Highlights of the Andreessen Horowitz State of Crypto 2022 Report

[TL;DR]

The crypto market grows in cycles, driven by loops: These cycles have repeated throughout four main phases of growth; which we would call the bullish cycles. First comes the price interest (currently after a bearish phase), followed by new ideas that have long been developed but hadn’t gained much momentum - thus giving birth and exposure to startups and projects. A16z argues that the waves may seem chaotic at first, but are actually the results of feedback loops “between interest and innovation.”

Lending and exchange projects are the most used DeFi categories: Since decentralized finance has been greatly aiding in worldwide financial inclusion, the initial services offered by the DeFi space are still the most searched for when it comes to usefulness for the average investor.

The on-chain velocity of the top 3 stablecoins varies immensely, with USDT far behind: While USDT tops the charts for off-chain velocity (speed of transactions outside the actual blockchain), it’s extremely inferior compared to USDC and DAI when it comes to on-chain (blockchain speed). It highlights that the stablecoin vector is greatly underdeveloped.

Web3 gaming is just getting started: While crypto gaming hasn’t developed as much as other Web3 ventured, the adoption of gaming through different hardware over the past 45 years shows that Web3’s moment will certainly come.

DAOs can also impact centralized organizations: While DAOs have often been seen as polar opposites to traditional companies and organizations, their decentralized and worldwide structure can offer great perks to horizontal development.

Keywords: state of crypto 2022 report, a16z state of crypto 2022 report, andreessen horowitz state of crypto 2022 report, 2022 crypto market, crypto market cycles, most used defi categories, top 3 stablecoins, web 3 gaming, web 3 growth, crypto gaming

[Full Article]

From time to time, the crypto market stumbles upon a report of extreme relevance to the ecosystem; not only because of the insights, but also of the people behind them. Whether it’s ARK Invest, JPMorgan, Goldman Sachs etc, major institutions providing their thoughts on digital assets always make the world news as an important event to follow.

When it comes to innovation and disruptive technologies, few other firms make a better fit for the crypto world than Andreessen Horowitz - also called a16z. A private venture capital firm founded in 2009, a16z was conceived by investor Ben Horowitz and software developer Marc Andreessen; the mind behind 1993’s Mosaic browser - the absolute reference for the internet user experience that we have today, and Netscape - the very first internet company to make global headlines with its unprecedented IPO and set the standard for what was to come next.

Given that technology is a great match with these founders, it makes Andreessen Horowitz’s “State of Crypto 2022” report an even more important deal. With that under consideration, this article highlights the most interesting sections of the document. Keep in mind that a16z has already provided their own version of some key takeaways on their website, so we will be referencing other sections of the document.


The crypto market grows in cycles, driven by loops

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One of the most important sections of the document that has also been discussed throughout crypto sources, a16z drives the point that the market of digital assets always grows in cycles. However, the report doesn’t define cycles as merely “bearish” or “bullish” as most content outlets would, but rather in the following key drivers; price, interest, new ideas and followed by startups and projects.

To Andreessen Horowitz, these cycles have repeated throughout four main phases of growth; which we would call the bullish cycles. First comes the price interest (currently after a bearish phase), followed by new ideas that have long been developed but hadn’t gained much momentum - thus giving birth and exposure to startups and projects. Over the past two waves, which they call 3 and 4 (2017 and 2020), the cycles were marked by the first intensive growth of startup activity - wave 4, over the past two years, saw the crypto market truly take over social media (coincidently, by far the biggest wave).



Lending and exchange projects are the most used DeFi categories

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While DeFi can feel like an infinite ecosystem of continuous innovation (which it kinda is), there are ways to center your attention towards what the market considers to be the most valuable aspects of decentralized finance; according to a16z’s research, that is lending and exchange projects.

Referencing the likes of UniSwap, SushiSwap, AAVE and MakerDao, the venture capital firm concludes that the biggest offer DeFi has in its pocket is still related to what it was initially conceived for; simple crypto lending and decentralized swaps. Previously mentioning how DeFi has aided in worldwide financial inclusion, the conclusion here is somewhat simple; while DeFi will continue to host ever-more-complex and broadening services, its features related to financial inclusion are still the most needed.
The on-chain velocity of the top 3 stablecoins varies immensely, with Tether far behind


This one was quite the surprise by most readers. Tether’s USDT is by far the most utilized stablecoin in the world. With a market cap of $72 billion dollars against USDC’s $53 billion and MakerDAO’s $6 billion algorithmic stablecoin DAI, it’s inevitable that the off-chain velocity of USDT (meaning outside the exchanges) is much much higher than that of USDC and DAI.

However, when looking at on-chain velocity - the speed of the average transaction inside the actual blockchain instead of exchanges - USDT is massively behind USDC’s 60 per unit and more than 50 times behind DAI’s 110 capacity. This basically means that the stablecoin ecosystem is not yet ready for massive decentralized adoption. The most efficient stablecoin only has a $6 billion market cap and is also algorithmic, which presents extra risks on top of supplying enough resources for as many holders as possible.

This inverse correlation of on-chain and off-chain velocity shows the immense need for the stablecoin ecosystem to be further developed if the crypto market is truly looking for sustainable decentralization. If all exchange investors who use USDT decided to move their holdings to decentralized exchanges (DEXs), for instance, the blockchain would be completely congested.


Web3 gaming is just getting started

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While the bull run of 2020 and 2021 saw a massive uptrend in web3 and overall metaverse projects such as Decentraland and Sandbox, crypto gaming itself sort of took a back seat; although the likes of Axie Infinity trended amongst investors, most of the crypto gaming communities were dilluted in several small projects where players looked to make the most gains out of their characters and NFTs. When discussing gaming and web3, Andreessen Horowitz makes it clear that we are still in the very early stages of this market.


While the progress has been slow compared to other vectors of crypto Web3, a16z draws a correlation between innovation in gaming over the last 45 years and global consumer spending. As the above chart shows, gaming adoption was acquired and grown in the following order of hardware: arcades, PC, consoles and mobile. Andreessen Horowitz argues that Web3’s time is still yet to come, and will forever change the landscape for an already-flourishing market.
DAOs can also impact centralized organizations

The horizontal and completely decentralized structure of Decentralized Autonomous Organizations (DAOs) has often been looked at through the lens of being the polar opposite of that of your usual vertical company. However, with DAOs currently holding an accumulated total of $10 billion in treasury assets under management, a16z argues that the innovative structure will eventually bleed into traditional companies.

Through decentralization and a more horizontal hierarchy, companies from all over the world can benefit from new forms of technological development and become hubs of disruptive innovation - with decision-makers coming in the thousands instead of mere dozens, while the value of the company can be transmitted through governance tokens with large incentives for asset allocation.







Author: Gate.io Researcher: Victor Bastos

* This article represents only the views of the researcher and does not constitute any investment suggestions.

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