Binance Research Report: Top Ten Stories of the Return of the Bull Market
By Shivam Sharma
Source of original text:Binance Research
Original title: Are We Attracting a Bull Market? Top 10 narratives to follow
Compiled by Director Cat
The full text is divided into 4 parts: main points, foreword, 10 major narratives, and conclusion. Among them, the top ten stories are: the return of stablecoin supply, the rise in NFT trading volume, the rise in project fee revenue,DeFithe return of,Bitcoin, other L1s,SocialFi, RWAs, ZK, global central bank interest rates.
I. Key points
The total crypto market capitalization increased by more than 110% compared to the beginning of the year, increasing more than $870 billion. The market has risen 55% (approximately $596 billion) since the fourth quarter.
Stablecoin supply has returned, and the quarterly net supply of the top five stablecoins has been corrected for the first time since the first quarter of 2022.
NFT trading volume broke an 8-month downward trend and surged nearly 200% month-on-month in November. Bitcoin became the most popular chain, with over $375 million in NFT transactions on Bitcoin, and even surpassing Ethereum NFTs ($348 million).
The fees for the top 20 crypto projects rose in November, about 84% higher than in October; more than 100% higher than in September. DeFi TVL also showed growth, with DeFi's share of market capitalization rising 18% month-on-month.
Bitcoin has had an epic year, includingOrdinalsand the advent of BRC-20, and revived interest in November. The news of the spot Bitcoin ETF is exciting, the market is expected to approve it in January, and the Bitcoin halving in April is another important point to watch.
Some other L1 blockchains have recently performed better thanEthereum, of whichSolanaAnd Toncoin's performance was particularly outstanding. New agreements have also sprung up in the SocialFi space, such asfriend.techMeanwhile, platforms such as Farcaster, Lens, and Binance Square have also been updated.
The importance of RWA is increasing, and currently RWA accounts forMakerDAOOver 49% of balance sheet assets.ChainlinkIt also hopes to bring the relationship between TradFi, RWA, and cryptocurrencies closer through its new CCIP solution.
ZK technology is in its infancy, and various ZK-rollups have recently been introduced, and research and discussion on ZK coprocessors has been added.
US interest rates are at their highest level in 22 years, and the market expects to cut interest rates next year. China has already begun to cut interest rates, and falling inflation in Europe has prompted investors to start cutting interest rates expected by the ECB.
II. Foreword
After experiencing the climax of 2021, the cryptocurrency market has largely been a construction-centered market for the past few years. As the craze for celebrity endorsements of NFTs, $69,000 in Bitcoin, Dogecoin on SNL, and other narratives subsided, some left the industry while others redoubled their efforts to stick to their vision. In recent weeks, we have seen an increase in market excitement, and some bear market construction results have begun to show, reflected in crypto activities and asset prices.
Although it is still too early to assert that we have returned to the bull market, things are definitely much better than they have been in a while. That's why we've prepared this report to provide our readers with some key stories and metrics to follow over the next few months.
Figure 1: The total cryptocurrency market capitalization has increased by about 110% since the beginning of the year, increasing by more than $870 billion. The market has risen 55% since the fourth quarter (approximately US$596 billion)
III. 10 Key Narratives Worth Watching1. Stablecoin supply returns
Stablecoin supply is a measure of how much money is available to invest in a crypto asset at any given point in time. Recent data shows that the quarterly net change in the supply of the top five stablecoins (by market capitalization) turned positive for the first time since the first quarter of 2022.
Figure 2: Net quarterly changes in the supply of the top five stablecoins turned positive for the first time since the first quarter of 2022
Given that the increase in stablecoin supply is a measure of cryptocurrency capital inflows and an indicator of potential buying pressure, the recent move can be seen as a positive sign. It is worth keeping a close eye on how this indicator develops over the next few months and whether it is a temporary change or represents a more sustained upward trend.
2. Increase in NFT trading volume
Since NFTs can be considered a riskier breed in the cryptocurrency industry, NFT trading volume can be seen as a leading indicator of market sentiment. For example, if we consider Bitcoin as the benchmark asset, then altcoins like Ethereum are generally more volatile, i.e. have a higher beta value than BTC. If we continue down the risk spectrum, we'll eventually reach NFTs, which have much higher beta values than BTC.
