Compile: Zen, PANews
The well-known cryptocurrency data and research institution Messari recently released "Messari Theses 2024". The report pointed out that what was previously considered "optional" consumer crypto applications are now "solid infrastructure" and urgently need to be developed correctly and quickly. In addition, NFTs and public blockchains will become indispensable in the AI-driven future.
Messari believes that there are huge opportunities in this field and has summarized some views and trends on the crypto consumer and NFT markets.
Decentralized Social Media Platform (DeSoc)
Elon Musk has promoted freedom of speech through the acquisition of Twitter, but still faces pressure from authorities and resistance to public opinion. In order to escape censorship on social networks, decentralized social media platforms (DeSoc) need to play a role. Fortunately, the industry has made good progress in this regard, including DeSoc applications such as Lens, Yup, and DeSo, which are expected to play an important role in combating censorship and protecting freedom of speech, and are likely to become tools to solve the problem of freedom of speech.
Based on this, DeSoc solutions are no longer just "optional", but are the existence that defends free and open speech. Messari believes that due to the comprehensive effect of various factors, the fit between products and the market has become clearer, and the DeSoc challenge is likely to be resolved in 2024.
Portable Social Graph: What would happen if the content posted on platforms like Instagram's Threads is deleted within a few days, and users are concerned about being banned for posting content related to crypto, civil rights, and scientific issues? What if the time and effort spent by users on these platforms cannot form a social graph in a timely manner? DeSoc has solved this problem in the medium to long term by making flexible adjustments to the backend of social media. 70% of Lens users interact with multiple applications.
Anti-censorship: The portability of the social graph is an important long-term solution that can prevent the erasure of digital personalities.
Control of algorithms: DeSoc breaks the traditional technical stack, providing developers with more interfaces to build new business models and features. Today, attention is our most scarce resource, and in the AI-driven world of unlimited content generation, competing for attention will only become more difficult.
Creator economy: Traditional social platforms generate $300 billion in revenue annually. Almost all of this revenue flows to the platforms rather than the creators, and the profits of big tech companies become opportunities for the development of DeSoc. This is often a strength of crypto technology, as it is first and foremost a financial technology. friend.tech has demonstrated the potential of DeSoc applications to quickly attract new users using economic incentives. However, this may be the least important driving factor for the adoption of DeSoc.
friend.tech
friend.tech is an emerging application in the DeSoc field, and it has become one of the most eye-catching applications this year due to its unique encryption features and excellent user experience. It introduces unique crypto properties such as small and unique digital communities, economic scarcity, gamification of points (possibly related to tokens), and controversial discussions, allowing users to create and join private chat rooms using tradable "Keys", which can be bought and sold through a price curve.
The key success factors of friend.tech include its innovative features, seamless onboarding experience, leading web application design, seamless integration with Base L2, and viral spread of incentivizing users to connect X accounts. The Key price curve system ensures liquidity of Keys at different prices, maintains uniqueness, and maximizes the room size close to Dunbar's number.
Despite early success, questions about the sustainability of friend.tech still exist. The potential issues of the application are often underestimated, but several factors indicate that it is likely to achieve lasting success. Firstly, the appeal of connecting celebrities and larger accounts through friend.tech provides users with a unique expression of financialized social capital. The platform's irrevocable features provide more authentic and difficult-to-delete digital interactions, solving the problems of widespread internet dissemination and social attacks. In addition, the income distribution model that shares high transaction fees with users, explicit incentives for creator participation, and explicit suppression of frequent trading of keys collectively build a stable ecosystem.
The economic success of friend.tech is evident, generating $50 million in fees within a year, surpassing mature platforms like OpenSea at certain times. The launch of friend.tech has been likened to a key moment in crypto history, and even if it is not the ultimate form of gamification, liquidity, and token-restricted fan communities, the concept behind it will continue to exist. However, facing potential transaction-oriented alternative solutions in the future, friend.tech needs to continue to innovate and adapt in the ever-changing DeSoc field.
NFT Market Model
OpenSea pioneered the NFT market, and Messari's comparison of their model with Coinbase's retail platform last year (high fees, excellent user experience for creators, etc.) still holds true this year for the leading companies in this market and their respective fields, 2023 was a tough year.
