Source: Hashkey Capital
In the first half of 2024, we observed that more and more ZKEVM projects began to turn to the ZKVM architecture, represented by the PSE team under the Ethereum Foundation. Taiko is already working with Risc0's ZKVM, and Scroll is also preparing in this area.
The catalyst for this shift is Plonky3, which outperforms Halo2 in performance (although slightly less stable) and improves user experience.
Currently available virtual machines in this field include: ZKWASM, Succinct's SP1, a16z's JOLT and Risc0. In addition, Polyhedra's ZK Prover performs well and plans to develop virtual machines in the future. Aztec and Mina are also developing their own virtual machines, but their performance benchmarks have not yet been announced.
The key factors driving wider adoption will rely on multiple aspects, such as proof cost, proof efficiency, and development time. It is generally believed that zkVM is well suited for building and deploying verifiable applications and deserves further attention.
In terms of middleware, we see that the proof verification system is still very active, and Brevis, Alignlayer, and Nebra are all working with Eigenlayer to obtain security. Since zk proofs are relatively expensive, the market is gradually turning to a hybrid solution of OP and ZK to improve proof efficiency. In terms of applications, catalysts such as verifiable AI and verifiable off-chain data will bring more application needs, and you can keep an eye on these innovative areas.
At Flashbots, the team has been experimenting and developing products that utilize Intel Software Guard Extensions, and recently tried to use trusted execution environments (TEEs) on the Ethereum virtual machine for privacy computing. These use cases include storing and processing sensitive data, ensuring that bidding auctions are protected from tampering and data leakage.
Fully homomorphic encryption (FHE) has also emerged as a potential solution to combat MEV, as it always keeps data encrypted, eliminating the possibility of selective reordering.
According to relayscan, the block building market has become highly concentrated in a handful of builders, including some high-frequency trading firms known for meeting their own trading needs. Currently, beaverbuild, titan builder, and rsync builder are the most dominant and profitable builders in the market. This centralization phenomenon has triggered further research on the design of block auction mechanisms to maintain Ethereum's censorship resistance.
Relay still plays a vital role in block supply, with more than 90% of blocks transmitted through relays. Titan builder launched Titan Relay this year and has grown rapidly since its launch.
When evaluating Relay, the following factors need to be considered:
Performance and reliability can be analyzed through indicators such as online time, latency, and bidding failures.
The scalability of Relay refers to its ability to provide services to a large number of validators.
In the MEV track, we have previously invested in many successful projects, including Primev, the inventor of preconfirmation, Titan, the leader in the block construction market, and FastLane, one of the few successful MEV systems besides Flashbots. In the next stage, how MEV-related projects can achieve value capture and how to successfully design tokens are more critical issues.
Chain abstraction is a persistent and key concept to achieve mass user adoption, aiming to improve the user experience so that users do not perceive the existence of the blockchain, or even know which chain they are using. As one of the early pioneers in this field, NEAR has launched a multi-chain signature function that allows an account to be used across different chains. Supported chains include: Bitcoin, Ethereum, Cosmos Ecosystem, Dogecoin, XRP Ledger, TON Network, Polkadot, etc.
You can refer to the CAKE framework proposed by Frontier.tech, including the permission layer, solver layer, settlement layer, etc. Among them, account abstraction (AA) can also be included in the permission layer. The AA field is mainly divided into two categories: smart contract wallets and modular services. As we mentioned in the 2023 field review, smart contract wallets play a vital role in providing a seamless user experience through intent-centric design.
The number of weekly active smart wallet accounts is also on the rise, with Polygon still the network with the most smart accounts. Another popular platform is Base, which may benefit from the launch of the Coinbase smart wallet, which is compatible.
With the inclusion of EIP-7702 in Ethereum's Pectra upgrade, this will bring a more seamless and user/developer-friendly experience, as it aims to improve previous account abstraction (AA) designs such as ERC-4337, which are more expensive and do not have native support for converting EOA (externally owned accounts) to smart accounts. Therefore, it is possible to focus on whether improvements at the infrastructure level can bring new applications.
In addition to AA, other tracks that can be paid attention to in the field include policy engines, intent frameworks, preconfirmation, etc. Relevant projects in the field of intent are still under active development, and the specific performance and PMF remain to be seen.
Bitcoin Rollup attracted a lot of attention early on. However, interest seems to have waned over time, which we observed at the Bitcoin Asia event. Fewer projects have emerged and fundraising has been difficult in the current environment.
