Crypto Industry in 2024: DeFi Summer 2.0 & SocialFi
Where is crypto headed in 2024?
In 2023, we’ve continued to feel some of the aftershocks of the wave of major collapses in 2022, particularly highlighted by the FTX trial and verdict and the Binance plea arrangement in November, alongside the brief destabilization of the USDC stablecoin in March during the banking turmoil, evoking recollections of the Terra UST downfall in May 2022. At the same time, the sector has witnessed ongoing advancements, ranging from technological breakthroughs and regulatory wins to a rise in institutional engagement and the introduction of innovative social and consumer dynamics. But where is crypto headed in 2024?
The Revival of the Bitcoin Ecosystem and the Second Wave of Decentralized Finance (DeFi Summer 2.0)
In the year 2023, we witnessed a remarkable resurgence of Bitcoin, as its dominance (market cap) increased from 38% in January to approximately 50% by December. This places it as a prime ecosystem to watch in the year 2024. There are three primary factors fueling this revival looking forward to the next year:
(1) the upcoming fourth Bitcoin halving set for April 2024,
(2) the anticipated approval of multiple Bitcoin spot ETFs by institutional investors, and
(3) an enhancement in programmable capabilities, including innovations on the base protocol (like Ordinals) as well as on Layer 2 solutions and other scalability platforms such as Stacks and Rootstock.
At the infrastructure level, a growth in Bitcoin’s Layer 2 solutions and other scalability layers that facilitate smart contracts is anticipated. The Bitcoin ecosystem is expected to converge around one or two complete smart contract languages, with leading candidates being Rust, Solidity, or an extension of a Bitcoin-specific language like Clarity. This language is set to become the “norm” for Bitcoin development, akin to Solidity’s role in Ethereum development.
Moreover, the groundwork is being laid for a potential “DeFi summer 2.0” within the Bitcoin network. With Wrapped BTC (WBTC) currently boasting a market cap and Total Value Locked (TVL) of approximately $6B, there is a significant demand for Bitcoin in the DeFi space. Currently, Ethereum holds roughly 10% of its $273B market cap in TVL ($28B). As the Bitcoin DeFi ecosystem advances, we might see Bitcoin’s DeFi TVL escalate from the present $300M (less than 0.05% of market cap) to about 1–2% of the Bitcoin market cap (approximately $10–15B at current rates). In this transition, numerous Ethereum DeFi strategies are expected to be adapted and integrated into Bitcoin, including the emergence of BRC-20 inscriptions and concepts like staking as seen in Babylon’s L2.
The appeal of Bitcoin NFTs, like those created on Ordinals, is anticipated to grow in 2024. Given Bitcoin’s substantial cultural impact and memetic value, it’s plausible that Web2 entities (like high-end retailers) might opt to launch NFTs on Bitcoin, mirroring Tiffany’s collaboration with Cryptopunks to introduce the “NFTiff” pendant collection in 2022.
The Emergence of Tokenized Social Interfaces for Novel Consumer Interactions (SocialFi)
While Web2 evolved from social networking to financial platforms, Web3 is shifting from financial applications back to social engagement. In August 2023, friend.tech introduced an innovative concept of tokenized social engagements on the Base L2 platform, enabling users to purchase and trade fractionalized “shares” of individuals’ X (formerly known as Twitter) accounts. This initiative reached a pinnacle of 30k ETH TVL (valued at about $50M then) in October and sparked a series of similar projects like post.tech on Arbitrum. Through the financialization of Twitter profiles, friend.tech seems to have established a new economic model within the SocialFi domain.
Looking forward, more explorations are expected in the social sphere, with tokenization (both in the forms of fungible and non-fungible tokens) playing a pivotal role in transforming social interactions. Fungible tokens might emerge as innovative types of points and loyalty systems, while non-fungible tokens (NFTs) might be used as profiles and social assets (like trading cards). Both would be tradeable on-chain and integrated into the DeFi ecosystems.
Lens and Farcaster are leading the charge as web3-native applications, blending DeFi and social networking. Additionally, initiatives such as Blackbird are likely to popularize tokenized point systems for loyalty schemes in particular sectors (like hospitality), utilizing a mix of stablecoin transactions and tokenized discounts to revolutionize consumer experiences, effectively providing a blockchain-based alternative to traditional credit cards.
