Binance Research Annual Report: Eight Key Focus Areas for 2024

^Original Author: Binance Research^

^Translation by: Odaily Planet Daily Nan Zhi*^

2023 Review

2023 marked a year of recovery for the crypto market, with the global crypto market cap growing by approximately 109%. This remarkable growth was primarily driven by significant progress made in the first and fourth quarters, achieving growth rates of 48.3% and 54.4%, respectively. This stands in stark contrast to the challenging times of 2022, when the market declined by about 64% due to a series of tumultuous events, including the UST de-pegging, the bankruptcy of several lending institutions, and the FTX collapse.

Key factors contributing to the strong performance in 2023 included a series of major developments. Among the most critical was the optimism brought about by the approval of spot Bitcoin ETFs and the anticipation of the upcoming Bitcoin halving. A strong macroeconomic backdrop (resilience in global GDP growth and a slowdown in inflation) also created a favorable environment for cryptocurrencies in 2023.

Despite the significant gains, 2023 was not without its challenges. In March, turmoil in the banking sector affected the crypto market, leading to a temporary de-pegging of the USDC stablecoin. In August, traders suffered losses of up to $1 billion due to liquidations amid macroeconomic uncertainties related to the Chinese economy and signs of the Federal Reserve considering further interest rate hikes. However, the crypto market demonstrated resilience, quickly recovering and regaining momentum in the following months.

As we look ahead to the future of the crypto market, the lessons of 2023 highlight the industry's ability to adapt, innovate, and grow in the face of challenges. The strong recovery of 2023 lays a foundation for further breakthroughs, growth, and possibilities in the crypto space.

2024 Outlook

Looking forward, we are pleased with the excellent performance of the market over the past year and are particularly excited about the following themes.

Bitcoin Narrative Remains at the Forefront

Throughout 2023, Bitcoin has remained in the spotlight thanks to various narratives, such as Ordinals/BRC-20, the approval of spot Bitcoin ETFs, and the halving in 2024. Ordinals and BRC-20 represent a 0 to 1 innovation in the evolution of Bitcoin, introducing the deployment, minting, and transfer of fungible tokens on the Bitcoin network for the first time. These tokens quickly became alpha investment targets for Bitcoin ecosystem investors. Meanwhile, the recently approved spot ETFs may bring significant liquidity to the crypto market and signify mainstream recognition of Bitcoin as a legitimate asset.

As we enter 2024, this momentum may continue. The SEC's final decision has been made, and it is likely to be positive. Historically, the year following a Bitcoin halving event has seen strong performance in the crypto market. Therefore, the recently approved spot ETFs and the optimism leading up to the halving in April may trigger significant market volatility.

Additionally, due to the relatively small market cap and meme attributes of Ordinals and BRC-20, if Bitcoin experiences a rapid increase under corresponding events, we may witness even more pronounced price fluctuations. The Ordinals and BRC-20 ecosystems are expected to further develop. Notably, the introduction of more Bitcoin scaling solutions, such as Stacks' sBTC, will be an interesting development that helps enhance Bitcoin's functionality.

Ownership Economy Applications Gain Further Momentum

Blockchain technology enables users to reclaim sovereignty over resources traditionally controlled by large entities, including personal data, creative content, and computing resources. For example, centralized storage services may require users to relinquish control over their data, exposing them to privacy breaches and single points of failure. Various projects are exploring alternative solutions that empower users with greater control over their assets and information. In this regard, two noteworthy areas are decentralized physical network infrastructure (DePin) and decentralized social media (DeSoc).

Although the concepts of DePin and DeSoc have existed for some time, they only began to gain significant momentum in 2023. This shift can be attributed to the maturation of infrastructure development, increased awareness, and the growth of the user base in the crypto space. For DeSoc, Friend.tech has been a major growth driver in 2023, generating substantial revenue comparable to some top protocols. Friend.tech showcases the potential of decentralized social media, allowing users to monetize their creations without restrictions imposed by 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 hot narrative by the end of 2023. Due to its vast market and rapid expansion through bottom-up growth strategies, these protocols are seen as having high growth potential. In 2024, we may witness accelerated adoption of DePin and DeSoc projects, leveraging their potential for growth and market penetration.

