Seeking "Institutional Consensus".

Author: Huo Huo

2024 is a year full of hope for the cryptocurrency market, and everyone's attention is focused on the new tracks worth paying attention to in the cryptocurrency field, including top institutions. At the beginning of the year, various institutions have published their own research reports, providing valuable insights into 2024 from a professional and detailed perspective.

Baihua Blockchain has reviewed 23 top institutional research reports (including Messari, a16z, Coinbase, MT Capital, etc.), attempting to summarize and find "institutional consensus" to increase certainty. The current summary is as follows:

Top Ten Universally Promising Tracks

1) Bitcoin Ecosystem Revival

After the launch of Ordinals (a digital content encoding method based on Bitcoin) in December 2022, it sparked a trend in inscriptions and the Bitcoin ecosystem. In 2023, the Bitcoin ecosystem developed strongly, with Bitcoin's dominance (the percentage of Bitcoin's market value in the cryptocurrency market) rising from around 38% in January to about 50% in December, making it one of the most noteworthy ecosystems in 2024.

Institutions' predictions are generally optimistic about the development of the Bitcoin ecosystem this year:

The mainstream U.S. cryptocurrency index fund management company Bitwise predicts that the Bitcoin trading price will exceed $80,000 in 2024;

Coinbase believes that at least in the first half of 2024, the main focus of institutional investment will continue to be on Bitcoin, as the approval of ETFs will create strong demand for traditional investors to enter this market.

Other institutions' predictions are also optimistic, mainly because:

The U.S. Securities and Exchange Commission (SEC) has approved a Bitcoin spot ETF, and the next major event, the Bitcoin halving in April, is expected to bring about significant changes in supply and demand;

The Bitcoin ecosystem will see significant changes in infrastructure upgrades, increased programmable functions, including basic protocols (such as Ordinals), as well as the development of second-layer and other scalable layers (such as Stacks and Rootstock).

2) Development of Ethereum L2

In addition to the Bitcoin ecosystem, Ethereum, as the pioneer of smart contracts, the development of Ethereum Layer2 is also a major focus that institutions unanimously predict will be promising in 2024, especially with the release of Ethereum's 2024 roadmap by Vitalik and the upcoming Cancun upgrade, tokens of Ethereum Layer2 projects such as ARB and OP have recently experienced explosive growth.

Competition in the public chain ecosystem has always been fierce. In 2023, the development of public chain ecosystems such as Solana and Avalanche has been rapid, even overshadowing Ethereum. However, Ethereum, as the leader, has also begun to exert its strength. Most institutions predict that with the completion of the Cancun upgrade, gas fees will further significantly decrease, which will drive the explosion of the Ethereum Layer2 ecosystem in 2024. For example, Bitwise believes that a major upgrade to the Ethereum blockchain will lower the average transaction cost to less than $0.01, laying the foundation for more mainstream use.

If the upgrade is successful, some leading projects of Ethereum Layer2 (such as Optimism, Arbitrum, Base, etc.) can fully compete with other Layer1 public chains in terms of performance.

In addition, according to Vitalik's vision, zero-knowledge proof is the future of Ethereum Layer2, and projects like zkSync and StarkWare, two Layer2 projects, are also highly regarded.

3) Development of Solana Ecosystem

In 2023, the Solana public chain ecosystem performed well, laying a solid foundation for its long-term development in terms of both technical accumulation and community, and the explosion of the Solana ecosystem also attracted a large number of users and funds.

Institutions predict that in 2024, more projects will choose or migrate to the Solana public chain, and the Solana ecosystem will continue to explode. Because, whether it's TPS, gas fees, or community users, Solana is relatively resilient.

In 2024, the market expectations of various institutions for Solana focus on the following aspects:

Upgrades in Solana's technical aspects, such as developing lightweight clients through Tinydancer, allowing validators to complete verification work at lower costs, achieving a higher degree of decentralization;

Improvements in Solana's performance, including increasing throughput and performance, improving user experience, deploying new token standards, etc., enhancing its robustness;

The release of new products, the increase in on-chain liquidity, and the expansion of developer tools have promoted the prosperity of the Solana DePIN ecosystem.

4) DePIN (Decentralized Public Internet Network)

DePIN, a decentralized physical infrastructure network, is a new way to build and maintain infrastructure in the real world, with the goal of constructing decentralized networks in industries such as telecommunications, energy, mobile communications, and storage. In 2023, there were over 650 DePINs, with a market value exceeding $20 billion and annual revenue exceeding $1.5 billion.

