2023 was a year marked by both resilience and innovation unfolding in the public chain sector. We witnessed Bitcoin’s commanding resurgence, Ethereum’s steady gains, and the surprising rise of Solana, painting a vivid picture of a market in recovery. This narrative weaved through a tapestry where the market cap of public chain cryptocurrencies reached $1.3 trillion, revealing the intricate interplay of leading digital assets and the burgeoning promise of Layer 2 solutions.

Overview of public chain

Key Metrics Overview

In 2023, the crypto market shows early signs of recovery following the crypto winter - led by Bitcoin with over 150% price and market cap increase. Ethereum trails at 80% gains. Solana also stands out with its remarkable resurgence after 2022’s decline.

As an important infrastructure for cryptocurrency, the development of public chains has a profound impact on the entire industry. According to Footprint Analytics, the total market capitalization of public chain cryptocurrencies reached $1.3 trillion in 2023. Among them, Bitcoin accounts for 62.2%, Ethereum accounts for 20.6%, BNB chain and Solana account for 3.6% and 3.3% respectively. It is worth mentioning that during this year, the market value of Solana, Avalanche, ICP, Bitcoin and Cardano all increased by more than 100%, showing strong growth momentum.

Data source: Chain Overview

In terms of total value locked (TVL), Ethereum remains the leader, with TVL reaching $55 billion and accounting for 72.4% of the $76 billion TVL market share. Tron ranks second with $7.6 billion, followed by BNB Chain and Solana with $3.4 billion and $2.1 billion respectively. Comparing 2022, Solana, Bitcoin Arbitrum and Tron’s TVL increased by more than 80%, while Polygon and BNB chains experienced a decline of more than 20%.

Data source: Chain Overview

Layer 2 Overview

When it comes to Ethereum Layer 2 solutions, Arbitrum leads the pack with a 50.8% market share and a TVL of $8.5 billion. It is followed by Optimism with a 32.1% market share and a TVL of $5.4 billion. Notably, rising star Blast achieved $1.1 billion in TVL in just 40 days, earning 6.7% market share. Other well-known projects such as Base and zkSync Era have market shares of 3.7% and 3.4% respectively. In this diverse ecosystem, the gap between small players and traditional giants is getting smaller and smaller, which is like a vibrant coral reef - diverse, fiercely competitive, and constantly evolving. (“TVL” here refers to the cumulative amount stored and locked in the Layer 2 smart contract.)

User-centric strategies began to overshadow purely tech-driven approaches in the Layer 2 space. Established leaders like zkSync Era, Starknet, and Polygon zkEVM, once at the forefront, found themselves trailing in both TVL and developmental pace in 2023.

Data source: Layer 2 Overview

Fundraising

In terms of financing, cryptocurrency cyclicality still exists - in 2023, public chain projects raised US$539 million in 70 rounds of financing, an annual decrease of 85.5% compared to the high of US$3.7 billion in 2022. However, amid wavering confidence, investors remain optimistic about Layer 2 infrastructure. Layer 2 funding accounted for 41.4% of the 70 funding rounds in 2023, up from 34.5% in 2022. In 2023, the average financing amount of Layer 2 will be 15% higher than that of Layer 1. These data show that although the cryptocurrency market is in the midst of a cold winter, investors are increasingly focusing on professional builders and technological innovation rather than chasing short-lived hype and bubbles.

Top ten financing projects by financing amount (data source: crypto-fundraising.info)

Blockchain games and NFTs

Blockchain games

In 2023, the blockchain game market continued to expand, with the number of games increasing from 2,110 to 2,878. However, only 6.4% of games have more than 1,000 monthly active users (wallets), down from 10% in 2022. Among active games, dominant blockchains such as BNB Chain, Polygon, and Ethereum account for more than 80% of the market share and have a significant impact on the market.

Data source: Yearly Active Games - Blockchain Game Annual Report

In addition, Layer 2 has also made significant progress in the field of blockchain games. For example, SUI achieved a breakthrough in throughput, with SUI 8192 reaching 20 million daily transactions. Base has attracted market attention by integrating social and entertainment elements through friend.tech. Ronin Network also experienced rapid growth in November, thanks to the launch of Axie Infinity and Pixels.

NFT

In the NFT space, although market trading volume reached $13.1 billion, it was down from the peak of the previous year. Ethereum remains dominant, with a market share of 97.8%, but has declined slightly, indicating that the market is diversifying. Polygon’s user count grew by 231.0% to 1.3 million, while Ethereum’s user count fell by 45.2%. At the same time, the number of BNB chain users increased by 280.7% to 353,000. This year also saw major changes in the market due to increased trading volumes for Bitcoin’s Ordinals and Solana’s NFTs.

