Web3

State of Crypto Overview Report

October 24, 2022

12 minutes

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State of Crypto Overview Report

An overview report

What is web3?
01.

02.

03.

The first era of the modern

The second era of the internet

We are now beginning the third

internet — roughly 1990-2005

— roughly 2005-2020 —

era of the internet — what many

— was about open protocols

was about siloed, centralized

call web3 — which combines

that were decentralized and

services. Most of the value

the decentralized, community-

community-governed. Most of

accrued to a handful of large

governed ethos of the first era

the value accrued to the edges of

tech companies.

with the advanced, modern

State of Crypto

the network: users and builders.

functionality of the second era.
This will unlock a new wave of
creativity and entrepreneurship.

Source: https://cdixon.mirror.xyz/0GBv9WRI-LQE6F4r2gGczG6AVeFlNuvt3HETHZ5A93U

web3

2022

State of
Crypto

Why Web3
Matters
3

Why Web3 Matters

Digital
Authoritarianism
Big Tech
Oligopoly

The internet as we
know it is flawed

After friendly beginnings, web2
companies have become more
extractive and less cooperative

Charts for illustrative purposes only

Why Web3 Matters

Web3 gives people property rights:
the ability to own a piece of the internet
©2022 Andreessen Horowitz. All rights reserved worldwide.

Why Web3 Matters

Web3 aligns network
participants to work
together toward a
common goal — the
growth of the network
Charts for illustrative purposes only

Web3 empowers a collective
owned future over a corporate
or government owned future

Single points
of failure &
control

Resilient,
equitable &
participatory

Why Web3 Matters

Source: RAND

web3

2022

State of
Crypto

Cycles of
Innovation
9

The crypto market
develops in cycles
Price

Interest

New Ideas

Cycles of Innovation

Startups &
Projects

Cycles of Innovation

These
cycles
appear
chaotic
from the
outside
but have an
underlying
order
©2022 Andreessen Horowitz. All rights reserved worldwide.

Global Crypto Market Cap

Developer Activity1

Startup Activity2

Source: CoinMarketCap, GitHub,
Pitchbook, Twitter

Social Media Activity3

Data is as of 5/12/2022
1 Developer activity based on stars
of crypto-related repositories on
Github.
2 Startup activity based on cryptorelated initial funding rounds via
Pitchbook
3 Social media activity based
on crypto-related comments
on Twitter

The result is
consistent longterm growth,
driven by
a feedback
loop between
interest
and innovation

Cycles of Innovation

Global Crypto Market Cap

Developer Activity1

Startup Activity2
Source: CoinMarketCap, GitHub,
Pitchbook, Twitter
Data is as of 12/31/2021

Social Media Activity3

1 Developer activity based on stars
of crypto-related repositories on
Github.
2 Startup activity based on cryptorelated initial funding rounds via
Pitchbook
3 Social media activity based
on crypto-related comments
on Twitter

web3

2022

State of
Crypto

Layer 1
Blockchains
13

Blockchain
computers are
composed of
nodes: physical
computers, like
PCs, joined together
via a consensus
mechanism
©2022 Andreessen Horowitz.
All rights reserved worldwide.

Layer 1 Blockchains

Web3 is multi-chain; developers
have many options when it comes
to building on blockchains
Ethereum

Solana

Polygon

BNB Chain

Avalanche

Fantom

5.5M

15.4M

2.6M

9.4M

609K

308K

15.3M

3.4M

5.0M

832K

743K

Layer 1 Blockchains

Active Addresses

1.1M
Daily Transactions

Source: Nansen; Active addresses is measured over a 30-day period as of 5/12/2022; Daily transactions
is represented by a 30-day average as of 5/12/2022.

Layer 1 Blockchains

Transaction Fees Paid
by Users (7D Average)

Source: https://cryptofees.info; Data is as of 5/12/2022.

While other smart contract platforms
rival Ethereum in users and usage, the
demand for block space is unmatched

With Ethereum L1 as the hub,
a significant amount of value is
being deposited into bridges
Top Ethereum Bridges by Total Volume In

Top Ethereum Bridges by Total Depositors
Layer 1 Blockchains

Source: Nansen; Includes bridges with > 10k depositors; Data is as of 5/12/2022.