Overview of DePin development in 2023

In 2024, the cryptocurrency data platform CoinMarketCap has listed DePIN as an independent category, reflecting the high level of attention the cryptocurrency market has for this area.

DePIN covers a wide range of fields, including server networks, wireless networks, sensing networks, and energy networks. Currently, various predictions indicate that the DePin track has enormous growth potential. For example, according to the cryptocurrency research institution Messari, the overall industry scale of DePIN is currently approximately $22 trillion, and it is expected to grow to a scale of $35 trillion by 2028. Messari is particularly focused on the following sub-tracks of DePIN: cloud storage market, decentralized databases, decentralized wireless networks, and their combination with AI.

However, while making predictions, various institutions also believe that the maturity of DePIN will require long-term investment and operational development by the market, institutions, and developers in order to gradually penetrate people's lives and applications, and transition from complementary to parallel, and then to replacement with existing infrastructure.

5) Integration of AI and Blockchain

The rapid development of artificial intelligence (AI) in 2023 has also driven the development of AI+ web3 services. In early January 2024, the market value of AI-related tokens reached $7.04 billion. Given the increasing popularity of artificial intelligence, most predictions are optimistic about using AI as a core function to enhance the attractiveness of blockchain-based encrypted platforms.

The tracks that various institutions are currently optimistic about are:

• Direct Applications of AI in the Cryptocurrency Field: Trading robots, automatic payments, and arbitrage robots combined with blockchain. Combined scenarios include AI agents using cryptographic infrastructure for payments, intelligent contract security scheduling AI models, token rewards for fine-tuning personal models, and collecting valuable data. Messari believes that the advancement of AI will increase the demand for cryptocurrency solutions.
• Innovative Applications of AI and Cryptographic Technology: Here, AI is used to improve the user experience and efficiency of Web3, and more blockchain technologies are used as barriers and transparent layers for AI. For example, we see research and new use cases related to zero-knowledge and machine learning (ZKML), allowing users to train AI agents for games using ERC 6551, and so on.
• Bankless analyst Jack Inabinet believes that the combination of cryptocurrency and artificial intelligence may be explosive. Although early activities were mainly to spread valueless projects for speculation, the prospects are still huge.
• Cryptocurrency company DWF believes that guiding social cognition and its limitations in centralized AI, there is great potential for the development of decentralized AI in 2024, leading the future of AI through Web3.

6) The Explosion of GameFi and the Development of Chain Games

Chain games in 2021 and 2022 were diverse, from "Play to Earn" to "X to Earn," with projects like Axie and Stepn becoming popular. However, chain games in 2023 were relatively bleak. But with the improvement of infrastructure, various institutions are still optimistic about the future development of chain games.

After all, from the perspective of the traditional Web2 market, games are a very potential market and have almost become a part of many people's lives. And most traditional game users still have little awareness of the GameFi (Gaming) field. From the perspective of TVL, as of the writing of this article (2024.2.1), the TVL of the GameFi sector in the figure below is only $19.6 billion.

Overview of TVL in various tracks, source: coingecko.com

In terms of the development space of GameFi, it is mentioned more that it is expected that GameFi will have a larger narrative in 2024-2025 and will receive more attention.

For example, Azuki researcher Wale Swoosh believes that games will be one of the defining trends of 2024. In terms of cryptocurrency applications, games have always been and will always be a great Trojan horse, and it is believed that the Web3 game trend seen at the end of 2023 will not only continue into the next year, but will become even more apparent.

Kelvin Koh, Co-founder and CIO of Spartan Capital, believes that there will be a wave of AAA Web3 games launched in 2024 and believes that these games will bring millions of new Web3 users.

Overall, the main reasons why various institutions are optimistic about GameFi are:

First, in 2024, there is a continuous increase in blockchain projects focused on games. In addition to some traditional well-known public chains, new public chains such as Oasys and Sui have also joined the sector;

Second, the entry of traditional game giants. For example, Oasys has attracted many well-known publishers to join its ecosystem, such as Ubisoft Entertainment, Square Enix, Activision Blizzard, Epic Games, and more.

