Binance Research Institute 2024 Outlook

With the arrival of 2024, the

cryptocurrency

market is presented with new opportunities for development.

Binance Research has authored a comprehensive 140-page research report, taking stock and summarizing the panoramic view of the crypto landscape over the past year, and expressing their perspectives on 2024.

The research report highlights eight key areas, including innovative dynamics in Bitcoin, the growth of ownership-based economic applications, and the deep integration of artificial intelligence and cryptocurrencies.

Bitcoin Narrative Continues to Take the Lead

Throughout 2023, Bitcoin has been the focal point of attention, driven by various narratives such as Ordinals/BRC-20, the approval of a Bitcoin spot ETF, and the anticipation of the 2024 halving. Ordinals and BRC-20 mark an innovation in the development of Bitcoin, introducing for the first time the deployment, minting, and transfer of fungible tokens on the Bitcoin network. These tokens have quickly become a preferred tool for speculators. Additionally, the recent approval of a spot ETF may bring significant liquidity into the crypto market and signifies the mainstream recognition of Bitcoin as a legitimate asset.

As we enter 2024, these dynamics are likely to persist. Historically, the crypto market has shown strength in the year following halving events. Therefore, the recent approval of a spot ETF and optimistic expectations for the halving in April may trigger significant market volatility. Furthermore, if the price of Bitcoin surges due to these events, we may witness more pronounced fluctuations in the prices of Ordinals and BRC-20, as they have smaller market capitalizations and exhibit meme-like attributes. However, it is also expected that the Ordinals and BRC-20 ecosystems will continue to develop.

Of particular note is the introduction of more Bitcoin scaling solutions, such as sBTC on Stacks, which will be an interesting trend to watch as it helps enhance the functionality of Bitcoin.

Increasing Attention on Ownership Economy Applications

Blockchain technology empowers users to reclaim sovereignty over resources traditionally dominated by large entities, including personal data, creative content, and computing resources. For instance, centralized storage services may require users to relinquish control over their data, exposing them to risks of privacy breaches and single points of failure. In response to these issues, various projects are exploring alternative solutions that give users more control over their assets and information. Two notable areas in this regard are decentralized physical network infrastructure (DePin) and decentralized social media (DeSoc).

While the concepts of DePin and DeSoc have been around for some time, they gained more attention in 2023. This shift can be attributed to the maturity of infrastructure development, increased awareness, and the continuous expansion of the cryptocurrency user base. For DeSoc, Friend.tech has been a major driver of growth in 2023, generating substantial revenue comparable to some top protocols. Friend.tech exemplifies the potential of decentralized social media, enabling users to monetize their creations without the limitations of centralized platforms. In 2024, we may see similar applications exploring various forms of social media, including music, video, and written content.

Meanwhile, DePin became a popular topic towards the end of 2023. These protocols are considered to have high growth potential, given their broad potential market size and the ability to rapidly scale through a bottom-up growth strategy. In 2024, we are likely to witness an accelerated adoption of DePin and DeSoc projects.

Elevated Integration of Artificial Intelligence

Since the global buzz around the adoption of artificial intelligence applications sparked by OpenAI's ChatGPT in 2023, the intersection of artificial intelligence and cryptocurrencies has become a prominent topic in recent months, with numerous projects emerging. We believe that the integration of AI with cryptocurrencies represents a potential growth area. While still in the early stages of development, integrating AI into the cryptocurrency ecosystem opens up a range of possibilities for potential use cases and provides alternative solutions to existing ones.

Projects combining artificial intelligence have already started offering services such as automated trading, predictive analysis, generative art, data analytics, and DAO operations. Looking ahead, there are still many more use cases waiting to be discovered. For example, training artificial intelligence models requires substantial data inputs, which often rely on extensive resources limited to tech giants. This results in reduced transparency and decentralized development efforts. However, by leveraging distributed storage for data management, we can achieve higher transparency and security. This democratizes the training process for AI models, allowing broader participation, potentially leading to increased innovation and technological advancements. This will drive innovation and development in this field.

