Bandenna Capital Partner: Six Predictions for the Crypto Industry in 2024

Author: Paul Veradittakit, Partner of Bandenna Capital, CoinDesk; Compiler: Songxue, Golden Finance

The past year has proved that the blockchain field has the ability to recover from the cold winter. Judging from the abyss of the "crypto winter" at the beginning of the year, the overall market capitalization of the cryptocurrency field has increased by 90% to $1.69 trillion, with Bitcoin more than doubling from its annual low of $16,000 in January 2023, 12 $40,000 per month.

In 2023, we continue to feel the aftershocks of 2022’s major crash waves, most notably the FTX trial and verdict and Binance plea agreement in November, and the brief decoupling of the USDC stablecoin in March , banking crisis. At the same time, we continue to see breakthroughs in the space, including Ethereum’s Shapella upgrade to a full proof-of-stake network. The groundbreaking of novel tokenized social experiences like July’s ruling that XRP is (mostly) not a security, the launch of PayPal’s PYUSD stablecoin and Grayscale winning the SEC’s Bitcoin spot ETF in August, as well as the rise of Friend.tech.

As a result, we are optimistic about the road ahead. Here are my main predictions for the crypto industry in 2024:

1. Bitcoin’s resurgence and “DeFi Summer 2.0”< /h2>

In 2023, Bitcoin experienced a resurgence, with Bitcoin’s market share (Bitcoin’s share of crypto market capitalization) rising from 38% in January to approximately 50% in December, making it Becoming one of the top ecosystems to watch in 2024. There are at least three major factors driving Bitcoin’s resurgence in the coming year: (1) the fourth Bitcoin halving expected in April 2024, (2) institutional investors expected to approve several Bitcoin spot exchange-traded funds (ETFs), and (3) the increase in programmable features on base protocols such as Ordinals as well as Layer 2 and other scalability layers such as Stacks and Rootstock.

On the infrastructure level, we believe we will see the vigorous development of Bitcoin Layer 2 and other scalability layers to support smart contracts. The Bitcoin ecosystem should converge around one or two Turing-complete smart contract languages, with major contenders including Rust, Solidity, or extensions of Bitcoin’s native languages, such as Clarity. This language will become the "standard" for Bitcoin development, similar to how Solidity is considered the "standard" for Ethereum development.

We also see the fundamentals that Bitcoin may usher in a "DeFi Summer 2.0". Currently, the market cap and total value locked (TVL) of Wrapped BTC (WBTC) is approximately $6 billion, which is a clear indication that there is a huge demand for Bitcoin in DeFi. Today, approximately 10% ($28 billion) of Ethereum’s total market capitalization of $273 billion is devoted to value locked (TVL). As Bitcoin DeFi infrastructure matures, we are likely to see the total value locked (TVL) of Bitcoin DeFi rise from the current $300 million (<0.05% of market cap) to around 1-2% of Bitcoin market cap (About $10-15 billion at current prices). In the process, many Ethereum DeFi practices may be transferred to and "localized" on Bitcoin, such as the recent rise of BRC-20 inscriptions and concepts such as staking in Babylon L2.

In 2024, Bitcoin NFTs, such as those engraved on Ordinals, may also become more popular. Due to Bitcoin’s higher cultural awareness and memetic value, it’s possible that Web2 brands (such as luxury retailers) will choose to release NFTs on Bitcoin, similar to Tiffany’s partnership with Cryptopunks to release a collection of “NFTiff” pendants in 2022 .

2. Tokenized social experiences for new consumer use cases

And Web2 has shifted from social Finance, Web3 is moving from finance to social. In August 2023, friend.tech pioneered a new form of social experience on Base L2, where users can buy and sell "stakes" in other people's X (formerly Twitter) accounts, reaching 30,000 ETH TVL in October (approximately $50 million at the time) and inspired some "copycat projects" such as post.tech on Arbitrum. By financializing Twitter profiles, friend.tech appears to have successfully pioneered a new tokenized economic model in the SocialFi space.

In the coming year, we expect there will be more experimentation in the social space, and tokenization (including fungible and non-fungible tokens) will reshape the social experience play a key role. Fungible tokens are more likely to serve as novel forms of points and loyalty systems, while non-fungible tokens (NFTs) are more likely to be used as personal profiles and social resources (such as trading cards). Both can be traded on-chain and participate in the DeFi ecosystem.

Lens and Farcaster are two leading Web3 native applications integrating DeFi with social networks. Projects like Blackbird will also promote tokenized points systems in specific verticals (such as restaurants), reshaping the consumer experience through stablecoin payments and tokenized discounts, essentially providing an on-chain alternative. Credit card options.

3. TradFi-DeFi "bridges" such as stable coins and mirror assets will increase

In 2023, There has been a lot of legal action taking place in the crypto space, including some high-profile industry victories like the XRP verdict and Grayscale ETF lawsuit win, as well as sanctions against Binance and FTX for financial fraud. At the same time, institutional investors have become increasingly interested in Bitcoin and Ethereum, and are expected to receive ETF approval.

In 2024, we expectto see a significant increase in institutional adoption, as they seek not only ETFs but also tokenized real assets (RWA) and traditional finance (TradFi) products. In other words, traditional financial assets will "mirror" exist in DeFi, while crypto assets will increase exposure in traditional financial markets, thereby building a TradFi-DeFi "bridge" between the two worlds and providing investors with Provide more liquidity.

