As one of the most active crypto VCs, HashKey Capital regularly analyzes each Web3 space internally. In the first half of 2024, we “open-sourced” our internal space analysis and insights as our contribution to the industry.
The authors of this article are (in alphabetical order): Arnav Pagidyala, Harper Li, Jack Ratkovich, Jeffrey Hu, Junbo Yang, Jin Ming Neo, Stanley Wu, Sunny He, Xiao Xiao, Yerui Zhang, Zeqing Guo.
Ethereum
Zero Knowledge
ZKVM ZKEVM
In the first half of 2024, we observed that more and more ZKEVM projects began to turn to the ZKVM architecture, represented by the PSE team under the Ethereum Foundation. Taiko is already working with Risc 0s ZKVM, and Scroll is also preparing in this area.
The catalyst for this shift was Plonky 3, which outperformed Halo 2 (although with slightly less stability) and improved the user experience.
The virtual machines currently available in this field include: ZKWASM, Succincts SP 1, a16zs JOLT and Risc 0. In addition, Polyhedras ZK Prover performs well and plans to develop virtual machines in the future. Aztec and Mina are also developing their own virtual machines, but have not yet released their performance benchmarks.
The key factors driving wider adoption will depend on multiple aspects, such as proof cost, proof efficiency, and development time. It is generally believed that zkVM is well suited for building and deploying verifiable applications and deserves further attention.
ZK Middleware
In terms of middleware, we see that the proof verification system is still very active. Brevis, Alignlayer and Nebra are all working with Eigenlayer to obtain security. Since zk proofs are relatively expensive, the market is gradually turning to a hybrid solution of OP and ZK to improve proof efficiency. In terms of applications, catalysts such as verifiable AI and verifiable off-chain data will bring more application needs, and we can keep an eye on these innovative areas.
MEV, chain abstraction/account abstraction, intent
MEV development dynamics:
●At Flashbots, the team has been experimenting and developing products that leverage Intel Software Guard Extensions, most recently experimenting with using Trusted Execution Environments (TEEs) on the Ethereum Virtual Machine for privacy-preserving computing. These use cases include storing and processing sensitive data, and ensuring that bidding auctions are protected from tampering and data leaks.
●Fully Homomorphic Encryption (FHE) also emerges as a potential solution to combat MEV as it always keeps data encrypted, eliminating the possibility of selective reordering.
Block Builders
According to relayscan data, the block building market has become highly concentrated in a few builders, including some high-frequency trading companies known for meeting their own trading needs. Currently, beaverbuild, titan builder, and rsync builder are the most dominant and profitable builders in the market. This centralization phenomenon has triggered further research on the design of block auction mechanisms to maintain Ethereums censorship resistance.
Relay
Relay still plays a vital role in block supply, with more than 90% of blocks transmitted through relays. Titan builder launched Titan Relay this year and has grown rapidly since its launch.
Generally, when evaluating Relay, you need to consider the following factors:
-Performance and reliability, which can be analyzed through metrics such as online time, latency, and bid failures.
-The scalability of a Relay refers to its ability to serve a large number of validators.
In the MEV track, we have previously invested in many successful projects, including Primev, the inventor of preconfirmation, Titan, the leader in the block construction market, and FastLane, one of the few successful MEV systems besides Flashbots. In the next stage, how MEV-related projects can achieve value capture and how to successfully design tokens are more critical issues.
Chain abstraction and account abstraction:
Chain abstraction is a persistent and key concept to achieve mass user adoption, aiming to improve the user experience so that users do not perceive the existence of the blockchain or even know which chain they are using. As one of the early pioneers in this field, NEAR has launched a multi-chain signature feature that allows an account to be used across different chains. Supported chains include: Bitcoin, Ethereum, Cosmos Ecosystem, Dogecoin, XRP Ledger, TON Network, Polkadot, etc.
You can refer to the CAKE framework proposed by Frontier.tech, which includes the permission layer, solver layer, settlement layer, etc. Among them, account abstraction (AA) can also be included in the permission layer. The AA field is mainly divided into two categories: smart contract wallets and modular services. As we mentioned in the 2023 field review, smart contract wallets play a vital role in providing a seamless user experience through intent-centric design.
Notable advances in this area include:
-The number of AA accounts has exceeded 12 million, and the number of UserOps calls has exceeded 49 million times.
-The number of weekly active smart wallet accounts is also on the rise, with Polygon still the network with the most smart accounts. Another popular platform is Base, which may benefit from the launch of the Coinbase Smart Wallet, which has compatibility.
With EIP-7702 included in Ethereums Pectra upgrade, this will bring a more seamless and user/developer-friendly experience, as it aims to improve on previous account abstraction (AA) designs such as ERC-4337, which are expensive and do not have native support for converting EOA (externally owned accounts) to smart accounts. Therefore, it is possible to focus on whether improvements at the infrastructure level can bring new applications.
