yeah, I think IT absolutely does broaden access to a whole new segment of investors that otherwise would not have double with beforehand. You don't talking about my dad for one is like where's the etf? Where's the etp as IT were because he's not going to set up a hard ware wallet.

alright. okay. Anyway, so let's take into some of the other things we found in the report.

People always asked this question, where are the crypto applications? But there is one that kind of been staring people in the face for a long time, and that is stable coins. Stable coins are a product that people are using a lot. It's egypto product. I think people discount that.

Well, stable coin's have been encrypted for a long time. In the earlier days, people used to think of them as something that would end up being for payments. And very interestingly, what we found in twenty, twenty one, twenty two, twenty two, as the stable going supplies are really started to pop off, was that there are primarily being used as means of settlement between centralized exchanges and also as collateral for dey protests, something people could supply and land and a protocol and then enable other people to borrow and create that denominated in dollars, which is a lot easier to reason about than a debt denominated in the theory or some other volatile asset. Another reason why stable coins make a lot of sensus collateral is that if you're bordering a fair amount on chain IT may be totally reasonable to pay a thirty, fifty or even hundred dollar transaction fee to perform that borrow because its still may be meaningfully more affordable than other ways to engage in an overcloud zed loan and that is really the type of use case that we saw four people in twenty twenty one through twenty twenty three period for stable coins. But as a result of the infrastructural improvements in twenty twenty four, where lots has come online, not just forty forty, but the proliferation of altus, in a theory, an world generally .

for IT for for being the denko agreed that the theory went through in march of this year, also called proto dk sorting yeah.

So as a result of those infrastructure improvements as well as increasing adoption in newer generation, newer architecture block chains like salona sui, many others now sending stable coins in a single transaction often costs appending or less. So because of this.

So just this year, because of these improvements, I think a lot of people who are talking about stable points as a medium for payment, again, is really interesting to me because I can't emphasize enough how in twenty twenty two, this is just a non star, everyone who given up on IT, I don't think I heard the word payment. And to cept to debunk the possibility that stable coins are being used for payments. What is now is some.

I'm hearing about all the time and it's not just in a conventional you know pay for your coffee with cyp to setting, although that is actually a real possibility going with at a pay for a coffee with U S D C. Day and the ork. Not long ago, there was a lot of fun.

But more concretely, now people can play with block change as a piece of infrastructure to potentially bring down interchange fees and merchant network fees, all the types of fees that go into settling an actual consumer payment for something. I just prorated a book from stripe press with the new stripe pay with crypto feature. U.

S, D, C. On salona was fantastic. IT was just a really straight forward experience for me.

Of course, already have script out on my world. So that made IT pretty convenient. But these are real things.

right? This because you've gotto still on board to like a layer two network, say, in l two, or roll up where the fees would be lower. But once you there IT becomes quite seamless as to transact and move around.

yeah, and there's still very meaningful U X. chAllenges. But the point is to says, like now this is in the story and there's a lot of cypher projects that are interested in trying to improve payments or aspects of payments or take advantage of the ease of settling payments internationally computationally. This is all kinds of ways that payments really ought to be programmed and experiment with. And now just this year, that's a possibility.

So just to set people's expectations, like the way I like think about IT is now that there is a good lot of supply for being able to transact stable coin dollar nominated payments, how long will IT take for builders to consume that extra supply? In terms of interesting applications, it's not instant. People don't realize that people kind of like seen new technology and sort of appears. But from my perspective, IT takes at a minimum six months to start to see people really talk about IT. And then IT takes about two years for people to soak up all of the the access.

This reminds me a lot of the midwood meme where it's like maybe IT is as simple as just you know, when the fees come down, stable points work well, right? When the fees are really high, stable points kinds suck. And so I think to all of the points that eddy made in two and twenty four, we made a ton of infrastructure improvements.

IT brought fees down just to share some data from my report on this. In twenty twenty one to send U S D, C on a theoria using the average gas Price. IT was about twelve dollars.

That's like that's a lot of money that was like my lunch that I just had today.

Yeah and as people took for granted, like that's obviously totally unacceptable for a payment setting unless you're moving like tens of thousands of dollars. And IT actually may be Better, but there is a smaller number of people who are .

in that situation finites. today. If you use U S C on the um post E I P for for for it's like one dollar.

But if you use U S D C on base, which is a layer two, it's less than a cent right. And so that makes all the difference when IT comes to stable coin adoption. And it's no coincidence that twenty twenty four was the year that stable coins found product market fit. And it's I think because it's as simple as just the infrastructure got Better. These came down and now IT works.

It's really amazing a rap your head around this that just a few years ago, IT costs twelve dollars to tract exactly .

IT totally changes the applications that are possible. And I think there's a number of examples that we can point to that are only now possible in a lpi environment. And ah we do our best to highlight those emerging applications in the report.

This doesn't just speak to stable coins. IT also speaks other sorts of applications that weren't possible before. I mean, I would say the most striking thing to me in this report compared to past reports was, look, nfs were going crazy a few years ago.

