Originally Posted by Siddhant Kejriwal
Original translation: Block unicorn
As 2024 approaches, the cryptocurrency space is making a groundbreaking comeback, delivering rich rewards to those who have weathered the latest bear market storm. This recovery is more than just a rebound in value; it is a testament to the resilient and evolving nature of the crypto ecosystem. Determined investors, enthusiasts, and innovators are now at the forefront of the reinvigorated space, witnessing the birth of breakthrough ideas and the blossoming of cryptocurrency’s potential, turning it into substantial, innovative applications that go far beyond mere speculative assets.
a16z’s 2023 Cryptocurrency Report
This vibrant recovery is supported by a striking infographic from a16z’s 2023 Crypto Report, showcasing the booming interest in cryptocurrencies around the world. It’s not just prices that are rising; an influx of new ideas, an increase in startups, and a growing user base have delivered a compound annual growth rate (CAGR) of between 63% and 84% since 2012. This robust growth narrative highlights the dynamic evolution of the cryptocurrency industry, its ability to rebound and push the boundaries of possibility, while ushering in a new era of innovation and opportunity.
This article dives into some of the most compelling new stories shaping the cryptocurrency space in 2024. From the transformative potential of decentralized finance (DeFi) to groundbreaking advances in the tokenization of real-world assets, the breadth of innovation is staggering. However, as we explore these frontiers, it is critical to approach them with a cautious eye. Many of these concepts, while promising, are still nascent, and their real-world applications have yet to be fully realized and tested. In addition, the evolving regulatory landscape introduces additional complexity and potential headwinds.
As we begin to explore the top cryptocurrency narratives, we must remain vigilant and recognize the endless possibilities, while also being mindful of the uncertainties and challenges that lie ahead.
Liquid Staking Tokens: Reshaping the Staking Dynamics
In the traditional staking model, participants lock up assets to support network operations and face liquidity constraints as a trade-off for earning rewards. Liquid staking has emerged as a game-changing innovation that solves this fundamental problem by allowing stakers to maintain liquidity while staking assets. This approach is increasingly in demand as it reconciles the benefits of staking with the flexibility of liquid assets, enabling participants to maximize operational efficiency and financial opportunities in the blockchain ecosystem.
Chainlink explains the liquidity staking mechanism
The benefits and risks of liquidity staking
Liquidity staking brings several benefits that enhance the staking experience:
Enhanced liquidity: Stakers receive liquidity tokens representing their staked assets, enabling them to use them in various DeFi applications without giving up staking rewards.
Increased participation: Liquidity staking encourages broader participation in network security by lowering barriers to entry and increasing decentralization.
Flexibility and efficiency: Participants can respond quickly to market changes and use their liquidity tokens for trading, lending, and borrowing, thereby optimizing the utility of their assets.
However, these advantages also come with associated risks:
Smart Contract Vulnerabilities: Reliance on smart contracts introduces a layer of risk where flaws or vulnerabilities could result in loss of funds.
Market Volatility: The value of liquidity tokens may fluctuate, introducing an element of market risk not typically present in traditional staking.
Complexity and interdependence: Integrating various DeFi protocols will increase complexity and interdependence, potentially exacerbating systemic risks in the blockchain ecosystem.
Well-known liquidity staking projects:
Several notable projects are at the forefront of the liquidity staking movement and have had a significant impact on the Web3 landscape:
Lido: As a leader in the liquid staking space, Lido provides solutions across multiple blockchains, facilitating staking without locking up assets, thereby enhancing liquidity and participation.
Rocket Pool: Rocket Pool provides a decentralized, trustless staking service for Ethereum, promoting accessibility and network health.
These projects, and others, are leading the shift toward a more liquid, dynamic, and inclusive staking environment, fostering a robust Web3 ecosystem where participants can participate more freely, securely, and profitably. As liquid staking continues to evolve, it promises to redefine the staking paradigm, offering a powerful combination of security, liquidity, and opportunity that aligns with the fundamental principles of decentralization and user empowerment in the blockchain space.
The Restaking Revolution: A New Paradigm for Crypto Yields
A groundbreaking concept called "restaking" redefines the mechanics of blockchain security and token economics. Restaking is a sophisticated mechanism whereby a new blockchain network entrusts its economic security to a strong, professional security layer. This is achieved by accumulating liquid staking tokens and distributing them to the staking layer, thereby ensuring enhanced protection and efficiency.