The fact that NFT trading volume broke the downward trend and increased significantly month-on-month indicates positive market sentiment and that NFT speculation is recovering, which indicates that NFT prices have begun to rebound after months of sluggishness.
Figure 3: NFT trading volume has broken this year's downward trend and showed significant month-on-month growth in November.
We should also note the significant growth of Bitcoin NFTs (discussed in more detail in the “Bitcoin” section). Their growth is incredible, as shown in Figure 3, especially considering that they were “invented” at the end of 2022 and didn't become popular until March 2023.
Bitcoin NFTs traded close to zero in January, but in November they reached over $375 million, surpassing Ethereum NFTs ($348 million). This is a huge achievement for a chain that has long been deemed unsuitable for apps and NFTs, and we'll be watching developments closely over the next few months.
3. Increase in project cost revenue
As the industry matures and agreements shift to for-profit businesses, the fee revenue generated by the top 20 crypto projects is an important indicator worth watching. Expense revenue has been rising steadily over the past year, growing more than 88% month-on-month in November, compared to zero in January.
Figure 4: Revenue from the top 20 crypto projects (all tracks) rose in November, about 84% higher than in October and more than 100% higher than in September
In terms of cumulative expenses,Ethereum has generated more than $2 billion in total revenue so far in 2023, more than double that of any other single protocol. In second place is Tron, which generated around $8.8 billion in revenue. Ethereum generates revenue by essentially selling its block space. The user who pays these fees can be anyone, fromUniswapRetail traders who trade memecoins, to things likeArbitrumSuch L2 protocols pay fees to Ethereum to settle transactions on it.
DeFi is the second-largest fee generator after Ethereum,Lidoand Uniswap are leaders. Convex, GMX, PancakeSwap, and MakerDAO have also generated over $100 million in fees so far this year,AaveFollowed closely.
In terms of NFTs,OpenSeaSteadily in the leading position, the cost is almost double that of Manifold, exceedingBlurTwice as much. OpenSea's lead over Blur is notable, as we've seen these two major NFT players compete back and forth for the top spot over the past year. While Blur successfully increased its share of the Ethereum NFT market from around 40% to around 80%, while OpenSea dropped from around 43% to around 20%, OpenSea is still leading the way when it comes to fees.
Figure 5: Top 10 fees are dominated by L1 and DeFi projects
Notably, friend.tech, which launched in the summer alone, was among the top 20 deals this year (costing over $50 million). This shows that there are opportunities for products that can generate appeal and hype, particularly in the growing and relatively young SocialFi subdivision.
Also noteworthy is that Arbitrum is the only L2 in the top 20 list (costing over $50 million). This is notable because the ongoing discussions surrounding L2 and the L2 subdivision's narrative are becoming increasingly important. Despite this, only Arbitrum appeared on the list. This might be an interesting metric to consider all the new L2s that have recently been launched or launched.
Overall, fee revenue is a sign of any truly sustainable business. It's clear that some products in the cryptocurrency market can incur meaningful fees, and it's encouraging to see these numbers grow in 2023. Keeping a close eye on which agreements and sub-tracks show the best cost growth will definitely be an important aspect as the market enters the next market cycle.
4. The return of DeFi
After a few months of relatively limited DeFi activity, we're starting to see some activity in this space return. DeFi's total locked value (“TVL”) has risen by nearly 25% since the beginning of the year, and increased 14% month-on-month in November. Since December of last year, TVL has been limited to between $45 billion and $50 billion, so it will be important to monitor whether this latest trend continues and easily crosses the $50 billion mark over the next few weeks and months. Figure 6: DeFi TVL returns
In terms of public chains, Ethereum is still the most dominant player, accounting for more than 56% of the total TVL. Tron accounts for ~ 16%, whileBNB ChainOnly over 6%. Arbitrum (~ 4.5%) and Polygon (~ 1.8%) are the remaining two in the top five. Notably, of the top ten DeFi TVL public chains, four are Ethereum L2s (plus OP Mainnet and Base, in addition to those previously mentioned).
