Noted venture capital firm Andreessen Horowitz (a16z) revealed its second annual “State of Crypto” report on Tuesday, emphasizing the strength of Web3, blockchain infrastructure and a price-innovation cycle that makes the bear market an ideal time for developers.
The firm also debuted its new State of Crypto Index, an interactive tool that provides a snapshot of the industry on a monthly basis through 14 technology-focused metrics.
“Our 2023 report aims to address the discrepancy between the cacophony of fleeting price movements– and the data that monitors the signals that matter, including the durable growth of Web3 technology. Overall, the report reveals a healthier industry than market prices may indicate, and a steady cycle of development, product launches, and ongoing innovation,” wrote a16z’s Daren Matsuoka, Eddy Lazzarin, Robert Hackett, and Stephanie Zinn in an accompanying blog post.
The report states that the headline-grabbing scandals and collapses of the past year have shown the ineffectiveness of centralized systems compared to the open, resilient nature of decentralized infrastructure. A16z notes that Web3 is “more than a financial movement, it’s an evolution of the internet” and it progresses the internet through “crypto computers, not crypto casinos.”
A16z highlights the advantages of Web3 over prior technological models, such as decentralized blockchain networks, the community-governed nature, the lack of power consolidation among corporations and value occurring to network participants.
Web3 adoption is still in its infancy, and decentralized finance (DeFi) and non-fungible token (NFT) metrics have settled down after declining from record highs in 2021, the report says. Gaming has been particularly strong: 700 Web3 games launched last year, and games now generate 23 times more on-chain transactions than DeFi.
Last month in the broader crypto industry, there were more than 15 million active addresses, the most a16z has ever tracked and more than double the number seen in March 2021.
The price-innovation cycle claims that market downturns draw in more devoted developers to the crypto space and then the enthusiasm around those projects begins to drive asset prices upwards.
“Product cycles are where new things that lead to consistent and more robust growth over many years are taking place, regardless of financial cycles,” A16z CTO Eddy Lazzarin told CoinDesk in an interview.
A16z underlined the ongoing advances in blockchain infrastructure. Key factors include new layer 1 chains that enhance scalability and programmability and layer 2 scaling solutions, such as optimistic and zero-knowledge rollups. The firm has a positive outlook on zero-knowledge proofs, a method of computationally verifying that a transaction is valid.