Despite this, we have still witnessed some notable technological breakthroughs, such as BitVM. Some Rollup projects are exploring integration with BitVM. BitVM has recently innovated rapidly, such as the creation of the BitVM cross-chain bridge. The bridge can be used for large cross-chain transactions, while smaller transactions are expected to continue to rely on multi-signature or HTLC exchanges for economic efficiency. For more details, please refer to previous research.
Overall, despite the challenges faced by Rollup, technical developments like BitVM may still provide opportunities for Rollup, such as interoperability.
Yield-oriented strategies are also gaining traction, with more and more projects offering wrapped BTC to holders, giving users income while also making it easy to generate TVL. For example, projects like Mezo integrate multiple products, of which Rollup is just one of many components, and there are other products like tBTC and Acre's stBTC (liquidity staking).
In this space, we continue to remain cautious, investing in teams with clear technical advantages, clear market strategies, or proven success.
The performance of BRC-20 tokens remains weak, with ORDI performing poorly compared to the beginning of the year, and overall BRC20 has not yet found many highlights and improvements. Although Runes attracted strong attention after the Bitcoin halving, this interest has gradually faded. This is consistent with the trend of declining network activity and fees. The integration of Taproot assets with the Lightning Network may rekindle market interest and momentum.
Overall, under the premise of sustainable adoption of Bitcoin assets, infrastructure providers that provide services to this growing asset class may become attractive investment opportunities.
Staking (restake) is a function that was not originally available in Bitcoin, but was later modified. The emergence of this track is also because it can be regarded as solving two problems: the demand for BTC interest on the capital side and the need for the product side to be bound to the Bitcoin main chain.
Staking can be roughly divided into three categories according to the slashing mechanism:
Slashing the principal: Babylon is an example of this approach
Slashing the interest (losing the opportunity to earn): CoreDAO focuses on slashing potential earnings rather than slashing the principal.
No slashing: This category includes self-hosted second-layer networks (such as Rollups that aim to increase TVL and promise earnings) and financial management projects like BounceBit, where users' Bitcoin is managed by asset management teams to earn returns.
Babylon, the earliest staking (restake) track, has already formed its own ecosystem. Basically, many Bitcoin-related applications will consider using Babylon to achieve relevance to the main chain. Staking-related projects in the Babylon ecosystem will mainly focus on implementing auxiliary functions, as shown in the Babylon Ecology section.
This track is expected to be similar to EigenLayer, with some applications and infrastructures modeled. The market performance and ecological development need to be further observed after the mainnet is launched. For example, the Babylon mainnet reached its upper limit shortly after its launch. We remain optimistic about the future development of Babylon.
BTCFi: There have been many projects such as Bitcoin financial applications (BitcoinFi, BTCFi) recently. Currently, we can see that they are still focused on lending and stablecoin applications. Using multiple methods, such as locking assets on Bitcoin, processing logical issuance assets on L2 at the same time, or choosing different asset issuance methods, will lead to different trade-offs.
Wrapped BTC: WBTC, tBTC, FBTC, and SolvBTC have attracted significant attention recently. Competition in this field is expected to become increasingly fierce. For example, Solv Protocol has witnessed huge demand through extensive partnerships, DeFi integration, and cross-chain composability, prompting the protocol to receive more than 13,500 Bitcoin staked. As more and more projects seek to utilize Bitcoin in DeFi applications, we expect competition in this space to intensify further.
Bitcoin DEX and related applications: On-chain DEX still mainly uses PSBT, while some projects such as Satflow use pre-confirmation strategies in the memory pool, although this approach is at risk of being replaced.
MEV: The activation of RBF and the introduction of new types of assets have led to a more active MEV scene on Bitcoin. Projects like Rebar aim to build MEV infrastructure similar to what Flashbot has done on Ethereum, while projects like Alkimiya focus on the fee/block space market. Currently, MEV-related activities mainly come from transaction acceleration services. We will continue to pay attention to the continued development of this field, as well as observe new projects continue to launch various services to mitigate the negative impact of MEV on users. For more information, please refer to our previous report.
OP_CAT
Although OP_CAT is an easy-to-implement opcode, its activation introduces many features, from relatively simple Merkle tree verification (hash of two elements) to more complex operations such as transaction body verification using superimposed Schnorr signatures. However, concerns about its flexibility may introduce some unpredictable risks.
