2023 Public Chain Development Report: Layer 2 Thrives, Gaming Sparks a Wave

Author: stella@footprint.network

In 2023, the public chain sector demonstrated strong resilience and continuous innovation. This year, the robust return of Bitcoin, the steady growth of Ethereum, and the astonishing rise of Solana together painted a vivid picture of market recovery. Against this backdrop, the market capitalization of public chain cryptocurrencies reached $1.3 trillion, revealing the fierce competitive landscape among leading public chains and the vast prospects of Layer2 solutions.

Overview of Public Chains

Key Metrics Overview

This year, we witnessed the initial recovery of the cryptocurrency market after experiencing a "winter." Led by Bitcoin, its price and market capitalization both achieved over 150% growth. Ethereum followed closely with an increase of 80%. Solana also saw a significant rebound after the decline in 2022.

As an important infrastructure for cryptocurrencies, the development status of public chains has far-reaching implications for the entire industry. According to data from Footprint Analytics, in 2023, the total market capitalization of public chain cryptocurrencies reached $1.3 trillion. Bitcoin accounted for 62.2%, Ethereum for 20.6%, and the shares of BNB Chain and Solana were 3.6% and 3.3%, respectively. Notably, the market capitalization of Solana, Avalanche, ICP, Bitcoin, and Cardano all grew by over 100% this year, showcasing strong growth momentum.

Data Source: Chain Overview

In terms of Total Value Locked (TVL), Ethereum still leads with a TVL of $55 billion, capturing 72.4% of the $76 billion TVL market share. Tron ranks second with $7.6 billion, followed by BNB Chain and Solana at $3.4 billion and $2.1 billion, respectively. Compared to 2022, the TVL of Solana, Bitcoin Arbitrum, and Tron grew by over 80%, while Polyon and BNB Chain saw declines of over 20%.

Data Source: Chain Overview

Overview of Layer2

In the realm of Ethereum Layer2 solutions, Arbitrum stands out, holding 50.8% of the market share with a TVL of $8.5 billion. Following closely is Optimism, with a market share of 32.1% and a TVL of $5.4 billion. Notably, the rising star Blast achieved a TVL of $1.1 billion in just 40 days, capturing 6.7% of the market share. Other notable projects like Base and zkSync Era have market shares of 3.7% and 3.4%, respectively. In this diverse ecosystem, the gap between small participants and traditional giants is narrowing, resembling a vibrant coral reef—diverse, competitive, and ever-evolving. (Here, "TVL" refers to the cumulative amount stored and locked in Layer2 smart contracts.)

In the development of Layer2, user-centric strategies are beginning to surpass purely technology-driven approaches. Once leading projects like zkSync Era, Starknet, and Polygon zkEVM lagged behind in TVL and development speed in 2023.

Data Source: Layer 2 Overview

Financing

In terms of financing, the cyclical nature of cryptocurrency remains evident—public chain projects raised $539 million in 70 rounds of financing in 2023, a year-on-year decline of 85.5% compared to the peak of $3.7 billion in 2022. However, despite shaken confidence, investors remain optimistic about Layer2 infrastructure. In 2023, Layer2 financing accounted for 41.4% of the 70 rounds, up from 34.5% in 2022. The average financing amount for Layer2 in 2023 was 15% higher than that of Layer1. These figures indicate that, despite the cryptocurrency market being in a winter, investors are increasingly valuing professional builders and technological innovation over chasing fleeting hype and bubbles.

Top ten financing projects ranked by amount raised (Data Source: crypto-fundraising.info)

Blockchain Games and NFTs

Blockchain Games

In 2023, the blockchain gaming market expanded, with the number of games increasing from 2,110 to 2,878. However, only 6.4% of games had monthly active users (wallets) exceeding 1,000, a decline from 10% in 2022. Among active games, dominant blockchains like BNB Chain, Polygon, and Ethereum accounted for over 80% of the market share, significantly impacting the market.

Data Source: Yearly Active Games - Blockchain Game Annual Report

Additionally, Layer2 has made significant strides in the blockchain gaming sector. For example, SUI achieved breakthroughs in throughput, with SUI 8192's daily transaction volume reaching 20 million. Base garnered market attention by integrating social and entertainment elements through friend.tech. The Ronin Network also experienced rapid growth in November, thanks to its association with games like Axie Infinity and Pixels.

NFTs

In the NFT sector, despite the market trading volume reaching $13.1 billion, it has declined from the previous year's peak. Ethereum still dominates with a market share of 97.8%, though slightly down, indicating market diversification. The number of users on Polygon grew by 231.0%, reaching 1.3 million, while Ethereum's user count fell by 45.2%. Meanwhile, the number of users on BNB Chain increased by 280.7%, reaching 353,000. This year also saw significant changes in the market due to the increase in Bitcoin's Ordinals transactions and Solana's NFT trading volume.