Data source: Yearly Unique User by Chain - NFT Research

2023 Highlights

As the cryptocurrency industry enters a period of maturity, 2023 brings both impact and new opportunities. Speculation is changing on all fronts, while real-world adoption is accelerating. As markets enter a skeptic-led pragmatism cycle, several key trends are leading the year.

Regulatory Guardrails Emerge After Industry Shakeout

The collapse of FTX and the discovery of an $8 billion hole in balance sheets have highlighted the need for greater coordination between global policymakers in early 2023 to avoid regulatory gaps. This comes after Binance paid $4.3 billion to settle a probe by US regulators related to anti-money laundering procedures. These consecutive shocks have prompted responses aimed at striking a balance between enhanced protections and avoiding stifling progress, as the multi-year boom of cryptocurrencies comes to an end. Barriers are being dismantled through regulatory clarity and improvements, which are bringing accessible experiences to mainstream users.

Layer 2 Solutions Move to the Forefront

In 2023, Layer 2 solutions are on the rise, and chains such as Base, Linea, and Blast are becoming very popular. By reducing user costs, Rollups have gained wide recognition, especially the zero-knowledge technology Rollup. However, despite all the attention, Layer 2 still faces challenges. Scalability is still more of a slogan than a reality, with most chains unable to achieve their advertised throughput. Seamless interoperability between Layer 2 remains an ideal, not the norm. Additionally, many highly-hyped Layer 2 projects lack groundbreaking dApps or vibrant and diverse ecosystems.

Mass Adoption Accelerates Across Sectors

Cryptocurrency and blockchain technology are increasingly used in the real world, involving finance, media, games and other fields. In the financial sector, Visa expanded support for stablecoins in September 2023 by using Solana blockchain capabilities to settle transactions. Visa has previously integrated with USDC and provided a more convenient way to use cryptocurrencies. The gaming field has also brought new users to Web3 by building player-oriented platforms that provide Web3 experiences such as virtual worlds and true ownership of assets. However, despite the technology’s promising prospects, mass adoption has fallen short of industry expectations due to poor market conditions and consumer skepticism about collapsing token prices.

Bitcoin Finds Renewed Purpose Amid Market Chaos

In 2023, Bitcoin’s narrative has evolved beyond its traditional role as the digital equivalent of gold. The emergence of Ordinals, unique digital collectibles on the Bitcoin blockchain, has reshaped the conversation about Bitcoin’s purpose. This innovation marks Bitcoin as a base layer for emerging applications, increasing its relevance in volatile markets. December saw record trading volumes driven by Ordinals trading, signaling the expansion of Bitcoin’s market reach. This trend positions Bitcoin not just as a store of value, but as a versatile asset with ever-expanding applications.

Outlook in 2024

In 2024, Bitcoin is set to be the central focus in crypto narratives, especially with the upcoming halving event. Additionally, other key themes like Ethereum’s Dencun upgrade, the push for decentralization, and advancements in Artificial Intelligence(AI) will also capture significant attention.

Layer 2 Continue to Thrive

In 2024, with the implementation of EIP-4844, Ethereum and its Layer 2 tokens are expected to surge, driven by lower fees and a renewed focus on scalability. Key topics include Sequencer’s decentralization, the debate over the merits of modular versus monolithic development, and interoperability. This growth is not limited to Ethereum, with Layer 2 options for Bitcoin and BNB chains also expected to experience a surge, reflecting the market’s interest in comprehensive scaling strategies.

Gaming-focus Blockchains Evolve

In 2024, gaming NFTs are expected to surpass art and collectible NFTs in popularity. The crypto gaming industry is expected to mature, intermittently attracting interest from mainstream players but mostly consolidating its position among professional players. Backed by advances in AI-generated technology, Web3 gaming will see positive progress. This growth will be further fueled by the continued improvement of gaming blockchain platforms such as ImmutableX, Ronin Network, and Oasys that are dedicated to perfecting the blockchain gaming experience.

The Intersection of AI and Blockchain

In 2024, the combination of artificial intelligence and blockchain will become an emerging field full of disruptive potential. While the core infrastructure around computing power and reliable data will need to mature to enable large-scale adoption, increasing incentives to trade AI resources via crypto tokens are expected to see strong growth. Regulatory and product-market fit issues in this area are temporary rather than fundamental obstacles. Through a large amount of speculation and capital investment, the foundation of blockchain artificial intelligence has been solidified, and it is expected that more complex blockchain artificial intelligence applications will gradually rise.

Conclusion

This year, although price movements may be limited, there have been notable advancements in real-world applications. Improved infrastructure has paved the way for wider adoption, and innovative use cases in gaming, NFT, AI, and other sectors indicate an upcoming wave of industry disruption. This evolution lays the foundation for a transformative year in terms of technological progress and market dynamics in different blockchain platforms.

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