a16z Crypto CTO: State of Crypto 2023

Bankless Nation, we've got a special episode for you today. We're talking about the state of crypto in the year of our Lord 2023. That's right now. How are we doing in crypto? David, a uh a report came out last week that was absolutely fantastic. This is a report from A16Z. What are we covering today?

The A16Z crypto report for 2023. These reports uh come out to as snapshot, snapshots for the state of the industry, the state of the ecosystem. Where are we in crypto's development in 2023? I remember Ryan, uh, one of these reports, not too dissimilar from the report that we are going through today, came out in 2019 and talked about similar metrics, developer activity, transaction volume, uh, users. And it was one of the things that I remember way back when in 2019 or 2018 that allowed me to have conviction in what was a dark time in the world of crypto. It was a bear market, it was a challenging bear market. And sometimes these reports are really useful to remind us about the

Secular bull market that almost all metrics are about crypto. They're up and to the right, no matter what you want to look at. Uh, and this is a way, and and it's a it's also to important to remind ourselves who this audience is, who this audience uh for this report is. It's actually not for the crypto industry. It's for everyone else, I'd say. This is a way to view the industry from the outside in using some very fundamental metrics to tell the rest of the world.

Hey, I know uh 2022 was a bad look for crypto, but if you look under the hood and look below the narratives and all of the hate that crypto has, the metrics are up and to the right. And so that is what we are going to into today.

David, let's talk about the guests who are we are about to bring on. So, who are we about to bring on and what's the significance of this episode?

Uh Eddie Lazerin, the CTO over at A16Z, is multidisciplinary. And we'll get into it a little bit about his background when we bring him onto the show in just a little bit. But psychology major, which gets me going, philosophy major, master's in computer science. And so I think he's going to be able to help us express some of the things that are going on in the crypto world that we're about to see in some of these charts that, like I said, are going up and to the right in ways that the rest of the world can understand. But these are also going to be charts that you are probably familiar with. Like I said, transaction count, NFT buyers, uh, stablecoin volume, uh developer activity. Uh all of these things are going to allow us to get a snapshot in time of crypto in 2023. Uh, and also, this is the second report of this kind that A16C has uh created, which only alludes to the fact that there might be a third for 2024. And so we're going to pick Eddie's brain about what might be in that 2024 report when it gets made in one year's time.

Absolutely. This is going to be an episode about the state of crypto right now and then what we can look forward to in 2024 and what some of the big opportunities might be. Guys, we're going to get right to the episode. But before we do, we want to thank the sponsors who made this possible, including our number one recommended crypto exchange, the bridge from fiat to crypto, Kraken. Go check them out.

Bankless Nation, I want to introduce you to Eddie Lazarin, the CTO of A16Z Crypto, overseeing the engineering, research, and security teams over at A16Z. And like Ryan and I, Eddie's interests span across many disciplines with a bachelor's in philosophy, neuroscience, neuroscience, and psychology, along with a master's in computer science. Wow, must have taken you a while, Eddie. Maybe

we're going to go see what uh what all that varied background can do while we unpack the uh world of A16C 2023 crypto report. Eddie, welcome to the show.

Thank you.

Yeah, so how long, how long did that that background take you?

Uh I I took a lot of classes every semester. It took me four and a half years actually.

And over every summer. Yeah. No, no, no. Just very anxious to take classes.

So, Eddie, like I alluded to in the beginning, anytime we get one of these ecosystem reports out, they're just really valuable to give us a snapshot of where we are in time. Crypto often is so frequently tunnel visioned into

The week by week meta, right? Like last week it was Schappello week. This week it's Gary Gensler getting roasted week. Uh, but we never actually really have the opportunity to zoom all the way back out and really see the health and vitality or lack of vitality of the ecosystem as a whole. Uh, and so uh I remember, like I said, in 2018 there was one of these, in 2019, there's one of these. So I want to ask you, just before we go into the more granular details of this report.

What about this 2023 report is unique? How is this one flavored? What's the what's the flavor of 2023?