In May 2024, OP_CAT was enabled as a soft fork in the Bitcoin trial client (a client on the signet network). In fact, there were various debates and variables about the soft fork method in the last Taproot upgrade. Not only the upgrade content itself, but also the process of how to soft fork the upgrade has also been discussed, so OP_CAT may not be enabled in a short time; if it is enabled, it will definitely be accompanied by various debates. The same goes for other soft fork upgrades, including OP_CTV (which has already been debated on a large scale in 2022), APO, and so on.
BitVM
BitVM has made significant breakthroughs in improving Bitcoin's expressiveness, and BitVM2 has improved on previous designs, enhancing the verification capabilities of complex calculations and reducing trust assumptions. Recent key progress has focused on the development of the BitVM bridge, which has reached a certain level of maturity and security, and is likely to achieve maturity for testnet/mainnet launch by the end of 2024. The BitVM bridge will likely mainly handle large assets, leaving room for other cross-chain bridges to continue to exist. Alternative BitVM bridge cross-chain solutions through multi-signature bridges or atomic swaps remain practical for end users, providing faster and lower-cost alternatives. In addition, we may also see new validator networks established on BitVM2 in the future.
Channel, Joinpool-like solutions
Solutions related to channels and Joinpool have made significant progress. These solutions allow two or more users to share a UTXO on the main chain, while the off-chain can perform allocations (vTXO) based on business logic. When users want to exit, they can return to the main chain for settlement through a unilateral exit.
In addition to Hedgehog, recent attention has been focused on Ark. Burak launched Ark v2, which provides higher capital efficiency and proposed a related concept called Brollups.
Statechain is another interesting solution, similar to the UTXO Mercury Layer based on Joinpool. Mercury Layer has made significant progress in this area, and new projects like Mach are developing the underlying infrastructure.
Bitcoin, as the largest asset, has historically been viewed as digital gold. However, with the advent of innovations like BitVM2, OP_CAT, and Bitcoin staking, we are witnessing more applications for Bitcoin. Although the Bitcoin DeFi ecosystem is still relatively nascent compared to Ethereum’s DeFi ecosystem, we believe these catalysts will enable the Bitcoin DeFi ecosystem to achieve similar success in the future.
During Consensus, Paypal announced the listing of PYUSD on Solana. Since then, PYUSD’s market cap has grown rapidly due to integrations with some of the largest DeFi protocols on Solana, such as Kamino Finance, Jupiter, and Orca. Another signal of institutional interest in the space was Stripe’s announcement to re-enter Solana, allowing users to accept and make USDC payments.
Solana Labs, the company behind Solana, announced the launch of Bond, a blockchain-based platform designed to enhance brand-customer engagement, potentially accelerating institutional adoption.
In addition to the growing institutional interest in Solana, we also noticed a high level of interest in topics such as Blinks and memecoins, which are primarily targeted at retail consumers.
In late June this year, Solana launched Solana Actions and Blockchain Links (Blinks), creating a more seamless experience for retail users to join Web3. Through the Solana Action API, users can convert any transaction into a blockchain link that can be shared on any interface.
The impact of Blinks is that application developers (especially Web2 developers) can more easily embed on-chain operations between devices and platforms. Accordingly, dedicated browsers (or components) can intuitively display these elements, including links, QR codes, push notifications, buttons, etc.
This approach is consistent with Solana's goal of promoting mass adoption. Currently, there are about 155 projects in the Blink ecosystem, all of which need to be officially reviewed before adoption. Among them, 25 projects have registered Blink domain names specifically, and other projects have registered Blink compatibility. The community has shown great interest in blnk.fun and BlinkEditor (although BlinkEditor's official Twitter account is currently suspended).
The process is similar to Pump.fun, and users only need to set parameters such as quantity, price and description to issue tokens. Once shared on platforms such as Twitter, users can directly purchase the token without leaving the platform. Additionally, well-known projects like Jupiter Exchange and Pump.fun are also integrating Blinks.
On Solana, memecoin remains an important part of the ecosystem, and the launch of pump.fun further validates this observation. Pump.fun enables anyone to issue memecoin at zero cost, which has led to a large influx of memecoin into the ecosystem. Since its launch in January this year, the protocol has generated nearly $50 million in revenue. However, despite the lower threshold for issuing tokens, the increase in the number of projects and trading volume, we have noticed a lower probability of successful projects.
On Solana, notable developments include the launch of the token extension function, which enables tokens to have more features customized to the needs of different projects. With the Firedancer client expected to be launched soon, this not only brings a diverse range of validating clients, but also significantly increases network throughput and reduces costs, thereby consolidating its appeal to developers and users.