7) Development of Modular and Zero-Knowledge Proof (Snark) Technologies

In 2023, modular blockchains and zero-knowledge proofs (ZKP) have been quite well developed, such as Celestia, zkEVM, and more. And a clear trend is the fusion development of these two narratives, with ZK projects beginning to combine specific verticals (such as coprocessors, privacy layers, proof markets, and zkDevOps) for "modular" development.

Leeor Groen, Managing Director of Spartan, believes that privacy and security will be key driving factors in Web3, and as technology develops, users will begin to realize the value of zero-knowledge proofs and modular blockchains, even without knowing that they rely on these technologies for various applications from digital identities to games.

A16z believes that the rise of modular technology stacks brings the greatest advantage of open-source, modular technology stacks, and with formal methods-inspired tools being widely adopted by developers and security experts, the next wave of smart contract protocols is expected to be more robust and less susceptible to expensive hacker attacks. The mainstreaming of SNARKs technology will become a trend.

For the outlook for 2024, various institutions and researchers also expect this trend to continue, with zero-knowledge proofs becoming interfaces between different components of modular blockchain stacks. This provides developers with greater flexibility in building dapps, while lowering the threshold for blockchain stacks; for consumers, ZKP may be seen as a way to protect identity and privacy, such as in the form of zk-based decentralized identities.

Another key point mentioned is that SNARKs, due to their ability to provide corresponding proof for generating specific output computations, make the verification of proof much faster than the execution of the corresponding computation, and will be a highly anticipated project in 2024.

8) Mobile and Decentralization Trends or Becoming Mainstream Channels, Improving User Experience

Regardless of which cryptocurrency ecosystem, if it wants to develop in the long term, its ultimate goal is to attract new users and encourage existing users to become more active participants. With the market recovery, infrastructure improvement, and the layout of various institutions, it is generally believed that there will be a significant influx of cryptocurrency users in 2024.

Eddy Lazzarin, CTO of a16z, believes that although the user experience in the cryptocurrency field has always been criticized, developers are actively testing and deploying new tools to reset the front-end user experience of cryptocurrencies, such as multi-party computation, simplified delivery of passwords for logging into applications and websites, embedded wallets, and more. These innovations will provide users with a better and more secure environment when using cryptocurrency applications.

However, overall, the main reasons why various institutions are optimistic are:

On the one hand, a major theme that emerged during the recent bear market cycle is how to make cryptocurrency technology more user-friendly and easy to use. The additional responsibility of managing cryptocurrencies and all related content (wallets, private keys, gas fees, etc.) is not suitable for everyone, making it difficult for the industry to mature unless it can overcome some key challenges related to user experience. For example, the development of account abstraction to promote the development of wallet recovery mechanisms, better fault tolerance for simple human errors (such as losing private keys), and so on.

On the other hand, the Ethereum Cancun upgrade may reduce rollup transaction fees by 2-10 times, and it is believed that more Dapps may pursue the path of "gas-free transactions," effectively allowing users to focus only on high-level interactions.

9) Regulatory Policies

Over the past year, the entire cryptocurrency industry has faced intensified regulation, and as the development of the cryptocurrency industry expands, regulatory compliance is an inevitable issue. Many institutions predict that in the new year, as leaders of various jurisdictions change through elections, there will be further regulatory policies.

Ji Kim, General Counsel and Global Policy Director of the Cryptocurrency Innovation Committee (CCI), believes that one of the bigger stories in 2024 will be various jurisdictions continuing to vie for top positions, competing to become key hubs for digital assets and the future financial system.

Gillian Lynch, Head of Gemini EU, believes that although there are still differing views on cryptocurrencies and blockchain technology, the vast majority will agree that the cryptocurrency industry needs a regulatory framework focused on customer protection, while balancing the creation of clear and consistent rulebooks, ultimately helping to promote innovation.

Ripple Chief Legal Officer Stuart Alderoty expects the SEC's lawsuit against Ripple to end in 2024, but its regulatory strategy may continue to target other prominent individuals. The U.S. Congress will strive to reach a comprehensive agreement on cryptocurrency regulation, but the best approach still needs to be determined.

Less Talked-About Tracks

The relatively controversial tracks are RWA and NFT, with some predicting bullish trends and others bearish, and they are relatively less mentioned.

1) NFT

Compared to the once popular inscriptions, NFTs have been in a slump throughout 2023. Apart from a few projects, top blue-chip projects have been in a rebound rather than a reversal. For example, Bored Ape Yacht Club (BAYC) had an average price of 71 ETH at the beginning of the year, but by the end of the year, the floor price had dropped to less than 30 ETH.