AI Integration Increases

Since OpenAI's ChatGPT sparked intense global interest in AI applications in 2023, AI and crypto (AI x Crypto) have become one of the main narratives in recent months, with numerous projects continuing to emerge. We believe that the integration of AI with crypto is a growth area worth watching. While still in its early stages, the integration of AI into the crypto ecosystem opens up a range of possibilities regarding potential use cases and provides alternatives to existing solutions.

Projects that have begun integrating AI already offer services such as trading automation, predictive analytics, generative art, data analysis, and DAO operations. Looking ahead, there are many more use cases yet to be discovered.

For example, training AI models requires vast amounts of data input and significant resources, often limiting this activity to tech giants. This leads to reduced transparency and closed development. However, by utilizing decentralized storage for data management, we can achieve greater transparency and security. This democratizes the AI model training process, allowing for broader participation, which could lead to a surge in innovation and development in the field.

Real World Asset (RWA) Growth

RWA tokenization showcases the powerful use cases of blockchain technology. By bringing off-chain assets onto the blockchain, RWA tokenization offers greater transparency and efficiency while opening up new possibilities in terms of composability and potential use cases.

As we enter 2024, we expect RWA to benefit from the boost of rising interest rate expectations. Tokenized treasuries remain a highlight, providing crypto investors with an alternative and attractive source of yield. Additionally, as institutional adoption of RWA accelerates, the development of related infrastructure, such as decentralized identity, oracle, and interoperability solutions, is also expected to gain momentum. These elements are crucial for establishing a comprehensive RWA ecosystem.

On-Chain Liquidity Landscape Flourishes

Liquidity is vital for on-chain ecosystems, especially for DeFi. Since Uniswap introduced the AMM model, there has been significant development. This evolution has given rise to multi-tiered liquidity models that support various on-chain activities, including token swaps, derivatives trading, and yield management.

As the market gradually gains momentum, on-chain liquidity and the scale of financial activities are expected to increase. Two noteworthy categories are liquidity management and request for quote (RFQ) systems. The concentrated liquidity market makers (CLMM) promoted by Uniswap V3 address the issue of capital inefficiency. However, challenges such as impermanent loss (IL) and just-in-time (JIT) liquidity, which require active position management, still pose difficulties for less experienced participants. This has led to the emergence of liquidity protocols that optimize CLMM liquidity provider positions using various strategies. Currently, Uniswap V3's TVL stands at $2.4 billion, but the total value managed by these liquidity management protocols is only $400 million. This gap highlights the growth potential, especially with the upcoming Uniswap V4, which may introduce more advanced liquidity optimization features.

RFQ systems, represented by projects such as Uniswap X, CoW Swap, and 1inch Fusion, facilitate matching between traders and market makers, often utilizing mechanisms like Dutch auctions to ensure competitive pricing. The advantages of the RFQ model include competitive pricing, MEV protection, zero slippage, and gas-free order processing. As on-chain trading infrastructure continues to advance, the likelihood of adopting this efficient model is expected to increase.

Institutional Adoption Accelerates

2023 witnessed the arrival of institutions, and more are expected to join the crypto space. During the bear market of the past year, prestigious traditional asset management giants like BlackRock and Fidelity entered the crypto sector, demonstrating their confidence in the industry's long-term potential.

Security Remains Crucial

In the crypto industry, security plays a vital role in building and maintaining user trust. According to DeFiLlama, losses from DeFi attacks in 2023 exceeded $1 billion, a significant improvement compared to approximately $3.28 billion stolen in 2022.

Given the importance of security, we expect continued emphasis on this area in 2024. This focus may manifest in various forms, such as product innovation, educational initiatives, and enhancements to user experience.

Account Abstraction Becomes More Important

To attract the next billion users and accelerate blockchain adoption, accessibility and inclusivity are crucial. Ideally, users should be able to easily use DApps and engage in any on-chain activities. However, there is still significant room for improvement in practice. For instance, most trading still occurs on centralized exchanges. Even at its peak in May 2023, decentralized exchanges accounted for only 20% of total CEX trading volume.

Several innovations make us excited about the future. For example, account abstraction facilitates the implementation of smart contract wallets with enhanced usability, featuring social recovery and significantly improving the overall user experience. Given the fierce competition among wallet providers, we may see rapid development in this area.