Pivotal 2024 trends in blockchain and gaming, highlighting a landmark blockchain game, shifts in crypto and AI integration, emerging technologies in blockchain efficiency, and the evolution of fan engagement platforms, painting a picture of the rapidly evolving tech landscape.
It feels like every year, the industry believes that gaming will truly take off. Up till now, we have seen several isolated cases of moderate success, but far from the expectations of billion dollar mainstream games using blockchain tech. Last year we went to Gamescom in Cologne which saw over 320K visitors looking at the latest and greatest games. Yet it was surprising that nobody (yet) seemed to care about the many well-funded games our industry has spawned. Words like web3, meta verse, ownership economy and NFT’s were rarer than Exodia.
What holds back this adoption? We believe that up till now, the underlying infrastructure has been lacking. In 2023, we have seen the emergence of projects (and portfolio companies of Maven 11) like Beam, Saga, Stardust, Openfort and Celestia which greatly enhance the ability of games to bring a better user experience. Whereas before play to earn was the rage, this time there is more focus on the value capture for gaming studios and consistent performance which will bring more sustainability to the ecosystems.
We expect that at least one game will have 100K daily average users consistently over a period of 1 quarter in 2024. We think this is an ambitious number, given that one of the most popular games in Counter-Strike 2 (the successor of CS:GO) has 800K daily average users.
We were all witness to the explosion of AI applications in 2023. In 2021, one of our largest investments as a fund to that date was Gensyn, a machine learning compute protocol focussed on deep learning. During our DD, we found that next to compute, data was a massive dependency for these models. As we now see with the New York Times lawsuit against OpenAI, these models are hugely dependent on high quality data sources, which are often not easy to come by or have been altered in any shape or form.
We believe that provenance on a blockchain will become one of the drivers behind assessing the validity, quality and accuracy of data used by machine learning models. This in a truly decentralized and censorship resistant way. Especially in a future with autonomous AI agents, this will become one of the main drivers of adoption.
The risks associated with restaking, as well as the numerous discussions around the economic feasibility of it (as pointed out in the past with Interchain Security), still exist. However, the wider crypto industry has embraced restaking with open arms, and the hype seems never-ending for the ability to re-stake. Naturally, the owners of LSDs are seeking yield while also looking for opportunities to utilise their liquid derivative in other ways to increase that said yield. We’ve already seen a number of smaller LSDs gain significant traction (such as our own portfolio company, Swell) as users flock to deposit into Eigenlayer before deposit caps are reached. We expect this to continue and wouldn’t be surprised to see more than 33% of LSDs being restaked, once caps are no longer active.
In recent weeks, the industry has witnessed a surge in the popularity of inscriptions, leading to significant spikes in gas prices. Inscriptions are a technique for embedding data within blockchain transactions, with an early example being the ordinals on Bitcoin, essentially NFTs inscribed on the blockchain. However, this trend has introduced substantial challenges for networks like Arbitrum, Polygon, and TON, drawing criticism for congesting the network and escalating transaction costs for other users.
Despite the current hype, we anticipate that this trend may be short-lived, as most chains have shown limitations in handling these types of transactions. In contrast, Celestia stands out with its unique capabilities. As Mustafa Al-Bassam noted, inscriptions in Celestia are akin to sovereign rollups with off-chain execution, allowing for the computation of balances off-chain. Impressively, Celestia has demonstrated resilience under stress tests, efficiently managing increased loads even when users utilized the memo field instead of Celestia's blob functionality, which is specifically designed for data availability.
We foresee a future where inscriptions persist, albeit in a more streamlined form, and gradually migrate to Celestia. This shift is likely due to Celestia's lower costs and enhanced efficiency, making it a more viable platform for such transactions.
In 2024, alternative Virtual Machines (VMs) are expected to gain momentum, driven by their enhanced safety, scalability, and sovereignty features. Aligning with our modular thesis, we foresee a surge in the adoption of these alternative VMs. Significant efforts are being invested in developing various execution environments. Such as the SealevelVM, FuelVM and the MoveVM, by highly skilled teams and engineers.
This year is likely to be pivotal for these VMs, partly due to the availability of scalable Data Availability (DA) solutions that support these VMs in a rollup context and partly due to general increased adoption of for instance Solana. We predict that the daily active addresses (a common metric for chain usage) of these alternative VMs will exceed those of the Ethereum Virtual Machine (EVM) by threefold for at least one week. This trend indicates a growing preference for these alternative VMs, reflecting their ability to meet the evolving needs of users and developers in the blockchain space.
