Hashed's 2024 outlook: The explosion of Bitcoin ecological infrastructure and the continuous advancement of AI and blockchain integration

summary

2023 has been a resilient year. Hashed has been working closely with developers to drive mass adoption of blockchain. This year, Hashed has invested in 26 early-stage industry teams around the world.

As a team, Hashed has built relationships with global industry leaders and reflected on specific Web3 areas they're excited about for the upcoming 2024.

Hashed's 2024 investment themes focus on the sectors they believe will have the most impact. In this article, Hashed will look at nine areas of blockchain.

They believe that blockchain will play a key role in reshaping the creator economy and intellectual property. There will also be a focus on expanding to Ordinals and BRC-20 tokens, marking the potential for the Bitcoin network to expand. In addition, Hashed will explore the intersection of economic activity and capital markets in blockchain games, followed by an in-depth understanding of the next generation of finance, including physical assets (RWA) and security token offerings (STOs). And they expect the industry to mature through permissioned DeFi, which is an important bridge for regulatory adoption.

Hashed said the synergy between AI and blockchain promises new advancements. When seeing some ecosystems adopt application-specific rollups to enhance scalability, they see the evolution of L2 as an exciting part as well. The article concludes with a look at the crypto euro for global financial markets, as well as the untapped potential of advertising as a tradable asset.

Blockchain will reshape the creator economy and intellectual property

As with traditional media giants, friction remains, including but not limited to the creation of IP derivatives such as webtoons, games, and movies, as well as content with or without AI-generated content (AIGC), which has persisted as traditional media and entertainment giants have taken a defensive approach to open IP infrastructure.

Open, on-chain, and traceable/verifiable IP infrastructure and studios will serve as a foundation for content creators, as well as any stakeholder in the content creation and consumption process, to be immersed in and have ownership of IP and content, which was possible before the broadcast era, which expanded and weakened the direct connection and relationship between content creators and consumers.

As a technology, blockchain will create a paradigm shift in the media and entertainment industry to enable more transparent and fair management of IP and royalty/revenue sharing for any stakeholder in the content creation and consumption process, with the aim of creating a multiplier effect on the creativity of producers and consumers in diverse fields ranging from cartoonists, celebrities, athletes, and film directors to animation, film studios, and talent agencies, allowing them to grow into more impactful IPs (the next Pokémon or Hello Kitty).

In order to accelerate the transformation of the above model, there is a need to establish an infrastructure for IP ownership/proof or an IP open standard to flexibly implement licensing and royalty schemes that incorporate the complexity of AIGC. Taking a step further on the basis of intellectual property ownership and proof, fan-driven blacklist-like intellectual property crowdfunding platforms, fan-generated IP-like ETFs (such as webtoon ETFs), and bets on the next development of animation series can all be examples of creating a capital market based on on-chain interconnected intellectual property. Of course, individuals or companies with high-brand identity IPs can push this initiative faster.

References: Creative Commons, token-bound NFT licenses, Pudgy Penguins, Yuga Labs

Ordinals and BRC-20: Revisiting the Bitcoin Ecosystem

While most crypto players are discussing the upcoming Bitcoin spot ETF, a wave of innovation is happening on the Bitcoin network, which has been largely ignored by institutional and ordinary investors. We see Ordinals and BRC-20 technology as a paradigm shift in the Bitcoin ecosystem, demonstrating the long-term sustainable potential of what many consider to be the most dominant, widely accepted, and secure blockchain.

Ordinals allows various types of data to be engraved on the smallest units of Bitcoin, known as satosos, turning them into NFTs on the Bitcoin network. Soon after, the BRC-20 standard was introduced, a set of instructions that, when used with Ordinals, allow people to deploy, mint, and transfer these inscriptions as fungible digital tokens on the Bitcoin network. This became very popular in the second half of 2023, increasing Bitcoin's block size and doubling the average transaction volume per block. As a result, Bitcoin's average transaction fee has soared about 20 times from the average transaction fee in early October, reaching $37 per transaction.

The existing infrastructure is still in its nascent phase, lacking accessibility, developer tools, and a sophisticated tracking system. Existing token protocols lack support for third-party extensions, smart contract compatibility, and the BRC-20 module always requires a detailed introductory tutorial. 2024 will be a pivotal year for the industry to overcome these hurdles and adopt the Ordinals and BRC-20 standards widely.