Ethereum continues to attract the most
developers, but several emerging
ecosystems are on a similar trajectory

Layer 1 Blockchains

Monthly Active Developers
Since Launch

Source:
Electric Capital 2021 Developer Report
Data is as of 12/31/2021

Note:
Some ecosystems were excluded
due to the lack of sufficiently granular
categorization.

web3

2022

State of
Crypto

Layer 2
Scaling
19

Optimistic Rollups

Zero-Knowledge Rollups

Transactions are assumed to be valid, but
can be challenged if necessary

State transitions are computationally
verified off-chain using validity proofs

• More production-ready

• Less production-ready

• Correctness relies on game-theoretical
incentives

• Correctness is mathematically guaranteed

• Finality on L1 depends on a 1-week
challenge period

• Harder to program

• Easier to program
• EIP-4844 (proto-danksharding) can make
these rollups very cheap for users

• Finality on L1 is instant
• Proofs can be computationally expensive,
though this is rapidly improving

Layer 2 Scaling

A layer 2
is a separate
blockchain
that extends
the base layer
and inherits
its security
guarantees

Optimistic rollups are the most
popular L2 tech today, but ZK rollups
are just beginning to come online
Layer 2 Scaling

Total Value
Locked on
Ethereum
Layer 2s

Source: https://
l2beat.com/
Data is as of
5/12/2022.
21

L2 rollups pay for Ethereum’s security

Today, L2 rollups
contribute to
of all fees paid
on Ethereum

L2 Rollups
One Day Security Costs

Source: https://l2fees.info/; Data is as of 5/12/2022.

Layer 2 Scaling

L2 rollups are
competing
hard against
each other to
bring transaction
fees down
23

Source: https://l2fees.info/
Data is as of 5/12/2022.

web3

State of
Crypto

DeFi
2022

DeFi

A huge part
of the world
is underserved
by existing
fi nancial
institutions
Sources:
The Global Findex Database, 2017 Report;
The World Bank (2020 and 2021 data)

DeFi has grown from nearly zero to over
$100 billion in less than two years

DeFi

Source: Defi Llama; Data is as of 5/12/2022.

Total Value
Locked
in DeFi

Newer blockchains are trying to replicate
the success of DeFi on Ethereum
27

DeFi

DeFi
Market
Share
(TVL) by
Blockchain

Source: Defi Llama;
Data is as of 5/12/2022.

Token exchange and lending protocols are
the most popular DeFi use cases today
DeFi

Trading Volume on Decentralized Exchanges

Source: Token Terminal
Data is through April 2022.

Borrowing Volume on Decentralized Lending Protocols

Proof-of-stake is
coming to Ethereum

Source: Nansen
Data is as of 5/12/2022.
DeFi

Total ETH Staked to Beacon Chain

Top ETH 2 Deposit Addresses

DeFi would
represent the
31st largest US
bank by total
assets under
management
Source:
Defi Llama, https://www.federalreserve.gov/releases/lbr/current/;
Bank AUM data is as of 12/31/2022
DeFi TVL data is as of 5/12/2022.

DeFi

web3

State of
Crypto

Stablecoins
2022

Stablecoins

There are three primary categories of
stablecoins, though the lines between
them are blurry
32

Increasing use of stablecoins demonstrates
demand for a digital dollar
Stablecoins

Total
Stablecoin
Supply

Source: CoinGecko
Data is as of 5/12/2022.
Only includes stablecoins that are
believed to be fully collateralized.
33

The on-chain velocity (i.e., rate of
turnover) for today’s top stablecoins
varies drastically
110.74

Stablecoins

60.38

Velocity
(annual on-chain
transaction volume
per unit of supply)

2.52

Dai

USDC

Tether
Source; Coin Metrics; Data is as of 5/12/2022.

Stablecoins
represent
just a tiny
fraction of
the world’s
money
supply

Total Money Supply (M1) by Country

Source: Messari, https://take-profit.org/en/statistics/money-supply-m1/
Data is as of 5/12/2022.

Stablecoins

web3

State of
Crypto

NFTs
2022

01.
37

We’ve seen several
categories of NFTs emerge,
but it’s still very early days
01.

02.

03.

04.

05.

Profile Pictures
Images displayed
on social media that
represent an online
identity

Art & Music
A more efficient and
transparent way for
artists to monetize
their work

Gaming
Unique assets
designed to be
used within
a game

Utility
Items that grant
special access,
benefits, rewards,
or memberships

Virtual Worlds
Ownable properties
that exist in new
virtual worlds

02.

03.

04.

05.

NFTs

The NFT market remains hot, and we are
beginning to see mainstream adoption

NFTs

Ethereum NFT
Market Activity Weekly

Source: Nansen; Includes all Ethereum-based activity and excludes suspected wash trades; Data is as of 5/12/2022.

