Exploring My Top Web3/Blockchain Themes for 2024
Stepping into the world of venture capital in early 2023 after a long career in software product development has significantly altered my perspective on innovation and market trends. I spent a majority of my time last year talking to and investing in the builders in the web3/blockchain industry and what a year it has been for the industry. While Bitcoin's price experienced a staggering 150% increase and Ethereum rose by almost 90%, the number of deals involving web3/blockchain projects witnessed a significant downturn, as did their valuations. However, I am optimistic that 2024 will start rewarding the builders who have been focussed heads down on building products that will utilize the power of the decentralized blockchain technology to solve real problems. I believe that the next crypto summer will be different. It won’t just revolve around the high-stakes trading of cryptocurrencies and altcoins. Rather, it will be centered around leveraging blockchain and decentralized technologies for practical, real-world use cases. This pivot from speculative trading to genuine, problem-solving applications marks a pivotal shift, potentially redefining the role and impact of web3 and blockchain in our daily lives. As I reflect upon this industry through both macroscopic and microscopic lenses, several emerging themes excite me as I anticipate what lies ahead in 2024.
Real World Assets
Real World Assets (RWAs) represent a broad spectrum of tangible assets such as real estate, equities, commodities, fixed income instruments, private credit, and collectibles such as art, luxury watches, and cars etc. These are assets that have an intrinsic value in the physical world, and can leverage the digital ledger technology to reinvent their ownership and trade dynamics and open up a new dimension of possibilities in the digital world. The traditional methods of trading these assets are fraught with inefficiencies – be it in pricing, discovery, or settlement processes. This is where blockchain technology provides a significant value. It promises to bring price transparency, clear ownership records, and significantly faster settlement times, disrupting how we interact with these assets.
The journey of RWAs on blockchain is still in its nascent stages, but some strides have been made. Treasury Bills, for instance, are currently the most popularly traded asset class on blockchain platforms. However, it's important to note that these are derivatives of the actual Treasury Bills, traded on platforms like Ondo Finance and Backed. For other asset classes such as equities, real estate etc, several platforms that leverage blockchain have emerged. However, many of these platforms operate as 'walled gardens' or deal in derivatives that cannot be freely traded on peer-to-peer exchanges. One of the significant hurdles faced by these platforms is regulatory constraints, particularly in the United States, which have dampened the growth and adoption of blockchain for trading RWAs. Moreover, the current business models are fragmented, with varying business approaches that have yet to gain substantial traction. The future landscape for Real World Assets on the blockchain presents a complex mix of possibilities and challenges. As regulatory landscapes evolve and technology advances, I can anticipate a more cohesive and dynamic integration of RWAs into blockchain.
I am incredibly excited about the integration of Real World Assets into blockchain, as it promises to bring trillions of dollars in value onto the blockchain. This move not only taps into the true potential of blockchain technology but also heralds a new era where blockchain technology meets tangible value, potentially revolutionizing how we interact with and perceive real-world assets.
Decentralized Compute
Decentralized compute represents a paradigm shift in the world of computing, moving away from traditional models reliant on centralized providers like AWS, GCP etc. Instead, it utilizes a network of individual nodes – ranging from personal computers in homes, mini data centers operated by individuals to excess enterprise compute capacity (e.g. crypto miners with excess GPU capacity). This approach is pivotal for the web3/blockchain ecosystem as it offers censorship resistance and lower costs, maintaining the decentralized ethos of these technologies. Decentralized compute can support a variety of tasks, from basic web scraping to complex AI model training and inference. Its significance lies in its ability to keep the entire infrastructure stack decentralized, a crucial aspect for the true decentralization of web3 and blockchain technologies.
The landscape of decentralized compute is both diverse and dynamic. Some of the players include the Akash Network, an open-source Supercloud for secure and efficient trading of computing resources, and the Render Network, which facilitates a wide range of computational tasks on its blockchain-based network. Another notable entity is Gensyn, which aims to create a global supercluster for machine learning compute. Similarly, io.net cloud offers a decentralized computing network focusing on distributed cloud clusters at lower costs. Additionally, several independent mini data centers with GPU clusters are emerging, powering these decentralized networks. However, all these platforms still face challenges in terms of performance (throughput, latency), security, and privacy, which are critical for widespread adoption.
My excitement for decentralized compute is rooted in its potential to revolutionize how we approach network decentralization. This technology paves the way for practical and usable decentralized networks, harnessing underutilized computing power amid the growing demand for affordable compute resources. It opens up new avenues for small business opportunities and passive income streams, allowing individuals to contribute compute power. The move towards decentralized compute is not just about technological innovation; it represents a pathway to true decentralization and censorship resistance, aligning perfectly with the ethos of web3/blockchain.
