Let’s tl;dr the past few years of crypto, shall we?

Despite the noise, bankruptcies, drama, and bear market, web3 innovation and adoption are stronger than ever.

A16z’s recent report, 2023 State of Crypto, highlights the technological progress of web3, stressing it’s more than just a financial movement—it’s an evolution of the internet. At Web3 Academy, we couldn’t agree more. 

The report is a long one, but we’ve got you covered!

To save you the headache of reading through the whole thing, we’ve taken the liberty of extracting the core lessons.

Today, we’ll help you understand how the driving forces of the industry, namely innovation and adoption, are propelling the market forward, in what’s known as the Crypto Price-Innovation Cycle.

So how exactly do these forces work and what are the metrics we can use to understand where in the cycle we are currently?

The Crypto Price-Innovation Cycle

It all starts with the price. Price spikes interest in web3, luring people into the rabbit hole.

People from diverse backgrounds enter the space, cross-pollinating ideas, which leads to new products and companies.

But hype, pressure, and excessive investment create a bubble. When it pops, we hit the bear market.

It’s all part of the cycle though.

As interest wanes and money dries up, only the faithful keep building, believing in the tech’s future.

Eventually, once the new projects/start-ups create new use cases, prices begin to rise, and the cycle restarts.

However, this bear market is different. Despite setbacks and negative press, the industry is still thriving, with interest and activity staying high and growing.

How do we know that? You guessed it – we 👀🔛⛓️(look on chain).

Onchain metrics paint a completely different picture from what the news and general public sentiment might indicate.

That’s the beauty of this industry – there’s no need for trust—we verify.

So let’s take a look at some of the metrics that make us more bullish than ever on web3.

Separate Signal From Noise: 👀🔛⛓️

Financial markets fluctuate with unpredictable macro conditions, but product cycles depend on consumer behavior and tech trends

(to better understand web3 market cycles, you need to understand macro – that’s why we’ve written a two-part series PRO Report to set you up for success!)

Crypto market cycles rely on innovation and adoption: more interest ➡️ more building ➡️ more usage ➡️ more interest 🔄.

Builders, researchers, and products fuel innovation.

Metrics are showing that builders are staying, and product launches during a bear market signal a strong supply side (aka innovation).

Innovation Continues Onchain

Here are a few (onchain) charts that show where the innovation side of things is right now (hint: it’s bullish).

Active Developers

The chart above reveals that many developers drawn to crypto during the bull market have stayed and keep building.

Post-2021 bull market, interest in crypto projects dipped but remained higher than the previous bull market’s start.

Product Launches

Verified smart contracts have been on an upward trend ever since the last bull market.

Verified contracts indicate serious devs and companies consistently develop, test, and launch new products—even in a bear market!

The interesting thing about this chart is that it went up and to the right during the entire 2022-23 bear market. We have never seen this before during any other cycle!

And these are not the only bullish metrics on the R&D side – there is also growth in job searches, academic research, and developer activity.

Adoption Hasn’t Slowed Down One Bit

Ok, we’ve seen innovation (supply side) accelerate, but what about adoption (demand side)? 🤔

Active Addresses

Active addresses have consistently risen since 2020. It’s hard to tell we experienced a 2022 bear market based on this chart, as wallet interactions with blockchains kept increasing.

Notice, however, how incredibly tiny this number (15 million) is compared to the total number of active internet users in the world (5 billion). That’s 0.3%!!! We’re still early™.

Transactions Steady, but Gas Fees Down – We’re Scaling!

Transactions have absolutely exploded in the past 3 years.

And while transaction numbers plateaued, gas fees have dramatically decreased (they’ve gone parabolic…downwards). This shows scaling technologies like Layer-2s are working effectively. 

NFT Space is Going Beyond Speculation

The 2021 NFT craze is over, but has found a healthy support, with signs of renewed growth.

Crucially, NFTs with real-world utility are gaining traction with products such as event tickets, tokenized real estate, redeemables, token-gated communities, and subscriptions.

Big brands like Starbucks, Reddit, and Spotify are exploring web3 too.

Unfortunately, not everything is sunshine and rainbows. There’s one concerning metric that’s been on a downtrend and needs to be addressed, and it’s a big one…

Mobile Is Still Lagging Behind

Surprisingly, mobile wallet adoption has dropped since peaking in late 2021. Three reasons have likely played a role in this trend:

• Mobile games with unsustainable move-to-earn/play-to-earn mechanics, backed by abundant investment, failed 💥
• Android and iOS have predatory, restrictive app ecosystems, with high fees and rules clashing with web3 and blockchain principles (e.g., Apple’s 30% take-rate on any in-app transactions 😲)
• No exciting mobile apps are being developed. This could be a result of 2), but regardless, we haven’t seen much happen in mobile web3 domain.

So What Is the State of Crypto?

We’re still early. Very early. 

From active addresses and developers, to exchange and stablecoin volumes, the numbers are still tiny compared to the rest of the world. But they’re growing, and they’re growing steadily.

With so many metrics to keep track of, it can be difficult to stay on top of the state of crypto (web3). That’s why a16z also created a handy State of Crypto Index, which uses a bunch of onchain metrics to create an indicator of where we are in the innovation-adoption cycle.

By keeping an eye on this index and diligently consuming all of the content we at Web3 Academy are putting out daily (😉), you’ll be well-positioned to make the most educated decisions in your web3 endeavors and capitalize on the latest opportunities coming up in the space.

PS: If you enjoyed today’s edition, you’ll really like the Web3 Academy Newsletter & Podcast where we’re carving a path for DOers to confidently build and invest in web3.