TON has performed well in the first half of 2024, recording a gain of more than 200%, which can be attributed to the mini-programs developed on TON competing to attract Telegram's large user base. The reasons why we chose to focus on TON can be divided into the following:
Active ecosystem on Telegram: Telegram has about 900 million monthly active users, which makes it attractive to developers looking to get a piece of the pie. Coupled with the in-app wallet and built-in fiat currency on-ramp, we are optimistic that Telegram will bring a large number of Web2 users to Web3.
Compared to other popular messaging apps such as WeChat, we believe TON has the potential to replicate WeChat's success in large-scale monetization. WeChat currently has 1.3 billion monthly active users, of which about 400 million are active in the gaming field. Games are the most popular category in mini-programs, followed by e-commerce and daily services. The top 100 mini-games generate $1.3 million in revenue per quarter, while popular games can generate up to $15 million in monthly revenue.
Notcoin is a tap-to-earn game on TON that has gained widespread attention in the first half of 2024. With more than 40 million users, Notcoin sets a positive example and provides motivation for developers, investors, and retail users to join the TON ecosystem. However, this has also led to traffic inflation and a certain degree of over-hype.
In terms of ecological development, TON launched an advertising sharing mechanism in February this year, allowing channel owners to receive 50% of advertising revenue and settle in TON. Currently, TON has established a $90 million ecological fund and a $220 million community incentive program specifically for investment and grants. In terms of compliance, TON has launched the TON Star Coin model, which is directly tied to the Apple Store. Users can purchase virtual props in the game through Apple Pay, and Telegram will still use TON to settle with the project party. For on-chain recharge needs, most applications have robots that support third-party recharges, rather than taking a one-size-fits-all approach. However, the recent arrest of Telegram CEO, Parel Durov, on cyber and financial crime charges, as well as network outages caused by TON's native meme coin, DOGS, have become unfavorable factors for the ecosystem. Although this is a cause for concern, the team behind TON reiterated that the project will continue to operate. Given our focus on the TON ecosystem, the team will wait for TON's further development in infrastructure to enhance the maturity of the ecosystem.
Eigenlayer
In the first half of 2024, restaking became one of the hottest topics, and Eigenlayer was the main driving force behind this trend.
Eigenlayer's success is reflected in many aspects:
The total value locked (TVL) reached a maximum of US$20 billion.
Eigenlayer's restaking function has spawned at least 5 liquid restaking tokens (LRTs) and more than 20 active validator services (AVS).
This has given new life to the Ethereum DeFi field represented by Pendle and AAVE.
Eigenlayer has successfully transformed its narrative from merely providing shared security (providing additional rewards to Ethereum nodes) to an important role that complements the Ethereum governance system.
The core of Eigenlayer lies in its AVS. There are currently 16 active AVS (Active Validator Services), of which only EigenDA supports Eigen token re-staking, involving 3.7 million ETH. Other AVS such as Omni and Eoracle have 800,000 to 2 million ETH respectively, with a total of at least $2 billion in assets used for security. ZK (zero-knowledge) projects have a high degree of fit with AVS, by transferring part of the ZK verification tasks to the off-chain and handling them by the stakers, thereby reducing costs and improving efficiency. If the AVS-based infrastructure has a strong substitution effect on the existing Ethereum ecosystem infrastructure in the future, it will play the role of Eigen tokens and support its price.
As for LRT, different projects have adopted different designs and strategies, which has led to different performances. But overall, the performance of LRT also depends largely on the overall market performance and whether EigenLayer will perform strongly in the future. Despite the initial success, we still need to pay attention to the challenges that LRTs may face in the future. The excessive financialization of LRTs may affect the stability of the Ethereum chain ecosystem. Competition in this field is expected to become increasingly fierce, leaving few opportunities for new players.
Babylon
Babylon is a platform that allows Bitcoin holders to stake Bitcoin without trust to ensure the security of the Proof of Stake (PoS) chain.
According to the Babylon official website, there are currently 91 ecological projects listed, covering 7 categories: Layer 2, DeFi, Liquidity Staking, Wallets and Custodians, Cosmos, Finality Providers and Rollup Infrastructure. Among them:
Wallets and custodians: mainly mature wallets and custody solutions.
Finality providers: mainly staking services.
Cosmos: mainly older projects in the Cosmos ecosystem.