By category, liquid staking ($27 billion) was one of the biggest winners this year, with Lido as the dominant player, with a TVL of over $20 billion. The Shanghai Upgrade (Shanghai Upgrade) allows users to withdraw staked ETH, which was very helpful to Lido, growing its TVL from $12 billion to over $20 billion now. Lending ($19 billion), DEX ($13 billion), and cross-chain bridges ($13 billion) are the next hot categories.
Another chart worth watching is DeFi's share of market capitalization. This is measured by looking at the top ten DeFi coins and calculating their total market capitalization as a percentage of the total cryptocurrency market capitalization. After remaining in the 3.8% to 4.1% range since April, the number began to soar, rising 18% during November and rising to 4.44% at the end of the month. Thorchain, PancakeSwap, Uniswap, and Synthetix are among the main factors driving this move.
Figure 7: DeFi's share is rising
Some key developments worth watching:
MakerDAO will continue to advance its “Endgame” program, and Phase 1 is expected to launch in early 2024.
PancakeSwap recently launched the gaming marketplace and improved the governance system, introducing a new “ve” (vote-locked) token, $veCake.
Synthetix's new product, Infinex, will be launched soon. Infinex is an upcoming decentralized perpetual contract exchange.
The launch of Fluid, a highly capital-efficient multi-tier DeFi protocol from the Instadapp team.
5. Bitcoin, Bitcoin, Bitcoin
2023 was an eventful year for Bitcoin, with new developments in every aspect of the investor community, from the very crypto-native Ordinals (Bitcoin NFT) collectors to more traditional institutional investors beginning to approach Bitcoin ETFs. This is in line with Bitcoin's 162% increase in market capitalization so far in 2023, surpassing most other top crypto assets on the market. Figure 8: Bitcoin's performance so far this year has been very strong
Some of the most important Bitcoin narratives:
A. Spot Bitcoin ETF approval is more likely than ever
While the possibility of a US-regulated spot Bitcoin ETF has been around for a long time, there have been significant positive developments in 2023. In particular, the dispute between the US Securities and Exchange Commission (SEC) and Grayscale over converting their Grayscale Bitcoin Trust (“GBTC”) into a spot Bitcoin ETF is essentiallyGrayscaleIt ended with a win. This has led several other players, including the likes of BlackRock, Fidelity, and Invesco, to submit spot Bitcoin ETF applications in recent months. All in all, 13 spot Bitcoin ETF applications are currently under SEC review, with the earliest final deadline in January 2024 and August 2024 at the latest. The market generally expects these ETFs to be approved in the next few weeks or months, particularly given the SEC's case results against Grayscale and the ongoing re-submission and modification of ETF applications by each applicant to maximize the chances of approval. Figure 9: Most of the deadlines for SEC decisions on spot Bitcoin ETFs occurred in the first quarter of 2024, beginning in January
If approved, a spot Bitcoin ETF would address two major drivers of Bitcoin adoption: convenience/accessibility and mainstream acceptance. The launch of spot ETFs will provide a simple, compliant, and widely accepted way for many institutional investors to add Bitcoin exposure to their portfolios and improve distribution. Support from global asset management giants like BlackRock, Fidelity, and Invesco will enhance Bitcoin's image as a legal asset class and help allay new investors' concerns about regulatory/compliance. This is expected to result in a significant increase in capital and user inflows into Bitcoin, from institutional investors who were previously excluded and possibly new retail investors who were previously cautious.
A recent study by Galaxy made a fairly conservative estimate of the cash inflow for spot Bitcoin ETFs at the end of the first year, at $140 billion. Additionally, we can consider case studies of spot gold ETFs. Specifically, the first US-listed spot gold ETF was launched in 2004, and investing in gold until then was very difficult. After the ETF was launched, the price of gold rose for seven consecutive years. This indicates that gold is seriously undervalued due to a lack of suitable investment tools. While it's not directly comparable to Bitcoin, it's worth considering whether we'll see a similar trend in Bitcoin if spot ETFs do get approved in the near future.