In 2023, we witnessed a significant rise in treasury-backed stablecoin yields. Maker, for instance, increased the yield of their DSR (Dai Savings Rate) product to 5%, attracting a peak investment of $1.75 billion. This trend was soon followed by others, including Frax with the launch of sFrax, among various other providers. The growing popularity of these solutions was primarily driven by the limited stablecoin yields available on-chain. Major lending platforms were offering yields below 3% for lending stablecoins, and the overall risk tolerance was notably low, particularly in the earlier part of the year.
However, this landscape has shifted in recent months, with a noticeable increase in on-chain activity. We anticipate this trend to persist. Large investors are likely to prioritize liquidity over yield when selecting their stablecoin assets. This shift is expected to revive interest in traditional (centralized) stablecoins like USDC, particularly following their IPO. Additionally, it may open up opportunities for decentralized alternatives, which could present innovative approaches to liquidity management.
The onset of 2024 has quickly turned many in the industry into experts on Exchange-Traded Funds (ETFs). While we steer clear of making price predictions, we foresee this development attracting a new category of investors to our industry. The introduction of a spot Bitcoin ETF is likely to spark considerable interest among those who have traditionally avoided cryptocurrency, encouraging them to explore on-chain applications.
However, this doesn't imply that these newcomers will dive deep into high-risk, speculative activities. We anticipate that a significant number of these new participants will prefer to stick with user-friendly and accessible applications, without feeling compelled to move beyond this initial level of engagement. This trend is not necessarily negative. For a long time, the industry has recognized the need to simplify and abstract away complexities for broader adoption.
In 2024, we expect sectors like gaming and NFTs to particularly benefit from these new inflows. This is likely to be a prominent trend, as these areas are well-positioned to capitalize on the interest of newcomers seeking more straightforward and engaging ways to interact with digital assets.
The rise of aggregators have influenced how many interact with AMMs, and have driven a lot of front-end activity away from them as a result. However, aggregators are still only as strong as the base-layer AMMs. With the rise of intents however, and specialized parties (solvers), we are starting to see a move towards compute to satisfy, rather than extract. We foresee this to continue, and expect to see even more sophisticated routes, mergings and much more. So far, 1inch Fusion, CoW and UniswapX has seen a rise in volume, and although much of this is primarily just routing to AMMs, some orders are also filled with CoW (merging between intent venues should make this even more efficient!). We are also starting to see the next evolution of trading venues (some of them off-chain), which are going to give both fairer execution, and more efficient price discovery, but also help minimise front-running. We expect to see as much as 50% of all trading volume flow through intent-centric protocols over the coming year.
We are of the opinion that the large increase in ZK funding, rollups, and applications all lack the ability to reach economies of scale (pre-large number of users) without the ability to lower the cost of on-chain ZK verification. This is currently quite expensive on Ethereum, but even on rollups (despite being cheaper) in large amounts (such as ZK centric applications like Worldcoin) similar costs are still troublesome.
As such, we believe that ZK aggregation is needed to reach a critical user base and lower the verification costs to a reasonable amount, allowing for much better profitability margins for protocols (and an extra bonus is the likelihood of gaining faster finality by posting more often). In a way, you can view ZK aggregation on cost terms akin to specialised DA layers to DA costs for rollups.
As mentioned in our seventh prediction, we anticipate that new demographics will begin interacting with blockchain technology, sometimes without even realizing it. Historically, there have been numerous attempts to create fan engagement platforms, especially in the sports sector, with fan tokens for popular teams or countries gaining traction during major events. While some of these initiatives have achieved a measure of success, they have largely been driven by speculation, functioning more as proxies for betting rather than as genuine fan engagement tools. A notable example was FriendTech, which showed promise but eventually declined after the speculative bubble burst.
Looking ahead to 2024, we expect to see a variety of fan engagement platforms emerge that effectively utilize blockchain capabilities through tokens, NFTs, or even governance structures. These platforms are poised to offer real engagement opportunities for fans of sports teams, artists, content creators, and even political parties or movements. This development could introduce some fascinating dynamics, as it represents a shift from speculative to more meaningful and interactive forms of fan involvement.