There are fewer new projects in these three categories. New projects are mainly concentrated in Layer 2, liquidity staking and DeFi fields:
Layer 2: Bison Labs, BSquared Network (our portfolio company), Lorenzo, Map Protocol, etc.
DeFi: Kinza Finance, LayerBank, Levana, Mars Protocol, Stroom and Yala Finance (portfolio companies).
Liquid staking: Bedrock, Chakra, Lombard, pSTAKE, Solv, Nomic, PumpBTC.
In addition, we are seeing other protocols such as Satlayer building heavy staking platforms on Babylon, and Nubit using Babylon to enhance its Bitcoin native data availability layer.
With many DeFi yield projects centered around Bitcoin, the need to generate yield on idle Bitcoin is obvious. We expect more projects to offer Bitcoin liquid staking services, and as the Bitcoin yield / Bitcoin DeFi narrative continues to develop, we may see funds from other ecosystems flow into Bitcoin.
Data Availability (DA)
The data availability (DA) space has a small number of players, including Ethereum, Celestia, EigenDA, Avail, and NearDA, and the progress of these projects varies. DA projects focus mainly on security (including data integrity, network consensus), customizability, interoperability, and cost. The DA space in the first half of 2024 presents a mixed picture. For example, Celestia's DA token has fallen from its historical highs, while competitor Avail has raised $75 million in its latest Series A round of financing, led by Founders Fund, Dragonfly, and Cyber Fund.
In the DA space, the main competitors include Ethereum and Celestia. When comparing Celestia and Ethereum, we see that Ethereum is still the first choice for rollups.
Major users of Ethereum DA include Taiko, Base, Scroll, Arbitrum, and OP Mainnet. In contrast, major users of Celestia include Orderly, LightLink, Manta Network, Lyra, and Hokum. Despite the higher cost of Ethereum DA, its demand and usage have surpassed Celestia, bringing significant revenue growth to Ethereum.
As the DA field matures and competition intensifies, the market has become saturated, and the key to project success lies in customer acquisition and ecosystem activity. Projects should also focus on other areas such as decentralized exchanges (DEXs), games, bridges, and payments to achieve scale expansion. In addition to being a pure data availability service, providing different services will also help to attract and retain customers more easily.
Overall, we see increasing competition in the data availability space, with players increasingly competing on pricing, which may pose a challenge to their long-term profitability.
In the rollup space, Arbitrum, Base, and OP Mainnet are clearly ahead, with Arbitrum in the lead. Base continues to narrow the gap with strong support from Coinbase and has branded itself as a consumer user application hub with applications such as Farcaster and Friend.tech.
OP Rollups and ZK Rollups have achieved varying degrees of success, with OP Rollups based on OP Stack taking the lead. Overall, RaaS (Rollup-as-a-Service) is provided by 4 main solutions: Arbitrum Orbit, OP Stack, ZK Stack and Polygon CDK, each with its own advantages and disadvantages. However, the common result of these different RaaS providers is the increasing number of rollups.
Leveraging the advantages of OP Stack, there are opportunities to unify OP Stack chains through concepts such as OP Superchain, such as through shared ordering. In addition to scaling Ethereum through high-throughput performance, these rollups can also differentiate themselves by implementing AA features and introducing durable and popular consumer applications. This will keep them competitive as they continue to face challenges from L1s such as Solana and Sui.
In the sequencer track related to rollups, there are not many new projects recently, and old projects mainly focus on optimization improvements in 3 directions: UX, MEV, and decentralization.
As the difficulty of deploying rollups decreases, Rollup-as-a-Service service providers will compete on multiple aspects such as ecosystem scale, cross-chain interoperability, and equipped with fully integrated modular toolkits.
As one of the most enduring use cases in blockchain technology, DePIN has gained significant attention in the first half of 2024, which can be attributed to Solana's appeal as a DePIN application center and great interest in the field of artificial intelligence. The intersection of AI and crypto technology highlights the growing synergy between the two fields. Node sales are a very popular monetization strategy in 2024 and have proven to be successful in launching communities and raising additional revenue for projects. However, despite the widespread attention, DePIN's returns over the past three months have been disappointing.
This sector covers a variety of IoT sensors and consumer wearables such as watches, bracelets, rings, etc. The core foundational proposition of this sector is the collection of data, which is made more accessible and monetizable using Web3 technologies. A key issue in this market segment is incentivizing users to participate in data mining and earn rewards through data distribution, which has not been widely successful compared to Web2 solutions. For wearables, the top three motivations for consumers to purchase are (1) health and wellness, (2) fitness tracking, and (3) enhanced accessibility to smartphones and other smart devices. Providing a satisfying user experience coupled with sustainable token economics and value accumulation mechanisms is critical during the community launch process.
