Reflecting on 2023
At the end of 2022, we made 12 predictions, spanning the areas of gaming, NFTs and digital goods, and Ethereum and blockchain infrastructure.
By our own assessment, we were (mostly) right — with seven correct calls, two misses and three partially right/partially wrong. We were right in our predictions around OpenSea market share, Polygon NFTs, off-exchange custody, deflationary ETH, decreasing hacks, continued regulatory uncertainty and Apple’s pesky 30% tax (which is looking increasingly fragile post Epic Games’ big win over Google on Dec. 11, 2023).
Our biggest miss was volume and revenue associated with brand NFTs. While optional royalties and bear market trading volumes meant revenues almost certainly didn’t meet our figure, we saw brands continue to lean into Web3 in 2023 and expect the trend to continue in 2024. We also missed on stablecoin volumes surpassing Visa volumes this year (they didn’t, but we expect they will in 2024), Uniswap overtaking Coinbase in volumes for the year (although Uniswap was the volume winner for a month in March), and the share of ETH liquid staked.
2024 predictions
Entering 2024, we have never been more excited for the future of the industry. 2023 was a rollercoaster of ups and downs — with sentiment oscillating throughout the year, along with region-specific appetite and regulatory postures.
Through this, builder excitement and activity was constant, as dedicated founders and teams continued to build through the noise. Those who have been committed to the industry have been rewarded by significantly increasing prices for BTC, ETH and other assets. We now believe we are on the cusp of several major developments across Web3, including the ones predicted below across several categories.
Gaming and brands
1. 2x-3x+ growth in Web3 game releases
At least 2x growth in Web3 games overall (according to Jon Jordan’s Big Blockchain Games List, there are currently 1,037) as of Dec. 19, 2023.
At least 3x growth in fully on-chain games (according to Jon Jordan’s Big Blockchain Games List, there are currently 54) as of Dec. 19, 2023.
2. More of the world’s largest Web2 game companies embrace Web3 in 2024
Among others, we’ve already seen companies like Nexon, Netmarble, Krafton, Come2uS, Square Enix, Konami, Ubisoft, CCP Games, Scopely, EA and Zynga enter the space.
3. More Web3 enhanced games in the Apple App Store, the Google Play Store, and the Epic Games Store now that we have clarity on their respective policies related to games that implement Web3 technologies
We also expect to see some mobile games in the Apple App Store and Google Play Store add stablecoins as a payment option within the native app (for the benefit of Apple App Store and Google Play Store European gamers, thanks to the EU Digital Markets Act and potentially also for Google Play Store US gamers due to Epic’s victory over Google).
4. We predict the gaming token market cap grows to $40 billion
Currently, the market cap for gaming tokens is at ~$18 billion. Based on recent gaming industry growth rates, we predict this number could get to $40 billion or more in 2024.
5. “Forever Brands” continue to ramp up in Web3
We’ll see continued “Forever Brands” Web3 adoption in 2024. Post the events of 2022, Forever Brands like Nike, Starbucks, Gucci, Adidas, Dior, Louis Vuitton, Balmain and Prada all launched or doubled-down on their Web3 initiatives. We predict at least twice the amount of Forever Brand activations in 2024.
Stablecoins
6. Stablecoin volumes do surpass Visa in 2024
Last year, we predicted that stablecoin transfer volume would eclipse Visa (~$12.3 trillion in FY23). That didn’t quite happen, but November’s rate annualized was ~$10 trillion. We think we were just a year too early and have high confidence that in 2024, on-chain stablecoin volumes will surpass Visa’s volumes.
7. Percentage of stablecoin volume on Solana doubles
Through November 2023, Solana comprised ~3% of stablecoin transfer volume. We predict that this percentage will at least double in 2024 to more than 6% due to the resurgence of the Solana ecosystem, and Solana starting to take some share from Tron as the blockchain of choice for fast and cheap stablecoin payments.
8. A decentralized synthetic USD stablecoin (ETH LST vs short perp) breaches $1 billion TVL in 2024
The industry has long been looking for a suitable alternative to the centralized stablecoins that are prevalent today. We think 2024 may be the year one of them comes to fruition with a suitable mechanism.
Ethereum and transaction flow
9. The proportion of staked ETH that is liquid staked breaches 50%
Last year, we predicted that this number would be 60%, and while that was optimistic (it’s currently 37.5%), we continue to think it will increase significantly in 2024 to 50%. A high proportion of the growth, in our view, will come from institutions that continue to get comfortable with both staking and liquid staking.
10. Total ETH outstanding hits 119,600,000
The total ETH outstanding figure currently stands at 120.21 million. This is down ~318,000 ETH since the beginning of 2023, when the outstanding supply was ~120.52 million. We predict that the burn will equate to ~600,000 ETH in 2024, as activity across the entire ETH ecosystem ramps up significantly.
11. We predict the number of private transactions included in blocks to be twice where it is now (currently around 11%). The verticalization of the transaction supply chain will continue as we predict block builders who have been focused on MEV (i.e. searcher builders) lose market share to neutral builders (of the current largest builders, searcher builders comprise ~54% of blocks built and neutral builders comprise ~24% of blocks built).
12. Gasless transactions become significantly more prevalent across crypto
As consumers participate across different verticals (e.g. games), they will use products that abstract away as much complexity as possible. Whether through EIP-4337 or otherwise, transactions from smart accounts and wallets will grow significantly in 2024.
13. Rollups hit the gas pedal
We predict combined ETH layer-2s and rollups reach 10 times the layer-1 transaction count, and that the combined TVL of layer-2s and rollups end 2024 larger than ETH layer-1.
