A16z Addresses Downturn in Inaugural State of Crypto Report

The report discussed Web 3 trends and why Ethereum remains the dominant blockchain.

AccessTimeIconMay 17, 2022 at 11:00 a.m. UTC
Updated May 11, 2023 at 6:53 p.m. UTC

Noted venture capital firm Andreessen Horowitz (a16z) has released its inaugural "State of Crypto" report that includes cyclical information relevant to the current downturn, according to draft materials provided to CoinDesk. Other key takeaways were related to Web 3 benefits and Ethereum’s continued blockchain dominance.

A16z has become one of the most prominent names in crypto investing. Last summer, a16z raised $2.2 billion for its third dedicated crypto fund, a record-setting vehicle until Paradigm’s $2.5 billion launch in November.

The “State of Crypto” report builds on a a16z blog post on the “price-innovation cycle” from May 2020, when digital assets were climbing out of the 2018 crypto winter. Later, bitcoin (BTC) reached a new record high in December 2020.

A16z said the crypto market is driven by a cycle where strong digital asset prices attract talent into the space, developers innovate during a downturn and the resulting projects and startups drive optimism once winter is over. The initial price-innovation cycle thesis in 2020 proved true, and a16z began working on the State of Crypto report.

“We thought it might make sense now that there’s all of these new and interesting focus areas in crypto that there’s data for, that there’s totally public information that you can go out and scrounge for yourself,” Eddy Lazzarin, head of protocol design and engineering for the a16z crypto team, told CoinDesk in an interview.

Web 3 early innings

Web 3, a broad term to define the next phase of the internet which means something different to everyone you ask, was a focus of the report. Crunching data for an area requires at least a general definition.

“I think at the high level for us, Web 3 is the term for the movement whereas crypto is the underlying tech that makes it possible,” Lazzarin explained.

A16z compared take rates, or the fee a marketplace charges on a transaction from a third party, between Web 2 and Web 3. Meta (FB) had nearly 100% take rates across Facebook and Instagram compared to the 2.5% take rate for non-fungible token (NFT) marketplace OpenSea.

A16z conducted new data analysis to compare the payouts of Ethereum-based NFT creators with Web 2 creators. Last year, primary sales and royalty payments of Ethereum-based NFTs totaled $3.9 billion, four times the $1 billion that Meta reserved for creators through 2022, which represented about 1% of the tech giant’s revenue.

While Web 2 currently holds far larger user numbers, the upstart rival wins in terms of payouts. Overall, Web 3 paid out $174,000 per creator compared to the $0.10 per user for Meta, $636 per artist for Spotify and $2.47 per channel for YouTube.

On the blockchain front, a16z found that Ethereum remains the dominant force in Web 3, largely due to its early launch and large developer community. However, a16z thinks there can be multiple winners in the space.

Ethereum’s popularity has led to users paying more than $15 million in fees each day to use the blockchain. The well-known scalability issues, which create traffic jams and high fees, have created growing demand for layer 2 interoperability solutions like bridges and rollups, which connect to the Ethereum mainnet in ways that reduce transaction fees and traffic.

Using a number of on-chain metrics, a16z estimates a wide range of between 7 million and 50 million active Ethereum users. The firm estimates that Web 3 could potentially reach 1 billion users by 2031, meaning we are currently still in the early innings.

“Analogizing to the early commercial Internet, that puts us somewhere around the year 1995 in terms of its development timeline,” wrote a16z crypto members Lazzarin, Chris Dixon, Daren Matsuoka and Robert Hackett in a blog post.

“The internet reached 1 billion users by 2005 – incidentally, right around the time Web 2 started taking shape amid the founding of future giants such as Facebook and YouTube.”

CORRECTION (May 20, 19:23 UTC): Corrected earnings for YouTube to $405 per channel from $2.47 per channel.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Brandy Betz

Brandy covered crypto-related venture capital deals for CoinDesk.