In addition to AA, other areas of focus in this field include policy engines, intent frameworks, preconfirmation, etc. Relevant projects in the intent field are still under active development, and their specific performance and PMF remain to be seen.
Bitcoin
Bitcoin Rollup attracted a lot of attention early on. However, interest seems to have waned over time, which we observed at the Bitcoin Asia event. Fewer projects have emerged, and fundraising has become difficult in the current environment. Despite this, we have still witnessed some significant technological breakthroughs, such as BitVM. Some Rollup projects are exploring integration with BitVM. BitVM has recently innovated rapidly, such as the creation of the BitVM cross-chain bridge. The bridge can be used for large cross-chain transactions, while smaller transactions are expected to continue to rely on multi-signature or HTLC exchanges for greater economic efficiency. For more details, please refer to previous research.
Overall, despite the challenges facing Rollups, technological developments like BitVM may still provide opportunities for Rollups, such as interoperability.
Yield-oriented Bitcoin strategy
Yield-oriented strategies are also gaining attention, with more and more projects offering wrapped BTC to holders, giving users benefits while also making it easier to generate TVL. For example, projects like Mezo integrate multiple products, with Rollup being just one of many components, and other products like tBTC and Acre’s stBTC (liquidity staking).
We continue to be cautious in this space, investing in teams with clear technological advantages, a clear market strategy or a proven track record of success.
Asset protocols: BRC 20, Runes, Atomicals, RGB, Taproot Assets
The performance of BRC-20 tokens remains weak, ORDI has performed poorly compared to the beginning of the year, and the overall BRC 20 has not found many highlights and improvements. Although Runes attracted strong attention after the Bitcoin halving, this interest has gradually faded. This is consistent with the trend of declining network activity and fees. The integration of Taproot assets with the Lightning Network may rekindle market interest and momentum.
Overall, assuming Bitcoin asset adoption continues to grow, infrastructure providers that serve this growing asset class could become attractive investment opportunities.
Bitcoin Staking
Staking (restake) is a feature that was not originally available in Bitcoin, but was later modified. The emergence of this track is also because it can be regarded as solving two problems: the demand for BTC interest on the capital side and the need for the product side to be bound to the Bitcoin main chain.
Staking can be roughly divided into three categories according to the slashing mechanism:
Will slash the principal: Babylon is an example of this approach
Interest slashing (lost earnings opportunities): CoreDAO is primarily concerned with slashing potential earnings, rather than slashing principal.
No slashing: This category includes self-hosted second-layer networks (such as Rollups that aim to increase TVL and promise returns) and financial projects like BounceBit, where users Bitcoin is managed by an asset management team to generate returns.
Babylon, the earliest staking (restake) track, has formed its own ecosystem. Basically, many Bitcoin-related applications will consider using Babylon to achieve relevance to the main chain. Staking-related projects in the Babylon ecosystem mainly focus on achieving auxiliary functions. For details, see the Babylon Ecology section.
This track is expected to be similar to EigenLayer, with some applications and infrastructures being modeled. The market performance and ecological development need to be further observed after the mainnet is launched. For example, the Babylon mainnet reached its upper limit shortly after its launch. We remain optimistic about the future development of Babylon.
Bitcoin DeFi, MEV
BTCFi: There have been quite a few projects recently related to Bitcoin financial applications (BitcoinFi, BTCFi). Currently, the applications that can be seen are still focused on lending and stablecoins. Using multiple methods, such as locking assets on Bitcoin and processing logical issuance assets on L2, or choosing different asset issuance methods, will lead to different trade-offs.
Wrapped BTC: WBTC, tBTC, FBTC, and SolvBTC have attracted significant attention recently. We expect competition in this space to intensify. For example, Solv Protocol has witnessed huge demand through extensive partnerships, DeFi integration, and cross-chain composability, leading to over 13,500 Bitcoin staked on the protocol. As more and more projects seek to utilize Bitcoin in DeFi applications, we expect competition in this space to intensify further.
Bitcoin DEX and related applications: On-chain DEX still mainly uses PSBT, while some projects such as Satflow use pre-confirmation strategies in the memory pool, although this approach is at risk of being replaced.
MEV: The activation of RBF and the introduction of new types of assets have led to a more active MEV scene on Bitcoin. Projects like Rebar aim to build MEV infrastructure similar to what Flashbot did on Ethereum, while projects like Alkimiya focus on the fee/blockspace market. Currently, MEV-related activities mainly come from transaction acceleration services. We will continue to monitor the continued development of this field and observe new projects continue to launch various services to mitigate the negative impact of MEV on users. For more information, please refer to our previous report.