In fact, recent cryptocurrency exchange-traded product (“ETP”) data shows that capital inflows have continued to grow. Although much of this data is retail driven, the CoinShares team is also seeing a rise in institutional interest. Furthermore, the increase in capital inflows to cryptocurrency ETPs (including products such as ProShares' Bitcoin Futures ETF and Bitwise 10 Crypto Index) also indicates that investors want to gain exposure to cryptocurrencies through more traditional regulatory methods (as opposed to using centralized or decentralized crypto-native exchanges). Digging deeper into the CoinShares ETP data, we can see that Bitcoin ETP has more than $1.6 billion in capital inflows this year, making it the most popular asset so far. Since the beginning of the year, total assets under management (AUM) have grown by more than 100% to reach $46.2 billion, the highest level since May 2022.
Figure 10: Global cryptocurrency ETP inflows increased markedly in October and November, with Bitcoin accounting for the highest share of assets so far
B. The upcoming Bitcoin halving
Bitcoin miners are rewarded through two mechanisms: block rewards and transaction fees. Block rewards have traditionally accounted for the majority of miner revenue, and transaction fees have only recently shown a trend of increasing transaction volume (after the launch of Ordinals). If a new block is mined on average every 10 minutes, these block rewards are paid out and halved approximately every four years. When the Bitcoin blockchain first launched in 2009, the block reward for each block was 50 BTC. After halving in 2012, 2016, and 2020, the block reward is currently 6.25 BTC per block. This figure will be halved to 3.125 BTC/block in April 2024.
Figure 11: Bitcoin mining rewards are cut in half approximately every four years. The next halving is expected to take place in April 2024.
Since Bitcoin is an asset with a fixed issuance limit (21 million), halving will slow the generation rate of new bitcoins by 50%. Basic economic principles determine that price increases are the natural next step. The halving essentially created a scarcity for Bitcoin and further strengthened the Bitcoin narrative as digital gold. Historically, the halving event itself was linked to increased market volatility, although the overall cryptocurrency market generally performed well in the years after the halving.
C, Ordinals, and Incomes continue to grow
One of Bitcoin's most notable developments in 2023 was the advent of Ordinals and Inclusions. Casey Rodarmor's “Ordinal Theory” allows tracking of individual Satoshi (the smallest unit of Bitcoin) and assigns each Satoshi a unique identifier. These single Satoshi can then be “engraved” with whatever you want, such as text, images, videos, etc. This created an “inscription,” or what soon became known as a Bitcoin NFT. Figure 12: The total number of Bitcoin inscriptions nears 50 million after the recent rebound in November minting
Incentive led to the birth of the BRC-20 token, which made it possible to deploy, mint, and transfer fungible tokens on Bitcoin for the first time.
After the initial market frenzy when Ordinals and BRC-20 first launched, the market cooled down a bit. However, there was a clear recovery in activity in these markets in November. The total number of inscriptions increased 362% from the October low and set a record monthly high of over 8.3 million. In addition to the upcoming Bitcoin halving (which will also reduce miner revenue), the inscription is costing miners more than $1.4 billion, which is a welcome addition to Bitcoin, which has traditionally had low transaction fees.
Perhaps most important is the potential excitement and innovation generated by Ordinals within and outside the Bitcoin ecosystem. Many new builders are flocking to Bitcoin, many existing projects are being updated at a faster pace, and all kinds of new ideas are currently circulating within the Bitcoin community.
A recent example is Taproot Wizards' $7.5 million funding, an Ordinals project themed around the famous Bitcoin Wizards meme. The impact of Ordinals and BRC-20 on increasing transaction fees and congestion on the Bitcoin network has also helped rediscuss Bitcoin Layer-2 (“L2s”). Notably, the Bitcoin project Stacks and its upcoming sBTC solution to create a decentralized, uncustodial Bitcoin L2 is an interesting development to watch. All in all, between spot Bitcoin ETFs, Bitcoin halving, and the innovations brought by Ordinals, it's clear that Bitcoin is in an exciting period in its history that deserves close attention.
6. Other L1 developments
Although Ethereum still dominates with most typical metrics, the L1 alternative has also shown growth prospects over the past year.
Figure 13: Some other L1s outperformed ETH in the past year
Solana is the most notable leader, especially recently, when SOL's market capitalization increased by around 56% in November.