The secondary markets, you know, N F T, were trading on them for billions of dollars regularly. That activity has subsided. But now because fees have come down, we're seeing totally different sorts of consumer behaviors arise around N F S.

I think a lot of people might think that N F. S. Happened and then they went away, they're over and done. And your sort of mainstream listener here might not realize that you've actually stuck around and they are just gain traction in a completely different context.

Being honest, the n of market has faced some pretty tremendous chAllenges. There was a lot of specular activity in prior years, very high trading volume, high Prices, premium collections. We definitely got over us ease a bit as an industry.

As a result, we've seen a ninety plus percent decrease in trading volume over the last few years. There's been a torna drama around how creators can enforce royalties. And so we have faced a lot of chAllenges.

And I think there are some data points that you can look at that say, well, the N F, T. Market really is not what he wants was and I think that is very true in all senses. But I think what's also happened at the same time is to the point we were just discussing about the infrastructure getting Better.

These infrastructure improvements enabled N, F, ties to be exchanged and traded and interacted with at much slower cost, which really kind of shifted the behavior away from this high volume, high Price, speculative secondary markets into these newer, low cost social collecting experiences. For example, if you look at the number of N F T collections with fifty plus unique meters, the trend is actually very positive. IT means that, you know, people are still interacting and using these n of ties and collecting these n of, but they're doing IT much different than they had in prior years.

And this is only possible in a low fee environment. You can look at products like sora today. You can look at products like radio today, and there are some really fascine cool new emerging cultural behaviors around this social collecting that I think, uh, many people would find really interesting. And so I would 在 the N F， T market is very much alive. But I think behavior has shifted, and I think it's all driven by the infrastructure developments in twenty twenty four.

Yeah, I don't know that there's a perfect way to communicate what this new behavior is other than like people like to collect stuff. And on a social network, you're probably familiar with liking posts. And i've heard people describe this new sort of social collecting experience as a kind of super like behavior where you are just get expressing that your interested in something.

And critically, it's on the order of magnitude of like one to two cents per collecting. In five years, we are paying tens of thousands or hundreds of thousands of dollars, which, of course, only very few people can afford. But now we're opening about to a much broader audience, which I think is a net positive for the F. T. market.

We got to recall that the way cyp to has developed is the first thing that you can do. And actually the simplest thing to do computationally, is just to buy thing. That is, the of pent is being able to directly on the underlying asset, on the big shared state computer, doing more complicated things like transacting or a mutating the state of program.

These require much more computational capacity in addition to creativity from application designers, in addition to use your experience improvements to make IT easier to do those things. We're seeing advances on all of those fronts. And so you should expect the complexity of what people do with block chains to increase over time, starting from the symbolist, which is just owning and moving to the more complex things interacting with programs.

even just the mental shift that IT takes. Understand what is activity on a blockchain is affected by this evolution, where it's not just a money payment system that s actually a shared state computer, as you call that a. And these interactions can be interactions with applications, just like people are interacting with, like websites or something. All these interactions can be much more expensive than the sort of limited view of crypto justice like a money thing .

yeah and I want to sketch out like there's a pattern to how these things unfold, right? Just buying an N, F, T when the cost very high. That's the simplest thing you can do.

That's the best supportive thing you can do, and that's probed only thing that's reasonable to afford. But N F T are programmable. Experimenting with what that looks like requires little gas ies.

So what I expect, like exact pattern I would expect, would be speculative boom with very simple uses, where most of the interesting things that happen in the very good earlier stages are actually the themes in the ideas that come through. As people sort of imagine what is possible, you see glimmer of the very exciting things, of course. Then they run into the pragmatic reality that it's too expensive.

It's developing to slow their certain pragmatic limits as those things scale, then experiment returns and then as experimental develops, more complex and interesting applications start to take place. We just described that with table points, the exact same thing is gonna en with N S. And with all these different settings, it's not a couple of specific thing. I think that's how A I is developing as well .

because you mention A I, I think people listening will recognize that A I is one of the biggest friends of the past year. But what interesting is that is not just a trend within tech, is also a trend within crypto. You know, maybe it's unsurprising that cyp to influencers are talking about A I, but what is more surprising is that the people likely is to visit the websites of various A I tools like ChatGPT are also the likeliest to visit some of the top crypto o websites out there. And that goes to this sort of inference that could possible be drawn that there is strong overlap between the user bases of these kind of frontier technologies.

Yeah I mean, definitely it's a hot area and A I was clearly the break away narrative in twenty twenty four, even among crapo social circles relative to other topics. And so clearly, people are thinking about this. And a lot of the top critical sites are highly, highly overlapping with ChatGPT com, which indicates that there may be an overlap in cyp to and A I users. And the fact that there is, I do think, reinforces this point that it's a hot area. And I think we should expect to see more innovation in this pocket of crypto specifically.

So let's cover some more emerging applications. The cost of transacting on boxing in network is coming down. Like we said, IT can cost as little as sense on the dollar now, or even lessons a cent.

