6 Predictions for Crypto in 2024: Pantera's Paul Veradittakit

In 2023, we continued to experience some aftershocks from the major crashes of 2022. Most notably were the FTX trials and judgments in November, along with Binance's plea agreement, and the brief uncoupling of the USDC stablecoin during the banking crisis in March. Meanwhile, we continued to witness breakthroughs in the field, including Ethereum's transition to a full proof-of-stake network with the Shapella upgrade in March, the July ruling that XRP (primarily) is not a security, the launch of PayPal's PYUSD stablecoin, and Grayscale's August victory over the U.S. Securities and Exchange Commission regarding a Bitcoin spot ETF. Additionally, there was the emergence of pioneering tokenized social experiences such as Friend.tech.

Therefore, we hold an optimistic outlook for the path ahead entering 2024. Here are Paul Veradittakit's key predictions for the

cryptocurrency

industry in 2024.

The Bitcoin Recovery and “DeFi Summer 2.0”

In 2023, Bitcoin staged a comeback, with its dominance (Bitcoin's share of the cryptocurrency market value) rising from around 38% in January to about 50% by December, making it one of the most noteworthy ecosystems heading into 2024. There are at least three major catalysts driving its resurgence next year: (1) the fourth Bitcoin halving scheduled for April 2024, (2) the anticipated approval of several Bitcoin spot ETFs by institutional investors, and (3) increased programmability, including underlying protocols like Ordinals and the proliferation of Layer 2 and other scalable layers such as Stacks and Rootstock.

On the infrastructure front, we expect a surge in Bitcoin L2s (Layer 2 solutions) and other scalability layers to support smart contracts. The Bitcoin ecosystem is likely to converge around one or two Turing-complete smart contract languages, with the strongest contenders being extensions of Rust, Solidity, or Bitcoin's native language, Clarity. This language will become the “standard” for Bitcoin development, similar to how Solidity is considered the “standard” for Ethereum development.

We're also witnessing the fundamentals for what could be termed “DeFi Summer 2.0” in the Bitcoin realm. Currently, Wrapped BTC (WBTC) has a market value and total locked value (TVL) of around $6 billion, indicating significant demand for Bitcoin in DeFi. Today, Ethereum's market value is $273 billion, with about 10% represented by TVL ($28 billion). With the maturation of Bitcoin DeFi infrastructure, we might witness the total locked value (TVL) in Bitcoin DeFi rise from the current $300 million (0.05% of the market value) to 1-2% of Bitcoin's market value, roughly $100-150 billion based on current prices. During this transition, many Ethereum DeFi practices might migrate and become “native” to Bitcoin, such as the rising trend of BRC-20 tokens and concepts like staking in the Babylon L2.

Bitcoin NFTs, especially those engraved on ordinals, might gain more popularity in 2024. Due to Bitcoin's higher cultural recognition and meme value, web2 brands (like luxury retailers) might opt to release NFTs on Bitcoin, similar to Tiffany's collaboration with Cryptopunks in 2022 for the “NFTFi” pendant collection.

Tokenizing Social Experiences for New Consumer Use Cases

Web2 has transitioned from social to financial, while Web3 is shifting from financial to social. In August 2023, friend.tech pioneered a new form of tokenized social experience on Base L2, allowing users to buy and sell fractional “shares” of others' X (Twitter) profiles. It reached its peak of 30,000 ETH TVL (approximately $50 million at that time) in October, sparking several “copycat projects” like post.tech. It appears that friend.tech has successfully created a new tokenomics model for the SocialFi sector by financializing Twitter profiles.

In the upcoming year, we anticipate more experiments in the social domain where tokenization, whether fungible or non-fungible tokens, plays a pivotal role in reshaping social experiences. Fungible tokens are more likely to serve as points and loyalty systems, while non-fungible tokens (NFTs) are more likely to function as personal profiles and social assets (such as trading cards). Both can be traded on-chain and participate in the DeFi ecosystem.

Lens and Farcaster are two leading Web3 native applications integrating DeFi with social networks. Projects like Blackbird are also promoting token-based loyalty programs for specific verticals (like restaurants), reshaping consumer experiences with a combination of stablecoin payments and token-based rewards, offering an on-chain alternative to credit cards in functionality.

Expanding TradFi-DeFi “Bridge” with Stablecoins and Mirrored Assets

In 2023, the crypto sphere saw numerous legal litigations, including several high-profile wins for the industry, such as the XRP ruling and Grayscale's ETF lawsuit victories, as well as the exposure of financial fraud involving Binance and FTX. Simultaneously, institutional interest and potential ETF approvals for Bitcoin and Ethereum surged significantly.