The "re" in restaking refers to a layered commitment: resources are initially staked to secure a primary protocol like Ethereum, then allocated to another protocol, benefiting both layers. This innovative approach simplifies security and fosters a more connected and cooperative blockchain ecosystem.
The impact of re-staking on the crypto economy
Restaking is a game changer for the crypto economy, especially for emerging first-layer networks. By eliminating the need for these networks to independently recruit validators and accumulate staking resources, restaking significantly reduces barriers to entry and operational overhead. The model promotes more efficient use of resources as staked assets can be leveraged across multiple protocols, thereby enhancing the overall security and vitality of the Web3 space.
Furthermore, the additional revenue stream generated through re-staking incentivizes new participants to join the ecosystem. This influx of stakeholders helps to create a more secure, robust, and decentralized Web3 environment, highlighting the transformative potential of re-staking.
Ethereum Staked on the Network | Chart from CryptoQuant
How to participate in re-staking
Participating in re-staking requires a strategic approach and a deep understanding of the underlying platforms and mechanisms. Potential participants should first familiarize themselves with platforms such as EigenLayer and EtherFi, which are at the forefront of the re-staking movement.
The general steps involve acquiring Liquid Staking Tokens (LSTs) from platforms such as Lido Finance and pledging these assets to the chosen re-staking layer. By following this process, individuals and entities can contribute to the security and efficiency of multiple blockchain networks while also taking advantage of new channels to earn yield and participate in the digital asset space.
BRC-20 Tokens: Making Bitcoin Smarter
BRC-20 tokens represent a significant innovation, bringing a new utility layer to the Bitcoin blockchain. Unlike the Satoshi, which is the traditional base unit of Bitcoin, BRC-20 tokens introduce a novel concept by inscribing a JSON file onto individual Satoshis. This process is similar to attaching a unique digital annotation to each Satoshi, giving them unique properties and identity. These inscriptions can detail a variety of properties, including the name of the token, the token symbol, and the total supply, transforming ordinary Satoshis into versatile digital assets.
The serial number inscription is also a BRC-20 token
Overview of BRC-20 vs. ERC-20 Tokens
The creation of BRC-20 (like Ordinals) tokens differs significantly from the established ERC-20 standard on the Ethereum blockchain. While ERC-20 tokens leverage smart contracts to introduce new assets with properties independent of Ethereum, BRC-20 tokens take an inscription approach. To create a BRC-20 token, a specific amount of Bitcoin must be deposited into the Ordinals registry. These deposited Bitcoins will then serve as the backbone of the BRC-20 token, with the token supply corresponding to the deposited amount.
An interesting aspect of BRC-20 tokens is their operational framework, which enables them to run in parallel with the main Bitcoin blockchain. Therefore, transactions can be validated on the Bitcoin network while being rejected on the BRC-20 protocol if they fail to meet predefined inscription conditions.
The advantages of BRC-20 tokens include their simplicity and the strong security inherited from the Bitcoin blockchain. However, they also have some limitations. Their versatility is limited due to the lack of smart contract functionality, and their interoperability with other blockchain systems is relatively limited.
The future of BRC 20 tokens
Looking ahead, BRC-20 tokens are expected to usher in a new era for the Bitcoin network. From enabling direct peer-to-peer transfers to facilitating the creation of Bitcoin-based DeFi applications and tokenizing real-world assets such as gold and real estate, BRC-20 can significantly broaden Bitcoin’s use cases and open a new chapter in its storied evolution.
ERC 7621: Basket of Tokens Standard
ERC-7621 is a new token standard developed by Alvara Protocol. It is designed to create and manage on-chain multi-token asset portfolios and investment portfolios. It provides a framework for deploying token basket standards on the Ethereum blockchain. A single BTS token can encapsulate any combination of ERC-20 tokens, similar to mutual funds in traditional finance, facilitating on-chain fund management.
Alvara Protocol creates a basket of token standards | Image from Alvara Litepaper
Key features and innovations
Basket Token Standard (BTS): A revolutionary approach that allows the creation of tokens consisting of a variety of base ERC 20 tokens.
Transferability and Liquidity: BTS is made transferable by integrating with the ERC 721 standard for ownership representation, enhancing liquidity and governance.
Fungible BTS LP Tokens: These are ERC-7621 LP tokens that represent holdings in baskets and can be used in various DeFi applications, increasing their utility beyond traditional fund holdings.