➢ Solana enjoyed 2022FTXThe impact of the crash, but after going through the whole event and continuing to release new products and improvements, the project regained optimism. Additionally, while Solana experienced several network outages in 2022, there has only been one similar incident so far this year (February). These events are expected to be further reduced next year with the upcoming release of Firedancer (a new independent validator client).
➢ Solana DeFi performed well in November, with TVL growing 57% from $418 million to over $650 million, surpassing any other major public chain. This is consistent with recent airdrop activity and attention from Oracle project Pyth Network, DEX aggregator Jupiter Exchange, and liquid staking provider Jito Network associated with MEV. Additionally, several other major DeFi projects, including MarginFi and Kamino Finance, have implemented (or implied) points systems. User activity generates points, and many in the community think this may be a factor in the upcoming airdrop of these agreements.
Toncoin also performed well, and the announcement of their partnership with Telegram was a major recent highlight.
➢ The partnership announced in September meant that Telegram would fully rely on TON as its web3 blockchain infrastructure and integrated TON Space, a self-hosted web3 wallet for all of Telegram's 800 million monthly active users. Additionally, the TON project and ecosystem partners will benefit from in-app promotion within Telegram and priority display on its advertising platform. ➢ Recently, the game/metaverse VC Animoca Brands announced an investment in the TON Foundation and become the largest validator on the TON chain.
All other major L1sNumerous other announcements and developments have also appeared. Ethereum successfully enabled staked ETH withdrawals after the Shanghai upgrade, becoming a largely deflationary asset, and gave birth to huge DeFi markets such as liquid staking and LSDFi.
BNB ChainThe ecosystem continued to grow and released important announcements such as BNB Greenfield (a next-generation data storage platform) and opBnB (an optimistic L2 for BNB Chain based on OP Stack).AvalanchePartnerships continue to be announced, particularly in the field of gaming and RWAs. Their recent partnership with J.P. Morgan's Onyx and Apollo Global is a notable move.CardanoEfforts continue to expand and develop Hydra and Midnight, an upcoming sidechain focused on data protection.TronIt remains the public chain with the largest circulation of USDT, and continues to be an effective way to send USDT payments between users and businesses.
7. The advent of SocialFi
Social media apps have long been considered potential partners for blockchain technology and cryptocurrencies. In 2023, there was product-driven growth in this sub-sector of the crypto economy, and friend.tech in particular attracted the attention of many.
friend.tech, a SocialFi dApp, first launched on Ethereum L2 Base in early August. friend.tech basically allows users to trade tokenized shares (called “Keys”) of Twitter profiles. Holding a Key gives you access to exclusive content and private chat rooms with the profile owner (called “Opinions”). Users pay transaction fees, part of which is used for agreements and part for agreements. friend.tech has generated more than $25 million in total agreement fees since its launch. They've also been running an activity-based points system, which is rumored to be linked to potential future airdrops.
After experiencing huge hype in August and September, daily activity has slowed in the last two months. Despite this, the product is still in beta and is about to be fully rolled out. Perhaps most importantly, the attention and attention friend.tech was able to gather, including from non-crypto influencers, is encouraging and shows the potential that web3 social apps can reach. Figure 14: friend.tech Daily Transaction Volume (LHS) and Daily Agreement Fee (RHS)
Another web3 social app worth mentioning is Farcaster. Farcaster is a decentralized social media protocol running on the Ethereum L2 OP mainnet. In October, the agreement opened up unlimited registrations (no longer by invitation), and daily participation has grown dramatically since then. Farcaster aims to promote a community platform driven by high quality discussions. To that end, they've been hosting the Farcaster AMA series recently, inviting various high-profile guests, including Balaji and Vitalik Buterin.
Figure 15: Farcaster's unique daily interactions have steadily increased since opening the platform in October
Another notable web3 social media platform is Lens Protocol. The platform was built by the Aave team, deployed on Polygon, and has shown great interest in NFTs and is aimed at creators and artists to some extent. After first launching in early 2022, they announced the v2 release earlier this year. New features include “Open Actions” to help embed external smart contracts in Lens publications, improved value sharing opportunities, and a new series of profile-related updates (called “Profiles V2”).
The launch of Binance Square is also noteworthy, providing crypto users with a new platform to exchange views and opinions, as well as a channel to learn about the latest news events.