In this sector, the key challenge is the scalability and adoption of data marketplaces. Creating an isolated data market can be challenging, especially in data-rich environments.
In the wireless network space, many projects have attempted to use Web3 concepts to improve penetration, but with the exception of a few successful projects (such as Helium Network), widespread problems include poor user experience, compatibility issues, and insufficient service reliability. In 2024, Internet penetration in some parts of the world remains low due to various factors such as cost, geography, and economic development. Community-powered wireless networks can fill this gap and can draw on the success of the Helium Network.
The huge demand for artificial intelligence sparked by OpenAI's ChatGPT has led to a surge in demand for storage, computing, and network resources. Centralized AI infrastructure providers face various problems such as high investment barriers, resource mismatches, and uncontrollable data. In this context, blockchain technology has become a viable solution, encouraging active participation of users and communities through token incentives and other mechanisms.
AI will also be the most active sub-segment we look at in the DePIN field in the future, mainly because the training of AI and machine learning models does require a lot of computing power, and the DePIN project encourages users to share their idle computing resources through a distributed network and incentive mechanism, which can generate actual income and is not small in size. The model is indeed more cost-effective than centralized services. Existing projects on the market have proven their value in practical applications, with scenarios covering training and reasoning services for AI models, providing rendering capabilities for games, etc., which can all show that the demand in this field is still real.
In the field of computing infrastructure, privacy protection can be added to computing networks, such as data privacy and model privacy. The core principle of blockchain technology is secure, privacy-preserving verification. In this regard, although various methods (such as ZKML, OPML, TEEML) have different trade-offs, they are constantly evolving.
The previously active data track is increasingly being combined with AI to serve AI. Because the main factor that distinguishes the effects of large models comes from the data set. The directions of the data track include: providing data sources (data DAO), data-related infrastructure (vector databases, knowledge graphs, decentralized databases, etc.), and data privacy (FHE, TEE, etc.).
These developments highlight the growing attention to the data-driven AI ecosystem and emphasize the importance of data privacy and decentralized infrastructure in future AI applications. Here are some of the key players driving the boom in AI and crypto:
Data sources, annotations, marketplaces: Grass, Vana, Dria, DIMO, Hivemapper, Sahara Labs, Ocean Protocol, Singularity Net
Compute networks: Aethir, io.net, Akash Network, Bittensor, Filecoin, Render, Nosana, Ritual AI, Gensyn AI, Together.ai
Validation networks: Modulus Labs, Giza, Ora, Vana Labs, Aztec
Proxy networks: ChainML, MyShell AI, Spectral Labs, Autonolas, Fetch.ai, Delysium
AI-driven applications: Kaito.ai, 0xScope, Ringfence AI, Kai-Ching
With the exponential growth in demand for AI and machine learning training, computing power has become an extremely valuable resource. Many projects have emerged to aggregate computing resources around the world to meet this demand.
As the basic models become more popular, more attention has also turned to fine-tuning and optimizing models to meet the specific needs of enterprises.
No-code/low-code platforms have seen more innovation in personalized AI agent deployment. In Web3 AI, some noteworthy projects include MyShell AI, Hyperbolic Labs, Prime Colony, and Wayfinder.
Looking forward, areas such as AI, IoT, decentralized wireless (DeWi), and decentralized energy in the DePIN space deserve further attention.
The Real World Asset (RWA) space remains a cornerstone of crypto, bringing Web3 technology inextricably to traditional asset classes. Real World Assets bring many benefits to crypto, such as diversified real yield and easier access to illiquid or private asset classes. The space continues to make significant progress on this front, from the formation of the Tokenization Alliance Charter, Mantra’s $500M real estate tokenization, Blackrock’s BUIDL Fund, to significant investments in Securitize and Ironlight to promote the adoption of tokenized assets.
There are many asset classes within Real World Assets, but the areas that have received the most attention are Private Credit and US Treasuries. The top three issuers of US Treasuries are Blackrock’s BUIDL Fund, Franklin Templeton’s US Government Money Market Fund, and Ondo Finance’s USDY. In the private credit space, competition is led by a few key players such as Maple Finance, Centrifuge, and Goldfinch Finance. In traditional finance, the estimated size of private credit is $1.5 trillion, and it is expected to grow to $2.8 trillion by 2028. In comparison, Web3 private credit is still small, but has promising future growth prospects.