Bitcoin Technology Development
OP_CAT
Although OP_CAT is an easy-to-implement opcode, its activation introduces many features, from relatively simple Merkle tree verification (hash of two elements) to more complex operations such as transaction body verification using superimposed Schnorr signatures. However, concerns about its flexibility may introduce some unpredictable risks. In May 2024, OP_CAT was enabled as a soft fork in the Bitcoin Trial client (a client on the signet network). In the last Taproot upgrade, there were actually various debates and variables in the soft fork method. Not only the upgrade content itself, but also the process of how to soft fork the upgrade has also been discussed, so OP_CAT may not be enabled in a short time; if it is enabled, it will definitely be accompanied by various debates. The same is true for other soft fork upgrades, including OP_CTV (which has been debated on a large scale in 2022), APO, and so on.
BitVM
BitVM has made significant breakthroughs in improving Bitcoin’s expressiveness, and BitVM 2 has improved upon previous designs, enhancing verification capabilities for complex computations and reducing trust assumptions. Key recent progress has focused on the development of the BitVM bridge, which has reached a level of maturity and security that could potentially allow for testnet/mainnet launches by the end of 2024. The BitVM bridge will likely primarily handle large amounts of assets, leaving room for other cross-chain bridges to continue to exist. Alternative BitVM bridge cross-chain solutions via multi-signature bridges or atomic swaps remain practical for end users, providing faster and lower-cost alternatives. Additionally, we may see new validator networks established on BitVM 2 in the future.
Channel and Joinpool solutions
Channel and Joinpool related solutions have made significant progress. These solutions allow two or more users to share a UTXO on the main chain, while the off-chain can perform allocations (vTXO) based on business logic. When users want to exit, they can return to the main chain for settlement through a unilateral exit.
Besides Hedgehog, much of the recent attention has been on Ark. Burak launched Ark v2, which offers greater capital efficiency and a related concept called Brollups.
Statechain is another interesting approach similar to the Joinpool-based UTXO Mercury Layer. Mercury Layer has made significant progress in this area, and new projects like Mach are developing the underlying infrastructure.
Bitcoin, as the largest asset, has historically been viewed as digital gold. However, with the advent of innovations like BitVM 2, OP_CAT, and Bitcoin staking, we are witnessing more adoption of Bitcoin. While the Bitcoin DeFi ecosystem is still relatively nascent compared to Ethereum’s DeFi ecosystem, we believe these catalysts will enable the Bitcoin DeFi ecosystem to achieve similar success in the future.
Solana
Institutional Interest
During Consensus, Paypal announced the listing of PYUSD on Solana. Since then, PYUSDs market cap has grown rapidly due to integrations with some large DeFi protocols on Solana, such as Kamino Finance, Jupiter, and Orca. Another signal of institutional interest in the space is that Stripe announced its re-entry into Solana, allowing users to accept and make USDC payments.
Solana Labs, the company behind Solana, has announced the launch of Bond, a blockchain-based platform designed to improve brand-customer engagement, potentially accelerating institutional adoption.
In addition to the growing institutional interest in Solana, we have also noticed a high level of interest in topics such as Blinks and memecoins, which are primarily targeted at retail consumers.
Solana Action and Blockchain Links (Blinks)
At the end of June this year, Solana launched Solana Actions and Blockchain Links (Blinks), creating a more seamless experience for retail users to join Web3. Through the Solana Action API, users can convert any transaction into a blockchain link and share it on any interface.
The impact of Blinks is that application developers (especially Web2 developers) can more easily embed on-chain operations between devices and platforms. Accordingly, dedicated browsers (or components) can intuitively display these elements, including links, QR codes, push notifications, buttons, etc.
This approach is consistent with Solana’s goal of driving mass adoption. Currently, there are about 155 projects in the Blink ecosystem, all of which need to be officially reviewed before adoption. Of these, 25 projects have registered Blink domains specifically, while the others have registered Blink compatibility. The community has shown strong interest in blnk.fun and BlinkEditor (although BlinkEditor’s official Twitter account is currently suspended). The process is similar to Pump.fun, where users only need to set parameters such as quantity, price, and description to issue tokens. Once shared on platforms such as Twitter, users can directly purchase the token without leaving the platform. In addition, well-known projects like Jupiter Exchange and Pump.fun are also integrating Blinks.
Solana’s Meme Culture
On Solana, memecoin remains an important part of the ecosystem, and the launch of pump.fun further validates this observation. Pump.fun enables anyone to issue memecoin at zero cost, which has led to a large influx of memecoin into the ecosystem. Since its launch in January this year, the protocol has generated nearly $50 million in revenue. However, despite the lower threshold for issuing tokens, the increase in the number of projects and transaction volume, we have noticed a lower probability of successful projects.