Data Source: Yearly Unique User by Chain - NFT Research

Highlights of 2023

As the cryptocurrency industry matures, 2023 brought both challenges and new opportunities. Speculations in various aspects are changing, while real-world adoption is accelerating. As the market enters a phase dominated by skeptics and pragmatism, several key trends are leading this year.

Regulatory Norms Emerge After Industry Turmoil

The collapse of FTX and its $8 billion financial hole triggered ripples at the beginning of 2023, prompting global policymakers to strengthen coordination to avoid regulatory gaps. Following this, Binance paid $4.3 billion to settle investigations by U.S. regulators regarding anti-money laundering procedures. After years of prosperity in cryptocurrency turned into a downturn, consecutive shocks triggered responses to balance greater protection without stifling progress. Through clearer and improved regulations, barriers have been lowered, enabling mainstream users to access a more user-friendly Web3 experience.

Layer2 Enters the Development Frontier

In 2023, Layer2 solutions rose to prominence, with chains like Base, Linea, and Blast becoming very popular. By reducing user costs, Rollups gained widespread recognition, especially zero-knowledge (zk) Rollups. However, despite the attention on Layer2, challenges remain. Scalability still feels more like a slogan than a reality, as most chains fail to achieve their advertised throughput. Seamless interoperability between Layer2 solutions remains an ideal rather than the norm. Additionally, many hyped Layer2 projects lack groundbreaking dApps or vibrant, diverse ecosystems.

Accelerated Mass Adoption Across Various Fields

The application of cryptocurrencies and blockchain technology in the real world is becoming increasingly widespread, covering finance, media, gaming, and more. In finance, Visa utilized Solana's blockchain capabilities for settlement transactions in September 2023, expanding support for stablecoins. Previously, Visa had integrated with USDC, providing a more convenient way to use cryptocurrencies. The gaming sector is also building player-focused platforms that offer Web3 experiences (such as virtual worlds and true asset ownership), bringing new users to Web3. However, despite the promising technological outlook, consumer skepticism regarding the plummeting prices of tokens has slowed the pace of mass adoption, falling short of industry expectations.

Bitcoin Finds a New Narrative

In 2023, Bitcoin's narrative has transcended its traditional role as a digital gold equivalent. The emergence of unique digital collectibles Ordinals on the Bitcoin blockchain has reshaped discussions about Bitcoin's utility. This innovation marks Bitcoin as a foundational layer for emerging applications, enhancing its relevance in a turbulent market. Driven by Ordinals transactions, December saw record trading volumes, marking an expansion of Bitcoin's market scope. This trend positions Bitcoin not just as a store of value but as a multifunctional asset with an ever-expanding range of applications.

Outlook for 2024

In 2024, Bitcoin is set to become the focal point of cryptocurrency narratives, especially with the upcoming halving event. Additionally, other key themes such as Ethereum's Dencun upgrade, the push for decentralization, and advancements in artificial intelligence (AI) will also attract significant attention.

Layer2 Will Continue to Thrive

In 2024, with the implementation of EIP-4844, Ethereum and its Layer2 tokens are expected to surge, driven by lower fees and a renewed focus on scalability. Key issues include the decentralization of Sequencers, the debate over modular versus monolithic development, and interoperability. This growth is not limited to Ethereum; Layer2 solutions for Bitcoin and BNB Chain are also expected to experience a rise, reflecting market interest in comprehensive scaling strategies.

Game-Focused Public Chains Will Further Develop

In 2024, the popularity of gaming NFTs is expected to surpass that of art and collectible NFTs. The crypto gaming industry is poised for maturation, intermittently attracting mainstream players' interest while primarily solidifying its position among professional gamers. With advancements in AI-generated technology, Web3 gaming will make positive strides. The continuous improvement of gaming blockchain platforms like ImmutableX, Ronin Network, and Oasys, which aim to enhance the blockchain gaming experience, will further promote this growth.

The Convergence of AI and Blockchain

In 2024, the convergence of artificial intelligence and blockchain will emerge as a new field with disruptive potential. Although the core infrastructure surrounding computational power and reliable data needs to mature for widespread application, incentives for trading AI resources through crypto tokens are steadily increasing, and strong growth is expected. Issues of regulatory alignment and product-market fit in this field are temporary rather than fundamental obstacles. With significant speculation and funding, the foundation for blockchain AI has been solidified, and more complex blockchain AI applications are expected to gradually emerge.

Conclusion

This year, despite relatively mild price fluctuations, the public chain sector has made significant progress in practical applications. Enhanced infrastructure has paved the way for broader applications, while new use cases in gaming, NFTs, artificial intelligence, and other areas herald the arrival of disruptive waves in the industry. These transformations lay the groundwork for technological advancements and market dynamics across various blockchain platforms.