In terms of tokenized commodities, gold remains the dominant asset, with the top two commodities being Paxos Gold and Tether Gold.
In terms of tokenized collectibles, the space is still fairly niche and isolated, so it is critical for projects to generate lasting demand and provide asset composability for tokenized collectibles.
Institutional investors are increasingly interested in tokenizing financial products using blockchain technology. However, most executives still prioritize regulatory risk, and thus exposure to public blockchains remains limited. To navigate this space, attention needs to be paid to market structure development, default risk management, and liquidity management. Only by focusing on compliance and infrastructure security can players in the real-world asset space capture retail and institutional adoption. One player that has made notable progress in the blockchain space is Avalanche. Through Avalanche Evergreens, the network has established partnerships with multiple institutions such as Citi, JP Morgan, and ANZ, demonstrating its appeal to institutions and being able to successfully provide them with a secure, customizable, and efficient on-chain RWA platform. Currently, the RWA-related narratives we are excited about include RWA index tokens, RWA-backed stablecoins, RWA-backed DeFi use cases, and more.
RWA adoption may be driven more by institutions than retail users. However, as regulatory policies become clearer, we expect more projects to emerge, offering a variety of tokenized securities beyond treasuries to meet the risk appetite of different investors, prompting investors to become increasingly receptive to the concept of RWA.
In the first half of 2024, except for TON mini games, the market sentiment towards games remains sluggish. Better performing games include TON mini games such as Notcoin, Catizen, Hamster Kombat, etc.
In addition to the Telegram game ecosystem we discussed in the TON section, IMX, Polygon, and Ronin are still the popular game chains in terms of daily average UAW (active wallet users). Ronin continues to lead in the first-level game ecosystem, thanks to games like Pixels with a strong gaming community, with a 7-day UAW of 600,000. It has about 3.8 million monthly active users (MAU) on its network. Ronin remains attractive to small and medium-sized games, and the ecosystem is able to provide user traffic to game developers. As of now, Ronin has attracted more than 12 game studios to settle in. In addition, Ronin has also cooperated with Polygon's CDK to enable zkEVM, allowing developers to launch their own L2 chains on Ronin. This may become a positive catalyst for RON.
On the other hand, IMX mainly covers medium and large games, and continues to attract large Web2 game studios, providing them with comprehensive deployment solutions. Immutable and Netmarble's subsidiary Marblex jointly launched a $20 million ecosystem support plan to further promote the development of the game ecosystem on Immutable zkEVM.
We continue to welcome studios entering the Web3 field, as well as game producers and KOL founders who are good at learning, sensitive to crypto culture, and user-centric.
The combination of games and AI has not yet seen significant progress. Gameplay is still highly centralized, and consumer-driven, AI-generated content in Web3 is still in its early stages. Interest in applying AI in NPCs, companions, and scripting is mainly concentrated among B2B game developers.
Overall, the gaming ecosystem is highly competitive, and the key lies in balancing incentives and community building. Strategies focused on cultivating loyal users, such as providing high-quality gaming experiences, positive user feedback, and strategic partnerships, may play an effective role in achieving long-term success.
SocialFi has become a hot topic, summarized as the continuation of Friend.tech, the breakthrough of Farcaster and the explosion of Ton/TG social applications, the main three factors.
Friend.tech
Since its launch in 2023, Friend.tech has sparked an ongoing discussion about the longevity and sustainability of its model. Despite a very successful initial launch, user activity has declined this year. The release of V2 in May 2024 sparked new interest, introducing features such as paid group clubs, innovative fee structures and high APYs, resulting in a temporary surge in the number of users. However, community criticism of token liquidity and airdrop allocations, as well as fierce competition from other social platforms, caused user engagement to stabilize again. Despite doubts about its long-term viability, the launch of friend.tech brings a new model to the social finance space, with three key inspirations: (1) the possibility of tokenizing social influence, (2) paid group clubs in Web3, and (3) social assets with cross-platform interoperability.
Farcaster’s Breakout:
This year, Farcaster has made significant progress and has become a dominant player in the space. In contrast, other social protocols have mostly disappeared from the spotlight, and some even seem to be on the verge of decline. Farcaster’s launch of Frames has received positive feedback, introducing a new way of social, on-chain interaction using a familiar Web2 interface, significantly improving Farcaster’s user experience, causing its DAU to surge, and attracting the attention of crypto developers and users. In addition, Farcaster’s combination with meme tokens, especially the success of tokens like Degen, has significantly driven the platform’s user growth and activity. Airdrop activities have effectively increased user engagement and promoted the formation of a vibrant community.