On Solana, notable developments include the launch of the token extension feature, which enables tokens to have more features customized to the needs of different projects. With the expected launch of the Firedancer client, this not only brings a variety of validation clients, but also significantly increases network throughput and reduces costs, thus consolidating its appeal to developers and users.
TON
TON has performed well in the first half of 2024, recording a gain of more than 200%, which is attributed to the mini-programs developed on TON competing to attract Telegrams huge user base. The reasons why we choose to focus on TON can be divided into the following points:
Active ecosystem on Telegram: Telegram has around 900 million monthly active users, making it attractive to developers looking to get a piece of the action. Coupled with an in-app wallet and built-in fiat onboarding, we are optimistic that Telegram can bring a large number of Web2 users to Web3.
Compared to other popular messaging apps such as WeChat, we believe TON has the potential to replicate WeChat’s success in large-scale monetization. WeChat currently has 1.3 billion monthly active users, of which about 400 million are active in the gaming sector. Games are the most popular category in mini-programs, followed by e-commerce and daily services. The top 100 mini-games generate $1.3 million in revenue per quarter, while popular games can generate up to $15 million in monthly revenue.
Notcoin is a tap-to-earn game on TON that gained widespread attention in the first half of 2024. With over 40 million users, Notcoin set a positive example and provided incentives for developers, investors, and retail users to join the TON ecosystem. However, this also led to traffic inflation and a certain degree of over-hype.
In terms of ecological development, TON launched an advertising sharing mechanism in February this year, allowing channel owners to receive 50% of advertising revenue and settle in TON. Currently, TON has set up a $90 million ecological fund and a $220 million community incentive program specifically for investment and grants. In terms of compliance, TON launched the TON Star Coin model, which is directly tied to the Apple Store. Users can purchase virtual props in the game through Apple Pay, and Telegram will still use TON to settle with the project party. For on-chain recharge needs, most applications have robots that support third-party recharges, rather than taking a one-size-fits-all approach.
However, the recent arrest of Telegram CEO, Parel Durov, on charges of cyber and financial crimes, as well as network outages caused by TON’s native meme coin, DOGS, have become unfavorable factors for the ecosystem. Although this is a cause for concern, the team behind TON reiterated that the project will continue to remain operational. Given our focus on the TON ecosystem, the team will wait for further developments in TON’s infrastructure to increase the maturity of the ecosystem.
Restaking
Eigenlayer
In the first half of 2024, restaking became one of the hottest topics, and Eigenlayer was the main driving force behind this trend.
Eigenlayers success is reflected in many aspects:
The total value locked (TVL) reached a peak of $20 billion.
Eigenlayer’s heavy staking function has spawned at least 5 Liquid Heavy Staking Tokens (LRTs) and more than 20 Active Validator Services (AVS). This has brought new life to the Ethereum DeFi field represented by Pendle and AAVE.
Eigenlayer has successfully transformed its narrative from merely providing shared security (providing additional rewards to Ethereum nodes) to an important role that complements the Ethereum governance system.
The core of Eigenlayer lies in its AVS. There are currently 16 active AVS (Active Validator Services), of which only EigenDA supports Eigen token re-staking, involving 3.7 million ETH. Other AVS such as Omni and Eoracle have 800,000 to 2 million ETH respectively, with a total of at least $2 billion in assets for security. ZK (zero-knowledge) projects are highly compatible with AVS. By transferring some ZK verification tasks to the off-chain and handling them by stakers, costs can be reduced and efficiency can be improved. If the AVS-based infrastructure has a strong substitution effect on the existing Ethereum ecosystem infrastructure in the future, the Eigen token will be effective and its price will be supported.
As for LRT, different projects have adopted different designs and strategies, which has led to different performances. But overall, the performance of LRT also depends largely on the overall market performance and whether EigenLayer will perform strongly in the future. Despite the initial success, we still need to pay attention to the challenges that LRTs may face in the future. The excessive financialization of LRTs may affect the stability of the Ethereum chain ecosystem. It is expected that competition in this field will become increasingly fierce, leaving few opportunities for new players.
Cross-Chain Shared Security
Babylon
Babylon is a platform that allows Bitcoin holders to trustlessly stake their Bitcoin to secure a Proof-of-Stake (PoS) chain.
According to Babylon’s official website, there are currently 91 ecological projects listed, covering 7 categories: Layer 2, DeFi, Liquidity Staking, Wallets and Custodians, Cosmos, Finality Providers, and Rollup Infrastructure. Among them:
- Wallets and Custodians: Mainly mature wallets and custody solutions.
-Finality providers: mainly staking services.