By 2024, we anticipate a substantial increase in institutional adoption, where they'll seek not only ETFs but also tokenized real-world assets (RWAs) and traditional financial (TradFi) products. In other words, TradFi assets will be mirrored in DeFi, while exposure to crypto assets will rise in traditional finance markets, creating a bridge between TradFi and DeFi, thus bringing these two worlds closer together and increasing liquidity and diversification for investors.

Stablecoins will become one of the most critical links between the TradFi and DeFi worlds. Stablecoins like USDC and PYUSD will be more widely accepted as portfolio choices and payment tools. With Circle contemplating an IPO in 2024, we might witness an increase in the issuance and use of non-dollar stablecoins, especially Euro-backed stablecoins like Circle's EURC, as well as stablecoins pegged to the British Pound, Singapore Dollar, and Japanese Yen. Some of these stablecoins might be launched by entities backed by countries, potentially leading to the growth of on-chain fiat forex markets. Tokenized government bonds have already gained $800 million in tokenization through platforms like Ondo.

The Fusion of Modular Blockchain and Zero-Knowledge Proof

In the past year, the concepts of modular blockchains and zero-knowledge proofs (zkp) have matured significantly. Recent launches include the Celestia mainnet, Espresso's integration with Arbitrum, RiscZero's open-source Zeth prover, and Succinct's introduction of the ZK Market. An interesting trend is the fusion of these two narratives, where companies in the ZK field “modularize” by focusing on specific verticals such as co-processors, privacy layers, proof markets, and zkDevOps.

In the upcoming year, I anticipate this trend to persist, with zero-knowledge proofs becoming the interface between different components of modular blockchain stacks. For instance, Axiom's ZK co-processor leverages zkp to provide historical state proofs, which developers can then use to perform computations in dapps. As zkp becomes a shared interface among these various providers, we'll witness a new era of smart contract composability. This provides developers with greater flexibility in constructing dapps and reduces the entry barriers to the blockchain stack. On the consumer end, zkps might be seen as a means to enhance identity and privacy protection, for instance, in the form of zk-based decentralized IDs, thereby expanding its use cases.

More On-Chain Intensive Applications like AI and DePIN

In recent times, significant time, effort, and funding have been allocated to addressing scalability issues in decentralized applications. Today, most of these scalability concerns have been resolved—gas fees on Ethereum L2s are less than $0.02 (in contrast to Ethereum's mainnet at $11.5), and on Solana, fees are even lower by 3-4 orders of magnitude.

As this trend continues into the coming year, we believe that computationally intensive applications (those that can utilize gigabytes of RAM) will become more economically feasible on-chain in the near future. This encompasses vertical applications such as on-chain AI systems, decentralized physical infrastructure networks (DePIN), on-chain knowledge graphs, and entirely on-chain games and social networks. All these possibilities could fundamentally reshape the on-chain data economy, significantly enhancing the experiences of users and developers by liberating them from hefty gas fees and stringent computational constraints.

Examples of computationally expensive projects that can leverage this cheaper on-chain “computing” include Hivemapper creating a decentralized Google Maps on Solana, Bittensor developing a decentralized machine learning platform, Modulus Labs' efforts in ZKML and AI-generated NFT art, The Graph's on-chain knowledge graph initiative, and Realmsverse building on-chain game worlds and legends on Starknet.

Integrating Public Blockchain Ecosystems and Application Chains in a “Hub-and-Spoke” Mode

Over the past few years, there has been a significant increase in infrastructure projects. While common technical classifications have been made between Layer 1 (L1) and Layer 2 (L2), there isn't much difference in terms of user experience, especially for general-purpose public blockchains. Today, L1s like Solana or Avalanche directly compete with L2s like Arbitrum or zkSync in terms of users, projects, and capacity.

Due to this homogeneity, liquidity has become a central force for general-purpose public blockchains, benefiting larger existing participants such as Arbitrum, Optimism, and Solana. Currently, these four major ecosystems account for approximately 90% of the Total Value Locked (TVL). Smaller ecosystems need to focus their efforts on specific verticals (like social, gaming, DeFi) to maintain their edge and effectively become “application chains” or “specialist chains.” Among the top 10 TVL-ranked L2s, three (dydx, Loopring, Ronin) are, in fact, application chains that concentrate on a single vertical domain. The TVL breakthroughs of smaller, newer L2 chains (like Base and Blast) heavily rely on single “killer apps” (such as friend.tech and Blur) to establish significant footholds.