Growth of Real-World Assets

The tokenization of real-world assets (RWA) provides a compelling use case for blockchain technology. Bringing off-chain assets onto the blockchain, RWA tokenization enhances transparency, improves efficiency, and opens up new possibilities in terms of composability and potential use cases. Entering 2024, we anticipate that RWAs will benefit from a higher interest rate environment. In particular, tokenized government bonds may continue to be a highlight as they offer a viable and attractive income source for cryptocurrency investors. Additionally, with institutional adoption of RWAs accelerating, the development of related infrastructure such as decentralized identity, oracles, and interoperability solutions is expected to gain momentum. These elements are crucial for establishing a comprehensive RWA ecosystem. As more institutions delve into RWA tokenization, the development of supporting infrastructure is likely to follow closely.

Vibrant Development of On-Chain Liquidity

Liquidity is crucial for on-chain ecosystems, especially for decentralized finance (DeFi), and has undergone significant evolution since the introduction of Uniswap's automated market maker (AMM) model. This evolution has given rise to multi-faceted liquidity models supporting various on-chain activities, including token swapping, derivative trading, and yield farming. As the market gains momentum, an increase in on-chain liquidity and financial activities is expected. Two noteworthy categories are liquidity management and Request for Quote (“RFQ”) systems.

Uniswap V3's Concentrated Liquidity Market Maker (CLMM) model addresses the issue of inefficient capital usage. However, challenges such as impermanent loss (IL) and just-in-time (JIT) liquidity continue to pose difficulties for less experienced participants, necessitating active position management. This has led to the emergence of liquidity protocols employing various strategies to optimize the positions of CLMM liquidity providers. Currently, Uniswap V3 alone boasts a total locked value (TVL) of $24 billion, yet the total value managed by these liquidity management protocols is only $400 million. This disparity underscores the growth potential, especially with the upcoming Uniswap V4, introducing more advanced liquidity optimization features.

Projects like Uniswap X, CoW Swap, and 1nch Fusion exemplify RFQ systems that facilitate matching between traders and market makers, often utilizing mechanisms such as Dutch auctions to ensure competitive pricing. The advantages of RFQ models include competitive pricing, MEV-proofing, zero slippage, and gas-free order processing. With the continual advancement of on-chain trading infrastructure, the adoption of this efficient model is likely to grow.

Institutions Accelerate Entry into the Cryptocurrency Industry

In 2023, institutions flocked to the cryptocurrency market, and we can anticipate more institutions entering the crypto space. Notable traditional asset management giants such as BlackRock and Fidelity ventured into the cryptocurrency realm during the bear market of the past year, demonstrating their confidence in the long-term potential of the industry. With the upcoming Bitcoin halving and the approval of Bitcoin spot ETFs, we can expect increased coverage of the cryptocurrency space in 2024. This will inspire more institutions to delve into understanding this technology and contemplate how to get involved.

Security Remains Paramount

Security plays a crucial role in establishing and maintaining user trust within the cryptocurrency industry. Past security incidents serve as valuable lessons, prompting the industry to refine processes and strengthen defenses. According to data from DeFiLlama, the DeFi sector lost over $1 billion in 2023, a significant improvement compared to approximately $3.28 billion in losses in 2022. However, such substantial losses remain unacceptable.

Given the importance of security, we anticipate that 2024 will continue to emphasize this area. This focus may manifest in various forms, including product innovation, educational initiatives, and enhancements in user experience.

The Increasing Importance of Account Abstraction

To attract the next billion users and accelerate the widespread adoption of blockchain technology, accessibility and inclusivity are crucial. Ideally, users should be able to use decentralized applications and engage in any on-chain activities seamlessly without encountering difficulties. However, there is still significant room for improvement in this regard. For instance, the majority of transactions still occur on centralized exchanges (CEX). Even at its peak in May 2023, the trading volume on decentralized exchanges accounted for only 20% of the total trading volume on centralized exchanges.

Several innovative technologies give us optimism about the future. For example, account abstraction facilitates the creation of smart contract wallets, enhancing usability and features like social recovery, significantly improving the overall user experience. Given the intense competition among wallet providers, we wouldn't be surprised by the rapid development of wallets, further reducing the complexity of using Web3 wallets.