-Cosmos: Mainly older projects in the Cosmos ecosystem.
There are relatively few new projects in these three categories. New projects are mainly concentrated in Layer 2, liquidity staking and DeFi fields:
-Layer 2: Bison Labs, BSquared Network (our portfolio company), Lorenzo, Map Protocol, etc.
-DeFi: Kinza Finance, LayerBank, Levana, Mars Protocol, Stroom, and Yala Finance (portfolio companies).
-Liquidity staking: Bedrock, Chakra, Lombard, pSTAKE, Solv, Nomic, PumpBTC.
Additionally, we see other protocols like Satlayer building a heavy staking platform on Babylon, and Nubit leveraging Babylon to enhance its Bitcoin-native data availability layer.
With many DeFi yield projects centered around Bitcoin, the need to generate yield on idle Bitcoin is clear. We expect more projects to offer Bitcoin liquid staking services, and as the Bitcoin yield/Bitcoin DeFi narrative continues to develop, we may see funds from other ecosystems flow into Bitcoin.
Modularity
Data Availability (DA)
There are fewer players in the data availability (DA) space, including Ethereum, Celestia, EigenDA, Avail, and NearDA, and the progress of these projects varies. DA projects focus mainly on security (including data integrity, network consensus), customizability, interoperability, and cost. The DA space in the first half of 2024 presents a mixed picture. For example, Celestias DA token has fallen from its historical highs, while competitor Avail raised $75 million in its latest Series A round, led by Founders Fund, Dragonfly, and Cyber Fund.
In the DA space, the main competitors include Ethereum and Celestia. When comparing Celestia and Ethereum, we see that Ethereum is still the first choice for rollups.
Ethereum DA
Celestia DA
Release time
March 13, 2024
October 31, 2023
Total usage 2024/07/17
216 GB
35.1 GB
Average daily usage in the past month
2.491 GB
0.505 GB
Total cost
$ 3,553,023.88
$ 1,644,127
Average daily spending in the past month
$ 8,656.58
$ 324.715
Source: HashKey Capital
The main users of Ethereum DA include Taiko, Base, Scroll, Arbitrum, and OP Mainnet. In contrast, the main users of Celestia include Orderly, LightLink, Manta Network, Lyra, and Hokum. Despite the higher cost of Ethereum DA, its demand and usage have exceeded Celestia, bringing significant revenue growth to Ethereum.
As the DA space matures and competition intensifies, the market is approaching saturation, and the key to project success lies in customer acquisition and ecosystem activity. Projects should also focus on other areas such as decentralized exchanges (DEXs), games, bridges, and payments to achieve scale. In addition to being a pure data availability service, providing different services will also help to attract and retain customers more easily.
Overall, we see increasing competition in the data availability space, with various players increasingly competing on pricing, which could pose a challenge to their long-term profitability.
Rollup Frameworks RaaS
In the rollup space, Arbitrum, Base, and OP Mainnet have clear advantages, with Arbitrum in the lead. Base has continued to narrow the gap with strong support from Coinbase and has branded itself as a consumer user application center, launching applications such as Farcaster and Friend.tech.
OP Rollups and ZK Rollups have achieved varying degrees of success, with OP Rollups based on the OP Stack taking the lead. Overall, RaaS (Rollup-as-a-Service) is provided by 4 major solutions: Arbitrum Orbit, OP Stack, ZK Stack, and Polygon CDK, each with its own advantages and disadvantages. However, the common result of these different RaaS providers is the increasing number of rollups.
Leveraging the strengths of the OP Stack, there are opportunities to unify OP Stack chains, for example through shared ordering, through concepts such as OP Superchain. In addition to scaling Ethereum through high-throughput performance, these rollups can also differentiate themselves by implementing AA functionality and introducing durable and popular consumer applications. This will keep them competitive as they continue to face challenges from L1s such as Solana and Sui.
In the sequencer track related to rollup, there are not many new projects recently, and the old projects mainly focus on optimization and improvement in three directions: UX, MEV, and decentralization.
As rollup deployment becomes easier, Rollup-as-a-Service providers will compete on multiple fronts, including ecosystem scale, cross-chain interoperability, and modular toolkits with comprehensive integrations.
DePIN
As one of the most enduring use cases in blockchain technology, DePIN has gained notable traction in the first half of 2024, which can be attributed to Solana’s appeal as a hub for DePIN applications and the great interest in the field of artificial intelligence. The intersection of AI and crypto highlights the growing synergy between the two fields. Node sales are a very popular monetization strategy in 2024, which have proven successful in launching communities and raising additional revenue for projects. However, despite the widespread attention, DePIN’s returns over the past three months have been unsatisfactory.
