In the aftermath of the rapid macro economic and geo political headwinds facing the world in 2022, it’s increasingly hard to predict what’s gonna happen to the web3 industry in 2023. Is the contagion over? Are the skeletons out of the closet yet? Will Ethereum face greater censorship from regulators? Will users who lost billions in the aftermath of Terra and FTX/Almeda ever trust crypto again?
The point where we are as an industry at the end of 2022 is certainly an environment of gloom and doom. Many tout this as the quintessential crypto winter. A period of lull in the industry. As venture funnels dry up, and investors demand more developer commitment than just words, it’s clear 2023 is going to be a tough battle of survival and sustainability.
As always, the path to greatness is filled with pain. If there’s one thing history has taught us, if it really means something to us, we all must stand up and fight for it. For this research, my objective is to not discuss the past (of which a lost has been written and documented both on social media and mainstream media publishers), rather, my focus with the report is to share my view of where I believe we’re going collectively as an industry.
For someone who jumped into the crypto rabbit hole in 2021 at the heat of the bull market (buying into naive idea of changing the world), I’ve slowly developed the intellectual wisdom to be a skeptic in the industry.
I still remember the alt L1 narrative driving the initial bull run as new chains launched their liquidity mining programs to rush developers in their ecosystems in the aftermath of a rapid rise in ethereum transaction fees following the DeFi rush of 2020, and the NFT mania of 2021.
That was the time I got into the space and I vividly remember the excitement with which crypto truth seekers were calling it the moment of reckoning with cryptos finally catching up with the mainstream.
The first of the five mega trends for 2023 aims to unpack our journey to bring a billion users to crypto. I believe as an industry, it will be the first important major milestone to achieve in a bid to make crypto currencies and blockchain technology widely accessible for greater public good.
In 2020, crypto.com put up the first edition of the crypto on-chain market sizing report. The objective was to estimate using on-chain data the total number of unique individuals using crypto currencies. The data estimated deposit addresses maintained at the top 20 centralized exchanges (adjusted for non CEX users) and estimated 66 million crypto currency users in June 2020.
In January 2022, crypto.com released an updated version of the crypto market sizing report and estimated 295 million users for the twelve months ended December 2021.
The report further predicted an increase in global crypto user base to 1 billion at the end of 2022, extrapolating on the c. 3x increase in crypto users from 106 million (Jan’21) to 295 million (Dec’21).
In a recent update to the crypto market sizing index, crypto.com estimated the number at 402 million, a far cry from the one billion mark predicted a year ago.
Many in the industry tout this as crypto’s internet moment. The lull before the storm kicks in and hoards waves of new users into crypto and web3.
While all of this is exciting, there’s no denying the fact that recent events have dwindled faith in the industry amongst the average user (as shown by declining interest around web3 (and other like terms) indicated by Google Trends (worldwide).
While crypto purists call for a seismic shift in adoption from all things centralized (dubbing centralized itself as a neccessary conduit for evil), to decentralized networks with no trusted third parties, I was curious how far along the adoption curve we really are when it comes to hard core web3 adoption. The answer, there is no reasonable data set I could get my hands on that could help answer this question.
Having said that, I did find some interesting facts and statistics that could at least directionally help us visualize real world adoption of crypto technologies by people.
At a high level, we can broadly classify crypto wallets into two categories, centralized wallets and self-custody wallets (decentralized wallets).
Statista estimated a total of roughly 85 million unique wallet users at the end of November 2022.
At the beginning of 2022, popular non-custodial hot wallets Metamask (Ethereum) and Phantom (Solana) together had over 23 million users on their platforms.
In March 2022, ConsenSys announced Metamask has crossed 30 million active users, a 42% increase in 4 months.
https://twitter.com/ConsenSys/status/1503748090720833548?s=20&t=OVPjGbd3tVqdGvQKCOZyfA
In contrast, blockchain.com estimated 85 million unique users on its popular self-custody wallet to buy, sell and trade in the most popular crypto currency.
Adding these numbers barely take us past the 100 million user mark. Clearly there’s a great divide between centralized and decentralized crypto access. Most users are still operating in the centralized crypto segments i.e. third party custodians, centralized stablecoin issuers and centralized crypto exchanges.
DeFi
According to on-chain data analytics provider Dune, there are an estimated 6.6 million users to ever interact with a DeFi smart contract on the Ethereum network
Further, monthly unique users are hovering in the range of 500,000 after recording a 50% drop off from the highs of 1M users last recorded in October 2021
In terms of actual user engagement, blockchain gaming as a sector attracted maximum on-chain activity ending the year with 1M unique active wallets as of December 2022
Despite the winter headwinds, all crypto sub-segments have witnessed positive UAW (unique active wallets). Gaming led the way with 1.15M average monthly active wallets, up 85% from 2021.
Gaming
Much like DeFi, crypto gaming has also witnessed a surge in adoption with cumulative unique gamers on-chain increased 20x from January 2021 to surpass 20 million at the end of 2022
Daily active users or DAUs on the other hand have declined substantially from c.700k in H1 2022 to 400k in H2 2022
NFT
NFTs as a whole has witnessed a stupendous rise with over 2.5 million users making at least one NFT related transaction activity by the close of 2022
However, weekly active traders have dropped off from the highs of 200k in early January last year to drop off gradually to 150k in December 2022, though much higher than the average trader count at the end of December 2021
The top 3 projects in the web3 metaverse category commanding a combined market cap of $2.6 billion have less than 60,000 unique active users at the close of 2022
In conclusion, while the overall market has taken steps towards the goal of getting to a billion active users, on-chain data and estimates show we’re still far off from realizing that goal.
To continue this growth and achieve the vision of on-boarding a billion users, the industry needs regulatory clarity, earn the trust and attention of users, and continue building solutions that solve real problems offering credibly better alternatives.
Despite the challenging headwinds, I believe the industry will continue to work towards onboarding a billion people to web3.
This brings me to the end of the first of the five mega trends to watch out for in 2023. I hope you enjoyed the read. In the days ahead, In the next edition I will uncover the 2nd mega trend for 2023, taming the great crypto wild west where I extensively cover the regulatory landscape across the major crypto markets around the globe and why I believe greater regulations will drive much of the narrative in the year ahead.
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