We are excited about the project that is expanding the Bitcoin ecosystem. We foresee this space unfolding in the same way that Ethereum decentralized finance did in 2020. Ecosystem infrastructure includes lending marketplaces, decentralized exchanges, bridges, aggregators, portfolio management, development tools, and tracking infrastructure, to name a few. Combine these ecosystems with one of the strongest, oldest, and most dedicated communities in the cryptocurrency space, as well as on-chain players who have become smarter and more active over the past few years. Startups or protocols that help build tools for Bitcoin secure and flexible programming, develop independent indexing infrastructure or wallets, aggregation systems, or even create a native Bitcoin metaverse or NFT marketplace could have a huge impact in 2024.

参考示例：Bounce Auction, Darewise, Multibit, Ordinals, Ordiswap, Tap Protocol, Trac, UniSat, Xverse。

Economic activity in blockchain games and the boom in capital markets

Gaming has always been one of the most attractive areas, with more than 3 billion users worldwide operating economically in all media. Blockchain games are attracting a large number of users as they strive to meet the standards of traditional games and traditional AAA game studios like Nexon, CCP, etc. In addition, the user experience has been meaningfully improved from smart contract wallets to MPC and more, allowing for programmable accounts and security, resulting in a more seamless experience for users, gamers, and studios.

As the blockchain industry moves towards the growth and maturity stages of mainstream adoption through the infrastructure and user onboarding channels of blockchain games, we foresee that economic activity will take place in real-time in the form of fungible and non-fungible tokens, digital identities and social graphs, UGC, and adaptations in both physical and virtual worlds.

More specifically, since DotA originated from mods built on top of Warcraft 3 and ultimately inspired the creation of League of Legends with over 150 million active players, FOCG (Full On-Chain Gaming) / AW (Autonomous World) will create an ever-growing virtual economy through its front-end and back-end composability, community governance, and security. We will explain in detail below:

Front-end composability: Modify your game client to have a new user interface, game art, sound, or music, or reimagine the game experience from scratch by creating an entirely new client. Rewarding such contributions (i.e., fees awarded to customer developers) can be performed transparently and automatically through smart contracts, enabling an automatic and transparent revenue sharing model.

Backend composability: Every object in a game or world, including the player, can be individually addressed on-chain by any smart contract, which means that the player can truly fulfill the initial promise of the smart contract as a way to form an automatic executable agreement between themselves with full Turing-complete logic, which some call user-generated logic. The ability to form complex and robust agreements will allow virtual societies to reach unprecedented levels of political and economic complexity.

Community governance: When the entire game or world is on-chain, value can be captured automatically and transparently, without relying on the execution of third-party marketplace royalties. The community has a say in deciding how value is captured, either opting out (i.e., switching to or starting a fork) or voting in a predefined on-chain governance system. The ability to capture value and accumulate it into community-controlled on-chain vaults can serve as a powerful economic flywheel for the virtual economy. Capturing value from economic activity within the world can provide stable reserve support for assets and fund community development and contributions, further contributing to greater economic activity.

Security: Since FOCG devotes a lot of computing resources to verifying each transaction, the on-chain game and the world will be secure. This will boost confidence in the flow of the virtual economy

参考例子：Nexon MapleStory Universe, CCP Project Awakening, The Citadel, Dark Forest, MUD/Lattice, Halliday, ERC-6551, dfns

Next-Gen Finance: RWA and Equity Tokens

The financial landscape is undergoing a transformation that promises to bridge the gap between traditional finance and the world of blockchain technology. This shift is centered around real-world assets (RWAs) and equity tokens (whose products are called STOs), including traditionally existing off-chain assets, which are now being tokenized and integrated into the blockchain ecosystem. It covers a wide range of real-world assets, including real estate, stocks, bonds, and other valuable assets, all of which are compatible through blockchain technology.

What makes this era truly special is the active participation of major traditional financial players like JPMorgan Chase, Goldman Sachs, KKR, Hamilton Lane, etc. These financial institutions are paving the way for the introduction of physical assets to the blockchain, heralding the massive changes that are about to take place in the industry. At the same time, blockchain protocols like MakerDAO, Securitize, Chainlink, Maple Finance, Goldfinch, Ondo Finance, and Backed Finance are at the forefront, leading the digital transformation as crypto-native currencies that seamlessly adapt to RWA and STO.

In this case, two broad categories are revealed: infrastructure-centric and asset-centric. Infrastructure-focused projects are laying the groundwork for this new financial ecosystem, creating protocols, security measures, and platforms that support the future of RWAs and STOs. Asset-centric programs, on the other hand, are designed for deep vertical positioning of specialized assets.

We are committed to exploring both categories in a balanced way. While we recognize the great potential of asset-centric efforts, our relative focus leans towards infrastructure development. We believe that building a robust and secure infrastructure for tokenization and trading is the cornerstone of this financial revolution.