Markets
14. Token launch window stays open
After a relatively slow year for new token listings on major centralized exchanges, new listings have significantly picked up into year-end 2023. We expect this activity to continue strongly into 2024 as a backlog of projects capitalize on the market momentum to launch their tokens and list on major exchanges. We expect to see a wide variety of token types (layer-1/layer-2, DeFi, gaming, etc.), as well as innovative new token value accrual mechanisms as this new capital market continues to mature. Unfortunately, this capital markets evolution will, in our view, occur largely outside the purview of US investors as we think projects will be increasingly hesitant to list tokens on US exchanges or provide services to US investors.
15. Abu Dhabi leans further into crypto and founders lean further into Abu Dhabi
Last year, we predicted that Saudi Arabia’s Savvy Games would make a move into Web3 gaming. This happened indirectly when Savvy acquired Scopely, which is an investor in Polygon.
While we certainly expect to see more Web-related action from Savvy in 2024, we’re also keeping a close eye on more general Web3 activity happening right next door in the UAE. Earlier this year, our very own Brevan Howard — one of the world’s largest hedge fund managers with over $35 billion in assets under management as of Oct. 20, 2023 — opened a flagship office in Abu Dhabi, the capital of the UAE. The traditional finance move into Abu Dhabi during 2023 has been nothing short of explosive, and we expect this to continue into 2024. We believe the same holds true for Web3, where we expect Abu Dhabi to become a primary destination of choice for Web3 founders.
Abu Dhabi Global Market, an international financial center and free zone established in 2013 that operates a legal system based on English common law, has had a forward-thinking approach to digital assets since 2017, when ADGM first announced that it would establish a framework for virtual assets. In 2018, ADGM followed through when its Financial Services Regulatory Authority introduced and implemented a comprehensive and bespoke framework for the regulation of exchanges, custodians, brokers and other intermediaries engaged in virtual asset activities.
Coinbase recently announced Project Diamond, a smart contract-powered platform for institutions to create, buy and sell digitally native assets. Given there is no tailored regulatory framework for Web3 in Coinbase’s home jurisdiction, nor a formal regulatory sandbox in which to test out Web3 innovation, it should come as no surprise that Coinbase’s Project Diamond will be entering ADGM’s RegLab sandbox, where it can create and test critical Web3 infrastructure without a “Sword of Damocles” overhead. Fortunately for ADGM, we predict many more Web3 founders to follow Coinbase’s lead and take advantage of the clear rules of the road that ADGM offers — including its RegLab. Unfortunately for the United States, this will mean the continued flee of Web3 talent to a jurisdiction that created a framework for Web3 builders before everyone else, and is now reaping the benefits of that proactive regulatory approach.
The commentary contained in this document represents the personal views of its authors and does not constitute the formal view of Brevan Howard. It does not constitute investment research and should not be viewed as independent from the trading interests of the Brevan Howard funds. The views expressed in the document are not intended to be and should not be viewed as investment advice. This document does not constitute an invitation, recommendation, solicitation or offer to subscribe for or purchase any securities, investments, products or services, or any investment fund managed by Brevan Howard or any of their affiliates. Unless expressly stated otherwise, the opinions are expressed as at the date published and are subject to change. The authors and Brevan Howard may have taken positions in the assets and companies discussed in the commentary. No obligation is undertaken to update any information, data or material contained herein.
Robert Bogucki joined Brevan Howard in January 2023 as a Portfolio Manager with a discretionary
trading mandate. Prior to joining BH Digital, he was the Global Co-head of Trading at Galaxy Digital.
Previously, he was Global Head of Macro Trading at Barclays and held senior derivatives trading positions at Merrill Lynch, Morgan Stanley, and Goldman Sachs. He holds a Bachelor of Science
from Cornell University in Mechanical and Aerospace Engineering.
Alexi Esmail-Yakas is a Portfolio Manager in our Liquid Trading strategy, focusing on derivatives,
RV and DeFi. Alexi joined Brevan Howard in 2013, with a hiatus working for Elwood Asset
Management (“Elwood”) as Head of Trading and Product between 2018-2020. At Brevan Howard,
Alexi worked as a trader directly for Alan Howard and has been involved in assisting his and the
principal investment team’s crypto endeavors since 2017. During his time at Elwood, Alexi traded
market neutral crypto strategies. Alexi graduated from Oxford University with a degree in
Mathematics, and has a Masters in Applied and Theoretical Fluid Mechanics from the University of
Manchester.
Colleen Sullivan is Co-Head of Venture at Brevan Howard Digital. Prior to joining Brevan Howard Digital, Colleen co-founded CMT Digital, where she was CEO and oversaw CMT Digital’s crypto venture investing, trading, and policy initiatives. Prior to CMT Digital, Colleen was a partner in the CMT Group; co-founded boutique law firm, Sullivan Wolf Kailus; practiced in the Investment Funds and Derivatives group at Sidley Austin, and co-founded iOptions Group. Colleen is also a Founding Partner of the Alliance accelerator and on the Advisory Board of the Chamber of Digital Commerce.
Peter Johnson is the Co-Head of Venture at Brevan Howard Digital. Prior to joining Brevan Howard, Peter was a Partner at Jump Crypto and Jump Capital, where he led Jump’s crypto and fintech investments for 9 years. He joined Jump Capital in 2013 as its first employee, initiated Jump Capital’s crypto investing strategy, and is a Founding Partner of the Alliance accelerator. Peter earned an MBA from The University of Chicago Booth School of Business and is a Kauffman Fellow and CFA Charterholder.
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