Market downturn: The NFT market has entered a death spiral: due to the theoretically unlimited number and diversity of NFT projects, and few projects with real cultural or artistic value, project prices have plummeted significantly. Although we may see some signs of market recovery in 2024.
Impact of Blur: With the diversification of the NFT audience and a sharp decline in new investments and liquidity, it doesn't seem like a good time to introduce complex trading tools to enhance liquidity. However, this is exactly what Blur has done, leading the "NFT financial infrastructure" field (and launching a cleverly designed token distribution plan in the process). Blur's low-fee transactions have also prompted OpenSea to lower creator royalties. Interestingly, this is basically the opposite dynamic of friend.tech: NFTs are infinite, so the low-fee model wins out. The limited nature of specific room keys is perhaps why the high creator revenue sharing model may be sustainable.
Market forces OpenSea to change its tune: OpenSea has focused on creating a market friendly to creators, but they have had to make some difficult decisions this year, such as being forced to make adjustments in executing creator royalties.
Despite dramatic events, layoffs, and many unfavorable factors, OpenSea remains the NFT market with the most users. Currently, this market is in a situation of two strong competitors, and if they can maintain a leading position in this stage of the market cycle, they will be able to thrive when the bull market returns.
Ordinal
Messari is very excited about the inscription craze of Bitcoin and Ordinal. They believe that Bitcoin enthusiasts will eventually realize that the success of these projects will be the only factor that can sustainably drive proof of work and miner income, otherwise they will face a choice: switch to proof of stake (PoS), change the 21 million Bitcoin hard cap, or become irrelevant in the long run.
In August 2017, Bitcoin underwent a soft fork upgrade called Segregated Witness (SegWit). SegWit made it easier and cheaper to store larger amounts of data on the Bitcoin blockchain without significantly increasing its size, resolving years of debate over the block size limit issue. With the SegWit upgrade, Bitcoin introduced Taproot, which was activated in November 2021, bringing more advanced scripting capabilities to the witness part of Bitcoin transactions. A major feature of Taproot is the more advanced scripting capabilities in the witness part of Bitcoin transactions, removing the limit on the amount of data included in the transaction witness part, allowing individuals to store large amounts of arbitrary data on the Bitcoin blockchain. This has created conditions for the explosion of NFTs on Bitcoin, including the largest Bitcoin block and transaction in history, including a Taproot Wizard NFT. "Ordinal Theory" is a method of serializing or numbering individual satoshis, introducing collectibility to Bitcoin, and allowing users to engrave replaceable sats with arbitrary data, turning them into NFTs.
Bitcoin Ordinal has grown more than 300 times since the beginning of this year, sparking predictable debates about the purpose of the Bitcoin blockchain: financial transactions vs. more complex Bitcoin data.
Crypto Games and Digital-Native Brands
The gaming industry is booming. In 2023, there were approximately 3.44 billion gamers worldwide, contributing an estimated $184 billion in revenue to the gaming industry, a figure that continues to rise annually. Generation Z and Generation Alpha increasingly integrate digital and physical experiences, spending a significant amount of time in games, about 15 hours per week, and spending $135 billion in 2022 on virtual gaming items alone.
Of course, today's gaming items do not truly belong to players and cannot be freely traded, but it is inevitable that young players will eventually demand ownership of their virtual items.
The gaming industry undergoes a paradigm shift approximately every 10 years, and in many ways, the rise of crypto games is similar to the rise of free-to-play (F2P) games a decade ago. Monetization supported by crypto technology will become the dominant business model for games. When these paradigm shifts occur, they often seem obvious in hindsight.
Token Bound Accounts (TBA)
There have been many significant and exciting developments in the NFT/digital identity field this year, but the most important is the formal proposal of Token Bound Accounts (TBA) by ERC-6551, which are on-chain smart contract wallets owned by a single NFT. They can operate on any Rollup or EVM chain, accumulate assets, interact with other TBAs, and autonomously conduct transactions.
- This is an opportunity for growth for markets like OpenSea. The initial assumption when OpenSea was developed was that users would trade independent NFTs, rather than dynamic assets that can own other items. TBAs change the entire NFT market model. There is a difference between purchasing "skins" and purchasing digital characters with a combination of non-fungible and fungible assets (including reputation).