Just a tremendous bombing of costs there. What are the territory? Does this open up at?

Some areas that have popped up include deepen? There are new forming marketplaces. For energy, for wireless spend with for mapping, for weather, for food delivery. This is decentralized .

physical infrastructure networks. So it's where the digital world meets the physical world, like using a digital overly to manage resources in the physical world.

yeah. And the difference, you know, of course, we have these things like with uber and left and so on. You could call this like a web two deep in networks. The key difference is that in a block chain, there is a degree of credible neutrality about the underline platform. That means that people who build on top of bit, including not just the suppliers of the good and not just the people buying IT, but also people build applications to make the whole thing work Better, can take for granted what they're building on and not risk being rent collected or share locked by the underline platform. And if you can make payments affordably, if you can update reputation systems, incorporate all kinds of interesting identity systems, all these things that these marketplaces need, then they can finally exist.

So this has been emerging, maybe a final category, which we give a little glimpse of in the report is decentralized social networks forecasting, which is another portfolio company of hours, is an incredible place for builders to experiment with different types of tools, different types of toys, to extend and improve the experience for all types of users. And I D know for a fact, just having spent about to time with the forecast team, they are totally capacity limited. They're working really hard to allow the network to post more and more people while remaining totally decentralized. And you can see in their port a lot of projects where people have been experimenting with software on top of this network.

Even in our builder energy dashboard, we're seeing that a lot of builders are interested in social networks. I think ten percent of the founders that we've talked to and looked at are building social related projects. So I think people see this opportunity and they expect that it's gonna a thing given hoping IT wasn't in web two.

And then this prediction markets course has have been huge this year. No surprise given the incredible dynamics and volatility related to the election.

Yeah, prediction markets is an idea that people were talking about for decades but have been hamstring. And um people are actually coming around to their value in ability to source up knowledge from descript parts of the world and kind of get a Better, more informed picture of the state of the world and how things might shake out.

Interesting to see that it's actually finally getting some traction when it's a very old idea that has been stalled for so long. All right. And you've been putting up reports for three years. What's been most surprising looking at this year's report compared to earlier reports?

I don't know. Stepping back, I say when we're deep in the mix like we are IT often feels like nothing is coming faster. Now I feel that all the time I want IT right now, I want IT right now, take awaiting and there are some areas that have definitely lagged.

But at the same time, IT is a little bit unbelievable. When you look back at the progress, you know, let's be very conservative in our estimates and let's say we have thirty million monthly active users of block chains. That's pretty damn good.

Like i'm pretty happy with where that is given the historical infrastructural limits. Like a about a year ago, we were all debating how long IT would take things to start to heat up in terms of on chain usage. And where ended up was that six months after then con, six months after forty or forty four is when we start to see like new types of stories because that's about how long IT takes and we're just like six months after.

And I think that, that's exceeded what's happening. Like I think the payment thing is one of those things. And I think some of these new networks, some of these like deepen networks are examples of that. So IT feels very on track to me and i'm very pleased. But that that's kind of surprising maybe in a certain way that is surprising to me that he feels very kind of like we are thinking it's going unfold.

If you had to cast your prediction a year ahead, what do you think is going to be the theme of state OCR ypo twenty twenty five?

I hope that all the extra black spaces film with something something productive, that's what I hope it's about. It's about what fills that block space. We just started creating all these altus and new block chains and maybe something that we didn't put in the report because he can be chAllenging to present in a very straight our way.

But bridges are great for people in cyp. Do you know that three years ago, there were very few bridges and they were terrible and they were slow and they were expensive and they were error prone. They just a lot wrong with them.

Now bridges, there's married options, really high quality, fast, super affordable, great connectivity. That's like, no question, anyone to craft degree with that. Well, now that we have good bridges and other who good i'll tools, we're getting tons more our tours and tons more bridges and tons more interpretations and and fragmentation.

So as always happens to technology, you solve one problem, you create another. I'm beginning to see signs that there are really, really great strategies too, solve inapt ability. And so I hope the combination of good inapt ability plus good blocks space means finally great user experience for a family of applications. If that was the case at the end of twenty, twenty five, I would be uh.

really pleased. That's great for the wish list.

I really hope that in the coming years, are section on infrastructure get smaller in our section on applications gets bigger? I think you know there's still a place to report on key infrastructure developments, which I think will continue to happen over the coming years. But I think I should be hopefully more about how do we just overall improved user experience.

You know there's an account of traction protocols, interOperability, various developments that we can report on. But I hope that, that does not the main story. I hope the main story of twenty twenty five and the years following is that we now have a new set of applications that are proving to be real use cases for this technology that uh is attracting people. And so that is my my hope for the years to come. We've made a lot of progress on infrastructure, but h hopefully, from here going forward, the improvements are more on the margin.

Maybe in the years ahead, there won't even be a need for a state of Crystal report. We will all just be using these applications and won't even know that the script on the back end be i'll have to wait to know for sure. Thank you for joining. Thank you, Robert.

Thank you, Robert.