Andreessen Horowitz (a16z if you’re in the know) manages approximately $50 billion in investor assets, making it one of the largest venture capital funds in the world. But more importantly, the company is very interested in crypto – and it publishes a comprehensive, must-read annual report on the state of crypto. I just read the latest edition and pulled out some timely opportunities for you.
1. Crypto activity hits an all-time high.
According to a16z’s report, there are Never There have been more monthly active crypto addresses. In September, more than 220 million wallet addresses interacted with a blockchain at least once, more than three times more than the previous year. Although one address does not necessarily mean a single user (many people create different addresses for different reasons), the increase is still impressive. In fact, the number of active wallet addresses (orange, in the chart) has increased in recent years as sharply as Internet usage (green) did in the 1990s.
The growth of active crypto addresses since 2018 closely resembles the growth of internet users in the 1990s. Source: Andreessen Horowitz, September 2024, State of Crypto Report.
The opportunity: Solana (SOL) accounted for a large portion of these active addresses (100 million in September alone), making it the most used blockchain by this metric. In addition to this, Solana’s developer community is also growing rapidly. A16z tracked data from thousands of crypto projects, and 11.2% of founders said they rely on Solana or would like to use it. For context, this was just behind Ethereum (20.8%), and more than double the builder. interest that Solana had last year.
Solana, Near Protocol and Base had the largest monthly active addresses in September. Source: Andreessen Horowitz, September 2024, State of Crypto Report.
2. Stablecoins are the “super app” of cryptography.
A16z reports that $8.5 trillion in stablecoin transactions were processed in the second quarter, more than double the volume of Visa and more than 20 times that of PayPal during the same period. Stablecoins are exactly what they sound like: cryptos whose values remain “stable” because they follow the price of regular currencies like the US dollar.
And there’s a good reason why stablecoins have become so popular: you can send them across borders for a fraction of the cost and time it takes to send regular money. According to the report, an international bank transfer costs around $44, while a similar stablecoin move now costs just $1 on Ethereum and less than a cent on Coinbase’s Base blockchain.
Nowadays, Tether’s USDT token holds the largest share of the stablecoin market, followed by Circle’s USDC. These projects buy dollars and other securities – such as US Treasuries – to back their stablecoins against the greenback. And they’re buying a lot of them: Stablecoins are now the 20th largest holder of U.S. debt securities, according to the report. So, rather than posing a “threat” to the dollar, they actually help to strengthen its status as the world’s reserve currency.
Stablecoins own more US debt than Germany. Source: Andreessen Horowitz, September 2024, State of Crypto Report.
Today, Ethereum still dominates the stablecoin market – both thanks to its own blockchain and the “Layer 2” blockchains that give it a hand with the heavy lifting. Think of them as additional lanes on the Ethereum highway, helping to speed up traffic. These layer 2 networks process transactions on their own blockchains and then settle them on Ethereum. They benefit from the security of Ethereum with the speed and cost-effectiveness of Layer 2.
The opportunity: Purchase ether (ETH) seems to be the most obvious stablecoin play. This is because most stablecoin projects run on Ethereum (for its security) and consume ether for transaction fees. In other words, more stable usage of the coin means greater demand for Ether.
And ether could also become increasingly scarce: A16z claims that 29% of all ether in existence is now staked on the Ethereum blockchain. (This is when you release ether as collateral in an Ethereum “smart contract” to earn a return, paid in ether). Two years ago, this rate was only 11%. But with more ether being put into play these days, more of the total coin supply is effectively locked up – leaving fewer buying opportunities for investors.
When it comes to Layer 2 blockchains, Base had 22 million active crypto addresses as of September – the most of any Layer 2 network. It was also just behind Solana in terms of builder interestwith 10.7% of builders looking to work with. Now Base doesn’t have a token that you can buy, but it East A Coinbase (PIECE) product. So, by purchasing the action could be an indirect way to get some basic exposure.
3. DeFi and AI are the next frontier in crypto.
Decentralized finance (DeFi) remains the largest crypto sandbox, generating the greatest development activity (24.8%) and daily crypto usage (34%). And around $169 billion is currently locked in thousands of DeFi protocols – compare that to just a few billion in 2020.
Decentralized finance (DeFi) dominates crypto usage today, followed by stablecoins. Source: Andreessen Horowitz, September 2024, State of Crypto Report.
But now there is a new turning point: around a third of all crypto projects are integrating AI into their applications, which is a sharp increase from last year. And it makes sense: Blockchain and AI both attract developers with an affinity for cutting-edge technologies. AI is now used to automate key DeFi processes (like liquidity management and risk assessment), making the entire ecosystem faster, smarter and more efficient.
The opportunity: The report shows some clear winners emerging in different DeFi spheres. Here are a few you might want to look into (and this article explains them all):
- Pool (LDO) for liquid staking on Ethereum.
- Aave (AAVE) for DeFi lending.
- Uniswap (UNI) for decentralized exchanges.
On the No-DeFi before, Close protocol (NEAR) is becoming a favorite among the AI crowd. Indeed, it is ideal for developers who want to create scalable and data-intensive AI applications. According to the report, 4.2% of crypto developers rely on (or are interested in) Near.
And finally, here is an opportunity that is not mentioned in the report: Chain link (LINK). It validates most data on blockchain smart contracts today, which is essential for DeFi And AI. I wrote more about it here.
If you want to read the rest of what Andreessen Horowitz had to say, here is the original State of Crypto report.