Take Rates of Popular Creator Platforms

“You know something is profoundly wrong with
our economy when Big Tech has a higher take
rate than the mafia.”
– Ritchie Torres, U.S. Congressman representing the South Bronx

NFTs

Web3 platforms
have drastically
lower take rates
than the internet
giants today

Estimated Creator Revenues by Source (2021):

NFTs offer
creators a
whole new way
to monetize
directly with
their fans
NFTs
Sources:
1 a16z analysis of public data on the Ethereum blockchain,
2 https://www.forbes.com/sites/marisadellatto/2022/03/24/spotify-says-it-paid-7-billionin-royalties-in-2021-amid-claims-of-low-pay-from-artists/
3 https://www.socialmediatoday.com/news/youtube-generated-288-billion-in-ad-revenuein-2021-fueling-the-creator/
4 https://www.facebook.com/zuck/posts/10113607549897721

Airdrops

NFTs

There is
incredible
innovation
happening
in the NFT
space

NFT DAO Governance

Music Royalties

IP/Commercial Rights

IRL Activation

web3

2022

State of
Crypto

Web3
Gaming
42

Web3 Gaming

We are just
beginning
to see the
potential of
web3 gaming

Video Games

Web3 Gaming

When the internet came along, video
games responded by embracing
new genres like MMOs and battle
royale, new business models like
free-to-play and virtual goods, and
new complementary behaviors like
streaming.

Recorded Music
Global Consumer Spend

The video
game industry
has seen
massive
growth, driven
by the layering
of new platforms
and business
models

Global Consumer Spend

The music industry responded by
spending decades filing lawsuits
against innovators, and eventually
accepting the incremental
improvement of allowing users to
subscribe to bundled content via
streaming platforms.

Source: MatthewBall.vc

Web3 Gaming

There is a
huge market
opportunity
at the
intersection
of web3 and
gaming
Source: Blockchain Game Alliance, DappRadar; First two metrics are as of 12/22/2021, third metric is as of 5/12/2022.

Metaverse Land—Secondary Sales

Web3 Gaming

Metaverse
Land Sales
$1,808,580,704

Source: https://dune.xyz/metaland/Metaverse-Land-Community
Data is as of 5/12/2021.

web3

State of
Crypto

DAOs
2022

DAOs

Source: https://deepdao.io/; Data is as of 5/12/2022.

DAOs have accumulated more than $10 billion
in treasury assets under management
DAO Treasury
Assets Under
Management

DAOs

DAOs enable a new, bottom-up way
for groups to make decisions

Source: https://deepdao.io/, Data is as of 5/12/2022.
DAOs

web3

2022

State of
Crypto

Closing
Thoughts
52

State of Crypto

An overview report

Two thousand twenty two

Crypto is already making a real world impact
01.

02.

03.

04.

05.

Today, there is vast
untapped lending
potential in emerging
markets. Goldfinch
expands access to
capital using crypto to
truly empower financial
inclusion.

Traditional web
services rely on
trusted intermediaries
(Facebook, Google)
to manage their users’
digital identities.
With Spruce, users
can control their
own identity with an
Ethereum account.

The telecom industry
is currently controlled
by monopolies. Helium
is building towards a
future where network
coverage becomes a
commodity, fueled by
competition, available
anywhere in the world,
at a fraction of
current costs.

Only 15,000 musicians
on streaming services
(less than 0.2%) make
more than $50K/year.
Sound cuts out the
middlemen, allowing
artists to monetize
directly from their fans.

The voluntary carbon
market lacks liquidity,
accessibility, and
price transparency.
Flowcarbon is
leveraging blockchain
tech to scale climate
change solutions.

Source: World Bank, Coin Metrics, and a16z analysis of public data on the Ethereum blockchain
Data is through 12/31/2021.
54

Internet Users vs. Ethereum Addresses
(Log Scale)

It is still
early days
for web3
State of Crypto

State of Crypto

An overview report

Two thousand twenty two

What’s next for web3?
01.

02.

03.

04.

05.

Web3 infrastructure will
continue to improve,
with the continued
improvement and

Expect many more
creators to embrace
NFTs in their own
communities as

Expect many web3
games to launch,
developed by founders
with backgrounds

New web3 users who
earn tokens through
games and NFTs
will likely choose to

Expect many more
experiments with
DAOs, social tokens,
decentralized social

growth of nonEthereum L1s and
Ethereum L2s. The
Ethereum merge will
hopefully happen
this year. This will
improve performance
and also remove
the environmental
objection to using
Ethereum.

they discover how
much better they can
monetize by selling
digital goods directly
to their fans vs banner
ads and other web2
monetization methods.

at top game studios.
Some of these will
launch in the coming
months, others will take
longer.

save those tokens
in DeFi protocols vs
tradfi banks given the
better rates and user
experience, growing
the number of DeFi
users.

networks, web3 media,
and other emerging
categories. Some of
these might break out
in the same way DeFi,
NFTs and web3 games
did.

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