IoT Sensors/ Wearable Devices
This area covers a variety of IoT sensors and consumer wearable devices such as watches, bracelets, rings, etc. The core foundational proposition of this area is the collection of data, which is made more accessible and monetized using Web3 technologies. A key issue in this market segment is incentivizing users to participate in data mining and earn rewards through data distribution, which has not been widely successful compared to Web2 solutions. For wearable devices, the top three motivations for consumers to purchase are (1) health and wellness, (2) fitness tracking, and (3) enhanced access to smartphones and other smart devices. Providing a satisfactory user experience coupled with sustainable token economics and value accumulation mechanisms is critical during the community launch process.
Data Market
In this space, the key challenge is the scalability and adoption of data marketplaces. Creating an isolated data marketplace can be challenging especially in data-rich environments.
Wireless network
In the field of wireless networks, many projects have tried to use Web3 concepts to improve penetration, but except for a few successful projects (such as Helium Network), common problems include poor user experience, compatibility issues, insufficient service reliability, etc. In 2024, Internet penetration in some parts of the world is still low due to various factors such as cost, geographic location, and economic development. Community-supported wireless networks can fill this gap and can learn from the successful experience of the Helium Network.
AI x Crypto:
The huge demand for artificial intelligence triggered by OpenAIs ChatGPT has led to a surge in demand for storage, computing, and network resources. Centralized AI infrastructure providers face various problems such as high investment barriers, resource mismatch, and uncontrollable data. In this context, blockchain technology has become a viable solution, encouraging active participation of users and communities through mechanisms such as token incentives.
AI will also be the most active sub-sector we will look at in the DePIN field in the future, mainly because the training of AI and machine learning models does require a lot of computing power, and the DePIN project encourages users to share their idle computing resources through distributed networks and incentive mechanisms, which can generate actual income and is not small in size. The model is indeed more cost-effective than centralized services. Existing projects on the market have proven their value in practical applications, covering AI model training and reasoning services, providing rendering capabilities for games, etc., which can show that the demand in this field is still real.
In the area of computing infrastructure, privacy protection can be added to computing networks, such as data privacy and model privacy. The core principle of blockchain technology is secure, privacy-preserving verification. In this regard, although various methods (such as ZKML, OPML, TEEML) have different trade-offs, they are all evolving.
The previously active data track is increasingly being combined with AI to serve AI. This is because the main factor that distinguishes the effects of large models comes from the data set. The directions of the data track include: providing data sources (data DAO), data-related infrastructure (vector databases, knowledge graphs, decentralized databases, etc.), and data privacy (FHE, TEE, etc.).
These developments highlight the growing interest in the data-driven AI ecosystem and underscore the importance of data privacy and decentralized infrastructure in future AI applications. Here are some of the key players driving the boom in AI and crypto:
-Data sources, annotations, and markets: Grass, Vana, Dria, DIMO, Hivemapper, Sahara Labs, Ocean Protocol, Singularity Net
-Computing Network: Aethir, io.net, Akash Network, Bittensor, Filecoin, Render, Nosana, Ritual AI, Gensyn AI, Together.ai
- Validation Networks: Modulus Labs, Giza, Ora, Vana Labs, Aztec
-Agency Networks: ChainML, MyShell AI, Spectral Labs, Autonolas, Fetch.ai, Delysium
-AI-driven applications: Kaito.ai, 0x Scope, Ringfence AI, Kai-Ching
Notable trends in AI and crypto
-As the demand for AI and machine learning training grows exponentially, computing power becomes an extremely valuable resource. Many projects have emerged to aggregate computing resources around the world to meet this demand.
-As the basic models become more popular, more and more attention has also turned to fine-tuning and optimizing the models to meet the specific needs of enterprises.
-No-code/low-code platforms are seeing more innovation in personalized AI agent deployment. In Web3 AI, some noteworthy projects include MyShell AI, Hyperbolic Labs, Prime Colony, and Wayfinder.
Looking ahead, areas such as artificial intelligence, IoT, decentralized wireless (DeWi), and decentralized energy in the DePIN field deserve further attention.
RWA
The real-world asset (RWA) space remains a cornerstone of cryptocurrencies, making Web3 technologies closely connected to traditional asset classes. Real-world assets bring many benefits to cryptocurrencies, such as diversified real returns and easier access to illiquid or private asset classes. The space continues to make significant progress in this regard, from the formation of the Tokenization Alliance Charter, Mantras $500 million real estate tokenization, Blackrocks BUIDL Fund, to important investments in Securitize and Ironlight to promote the adoption of tokenized assets.