- In terms of NFT lending, TBAs open the door to NFT "cross-collateralization," which could increase liquidity, reduce forced liquidation, and bad debt.
- This is a significant development for Lens, which announced the integration of TBAs into its v2 version and the rebuilt Profiles in July. Now, all value earned from "minting" and "collecting" can accumulate in the Profile's wallet, rather than going directly to the owner's address. So far, Lens is a top project utilizing TBAs.
TBAs also complement "non-transferable" or "soul-bound" tokens and are useful in different contexts.
Co-Creation & UGX
Building a digital world is expensive. Meta has spent over $20 billion in the past few years to build its metaverse, and game companies spend several times that amount annually on R&D, to meet the growing demands of users.
The crypto community faces a significant financial disadvantage in competing with these large companies and building independent digital worlds. However, blockchain-driven, decentralized virtual worlds have the potential to break the stagnation of game development, triggering a content revolution with enormous impact. In addition to needing better game designers (or better partnerships with existing game giants), better blockchain game infrastructure and better user-generated storytelling are needed to disrupt existing game giants.
Polygon and Immutable may currently have the most attractive ecosystem for on-chain game development, and they may already occupy about 70% of the market share. Meanwhile, Solana may accelerate its development in 2024. In terms of storytelling, "co-creation" through platforms like Story Protocol, Shibuya, StoryCo, and Storyverse, using NFTs and blockchain technology to disrupt large creator platforms, may provide opportunities for programmatic payments in a broader creator ecosystem.
In the past few years, a large amount of funds has flowed into the crypto gaming sector. Although significant results have not been seen yet, it is predicted that by 2025, 5-7 on-chain games will reach the goal of 100,000 DAU. The technology is mature and ready.
Bet-To-Play Gaming & Information Markets
Messari usually does not spend too much time or energy on cryptocurrency prediction markets, but 2024 is an exception, for three main reasons:
- Firstly, 2024 is a presidential election year with many variables. It involves not only the question of who will win, but also issues such as whether Trump will be convicted, whether Biden will withdraw from the race due to health issues, and whether Robert F. Kennedy Jr. will be the only independent candidate. If there is no significant development in the cryptocurrency prediction market this year, we may have to wait another four years.
- Secondly, the prediction market is the largest and simplest subset of the "regulated market," meaning that there is an urgent need for a probability-based alternative to replace those disastrously inaccurate, independent, fact-checking products or more community-emotion-driven products. Prediction markets will help increase liquidity and influence by gamifying facts or data, attracting more attention and participation. We can apply zk-tech technology more creatively, such as for truth verification, to reduce misinformation by providing evidence. This precision can help address the increasingly subjective information market.
- Finally, due to the CFTC's obstruction by the U.S. government, users are not allowed to place bets on the prediction market and cannot trade. Instead, they can use their performance in online games, such as FIFA, as bets. Both should be allowed. Sports betting and online gambling markets grow annually, and the "bet-to-play" model could add $1 billion in revenue to games like Fortnite each year.
The gambling market is large, and the gambling element makes cryptocurrency a perfect gray market use. The ability to place bets in cryptocurrency games could be profitable for game developers, helping them surpass other centralized game developers.
Network States
There has been a joke circulating for a long time that the scariest three words in English are "Balaji was right" (Balaji Srinivasan, former general partner at a16z and first CTO of Coinbase).
Mentioning Balaji is not to delve into his many prescient predictions in detail, nor to argue about his earlier bet that Bitcoin would reach $1 million within 90 days, but to point out that his theory of network states is becoming a reality. After creating a new global currency (Bitcoin) or a new permissionless internet (Ethereum), attempting to establish a new country is the most punk rock, anti-traditional, innovative, and radical approach.
Technological Optimism
If the rest of the world becomes quite dark, the future of cryptocurrency remains hopeful. Elizabeth Warren, Gary Gensler, and other anti-technology advocates will not save America or drive human progress. But creators might. We just need to ensure that there are more of us than them, which is no small task. We can only win by building products that people love and promoting ethical behavior.
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