Dynamic Contributions and Withdrawals: The protocol allows LP tokens to be minted and destroyed on every contribution or withdrawal, in line with fund dynamics.
Management Fees and Rebalancing: ERC-7621 automates the allocation of management fees and facilitates portfolio adjustments, simplifying fund management.
Alvara Protocol: Leveraging ERC-7621
The Alvara Protocol leverages the ERC-7621 standard to provide a decentralized framework for creating and managing investment funds on the blockchain. With fund factories and marketplaces, Alvara enhances visibility and performance tracking of BTS with the support of its native ALVA and veALVA tokens, driving ecosystem participation and governance. The protocol democratizes fund management, ensuring an accessible and efficient meritocracy.
Note: ERC-7621 is an experimental token standard that has not yet been formally proposed as an Ethereum Improvement Proposal. As such, it has not yet been reviewed by the Ethereum community, so readers who plan to explore this new standard must take it seriously.
ERC-404: Semi-Fungible Tokens
ERC-404 is another experimental token standard developed independently by Pandora Labs. Ethereum supports the ERC-20 standard for creating fungible tokens and the ERC-721 standard for NFTs. Pandora Labs merged these concepts to create semi-fungible tokens, a solution very similar to fragmented NFTs.
The idea of semi-fungible tokens has been circulating in Web3 almost since the advent of NFTs. The idea specifies a situation where NFTs need to be jointly owned on the chain. Standard NFT tokens can only have one official owner at a time, and ERC-404 defines a standard that retains the "non-fungibility" of NFTs while retaining the liquidity of ERC-20 tokens.
How ERC-404 works:
ERC-404 tokens are both divisible and unique. When a newly minted ERC-404 token represents ownership of a virtual asset, the entire unit in a single address mints an NFT in your wallet. That address can then sell a portion of that token. Once an ERC-404 is divided, the protocol destroys the NFT. When an address collects enough portions of a particular ERC-404 token to form a whole again, the protocol re-mints the NFT in the associated address.
ERC-404 vs. other token standards | Image from Pandora website
The potential of ERC-404 tokens
Pandora’s innovation has many potential applications that can expand the utility of NFTs. First, people can use fragmented NFTs as a source of liquidity to power liquidity pools or have a diversified basket of NFT portfolios instead of purchasing entire NFT units individually.
However, users must understand that ERC-404 is experimental and not a standard Ethereum Improvement Proposal. Pandora is developing it independently and has not yet been reviewed by the Ethereum developer community. Therefore, this innovation may have bugs and vulnerabilities and may be prone to development bottlenecks.
Universal Data Availability Layer: The Frontier of Modularity
Data availability is critical because it ensures that sufficient transaction data is accessible during the consensus process. This accessibility is essential for validators or nodes to verify the validity of transactions in proposed blocks. Data availability is fundamental to maintaining chain liveness, i.e. the network continues to agree on the sequence of transactions, and ensures that invalid transactions are consistently identified and rejected.
However, creating a dedicated data availability (DA) layer is a resource-intensive endeavor. It requires powerful hardware capabilities and collateral requirements to ensure robustness and security. To alleviate these challenges, the blockchain industry is witnessing the rise of general-purpose DA layers. These layers provide a shared infrastructure that new or emerging blockchain networks can simply "subscribe" to, alleviating the need for each chain to build its own expensive data availability solution.
Outstanding data availability solution
Celestia: Celestia is a pioneering solution in this space, providing a modular blockchain network that decouples data availability from consensus, enabling scalable and flexible blockchain design.
EigenDA: EigenDA provides a unique approach to data availability through the use of liquidity staking tokens, thereby improving the efficiency of blockchain networks.
Polygon Avail: As part of the Polygon suite, Avail is designed to act as a powerful and decentralized data availability layer, supporting various blockchain architectures and enhancing their performance and security.
Benefits of a dedicated Data Availability (DA) layer
The emergence of a dedicated DA layer brings multiple advantages to the blockchain ecosystem:
Lower overhead for new chains: By leveraging the existing DA layer, new blockchain projects can significantly reduce their startup and operating costs.
Efficient Utilization of Resources: A dedicated DA layer optimizes resource usage across the ecosystem, preventing redundancy and promoting eco-friendly blockchain operations.
Enhanced decentralization: With accessible DA services, smaller chains can achieve levels of security and decentralization that would otherwise be unattainable.