8. rWAS enters the encryption system
Real world assets (“RWAs”) are a collective term used to describe assets that exist in the physical world off-chain and are tokenized and purchased on-chain. Examples of RWA include real estate, bonds, commodities, stocks, etc. While tokenizing assets and bringing them on-chain has long been discussed, there have been some particularly notable developments this year.
A, MakerDAO
Maker, the protocol behind the stablecoin DAI, has been involved in RWA since at least 2020 and experienced significant growth in 2023. As a quick overview, Maker allows users to deposit collateral into their vaults and lend an equivalent amount of DAI debt. Although once only ETH was accepted as collateral, this has expanded to other assets, including stablecoins, wrapped BTC, liquid pledged derivatives (“LSDs”), etc. Maker also provides RWA collateral in exchange for DAI loans to MakerDAO approved borrowers. Borrowers include Huntingdon Valley Bank and others, who have a $100 million RWA mortgage treasury with Maker. Figure 16: MakerDAO's RWA balance grew more than 300% this year to over $2.6 billion
Currently, RWAs account for more than 49% of Maker's balance sheet assets, compared to only around 12% at the beginning of the year. A large portion of these RWAs are US treasury securities, and they have reaped high returns over the past 18 months or so due to an environment of rising interest rates. This means that Rwas currently accounts for more than 60% of Maker's revenue, and Maker's revenue itself broke through a record high of $200 million (annualized) in early November.
B, Chainlink and CCIP
Known for its network of oracles, Chainlink is a web3 infrastructure company that provides a range of solutions. This includes their data flows, functions (connecting smart contracts to APIs), automation (smart contract automation), etc.
The Cross-Chain Interoperability Protocol (“CCIP”) is a notable new development. CCIP is a decentralized cross-chain message/data transfer protocol. CCIP's goal is to create a shared global liquidity layer where all blockchains can connect to each other, whether they are public or private TradFi chains.
Chainlink hopes CCIP can help build a value bridge between TradFi and cryptocurrencies and improve interoperability between these two worlds. Integrating rWAS more closely into the blockchain is a natural part of this process.
One major advantage of CCIP is that it allows users to define their goals using their existing APIs and messaging services, connect to CCIP, and then trade on the chain.One of the key integrations CCIP has established is integration with SwiftSwift is a messaging service used by over 11,000 TradFi institutions around the world to communicate. Since Swift can communicate with CCIP, it helps reduce friction when connecting TradFi to the blockchain and is expected to help further integrate RWA.
Figure 17: How the global banking industry uses CCIP to access web3
We've already seen the launch of CCIP's Early Access Mainnet, and expect more progress in the coming weeks. We've also seen examples of cooperation with institutions such as ANZ Bank (ANZ Bank), as well as a large group of major banks and financial institutions, including Citibank and Bank of New York Mellon. CCIP and the institutions it can attract will be an important development trend in the coming months.
9. ZK-everything
The growth of ZK technology has been a big topic of conversation in the crypto space for many years. However, 2023 saw significant ZK-related initiatives, including a series of ZK-rollup releases. Some of the key developments include:
As a quick recap, there are two types of L2 rollup solutions: optimistic rollups and ZK rollups. **Although optimistic rollups currently account for most of the L2 market share, ZK rollup is growing rapidly and is widely regarded as a plan for future expansion. This is because they rely on Zero-Knowledge Proof (“zKPS”), an extremely efficient method of proving the validity of transactions, and has many different applications in the field of cryptography.
One reason ZK Rollups didn't become popular until this year was their previous lack of integration with Ethereum EVM. Since EVM is the dominant smart contract engine in the market, early ZK rollups couldn't support it in a simple and easy way, which gave optimistic rollups an advantage (they are EVM compatible). However, zkEVM changed that. zkEVM is a special ZK rollup that allows smart contracts to be easily deployed on EVM, enabling developers to easily port EVM dApps to their zkEVM.
There have been many zkEVM releases in 2023, starting with zkSync Era and Polygon zkEVM in March, followed by Linea and Scroll. Another pioneer of ZK technology, StarkNet also has a ZK rollup in production, and Kakarot zkEVM brings EVM compatibility to Starknet technology. Taiko is another upcoming zkEVM, which is expected to launch early next year.