Yeah. Well, uh, crypto is a very social media phenomenon, right? And that me that's what leads to that extremely short cadence meta, right? I don't think I don't know that social I don't know that crypto could have happened without social media in the same way. So that that is intrinsic to its character.

But

In 2023 specifically, it's a unique time, right?

Crypto was huge the last 18 months, the biggest it's ever been by basically all measures. We saw a huge variety of products, new applications and experiments,

uh, and a huge number of upgrades. And now we're in a unique time

because the macro is a little weird.

The regulatory climate's a little bit weird.

We're in the denouement, right, of the uh of the of the previous highs.

And that just puts it in a new type of setting. Some people might say

crypto's over, it's dead, if they just look at the prices.

But the whole point of the report, the whole thesis is

that there are financial cycles

and there are product cycles.

And although financial cycles are volatile, connected with the macro, unpredictable,

uh, you know, a whole phenomenon of themselves.

Product cycles are a little bit more predictable. They're not totally predictable, but you can watch them unfold and you can see the specific milestones as technological progress compounds. That's what we invest in as long-term tech investors.

And so the purpose of the report is to remind us

in this climate, all these crazy things have happened the last year.

Where is the tech actually? And are there public indicators that we can look at, like open data sets that we can look at that help us

put them into their context, their technological context as part of the product cycle?

Beautiful, beautiful. And and one thing I actually haven't mentioned yet is

The there's actually uh an output of this report, a product, maybe if you will, uh, of this report, which A16Z is calling the state of crypto index. And so we're gonna go through uh a handful of different measures of the crypto industry. Uh, like I said, I talked about some before, like active developers, number of contracts deployed, number of NFT buyers, stablecoin volume. Uh, and what's interesting and unique about this report is that A16Z has attempted to create an index of what seems to be like industry vitality. So this is that is at the end of this conversation because we are going to walk through all the uh components of that conversation. But first, before we get there, just like at a high level, what does it take to produce a report like this? Like what's the process like? How do you collect the data? What are the various sources? I'm assuming this is a big lift. Can you just like walk us through the back end of like what it takes to produce a report?

Yeah, it is a pretty big lift. We've done a lot more legwork this year than we did last year, and we hope to do a lot more legwork next year than we did this year.

Maybe I'll put it in its highest frame is that

we're a little bit lucky in crypto. Maybe, maybe not lucky, it's part of the ethos, right? But there's a lot of public open source data sets

that is unique in crypto. Whether it's things that are on chain or whether it's open source code,

or whether it's the reliance on social media where we can, you know, kind of more or less look and check the metrics.

The key indicators in crypto are open. So that makes it much, much easier.

On the other hand, what makes it harder is that

crypto's complex. And despite the fact that the data is public, it takes a little bit of teasing and unraveling. You know, you kind of have to get in there into the nodes and figure it out.

A lot of data came from

uh, you know,

a variety of sources nonsense, GitHub, Twitter, Dune.

Uh, you know, the bunch of dashboards that we're familiar with out there, a bunch of news sources like our academic data. That's kind of a cool one of our

one of our uh

uh innovation indicators is academic publications. We had to build that out from scratch.

Uh so a variety of sources,

the vast majority of which uh are public.

All right. So let's go ahead and uh break break open the uh the first slide here. And the first slide already got me really, really excited because anytime uh the uh somebody uses the words chaos and order, I get pretty, pretty uh piqued. Uh and uh this first slide is uh apparent chaos has underlying order. Uh and I think this is the most zoomed out slide that that we could really start with, which I really appreciate. So there's price, interest, new ideas, start of some projects, all going all the way back to 2011. And all of these uh arrows, of course, go up and to the right. And so, Eddie, Eddie, wh why was this such an early slide in the report? Why did this come early?

Yeah, that's that's a great, that's a great question.

This slide is showing a couple things. The first is that although there are financial cycles, like I mentioned earlier.

There are and there are product cycles, which we're going to get into, I hope.

Even the product the financial cycles and the sort of the most hypey metrics and indicators that we can track, if you zoom out on a wide enough time horizon,

they're a little bit more orderly than things may seem.