Modular Blockchains and the L2 Wars
Modular blockchains represent an evolutionary step in blockchain architecture, emphasizing flexibility and efficiency. Unlike traditional monolithic blockchains where all functions (consensus, execution, and data storage) are bundled together, modular blockchains separate these functions into different components/layers. This allows for more specialized and efficient processing. Pioneers like Cosmos, Polkadot, and Solana have laid the groundwork for such systems. Recently, the Ethereum Virtual Machine (EVM) ecosystem has been moving towards a more modular architecture, where components for consensus, execution, and data availability can be interchangeably used to create Layer 2 (L2) blockchains. These L2 blockchains utilize Ethereum as a settlement layer, enhancing scalability and efficiency. The "L2 wars" refer to the growing competition among these Layer 2 solutions, each vying for dominance in terms of user adoption, technological innovation, and market share. As of now, platforms like zkSync Era, Arbitrium, Op Mainnet, Starknet, and Base lead in terms of daily active users.
The modular blockchain ecosystem is rapidly evolving, with numerous projects developing various components. For instance, L2 solutions such as Optimism, Arbitrium, zkSync etc. focus on the execution layer, essential for processing transactions. Others like Espresso and Madara are dedicated to building sequencers, which play a pivotal role in ordering transactions. The Data Availability layer, a critical component for ensuring data is readily accessible and verifiable, sees competition from platforms like Celestia and EigenDA. This proliferation of modular components has led to the emergence of several frameworks for creating L2 solutions. Creating an L2 has become significantly easier; however, challenges remain in how developers leverage these L2s and drive user adoption. This evolving landscape hints at a future where blockchain capabilities are significantly enhanced through specialized modular components.
The rise of the modular blockchain ecosystem excites me for several reasons. Firstly, it promises to address the long-standing scalability issue in blockchain technology, potentially unlocking a plethora of new use cases. Secondly, the flexibility offered by modular designs will empower developers to innovate and create L2 solutions tailored for specific applications, such as managing Real World Assets or developing permissioned public blockchains, which could lead to a new era of blockchain applications.
Privacy Preserving Technology
Privacy-preserving technology in the context of web3/blockchain is an innovation that addresses the inherent transparency of blockchains. While transparency is a cornerstone of blockchain technology, there are numerous applications where private transactions are essential. Privacy-preserving tech not only enables these confidential transactions but also contributes to blockchain scalability and efficiency. A key innovation in this domain is Zero Knowledge Proofs (ZKPs), a cryptographic technique that allows one party to prove to another that a statement is true, without revealing any information beyond the validity of the statement itself. This technology is evolving beyond its initial scope to support scalable and real-world business applications, enhancing both privacy and transaction efficiency in blockchain networks.
The landscape of privacy-preserving technology, particularly zero-knowledge technology, is rapidly expanding. Numerous projects, ranging from infrastructure providers like RiscZero, Starkware, and Polygon Miden to applications such as ZCash, have received significant funding. Many Layer 2 solutions (L2s) are being developed to address diverse use cases, including scaling decentralized finance (DeFi), AI applications, identity systems, and private transactions. These L2 solutions are crucial for enhancing the scalability and privacy of blockchain systems while maintaining the security and integrity of the primary chain. 2024 is poised to be a pivotal year for scaling these ZK systems, with a focus on broadening their application.
My excitement for zero-knowledge technology and other privacy-preserving methods like Fully Homomorphic Encryption (FHE) stems from their potential to accelerate institutional adoption of public blockchains. With zero-knowledge technology, it's possible to create permissioned public blockchains that maintain privacy and security, while leveraging public blockchains like Ethereum for settlement. This opens up avenues for innovation far beyond the financial sector, providing institutions with the tools to securely and privately engage with blockchain technology. Furthermore, Fully Homomorphic Encryption, often hailed as the “holy grail of encryption,” holds immense promise for privacy-preserving use cases on the blockchain, especially in verifiable decentralized computing. Although still in its early stages for commercially scalable applications, FHE could revolutionize how data privacy is maintained in blockchain transactions.
Institutional Adoption of web3 technologies
Institutions are increasingly turning their attention to blockchain, recognizing its potential not only to enhance transparency, trust, and relationships in consumer and cross-enterprise transactions but also as a foundational technology that transcends cryptocurrencies, with the potential to revolutionize various industries by redefining how enterprises operate and interact. While blockchain is not a one-size-fits-all solution, it becomes particularly powerful in contexts where these values are paramount. The ideal approach for institutions would involve a blend of public and permissioned public blockchains. Private blockchains, though widely used, essentially function as internal databases and don't fully leverage blockchain's potential.
