A16z Issues Its First-Ever ‘State of Crypto’ Report

Venture capital company A16z Andreessen Horowitz rolled out their first 'State of Crypto' report this morning, a detailed PDF available for download. The presentation kicks off with a recap of the internet's evolution, before moving into A16z's insights on market trends, innovations in blockchain, decentralized finance (DeFi), stablecoins, non-fungible tokens (NFTs), gaming, and decentralized autonomous organizations (DAOs)—all gathered from extensive data tracking and interactions with thousands of entrepreneurs. web preview or full free download The first edition of the 'State of Crypto' arrives amid a shift in the industry's landscape.

While cryptocurrency has often been recognized for preserving its value irrespective of real-world economic shifts, recent stock market downturn A16z points out that 'Cryptocurrency and stock values are somewhat linked once you factor in the volatility of crypto.' They explain further that 'Investors and traders tend to approach cryptocurrencies similarly to stocks, resulting in parallel price movements.' Investopedia A16z has crafted the report with clear, engaging language and a lively format, making the data feel accessible and enjoyable. This could indeed be part of a larger strategy to bolster public confidence in cryptocurrency’s reliability, given the firm’s investment role in securing funding for numerous projects.

Nonetheless, the document maintains a tone more focused on providing information than spinning a narrative. The 'State of Crypto' opens with a clear definition of Web3, which is a crucial starting point considering watershed projects in the Web3 space at present.

it’s been noted that Web3 'means something different to each individual you ask.' According to A16z, it represents 'the third phase of the internet, which melds the decentralized, community-driven principles of the first phase with the advanced functionalities of the second.' This transition is poised to unleash an unprecedented wave of creativity and entrepreneurial spirit. CoinDesk 'Currently, there are roughly four or five companies that essentially govern the internet,' remarked Chris Dixon, a leading partner at Andreessen Horowitz, during a recent conference. 'We're on the brink of seeing the internet revert to a 1970s one-to-many broadcast model, where a few networks have control over everything.'

A defining characteristic of Web3 lies in the concept of ownership, which manifests in various forms. NFTs stand out prominently, as blockchain technology enables creators to retain control of their content online, allowing them to monetize their work directly with their audience. A chart on page 40 highlights 2021 revenue averages for creators, totaling $3.9 billion in NFTs, which, while trailing behind Spotify's $7 billion and YouTube's $15 billion, significantly outpace them in terms of average earnings—showing $174,000 per creator as opposed to Spotify's $636 and YouTube’s $2.47. Those numbers speak volumes.

Web3 further empowers individuals through decentralized finance (DeFi) and DAOs, which navigate around traditional financial institutions to provide users direct access to pooling and managing their resources. The report observes that '1.7 billion individuals lack access to banking services,' while 'Of those unbanked, 1 billion own a mobile phone and 480 million are online.' In just the last two years, 'DeFi has surged from almost nothing to a staggering $100 billion.' A16z projects that, if DeFi operated as a bank—though that entirely contradicts the concept—it would rank as the 31st largest globally based on assets under management.

The opening section, 'Market Cycles,' offers a brief acknowledgment of the uncertainties that come with this evolving paradigm. 'The crypto market progresses in cycles,' states A16z, fluctuating through phases of pricing, interest levels, fresh concepts, and startup creation. 'While these cycles might appear unpredictable from an outside perspective, they possess a hidden order.' This highlights the interesting notion that the uncertainty itself could undermine valuations, rather than external forces. 'Ultimately, this yields consistent long-term growth, fueled by a feedback loop of interest and innovation.'

Their concluding insights align with this optimistic outlook, predicting continued enhancements in Web3 infrastructure—especially through the anticipated growth and integration of non-Ethereum Layer 1 and Layer 2 solutions, which should alleviate some of blockchain’s environmental impacts. While many of the other points echo a general enthusiasm, A16z intriguingly observes that users who accrue tokens through gaming and NFTs 'are likely to opt for saving those tokens in DeFi platforms rather than traditional financial institutions due to superior rates and user experiences.'

'Web3 champions a future that is collectively owned rather than dominated by corporate or governmental entities,' A16z states, leaving readers to ponder if a money-driven future really differs—regardless of the currency in play. Nevertheless, money transcends mere figures; it encapsulates value, a concept that eludes precise definition, much like electricity. Power. Consider how you determine what equity signifies for you as we transition towards an inevitable Web3 landscape.

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• Vittoria Benzine, based in Brooklyn, is an art writer and essayist focusing on contemporary art within human contexts, counterculture, and chaos magic. Her work appears in various publications, including Maxim, Hyperallergic, and Brooklyn Magazine.