There are many asset classes in real-world assets, but the areas of most interest are private credit and US Treasuries. The top three issuers of US Treasuries are Blackrock BUIDL Fund, Franklin Templetons US Government Money Market Fund, and Ondo Finances USDY. In the private credit space, the competition is dominated by a few key players such as Maple Finance, Centrifuge, and Goldfinch Finance. In traditional finance, the estimated size of private credit is $1.5 trillion and is expected to grow to $2.8 trillion by 2028. In comparison, Web3 private credit is still small, but has promising future growth prospects.
When it comes to tokenized commodities, gold remains the dominant asset, with the top two commodities being Paxos Gold and Tether Gold.
When it comes to tokenized collectibles, the space is still fairly niche and isolated, so it’s critical for projects to generate lasting demand and provide asset composability for tokenized collectibles.
Institutional demand for tokenization
Institutional investors are increasingly interested in tokenizing financial products using blockchain technology. However, most executives still prioritize regulatory risk, and thus exposure to public blockchains remains limited. Navigating this space requires a focus on market structure development, default risk management, and liquidity management. Only by focusing on compliance and infrastructure security can players in the real-world asset space capture retail and institutional adoption. One company that has made significant progress in the blockchain space is Avalanche. Through Avalanche Evergreens, the network has established partnerships with several institutions such as Citi, JP Morgan, and ANZ, demonstrating its appeal to institutions and being able to successfully provide them with a secure, customizable, and efficient on-chain RWA platform. Currently, the RWA-related narratives we are excited about include RWA index tokens, RWA-backed stablecoins, RWA-backed DeFi use cases, and more.
RWA adoption may be driven more by institutions than retail users. However, as regulatory policies become clearer, we expect more projects to emerge, offering a variety of tokenized securities beyond treasuries to meet the risk appetite of different investors, prompting investors to become more and more open to the concept of RWA.
Games Entertainment
In the first half of 2024, except for TON mini games, the market sentiment towards games remains sluggish. Better performing games include TON mini games such as Notcoin, Catizen, Hamster Kombat, etc.
Ecosystem
In addition to the Telegram gaming ecosystem we discussed in the TON section, IMX, Polygon, and Ronin are still the popular gaming chains in terms of daily average UAW (active wallet users). Ronin continues to lead the first-tier gaming ecosystem, with 600,000 7-day UAWs thanks to games like Pixels that have a strong gaming community. It has about 3.8 million monthly active users (MAUs) on its network. Ronin remains attractive to small and medium-sized games, and the ecosystem is able to provide user traffic to game developers. So far, Ronin has attracted more than 12 game studios to settle in. In addition, Ronin has also cooperated with Polygons CDK to enable zkEVM, allowing developers to launch their own L2 chains on Ronin. This could be a positive catalyst for RON.
On the other hand, IMX mainly covers medium and large games, and continues to attract large Web2 game studios, providing them with comprehensive deployment solutions. Immutable and Netmarbles subsidiary Marblex jointly launched a $20 million ecosystem support plan to further promote the development of the game ecosystem on Immutable zkEVM.
We continue to welcome studios entering the Web3 field, as well as game producers and KOL founders who are good at learning, sensitive to crypto culture, and user-centric.
Games and Artificial Intelligence (AI)
The integration of games and AI has not yet seen significant progress. Gameplay is still highly centralized, and consumer-driven, AI-generated content in Web3 is still in its early stages. Interest in applying AI in NPCs, companions, and scripting is mainly concentrated among B2B game developers.
Overall, the gaming ecosystem is highly competitive, and the key lies in balancing incentives and community building. Strategies that focus on cultivating loyal users, such as providing high-quality gaming experiences, positive user feedback, and strategic partnerships, may play an effective role in achieving long-term success.
SocialFi
SocialFi has become a hot topic, which can be summarized into three main factors: the continuation of Friend.tech, the breakthrough of Farcaster and the explosion of Ton/TG social applications.
Friend.tech
Since its launch in 2023, Friend.tech has sparked an ongoing discussion about the longevity and sustainability of its model. Despite a very successful initial launch, user activity has declined this year. The release of V2 in May 2024 sparked renewed interest, introducing features such as paid group clubs, an innovative fee structure, and high APYs, leading to a temporary surge in users. However, community criticism over token liquidity and airdrop allocations, as well as fierce competition from other social platforms, caused user engagement to stabilize again. Despite doubts about its long-term viability, the launch of friend.tech brought a new model to the social finance space, with three key inspirations: (1) the possibility of tokenizing social influence, (2) paid group clubs in Web3, and (3) social assets with cross-platform interoperability.
Farcasters Breakout:
This year, Farcaster has made significant progress and become a dominant player in the field. In contrast, other social protocols have mostly disappeared from the spotlight, and some even seem to be on the verge of decline. Farcasters launch of Frames has received positive feedback, introducing a new way of social, on-chain interaction, using a familiar Web2 interface, which has significantly improved Farcasters user experience, caused its DAU to surge, and attracted the attention of crypto developers and users. In addition, Farcasters combination with meme tokens, especially the success of tokens like Degen, has significantly driven the platforms user growth and activity. Airdrop activities have effectively increased user engagement and promoted the formation of a vibrant community.
