a16z 2024 State of Crypto Report | Eddy Lazzarin & Daren Matsuoka

although we are still hoping to see really mainstream key applications that reach you know 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 welcome to bankless where today we explore the state of crypto for the year 2024 this is Ryan Sean Adams 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 uh the Spotify video feed so you can follow along with us 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 onchain gaming the base chain is pretty fast but not fast enough to build onchain games so they left and built B3 a layer 3 ecosystem optimized for games think like the op stack but for onchain games every game can launch its own rollup on base with

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AI is in the crypto report out of a16z but some Trends are always the same like active users of blockchains developer mind share of blockchains uh so we start broad we get pretty granular get pretty detailed uh a16z is as deep in the weeds as anyone uh but then we also Zoom back out and we kind of ask for a grade for how well 2024 went uh and I will leave that uh to the suspense of The Listener so let's go ahead and get right into the episode but first I want to talk about some of these fantastic sponsors that make the show possible especially Kraken our preferred exchange for buying crypto

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back to the show thank you great to be here and getting tapped in for some extra support Darren matoka data scientist also at a16z crypto Darren welcome to the show for the first time thank you it's great to be here 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 um 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 uh how how would you guys summarize the vibe uh of this year Eddie let's start with you uh I'd say cautiously

optimistic a little opaque for Outsiders you know it's there's no one clear signal that I think come to the surface but for those of us tracking how things have developed and evolved in the industry definitely positive Darren anything to add yeah I mean I think this report is kind of coming out at a good interesting time I mean obviously we're uh just a few weeks out from the election uh we'll talk a little bit about some of the the policy stuff that's that's in the report uh also you know there are just a lot of narratives in the crypto industry right now uh that I think uh 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 uh hopefully in in the right light uh based on everything that's going on and who would you guys say that this is um the target audience for this report who is the marginal person that you're hoping uh actually opens up this Rapport and and learn something because I mean me and Ryan we understand data like this we look for data like this every single week uh but I think we're trying to get

a new audience to read this report who who's a target audience here that's that's a great question I I think in our minds that 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 say uh in crypto we have so much going on so much is transparent uh but so much is hard to understand that 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 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 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 uh the last year 18 months I'd say there's been pretty remarkable progress in infrastructure uh 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 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 know the total average user which you know would 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 so while we're still on the vibe check here just before we get into some of the slides specifically so you 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 and the diffs as I recall I think um we were still sort of recovering from a uh pretty brutal bare Market what was the state of 2023 if you could kind of summarize that and then you maybe talk about the the diff and what's different this year yeah I think hard hard to say you know it's so hard

to time you know time travel yourself uh into 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 in 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 have you heard anybody like right no one talks about that right and why because the problem was totally and completely solved and probably won't come back uh or it definitely won't come back so I think we were definitely recovering from the bare Market there were some interesting Trends and developments but I think what was top of Mind was upcoming infrastructural improvements and some new experimentation in early 2024 those

improvements have really landed not just 4844 and you know and the growth of and things like that in ethereum world but also uh new next generation of blockchains and their integration to the rest of crypto with Bridges with uh stable coins uh 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 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 dab into your user 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 highquality block space across blockchains yeah it's definitely an exciting time if I recall 2023 was uh you partially that 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 we're beginning to see the fruits of

that labor as an infastructure 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 uh 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 highle story of how big crypto is today and I think one of these slides here you've got a a plot of Internet users versus monthly active crypto addresses and internet users users from

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 uh and then we've got in Orange monthly active crypto address addresses this is of course is in log scale if it was linear scale it's just like wouldn't look as pretty would it Darren uh so um 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 Mill million with growth reminiscent

of early internet adoption and for folks who can't see this on their screen though I 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 is that what this is showing 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 uh you know I think it does show that we've continued to make progress you know there are people using these block chains 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 be 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 but I think from a start starting point and a zoomed out view uh you know this this trend line

does look very similar to the early days of the internet uh you know monthly onchain 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 okay yeah so the uh internet usage uh user proxy versus monthly cry crypto addresses of course like we're we're all crypto users here I bet people listening have multiple uh addresses but I guess this is active crypto addresses maybe you could get into kind of the subtleties of of this uh 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 yeah so I think it's really important to understand that this is a proxy this is not a number of human beings 220 is a number of addresses not a number of human beings right uh 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 over all 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 and the infrastructural capacity to absorb those extra addresses uh is continuing to grow uh 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 very good there's this one uh you know space that's highlighted on the graph too which is the 1 billion Mark okay and uh in 200 in five we had 1 billion internet users and I guess we if we plot this back to the early 90s I guess it's uh you know PE people have always asked this question what year is it in Internet terms and according to this chart it's looks like it's 1998 in

crypto that year so we're you know a few years away from hitting uh 2005 which would be our 1 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 uh another way to to sort of measure usage if you consider holding crypto using crypto is the number of uh people who actually hold crypto is that

