Understand the state of Web3 in 2022 through data.

At the inaugural DuneCon, the first meeting of Dune, I shared a presentation on the state of cryptocurrency in 2022. My goal was to describe the health of the cryptocurrency ecosystem at the most fundamental level. For example, quantifying the number of active wallets, the population of active developers, and other dynamics within the ecosystem.

My top 15 observations from the data:

1. There are 2.5 million wallets active on Web3 each day. The flat number of wallets may mean that the GDP in the ecosystem is relatively stable. We need more products to attract new users to bring in more GDP.
2. Binance, Solana, Polygon, and Ethereum wallets account for over 80% of these daily active users.
3. Centralized exchanges manage about 100 million total active wallets.
4. The trading volume has dropped by 60%, mainly due to the decline in asset prices. The average trade size on DEX has dropped from $8,000 to $1,400.
5. Centralized and decentralized exchanges trade at the same multiple and in sync.
6. In the past six months, the number of NFT buyers has exceeded the number of DEX traders by about 35:1, but the trading volume between the two groups is roughly equivalent.
7. NFT trading volume has dropped by 97% from the top.
8. 40% of NFT buyers use Solana. Because the average value of a Solana NFT is 10% of the average value of an Ethereum NFT, Ethereum retains 90% of the NFT trading value.
9. L2s (Arbitrum & Optimism) account for 30-40% of all Ethereum transactions but only consume 2% of the total gas, solidifying their value.
10. About $250 million flows into L2s each month.
11. Due to FlashBots’ searchers, MEV (Maximum or Miner Extractable Value) has gradually decreased. Lower MEV means that users pay lower fees for transactions because the market is more efficient.
12. Developers push about 300,000 smart contracts to Ethereum each month, a number that has remained steady for the past five months.
13. About 5,000 developers push code to Web3 each week, a 20% drop from the beginning of the year. This number needs to increase significantly for the ecosystem to thrive.
14. Web3 companies (excluding L1) have started to trade at multiples similar to Web2 companies.
15. The multiple of Web3 is increasingly correlated with revenue. The investment community’s understanding of how to evaluate a Web3 company has matured. This milestone will begin to change the valuation of early and late-stage private markets. This is why marketing will become so critical in the next 12 months.

In summary, the cryptocurrency ecosystem is in a winter. I see it as a prelude to a spring. There has been so much innovation released in the past few years that most of us are still absorbing its impact and trying to determine the four fundamental innovations of the best applications of Web3:

As I explore Web3, I have been forming a mental model of the main innovations driving this huge wave of innovation. Currently, I see four groups:

1. A permanent record of ownership that exists outside of the company. The photos I take, the movies I buy, the music I rent, the emails I write and receive, the messages I send, all of these are captive. They exist in databases controlled by Google, Netflix, Spotify, Gmail, WhatsApp. If these services disappear, my record of ownership/rent will also disappear. In the future, the value of digital assets is not $10 or $20, but hundreds or thousands of dollars. Ownership that survives in the company becomes the basic layer of business.
2. Paying customers in a “fair” way. Internet giants have wiped out the entire space: social networks, advertising technology, video streaming and rentals, paid email, infrastructure. Their economies of scale and network effects create huge barriers to competition. What should a startup do? Compete on a different axis: reward users with tokens. A social network rewards its most valuable users with crypto within the field. The same is true for music or file storage or graphics processing. As the network becomes more valuable, users also become more of a stake in the company. Web3 companies use tokens to reward their customers for providing value. Because this technology is so new, startups have the upper hand. The innovator’s dilemma is revisited.
3. Regulatory arbitrage. 20 years ago, startups went public in 4 years. Today, it is 12 years, driven by several factors, but regulatory costs are the main one. Crypto companies can access the pool of funds of Web2 companies because regulation does not exist. In places where there are new rules, regulation is not yet a legal labyrinth, and it is not yet. In this free operation, Defi protocols have invented