The Farcaster ecosystem can be roughly divided into the following categories:
●Clients: Warpcast, Recaster, Supercast, ampcast, Farcord, Firefly, far.quest, etc.
●Decentralized applications (dApps): Jam.so, DeBox, Paragraph, CasterBites, Unlonely, Bountycaster, Wildcard, AlfaFrens, etc.
●Tools: sharecaster, Alertcaster, Searchcaster, Farcaster storage, farcaster.vote, etc.
●API services: Neynae, Pinata, Airstack, etc.
Overall, the success of the SocialFi space is mixed, and network effects remain a key factor in determining project success. In this space, we focus on projects that can overcome the cold start problem and attract a diverse user base, requiring them to provide a Web2-like user experience and find a delicate balance between rewarding creators and platform growth.
DeFi
DeFi growth in the first half of 2024 is largely attributed to the huge attention paid to Eigenlayer, a project that introduced the concept of restaking to Ethereum, and Ethena, a hedge-neutral stablecoin that has now accumulated over $3 billion in TVL.
Stablecoins have received a new round of attention from developers, with more RWA-backed fully collateralized stablecoin projects attempting to replicate the success achieved by Maker and Tether. Despite the increased interest, it remains challenging for stablecoins to find lasting use cases on-chain, and they are currently mainly used in centralized exchanges. This may pose a challenge to decentralized stablecoin projects that hope to provide value through native governance tokens.
Eigenlayer has captured the majority of attention in the first half of 2024, with ecosystem projects such as Ether.Fi, Pendle, and Renzo taking advantage of the surging interest in heavy staking to gain significant market share. Despite all the attention, Eigenlayer has failed to fully meet user expectations, in part due to a weak macro environment.
From a blockchain perspective, Ethereum continues to lead in TVL (total locked value). Blast and Base have performed significantly in the first half of 2024. With the launch of various incentive activities, Scrolls TVL has exceeded $1 billion.
Among non-EVM chains, Solana’s largest TVL contributor is Jito’s JitoSOL, with other catalysts including a thriving meme culture and lending ecosystem. BTC-related chains have also seen interest, but maintaining interest remains challenging as TVL declines after the end of the incentive program.
The recently popular CeDeFi model reflects the need for sustainable and secure returns on on-chain assets. Whether through ENA fee mining or RCH option structuring, the ultimate payer is the centralized exchange user.
DeFi has demonstrated its ability to attract capital through high returns. Currently, AAVE is still the main destination for funds on many Layer 2 and public chains, and Uniswap is still the main pool of funds. However, the key to long-term success lies in whether the protocol can accumulate value for holders and meet long-term expectations. As the number of chains increases, liquidity is gradually dispersed, which provides us with opportunities. Diverse DeFi solutions meet different needs, thereby driving the potential demand for intention-driven platforms.
Institutional Services
From the end of last year to the beginning of this year, the market generally expected that with the approval of ETFs, 2024 would be a record year for institutional adoption of cryptocurrencies, and trading infrastructure/institutional-level pledge/CeFi lending/yield stablecoins/derivatives platforms would be worth betting on. From a primary perspective, investors are indeed still betting on these directions. Representative projects that have completed financing this year include sercuritize (raised $ 47 M), Bitstamp (acquired with $ 200 M), Flowdesk (raised $ 50 M), Sygnum (raised $ 40 M), Kiln (raised $ 17 M), Agora (raised $ 12 M). However, the targets that benefit from ETFs in the public market are currently mainly Coinbase, and other companies that are easier to go public are all mining companies. From our perspective, this track will be increasingly regarded as a fintech field. Judging from the financing trends of fintech-related companies around the world, the amount of financing is continuing to decline. Fintech financing in the first quarter of 2024 was the lowest quarterly level since 2017, and investors prefer mid- and late-stage companies, and companies that are already self-sustaining and close to profitability. However, the positive side is that crypto-related fintech companies are relatively active in this large field, but they are mainly concentrated in the early stage + A round.
In summary, we still focus on trading infrastructure/institutional pledge/CeFi lending/yield stablecoins/derivatives platforms. In terms of investment, we focus on companies that have shown growth potential and stability.
Summarize
While this summary does not cover all of our findings, it highlights some of the key insights we gained in the first half of 2024. As a leader in crypto venture capital, HashKey Capital is committed to supporting innovative projects in a variety of fields. If you are developing a breakthrough project, we welcome you to contact us!