relevant a relevant data set that you guys have looked at why why did you do onchain addresses rather than just users holding crypto well so 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 uh is that uh when we hit a billion active addresses we will still be well shy of a billion active users right that is those are different numbers uh 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 to I totally get it although I'd say uh there's reasons to believe that the adoption patterns will be quite different right on the one hand uh crypto industry adoption should be a lot easier because it's just software right we don't fundament need to lay cables and so on which was necessary for internet adoption on the other hand we already have the internet we can adopt via the Internet exactly right uh 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 uh crypto Services want to offer so I think it's very nuanced and it's uh the the purpose of the trend line is just to show what does very rapid growth look like what does very rapid growth of webscale 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 of crypto owners this this this slide here for those watching shows the number of estimated Global owners monthly active addresses and monthly mobile app users which is which are all sort of declining in in size right yeah this is this is fascinating this so this is showing 617 million estimated Global crypto owners so that's the ownership metric that I was talking about and it's a superet of these other metrics yeah exact exactly

right and like for 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 use we can call them dormant users yeah dormant users they may have never used the blockchain right they in fact the 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 uh or a simple crypto wallet and they received some somewhere they purchased

it maybe someone paid them maybe they're uh you know just holding some you know some some crypto assets and that's it they're not necessarily using the blockchain they're not necessarily connecting to daps 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 I think if I'm a startup builder in crypto with a goal to get people on Shain this makes me very bullish uh if there's 5 to

10% of crypto holders people who already have cross 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 yeah it's like converting a funnel right I mean you're converting people from the top of funnel down funnel absolutely and and actually if you look at the 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 re-engage 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 uh 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 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 uh and in this report on on slide seven uh you guys have a mobile wallet usage actually uh dominated by Nigeria India and Argentina uh 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 uh Darren what what would you say this slide tells us about just the adoption of crypto 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 uh the US once had a majority share it's now less than 15% uh you mentioned Nigeria India Argentina uh some of these Emerging Markets really are capturing a majority of 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 uh I think that actually something to be really excited about 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 uh 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 uh data that you can pull out here totally uh 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 stable coin trading uh which you know indicates that these people are turning to stable coins to protect their Assets in a environment of of rampant inflation and I think you know you you you kind of see that throughout many countries uh that really need crypto and stable coins as a way to kind of protect themselves from

inflation and political uncertainty yeah that's SL that's slide 19 but yeah I'd say so to to 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 mobile wallet use is much much much more common than desktop use and that the international payments and remittances as well as stable coin Holdings use cases are very

very popular and and this this makes sense I mean I was just talking to someone who runs a remittance business that is a business business that helps facilitate payments between small businesses in Latin America and they were explaining to me that uh bunch of their customers and keep in mind this remittance business is not a crypto specific business they were telling me that uh a lot of their customers are coming and demanding to make stable coin payments with Tron right usdt Tron payments and what's very funny about

that is that Tron as we know and USD have been around for quite a while but they're far from the best uh in terms of gas costs you know transmitting some some stable coin on Tron costs at least a couple 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 stable coin regulation and all these other things that would really 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 okay so the summary to the question of how big is crypto today is it's pretty darn big and 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 we gave you the numbers the total active addresses 220 million if you try to distill that down to actual real life people you get somewhere in the range of six uh 30 to 60 million estimated monthly active users so 617 million of the 5 billion own crypto 30 to 60 million are actually on chain 27 million or so are uh 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 let's swing back to uh the us we're talking about this from a Global Perspective and let's talk about uh politics in the US another question this report uh 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 and uh 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 what data sets have you uncovered in your report what does uh the data say about you know how big of a political issue crypto actually is in the US yeah I mean I think it is a huge political issue now

uh you know we see major politicians now talking about uh crypto as a a key issue in their their campaigns you know we're a few weeks out from the election and and I don't think it's a surprise that all of this political support comes in an election year uh as we know that 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 uh we we pulled uh Google

Trends data uh where we looked at uh crypto related search interest over a basket of terms from 2020 to 2024 specifically the change in rank uh and we uh 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 the last election and we found that Pennsylvania and Wisconsin were top five uh biggest changes in this relative search interest

Michigan was a top 10 State um 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 may this may be why uh we're getting this uh these we're seeing these Tailwinds on the the policy side of things this year yeah importantly in these uh swing States and I know this the following the election over the last like month or so it's just got gotten increasingly narrow uh when you combine the relevance for

crypto for voters in these swing states with the narrowing of the election uh Darren Eddie is there any indications like how is could crypto decide this election like how close is that statement to be coming true well that's a that's a pretty bold statement but I 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 is paid dividends to our country so I think uh you know it's not too surprising to me that it's bubbled to near the top of uh issues that may be uh new types of issues that people are talking about flipping over to slide 17 here still in the politics

uh category uh I think this slide shows how how and why crypto is 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 sh shows the status of the US dollar in the global economy but then it shows show 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 yeah I I think maybe to to

start right I think most people understand that the the US dollar status as a reserve currency gives the United States a tremendous amount of power um but a lot of that is actually under threat from these foreign Sovereign digital currencies these these cbdcs um 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 Crypt based stable coins uh over 99% of stable coins 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 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 stable coins which are already denominated 99 plus% in USD uh to kind of strengthen the the position of the US in an environment where it really is under threat and I think