Hey fam!

If you needed a beacon of hope in web3, Andreessen Horowitz’s 2023 State of Crypto Report is it. 

This is the second edition of what is probably the most comprehensive report on what’s happening in the world of Web3. If you missed the inaugural report, don’t worry – we wrote a similar post this time last year that included key takeaways from it… most of which continue to bode true.  

Now if you’re not in the tech & venture capital world, you may be wondering… what is Andreessen Horowitz (a16z) and why should we care what they think? Well, with $35 billion in assets under management, a16z is one of the most prominent and successful venture capital firms in the world. They also know a thing or two about crypto, having announced the raise of a $4.5 billion crypto fund last year in May. Since that fund announcement, they’ve invested across web3 infrastructure, NFT projects, scaling solutions, and more. 

This week, we’ve done the hard work of breaking down some of the most interesting topics in their (very, very long) report so you don’t have to. Tap in with us to see what a16z has to say about the space this year, and our thoughts on all of the predictions… 🚀

Our take on two of a16z’s trends to watch 👀

Trend 1: The world’s biggest brands are exploring web3, beginning with NFTs.

Seeing established brands adopt NFTs as part of their strategy–whether to elevate their loyalty programs or create verified collectibles–makes us optimistic for the future of web3 (check out the post we wrote months ago on Starbucks & Gucci entering the web3 chat). But it also raises the question of what types of companies are going to integrate web3 in their strategy in a way that’s mutually beneficial to both the company and the consumer? As we all know, the brands pictured above are largely consumer companies that currently sell physical products, but there are other companies and platforms creating “web3 strategies” that are actually in direct opposition to everything web3 stands for. *cough* certain big tech companies *un-cough*… oops, who said that? 🥲

We need to be critical of why and how companies who are not web3-native are exploring the space– especially some of the major tech platforms that have a history of being exploitative of its users and platform contributors (i.e. creators, influencers, user data, etc). But for now, we’re loving the work that brands and consumer companies are doing to modernize and provide benefits to their users. 

Trend 2: Web3 games are a huge opportunity to welcome new users to crypto

It’s no secret that gaming will be one of the driving forces of mass adoption over the next 5-10 years. This is largely because there are over 3 billion gamers across the world, according to DataProt. Yes, 3 billion. This number of players and the market are expected to grow rapidly over the next few years: from $4.6 billion in 2022 to $65.7 billion by 2027.  

Part of the reason gaming will lead the way in adoption is because people who play are used to navigating digital worlds and the economies that come with them. However, there are two important things to consider: 

1. Which demographics of consumers will be ushered into web3 through gaming? Just because there are a lot of gamers doesn’t mean everyone is a gamer. The demographic of gamers skews largely towards men and people with access to technology. On top of that, popular NFT games are pay-to-play, meaning if you can’t afford to play the game, and it’s not cheap, you’ll be left on the sideline. So how can we ensure the mechanisms that are increasing adoption are doing so for all people in an equitable way?

2. We live in a largely mobile-first society, but games are primarily played on desktops.  This past summer, Chad worked at Google Play to help develop their NFT strategy and one of the biggest challenges they’re considering is onboarding friction (we wrote about this broader topic last week!). They were specifically looking at the transition from games being played on desktops and large consoles to being played on our phones, and how we go about reconciling this in web3. Developments with wallets will likely help drive the mobile-friendly web3 games forward, but we can’t promise that the gaming experience on your phone will be the same as on a laptop.  

We don’t have the answers, Sway. But these are the types of questions and insights that came to mind for us as we read through the reports and predictions. 

Web3 for the Culture 🤝 a16z’s views of the crypto market

We were really excited to get our hands on that 60 page report that came out last week. And when we saw that we agreed with a lot of it (like stuff we've already talked about in our newsletters), we were pretty stoked. So, to save you some time, we're gonna highlight some other cool parts of the report that we thought were worth sharing. 

More people are using the blockchain. 

2021 was a wild ride for crypto and prices have finally started to stabilize. Why? People are using web3 differently and engaging actively with blockchain and web3 apps. In fact the number of active addresses is up because of things like easier onboarding for apps (e.g., making addresses for users without needing to download a wallet), better tooling, and better scaling technologies. It’s no wonder that the total number of blockchain transactions has increased by over 50% in the past two years.

NFTs are having (another) moment.

Where the NFT haters at?? Listen up - NFTs and DeFi are making a comeback! After fizzling out in 2021, people are finding more ways to use them, like lending, remittances, and collecting cool digital art and gaming items. 

And this also means even bigger news for creators! In the past two years, NFT marketplaces paid creators almost $2 billion in royalties from secondary sales, compared to only $1 billion earmarked for creators by Meta (that’s Facebook, Instagram, and WhatsApp) for the next year. Crazy, right? But we knew that - checkout our newsletter on royalties. And get this, web3 take rates are actually going down over time. We expect to see more awesome stuff happening soon.

It’s still Builders’ Season!

When we said it's Builders’ Season, we meant it (checkout that newsletter here)! There’s still a lot of development happening in crypto, no matter what the prices are looking like. There are nearly 30K active monthly developers in crypto, 60% more than what we saw at the start of the 2020 bull run. But it doesn’t stop there. Nearly 50K unique addresses deployed smart contracts last month (40% higher than last year). And this is all good news because the more contracts that are built, the more projects are in motion. The more projects, the faster the technology can continue to grow.

Emissions are down so it’s time to scale.

Last fall, we saw a huge advancement in the blockchain community - the long-awaited “Merge”. Ethereum shifted from proof of work to proof of stake (learn more about it here), and as a result cut its energy consumption by 99.9%. It now uses 0.001% of the energy that YouTube consumes annually!

Trust the process—Web3 innovations are still changing the game.

“It’s still early, it’s still early” - said everyone, including us, about where we are with Web3. And it’s true, we may not be in Kansas anymore, but we’re definitely not at the very beginning of the yellow brick road. 

a16z emphasizes that we need to focus less on traditional financial cycles because great products are built regardless of financial ups and downs. Instead, it’s more of a product innovation cycle - more people prices and development activity are intertwined in a positive feedback loop, leading to greater adoption in the long term. We’ve seen four technological waves since Bitcoin's inception in 2009, and many indicators suggest steady upward trends are on the way. 

Did we miss anything interesting in this report? Let us know in the comments. Until next time!

— Chad & Kendall