Foundation for AppChains: These layers facilitate the development of application-specific chains, or “appchains,” enabling customized blockchain solutions that meet unique needs without compromising data integrity or availability.
Essentially, dedicated data availability layers are changing the blockchain landscape, providing the infrastructure that supports the growth and diversification of the Web3 ecosystem. They are a testament to the continued evolution and maturation of blockchain technology, paving the way for a more resilient, scalable, and application-centric web.
DePIN: Decentralized Physical Infrastructure Network
The Decentralized Physical Infrastructure Network (DePIN) represents a groundbreaking movement in crypto that combines blockchain technology with real-world physical infrastructure. DePIN projects leverage blockchain’s decentralization and tokenization to innovate in areas such as data storage, energy, and connectivity, changing the way physical services are provided and managed. Notable examples such as The Graph Protocol, Theta Network, and Arweave illustrate the potential of DePIN, showing how blockchain can extend its utility beyond the digital realm to impact tangible, real-world infrastructure.
The Graph Protocol uses blockchain to index and query network data, effectively creating a decentralized service for information retrieval.
Theta Network decentralizes video streaming by distributing bandwidth to users, thereby improving the quality and coverage of streaming services.
Arweave offers a novel data storage solution that allows information to be permanently stored on a decentralized network.
These initiatives exemplify how DePIN is redefining infrastructure, leveraging crowdsourced contributions to improve service efficiency and accessibility.
Advantages of DePIN over traditional systems
DePIN has many advantages over traditional infrastructure models:
Decentralization: By distributing control and ownership, DePIN ensures that no single entity can monopolize services, fostering a more democratic infrastructure ecosystem.
Transparency: The inherent transparency of blockchain allows all network participants to view and verify transactions and operational processes.
Incentives: DePIN uses cryptocurrency rewards to incentivize participation, ensuring that the infrastructure is maintained and enhanced by a spontaneous community.
Accessibility: DePIN lowers the barriers to entry, enabling a wider range of actors to contribute to and benefit from physical infrastructure services.
DePIN’s zoning map | Image via X
Challenges facing DePIN
Despite its potential, DePIN faces several challenges:
Integration with physical infrastructure: Connecting digital blockchain systems with physical infrastructure requires innovative solutions and robust middleware to ensure seamless operation.
Scalability: As these networks grow, ensuring they can scale efficiently while maintaining quality of service and network security is critical.
Regulatory compliance: Understanding the regulatory environment, particularly in areas such as energy and transportation, is critical to the adoption and success of DePIN.
In short, DePIN is poised to transform physical infrastructure, making it more decentralized, transparent, and user-centric. By taking an innovative and collaborative approach to solving relevant challenges, DePIN can have a significant impact on various industries and usher in a new era of blockchain-integrated physical services.
Decentralized Science: Revolutionizing Research and Innovation
Decentralized Science (DeSci) is an innovative movement that uses blockchain technology to change the landscape of scientific research, collaboration, and publishing. Decentralized Science (DeSci) addresses several long-standing problems in traditional science, such as inaccessible data, lack of transparency in research funding and publishing processes, and monopoly of knowledge by a few gatekeeper institutions. By leveraging the inherent transparency, immutability, and decentralization of blockchain, DeSci promotes open collaboration, democratizes access to scientific data, and simplifies funding mechanisms.
The role of DeSci in data sharing, research publishing, and funding
Decentralized Science (DeSci) revolutionizes data sharing by enabling transparent, immutable scientific data records, facilitating peer verification, and encouraging cross-border collaborative research efforts. Decentralized Science (DeSci) challenges the traditional research publishing model, providing a decentralized platform where research results can be published without excessive gatekeeping, ensuring that scientific discoveries can be disseminated and recognized faster.
Additionally, DeSci introduces innovative funding models, such as decentralized autonomous organizations (DAOs), that allow community members to directly fund research projects they believe in. This model speeds up the funding process and democratizes the decision-making process, aligning research incentives with the interests of the community rather than catering to the interests of a few.
Notable projects in Decentralized Science (DeSci)
VitaDAO: VitaDAO focuses on funding longevity research. By leveraging blockchain technology, community members can have a say in the research projects they fund, thereby facilitating direct connections between researchers and the public.
Athena DAO: Athena DAO focuses on biomedical research and uses blockchain to promote funding and collaboration in the field of medical research, ensuring that research results are shared widely and transparently.
