Venture capital firm a16z's cryptocurrency status report: Currently in the fourth "price-innovation" cycle, Web3 may have unlimited potential

The well-known American venture capital firm Andreessen Horowitz (a16z) released the 2022 Cryptocurrency State of the Market Report on the 18th. Here are the five key points summarized by a16z on Twitter:

Key Point 1: Currently in the Fourth "Price-Innovation" Cycle

An a16z report indicates that while cryptocurrencies may seem volatile and chaotic, they still follow a logic that revolves around: "Price-Interest-New Ideas-Innovation and Projects" cycle. According to a16z, the market is currently in the fourth cycle, which, over an extended period, shows growth in market value, developer activity, innovation, and community engagement. a16z also draws parallels between the current state of the market and the era of the Internet bubble, highlighting the significant opportunities present, akin to the development of Web 3.

Key Point 2: Web 3 Benefits Creators Over Web 2

a16z notes that the fee structures in web3 platforms offer more equitable economic terms for creators. They estimate how much web3 platforms pay creators compared to web2: OpenSea charges 2.5% in web3, while the App Store can charge up to 30%, YouTube 45%, and Facebook, Twitter, and Instagram allow free use of your content creation.

NFTs provide creators a new way to interact directly with fans for profit. In 2021, according to a16z, Spotify paid creators $7 billion and YouTube $15 billion, but when comparing the platform payment amounts per creator, the differences are striking:

web3 pays $174,000 per creator. Meta pays $0.10/user, Spotify pays $636/artist, YouTube pays $2.47/channel.

Key Point 3: Cryptocurrencies Impact the Real World

In recent years, there has been a sharp increase in demand for DeFi and digital dollars, with DeFi growing from 0 to a $100 billion scale in less than two years. Among the over 1.7 billion people without bank accounts, 1 billion have mobile phones, presenting an opportunity for cryptocurrencies to provide inclusive financial services.

Cryptocurrencies also impact other industries, such as carbon credits, telecommunications, and personal data, with companies introducing cryptocurrency-related solutions.

Key Point 4: Ethereum Faces Challenges

a16z acknowledges that while Ethereum is undoubtedly an industry leader, it faces competition as more public chains offer options for developers. They cite Solana, Polygon, BNB Chain, Avalanche, and Fantom's active addresses and daily transaction volume as evidence.

a16z states that Ethereum has the most developers, with nearly 4,000 active developers per month. This is followed by Solana with close to 1,000 and around 500 for Bitcoin. Ethereum's overwhelming influence helps explain why users are willing to pay over $15 million in Gas Fees daily on average. Despite other platforms having more active addresses and daily transaction volume, Ethereum remains highly sought after, as seen in the competitive bidding for its use.

Key Point 5: Cryptocurrencies Are Still in Early Stages

a16z estimates Ethereum's active users to be between 7 million to 50 million, likening it to the era of the internet in 1995. Based on their chart, they predict that by 2031, Ethereum users could reach 1 billion.

a16z concludes: "Cryptocurrency is not just a financial innovation; it has societal, cultural, and technological implications. There is significant room for growth, and we believe there will be digital winners emerging."

Other Highlights

The competition in Ethereum L2 solutions is intensifying in transaction fees, with Optimistic rollups currently dominating the market, but ZK rollups teams are also gradually coming online:

The total managed assets in the DeFi world could make it the 31st largest bank in the United States:

There have been many innovative developments in the NFT space, including airdrops within the same series, music royalties, copyrights, and commercial rights, DAO decentralized governance mechanisms, and integration with the real world:

There are significant market opportunities in Web 3 and gaming. In 2021, 20% of NFT transactions were related to gaming assets, 49% of cryptocurrency wallet activity was in gaming, and over 50 Web 3 games had over 1,000 unique on-chain users:

Future Predictions

• Infrastructure continues to advance, including non-Ethereum L1 and Ethereum L2 solutions. The expectation is for Ethereum's merge to occur this year, aiding in its widespread adoption.
• More creators will embrace NFTs in their communities and discover this revenue model to be more lucrative than what Web2 offers.
• Teams with backgrounds from top gaming companies will launch Web 3 games.
• Players of Web 3 games will shift their in-game tokens into DeFi protocols.
• More DAOs, social tokens, decentralized social networks, Web 3 media, and other new categories will emerge, becoming the next wave of innovation.