Rollup as a Service (“RaaS”) providers have also seen strong growth in recent months. While many providers initially focused on optimistic rollups, the zkRAas sub-sector is also growing, with companies such as AltLayer, Gelato, and Lumoz leading the pack. This could lead to more ZK rollups entering the market next year.
Figure 18: TVL for major zk-rollups
In addition to rollups, there are various other applications of ZK technology. One key example to come is the ZK coprocessor. The basic idea behind the ZK coprocessor is that it is a tool that dApps can use to move data-intensive and expensive computations off-chain. This allows dApps to keep user gas costs low while allowing them to run more complex functions and calculations for a better user experience. Thanks to the use of ZK technology, dApps can still benefit from the complete security of Ethereum even if some computations are moved off-chain.
An analogy is that in a computer, a graphics processing unit (“GPU”) acts as a coprocessor to the computer's basic central processing unit (“CPU”).
In web2, many of the top apps are highly data-driven, meaning they capture previous user behavior and use data to shape the user experience. For example, consider web2 mobile games. When users play games, games can record data, record it in a centralized database, and use it to inform future decisions, such as when to provide rewards, when to send you push notifications, what kind of rewards you get based on your purchase history, etc.
Web3 dApps can't really provide this kind of service because storing data and running queries through it to use it are expensive on-chain tasks. This is a simple example of how many current web3 dApps are limited when executing fully on-chain. Being able to use the ZK coprocessor to move some of these expensive computations off-chain could help unlock the next generation of web3 dApps.
Use cases include on-chain gaming, DeFi loyalty programs, variable incentive programs, digital identity, and KYC.
The recently released alpha version of the new ZK protocol Succinct is also an interesting development.
Succinct provides a platform for developers to discover, collaborate, and build applications using ZK technology. As part of the platform, developers can use the Succinct protocol, an infrastructure layer designed to make ZK development more coordinated and seamless.
One notable recent collaboration is with Avail, a data availability solution. Other upcoming collaborations include Lido and Celestia.
10. Will global interest rates fall?
From a macroeconomic perspective, interest rates are one of the most important factors affecting asset valuations. Take the US as an example. The higher the benchmark interest rate set by the Federal Reserve (Fed), the higher the risk-free returns investors can get by investing in ultra-safe government bonds. Naturally, this has reduced the interest of many investors in volatile investment options such as tech stocks and cryptocurrencies, as they only need to go through government bonds to get good returns on capital.
Figure 19:US interest rates are at their highest level in 22 years, and the US has experienced one of the fastest interest rate hikes in history
To encourage consumer spending during the pandemic, the Federal Reserve set the benchmark interest rate at 0-0.25%, causing inflation to rise rapidly, then the Federal Reserve began a historic plan to raise interest rates from 0-0.25% in March 2022 to 5.25-5.5% in July 2023. However, interest rates remained unchanged at the last two meetings of the Federal Reserve. Although inflation is still above the Federal Reserve's 2% target (3.2% in October), it is still significantly below the 2022 5-8% level. Furthermore, the latest Federal Reserve forecast indicates that interest rates will fall in 2024 and 2025, which means that interest rates may have peaked or are close to peaking.
Furthermore, other countries have begun to cut interest rates. The People's Bank of China has cut bank reserve ratios twice this year, while also cutting interest rates on one-year loans. Falling inflation in Europe has also prompted investors to start expecting the European Central Bank (ECB) to cut interest rates early. While this is only one part of the overall macroeconomic picture, it is an important part. As global interest rate cuts come into effect, investors naturally need to look for opportunities to reap returns outside of government bonds. The impact of interest rate cuts on high-growth industries such as technology and cryptocurrencies cannot be ignored. At the very least, this will be a positive factor for the cryptocurrency market, while other web3 developments are still in full swing.
IV. Summary
The past few weeks have been full of surprises, and a welcome change from the construction-centered pace of previous months. As the noise gets louder and new entrants join the market, things get even crazier, making sure you're tracking the right metrics and following the stories that matter is critical. We hope this report will serve as an introductory guide to some of the most relevant discussion points and numbers that we can refer to as we look forward to 2024.