The landscape of the NFT market has also undergone a huge change, with Blur almost monopolizing the market share by the end of 2023, compared to the fierce competition with Opensea at the beginning of 2023. Opensea, once leading the way, accounted for only 20% of the market's weekly trading volume in December 2023. Despite Opensea's efforts to resist Blur's impact with product and community feedback, the effect has been minimal. With Blur's rise, the debate about zero royalties has gradually disappeared, and the discussion about "whether creators should receive royalties" has faded away.

Comparison of NFT trading platforms' market share in 2023

Some institutions believe that consumer brands will use NFTs to foster user engagement in new ways, and NFTs can continue to drive liquidity in the collectibles and art market, especially if GameFi develops, NFTs as important accessories can also follow the development. A16z has stated that more and more well-known brands have begun to introduce digital assets to mainstream consumers in the form of NFTs, and as we enter 2024, the conditions for NFTs to become a ubiquitous presence in digital brand assets are already in place.

However, some institutions believe that it will be difficult for NFT trading volume to replicate the booming scene of 2021, as most NFT projects are more speculative and lack real accumulated value. NFT creators need to adjust their strategies to enhance competitiveness.

2) RWA

Compared to NFTs, there is a bit more optimism about RWA:

The Block researcher believes that the Bitcoin spot ETF has sparked increased institutional interest, and the bridge between DeFi and TradFi continues to widen. In turn, as more types of traditional financial elements enter the on-chain environment, tokenized real-world assets are getting more adoption, hence the bullish outlook for RWA.

Bitwise believes that RWA will usher in a new trend, as per Wall Street's demand, JPMorgan will tokenize funds and put them on-chain.

Delphi Digital believes that RWA was one of the most successful areas in cryptocurrency in 2023 and will continue to develop in 2024.

In summary, their reasons are as follows:

It is beneficial for building a bridge between traditional institutions and the crypto world. RWA tokenizes off-chain assets into blockchain digital assets, making them easy to understand. Stablecoins are a common application of RWA, as they are a tokenized representation of fiat currency.

Several major institutions have increased their investment in the RWA field, and crypto projects like Chainlink are also collaborating with the world's largest traditional financial institutions to bring a large amount of RWA into the crypto industry and tokenize it.

RWA is building a financial ecosystem, where digital tokens represent tangible assets, making these assets more accessible and scalable to the public, not just privileged or institutional investors. RWA has a broad scope and can be divided into various categories such as private credit, government bonds, real estate, commodities, stablecoins, insurance, etc., with great potential for applications.

However, institutions that are less optimistic believe:

As interest rates peak, on-chain government bond yields have emerged. Cryptocurrencies are pursuing the same or even more returns as traditional financial investors, but the demand still needs to be further explored, which will require a long development process, making it difficult to have significant development in 2024.

3) SocialFi

SocialFi is the integration of social media and DeFi, and from a macro perspective, there is a trend of Web2 shifting from social to financial, while Web3 is shifting from financial to social.

Looking back at social media in Web2, it took Twitter 5 years to attract 100 million users, and Facebook took 8 years to reach 1 billion. SocialFi, in comparison, is still a relatively new concept.

The SocialFi track was highly anticipated by investors in the second half of 2021, with projects like Whale, Chiliz, Rally, BBS network, Showme, and Mirror.xyz gaining popularity, and some platforms even experiencing a scarcity of registration invitation codes. However, as the market overall turned bearish, SocialFi also quieted down.

The resurgence was due to friend.tech pioneering a new form of social experience on Base Layer 2 in August 2023, where users could buy and sell "shares" of others on X (Twitter). It reached a peak TVL of 30,000 ETH in October and sparked several copycat projects. Friend.tech has created a new token economic model for the SocialFi field by financializing Twitter profiles.

However, in these institutional predictions, there is little mention of the development prospects of SocialFi in 2024, and occasional mentions are due to the continuous spread of decentralized concepts, with more decentralized social media networks and tools set to be launched, but whether they can truly break through remains to be seen.

Summary

Overall, the entire cryptocurrency industry went through the trough and despair of the bear market in 2023, and began to usher in a small bull market. The development of the public chain ecosystem led by Bitcoin has entered a new stage, with new narratives and new tracks taking turns to take the stage, laying the foundation for the upcoming bull market.

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