The current landscape of institutional blockchain adoption showcases innovative applications beyond traditional finance. For example, Starbucks Odyssey extended its rewards program with Web3 technology, offering unique benefits and experiences. Major financial institutions such as JP Morgan, UBS, Citi, Goldman Sachs are also at the forefront of blockchain innovation. JP Morgan's JPM Coin and internal blockchain support programmable payments, handling $1 billion daily in transactions with projections of reaching $10 billion soon. UBS has recently introduced a tokenized investment fund on Ethereum, and CitiGroup's permissioned blockchain, Citi Token Services, offers 24/7 access to digital assets and cross-border payments. Goldman Sachs also successfully used a private blockchain to expedite bond settlement for the European Investment Bank. Beyond these, firms like BlackRock and Grayscale are navigating regulatory processes for cryptocurrency ETFs.
The growing institutional adoption of blockchain excites me for several reasons. Firstly, it drives innovation in risk and operational frameworks, enhancing overall industry standards. Secondly, it paves the way for the development of new financial reporting standards, bringing more clarity and efficiency to financial transactions. Most importantly, this adoption will catalyze more regulatory clarity and the establishment of industry-wide standards. Such advancements not only benefit the institutions directly involved but also set the stage for broader economic and technological innovation, ultimately contributing to a more robust, transparent, and efficient financial ecosystem.
Stable Coins Utility
Currently, the stablecoin market is thriving and diverse featuring 157 stablecoins as listed on CoinMarketCap. The top three stable coins – USDT, USDC, and DAI – dominate the market with a combined market cap of approximately $120 billion and a 24-hour trade volume of around $54 billion. Stable coins come in various forms, including fiat-backed, commodity-backed, cryptocurrency-backed, and algorithmic. The ones backed by tangible assets such as fiat currency, commodities, or blue-chip cryptocurrencies (BTC, ETH etc.) are likely to continue leading the market. The current primary use cases for stablecoins revolve around DeFi trading, collateral for smart contracts, liquidity pools, and serving as gateways to purchase other cryptocurrencies. However, these applications only scratch the surface of the potential of stable coins.
Looking ahead, the next year is poised to witness the maturation of several novel use cases for stable coins. I anticipate their broader adoption in real-world payments for goods and services, a shift already being tested by major players like Mastercard and Visa, as well as numerous startups and crypto payment companies. Stable coins are also set to revolutionize global remittances, providing a more efficient and cost-effective alternative to traditional methods. Their potential as savings instruments, especially for US-denominated stable coins, is another area of interest. Furthermore, we can expect to see their application in institutional settlements, traditional finance (TradFi) trades, cross-border payroll, and even in IoT transactions, facilitating machine-to-machine payments.
My excitement for the future of stable coins is fueled by their proven product market fit and the transformative potential they hold in reshaping global monetary systems. This is just the beginning. The innovation in stable coins promises to usher in a new era of money movement, paving the way for innovative products and services that could redefine financial interactions worldwide. The implications of stable coin innovation are vast and global, with the power to fundamentally alter the infrastructure of global trade and finance.
Web3/Blockchain security
In the rapidly evolving landscape of web3/blockchain technology, smart contract security is a critical concern. As these technologies advance at a rapid pace, they inevitably bring vulnerabilities and potential cyber threats. Smart contracts, the self-executing contracts with the terms of the agreement directly written into code, are fundamental to the Web3 infrastructure. They must be meticulously audited to shield against potential exploits and cyber threats. Currently, most auditing is performed manually by companies using internal proprietary tools, and this process can be time-consuming, often taking months. This delay means that many companies wait several months post-code completion before launching on the mainnet. As the number of smart contracts and their complexity increases, so too does the time required for thorough audits. However, audits alone aren't sufficient; there's a pressing need for active monitoring of transactions to identify and mitigate vulnerabilities in real time.
My excitement about the future of smart contract security stems from the significant advancements in generative AI. These advancements herald a new era where AI can be leveraged to automate and integrate smart contract audits into the development lifecycle. This integration will not only expedite the development and deployment of Web3 applications but also enhance their security. The key to preventing attacks lies in the constant monitoring of transactions, a task that can be efficiently managed through the combination of blockchain data and AI technologies. This approach to security will drastically reduce the number of attacks, strengthening user trust in the Web3 ecosystem. Increased trust is essential for attracting the next billion users to web3 platforms. In essence, AI-driven solutions for smart contract auditing and monitoring represent a significant stride forward in securing the Web3 landscape, facilitating its growth, and making it more accessible and trustworthy for users worldwide.
Final Thoughts
As 2024 approaches, I am eagerly anticipating several exciting developments, above with regulatory clarity in the U.S. being one of the most significant. However, I am not alone in this anticipation. The global crypto community, a passionate group that I'm proud to be a part of, is buzzing with anticipation about the upcoming decisions on Bitcoin and Ethereum ETFs. These aren't just any decisions – they're seen as potential game-changers. They could bring the clarity we've all been craving from regulators. This kind of clarity is more than just a nice-to-have; it's vital for the growth and stability of our world of web3/blockchain.