Vallet DAO: Vallet DAO is another important player in the DeSci space, aiming to decentralize the funding and publishing process of scientific research, making it more accessible and efficient.
In short, DeSci will redefine the scientific research and publishing paradigm, breaking down barriers to information access, ensuring greater transparency, and promoting a more inclusive, collaborative approach to scientific inquiry. Through projects such as VitaDAO, Athena DAO, and Vallet DAO, DeSci is not just a concept, but an evolving reality that has the potential to have a significant impact on the way scientific research is conducted and shared globally.
Tokenized Real World Assets (RWA)
Real World Asset (RWA) tokenization is an emerging niche in the cryptocurrency space in 2024, gaining momentum due to its innovative approach to blending the tangible and digital realms. RWAs are blockchain tokens that represent ownership or equity in physical and traditional financial assets. The industry is rapidly expanding, with various projects tokenizing a range of assets, including cash, commodities, real estate, and more, bringing these assets to the blockchain to enhance liquidity, accessibility, and efficiency.
How asset tokenization works
Asset tokenization involves converting the rights to an asset into digital tokens on a blockchain. The process first verifies and values the asset, then creates a digital representation (i.e., token) that reflects the ownership or value proposition of the asset. These tokens can then be purchased, sold, or traded on digital platforms, allowing for fractional ownership and broader access to investment opportunities that were previously difficult to access due to high barriers to entry or illiquidity.
RWA Industry | Image via Galaxy Digital
Benefits of RWA
Accessibility and inclusion: Tokenization democratizes access to investment opportunities, enabling more people to invest in high-value assets through fractional ownership.
Liquidity: Tokenizing real-world assets enhances their liquidity, making it easier to trade these assets without the need for traditional intermediaries.
Transparency and efficiency: Blockchain technology ensures transparency and provides a clear understanding of the ownership and transaction history of assets, thereby reducing fraud and speeding up transactions.
Risks of RWA
Regulatory uncertainty: The tokenization of real-world assets navigates a complex regulatory environment where clarity and compliance are still evolving.
Market Risk: The value of the Tokens may fluctuate and be affected by the performance of the underlying assets and broader crypto market dynamics.
Operational risks: The process involves various stakeholders, including legal entities, custodians, and token issuers, whose operational integrity is critical to the tokenization and ongoing management of assets.
Project construction in the RWA section
ONDO: ONDO focuses on democratizing financial assets by providing a platform for segmenting and investing in a diversified portfolio of real-world assets through blockchain technology.
Polymesh: Polymesh is a blockchain designed specifically for regulated assets that facilitates compliance and provides a framework for issuing and managing securities on the blockchain.
MANTRA: MANTRA operates in the DeFi space, expanding its offerings to the tokenization of real-world assets, aiming to bridge the gap between traditional finance and DeFi.
In summary, the tokenization of real-world assets represents a significant leap forward in the convergence of the physical and digital worlds, providing countless benefits while also bringing unique challenges.
Summarize
As we examine the dynamic landscape of cryptocurrency in 2024, it’s clear that the industry is not just rebounding; it’s evolving, diversifying, and maturing. Underlying this resurgence is a wave of innovation that is expanding the boundaries of what’s possible in blockchain and crypto. From liquidity-enhancing mechanisms for liquid staking tokens to groundbreaking integrations of blockchain with the physical world through decentralized networks of physical infrastructure, each of the narratives we explore marks a step toward a more connected, efficient, and accessible digital future.
The emergence of tokenized real-world assets heralds a new era of convergence between traditional asset markets and blockchain technology, providing unprecedented investment and asset management opportunities. At the same time, decentralized science (DeSci) is expected to revolutionize the foundations of scientific research and publishing, fostering a more collaborative, transparent, and inclusive global research community.
However, as we marvel at these advances, it is critical to view this new field with a balanced perspective. Many of these innovations are nascent, meaning they are still being tested in real-world applications and challenges of market acceptance. Additionally, the regulatory landscape continues to evolve, creating potential challenges and shaping the trajectory of these emerging industries.
The cryptocurrency landscape of 2024 is a testament to the resilience and relentless innovation of the blockchain community. As we embark on this promising yet unpredictable journey, staying informed, adaptable, and perceptive will be key to capitalizing on the opportunities and navigating the challenges of this new digital age. The future of cryptocurrency is unfolding before us, and it is full of potential and possibilities waiting to be seized.