Stablecoins will become one of the most important links between the TradFi and DeFi worlds Stablecoins like USDC and PYUSD will become more widely accepted, both as investment portfolios option, also as a payment instrument. With Circle reportedly considering a listing in 2024,we may also see an increase in the issuance and use of non-USD stablecoins, especially those backed by the euro, such as Circle’s EURC, as well as GBP , Singapore dollar and Japanese yen stablecoins. Some of these stablecoins may be issued by state-backed entities. This could also lead to the growth of on-chain fiat currency FX markets. Tokenized treasury has attracted $800 million in funding through platforms such as Ondo.

4. The intersection of modular blockchain and zero-knowledge proofs

In the past year , the concepts of modular blockchains and zero-knowledge proofs (ZKPs) have both been greatly developed, such as the recent launch of Celestia mainnet, Espresso’s integration with Arbitrum, RiscZero’s open source Zeth proof generator, and the launch of Succinct’s ZK Market . An interesting trend is how these two philosophies are merging together, with companies in the ZK space “modularizing” by focusing on specific verticals such as coprocessors, privacy layers, proof markets, and zkDevOps.

In the coming year, I expect this trend to continue to develop, with zero-knowledge proofs becoming the interface between different components in a modular blockchain stack. For example, Axiom’s ZK coprocessor leverages ZKP to provide proofs of historical states that developers can then use to perform computations in DApps. Since ZKP is a common interface between these different providers, we will see a new era of smart contract composability. This provides greater flexibility to developers building DApps and lowers the barrier to entry for the blockchain stack. On the consumer side, ZKP may see increased use as a way to protect identity and privacy, such as ZK-based decentralized identities.

5. More computing-intensive applications have been launched on the chain, such as AI and DePIN

In recent years, A lot of time, effort, and capital is invested in scalability issues for decentralized applications. Today, the scalability issue has been largely solved - on Ethereum Layer 2, gas fees are less than $0.02 (compared to $11.5 on Ethereum mainnet), and on Solana, fees are as low as 3- 4 orders of magnitude.

As this trend continues to develop over the next year, we believe that compute-intensive applications (potentially using gigabytes of memory) will become available on-chain in the near future More economically feasible. This includes vertical applications such as on-chain artificial intelligence systems, decentralized physical infrastructure networks (DePIN), on-chain knowledge graphs, and fully on-chain gaming and social networks. All of this may fundamentally reshape the on-chain data economy, greatly improving the user and developer experience as they are freed from heavy gas fees and tight constraints on computing power.

Some examples of compute-intensive projects that can take advantage of this cheaper on-chain “compute” include Hivemapper’s efforts to create distributed Google maps on Solana, Bittensor’s work to create a distributed machine learning platform , Modulus Labs’ efforts in ZKML and AI-generated NFT art, The Graph’s plans for on-chain knowledge graphs, and Realmsverse’s creation of on-chain game worlds and lore on Starknet.

6. Integration of the public blockchain ecosystem and the "hub and spoke" model of the application chain

There has been a surge in infrastructure projects over the past few years. Although technically common classifications are Layer 1 (L1) and Layer 2 (L2), from a user experience perspective there is not much difference between them. This is especially true in general-purpose public blockchains; today's L1s, like Solana or Avalanche, are in direct competition with L2s, like Arbitrum or zkSync, for users, projects, and transaction volume.

With this homogeneity, liquidity becomes a centralizing force, allowing general-purpose public blockchains to benefit from a larger pool of existing players, Such as Arbitrum, Optimism and Solana, the top four ecosystems currently account for about 90% of the total locked value (TVL). Smaller ecosystems must focus on maintaining a competitive advantage in specific vertical areas (such as social, gaming, DeFi), effectively becoming "application chains" or "industry chains". There are already three L2s ranked in the top ten by TVL (dydx, Loopring, Ronin) that are actually application chains focusing on a single vertical field. Smaller, newer L2 chains such as Base and Blast also rely heavily on a single "killer app" (such as friend.tech and Blur) to establish a stronghold on transaction volume.

In addition, most of the leading general-purpose public blockchains have released application chain toolkits (such as OP Stack, Arbitrum Nitro, StarkEx, etc.) to allow application chains to leverage the liquidity on these public networks and place it within its ecosystem orbit. As a result, we are starting to see a "hub and spoke" model, where there are a few general-purpose public blockchains that act as the "hub" at the center, with many application-specific "spokes" surrounding them. In 2024, it’s worth watching the major rollup-as-a-service providers such as Caldera, Conduit and Eclipse that capitalize on this “hub and spoke” trend.

Conclusion

As 2023 comes to an end, we may have passed the most severe stage of the bear market and turned the corner over the past year and a half. The series of brutal crashes we’ve witnessed prepare us to start exploring novel use cases. Today, we stand at an inflection point where crypto is no longer just a financialized concept, but is more broadly redefining the idea of ​​using blockchain technology to shape consumer, social, and developer experiences. I have great expectations for the future of crypto, a still nascent industry, as we use decentralized technologies to reimagine our digital culture.