A16Z is trying to inject optimism into withering crypto industry

Venture capital firm Andreessen Horowitz’s State of Crypto 2023 report paints an optimistic picture of the sector that has been plagued by crashes and legal cases

April 12, 2023 12:47 pm | Updated 07:08 pm IST

File photo of tokens representing cryptocurrencies.

File photo of tokens representing cryptocurrencies. | Photo Credit: Reuters

Venture capital firm Andreesen Horowitz (A16Z) has introduced a tool to measure technical advances in the crypto industry. The index-style tool aims to look at crypto from a technical standpoint, instead of a financial one.

In its 2023 State of Crypto Report, the venture funding firm noted that the tool tracks developer activity, verified smart contracts deployment, academic publications, and developer library downloads, among 14 metrics. Such a holistic measure provides a snapshot of the health of the crypto industry from a technological, rather than financial, perspective.

The tool is interactive, meaning users can change the thresholds and weights to get a customised view of the industry. It also displays a single chart that shows the rate of advancements in crypto tech and how quickly it is adopted by Web3 developers.

The firm noted rising NFT (non-fungible token) and DeFi (decentralised finance) activity, more active developers, more blockchains scaled, and greater ‘zero-knowledge’ tech system activity. On decentralised exchanges, over $100 billion was traded in March, marking a third consecutive month of positive growth in trading volume, the report highlighted.

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Blockchain adoption is said to be on the rise as a proliferation of protocols and projects are working to scale blockchains, facilitating more transactions using a number of different approaches and technologies. Last year, “Layer 2” (L2) scaling solutions accounted for 1.5% of the total fees paid on Ethereum. This has gone up to 7% this month, the report noted.

The State of Crypto report also pointed out that U.S. was losing its lead in Web3. Between 2018 and 2022, the proportion of crypto developers based in the U.S. fell by 26% compared to the rest of the world.

A16Z’s crypto report and the index tool comes on the back of several coin collapses, exchanges freezing user funds, and high profile legal cases. The U.S. Treasury Department recently warned of criminal actors using DeFi to launder illegally obtained crypto funds.

Facebook parent Meta recently put an end to its push for NFTs. An official said it was “winding down digital collectibles (NFTs).” The company is instead shifting to augmented/virtual reality tech and generative AI.

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