The Farcaster ecosystem can be roughly divided into the following categories:
Clients: Warpcast, Recaster, Supercast, ampcast, Farcord, Firefly, far.quest, etc.
Decentralized applications (dApps): Jam.so, DeBox, Paragraph, CasterBites, Unlonely, Bountycaster, Wildcard, AlfaFrens, etc.
Tools: sharecaster, Alertcaster, Searchcaster, Farcaster storage, farcaster.vote, etc.
API services: Neynae, Pinata, Airstack, etc.
Overall, the success of the SocialFi space has been mixed, with network effects remaining a key factor in determining project success. In this space, we focus on projects that can overcome the cold start problem and attract a diverse user base, requiring them to provide a Web2-like user experience and find a delicate balance between rewarding creators and platform growth.
DeFi growth in the first half of 2024 is mainly attributed to the huge attention of Eigenlayer, which introduced the concept of restaking to Ethereum, and Ethena, a hedge-neutral stablecoin that has now accumulated more than $3 billion in TVL.
Stablecoins have received a new round of attention from developers, with more RWA-backed fully collateralized stablecoin projects trying to replicate the success achieved by Maker and Tether. Despite the increased interest, it remains challenging for stablecoins to find lasting use cases on-chain, and they are currently mainly used in centralized exchanges. This could pose a challenge to decentralized stablecoin projects that hope to provide value through native governance tokens.
Eigenlayer has captured most of the attention in the first half of 2024, with ecosystem projects such as Ether.Fi, Pendle, and Renzo taking advantage of the surging interest in heavy staking to gain significant market share. Despite receiving a lot of attention, Eigenlayer has failed to fully meet user expectations, partly due to the weak macro environment.
From a blockchain perspective, Ethereum continues to lead in TVL (total locked value). Blast and Base have performed significantly in the first half of 2024. Scroll's TVL has exceeded $1 billion with the launch of various incentive activities.
Among non-EVM chains, Solana's largest TVL contributor is Jito's JitoSOL, and other catalysts include a thriving meme culture and lending ecosystem. Chains associated with BTC have also attracted interest, but maintaining interest remains challenging due to the decline in TVL after the end of the incentive program.
The recently popular CeDeFi model reflects the demand for sustainable and secure returns on on-chain assets. Whether through ENA fee mining or RCH's option structuring, the ultimate payer is the centralized exchange users.
DeFi has demonstrated its ability to attract capital through lucrative returns. Currently, AAVE remains the main destination for funds on many Layer 2 and public chains, and Uniswap remains the main funding pool. However, the key to long-term success lies in whether the protocol can accumulate value for holders and meet long-term expectations. As the number of chains increases, liquidity is gradually dispersed, which gives us opportunities. Diverse DeFi solutions meet different needs, thereby driving the potential demand for intent-driven platforms.
From the end of last year to the beginning of this year, the market generally expected that with the approval of ETFs, 2024 would be a record year for institutional adoption of cryptocurrencies, and trading infrastructure/institutional-level pledge/CeFi lending/yield stablecoins/derivatives platforms would be worth betting on. From a primary perspective, investors are indeed still betting on these directions. Representative projects that have completed financing this year include securitize (raised $47M), Bitstamp (acquired with $200M), Flowdesk (raised $50M), Sygnum (raised $40M), Kiln (raised $17M), and Agora (raised $12M). However, the main target that benefits from ETFs in the public market is currently Coinbase, and other companies that are easier to go public are all mining companies.
From our perspective, this track will be increasingly regarded as a fintech field. Judging from the financing trends of fintech-related companies around the world, the amount of financing is continuing to decline. Fintech financing in the first quarter of 2024 was the lowest quarterly level since 2017, and investors prefer mid- and late-stage companies, and prefer companies that are already self-sustaining and close to profitability. However, the positive side is that crypto-related fintech companies are relatively active in this large field, but they are mainly concentrated in the early stage + A round.
In summary, we still focus on trading infrastructure/institutional-level pledge/CeFi lending/income-generating stablecoins/derivatives platforms. In terms of investment, we pay more attention to companies that have shown growth potential and stability.
This article analyzes the background, ecology and follow-up prospects of the Data Availability War, including DA in the eyes of Buterin, and an inventory and sorting of various DA projects.
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