In the early stages of the RWA and STO revolution, we saw a lot of growth potential in projects that seamlessly integrated with existing Web2 services and partnered with major Web2 entities while navigating the complex global regulatory landscape. Currently, the market is mainly focused on U.S. Treasuries-related products and tokenization of underlying assets. However, we recognise that there is considerable opportunity in projects exploring areas such as derivatives tokenization and securitization, adopting more inclusive strategies to embrace a wider range of asset classes and financial products. Our assessment will also include regulatory elements such as compliance, risk management and due diligence, as well as operational elements such as efficient uphill and downhill processes, market accessibility and scalability. These aspects are critical to bridging the gap between decentralized finance and traditional finance, laying the foundation for a more integrated and resilient financial ecosystem.

参考例子：MakerDAO, Securitize, Chainlink, Maple Finance, Goldfinch, Ondo Finance, Backed Finance

Licensed DeFi promotes adoption by regulated institutions

During 2020-2021, centralized finance protocols emerged, giving the masses access to cryptocurrencies as an investable asset class. However, 2022 saw a series of events where some bad practices by several centralized players quickly tarnished the entire industry, leading to widespread sell-offs and leveraged liquidations, which allowed 2023 to witness the emergence of powerful DeFi innovations, such as shared pool perpetual DEXs and peer-to-peer money markets.

We expect to see transformative developments in the DeFi space in 2024 on the institutional side. Unlike fully decentralized products (e.g., GMX, Lido, Morpho, etc.), we see permissible DeFi projects introduce controlled access models into their protocol designs, prioritizing issues related to regulatory compliance, privacy, and security.

The main driver for the rise of permissioned DeFi protocols is the increased focus on regulatory compliance. Governments across the world seek to incorporate cryptocurrency and blockchain operations into their regulatory frameworks, so permissioned DeFi platforms that prioritize compliance and structured onboarding of institutions are expected to benefit. One way to do this is to implement a KYC or KYB verification procedure, complemented by zero-knowledge technology to protect customer privacy. With these access controls, the protocol reduces the risk of unauthorized transactions and potential vulnerabilities, increasing the likelihood that institutional capital will be welcomed.

Institutional capital drives the development of traditional financial markets, and we expect that these flows will be more suitable for on-chain interactions if the right infrastructure and protocols are in place.

In the lending space, institutions are less likely to consider leveraging if they have to sacrifice the capital efficiency of over-collateralized assets. But for mortgage lending, there is a need for proper credit rating infrastructure to capture on-chain footprint, risk management, and accurate asset price predictions. Institutions are also emphasizing downside protection and hedging capabilities, so the insurance market for pricing on-chain risks is key. Institutions with existing crypto assets may look for ways to generate yield. If so, we expect enterprise-grade platforms with licensing capabilities, such as verified validator sets or security-focused infrastructure providers, to be particularly attractive.

The permission-based DeFi model will be the first step for regulators to adopt. In the long run, this allows the industry to benefit from scale in a controlled and structured way.

参考案例:Alluvial Finance、Blueprint Finance、Centrifuge、Fortunafi、Fractal Protocol、Maple Finance。

The convergence of AI and blockchain

Outside of the crypto industry, AI is dominating in 2023. This poses a challenge for technologists and pioneers: how to maintain a neutral and composable network infrastructure while we make progress toward democratization.

Blockchain offers a promising avenue to alleviate the challenges associated with control and governance in powerful technological and economic systems. Through decentralized governance, enhanced transparency, and improved data privacy, blockchain can help create a more equitable, responsible, and inclusive AI ecosystem.

The convergence of AI and blockchain technology represents a synergy that has great potential to reshape a variety of industries. With its ability to analyze huge data sets and make intelligent predictions, AI can improve efficiency and decision-making processes within blockchain networks. Blockchain, on the other hand, provides a decentralized and secure platform for storing and managing data, which can solve some of the challenges associated with AI, such as data privacy and security concerns. Together, these two technologies create a powerful framework that can revolutionize industries ranging from finance to healthcare.

The substantial progress in blockchain services through AI is reflected in the enhancement of smart contracts. Smart contracts are self-executing contracts, and the terms of the contract are written directly into the code. AI can be integrated into analyzing the conditions and outcomes of smart contracts, making them more adaptable to changing circumstances. This dynamic combination not only ensures the accuracy of contract execution, but also allows for the automation of complex decision-making processes within the blockchain ecosystem.

Deep learning Xi models such as Midjourney and Stable Diffusion could become protocols similar to ChatGPT's media version, where original content and IP holders can stake their assets (NFTs, game items, photos, papers, iconic designs, etc.) to prove ownership and originality, and a portion of the revenue generated by the product can be distributed as loyalty compensation. This will alleviate the issue of IP ownership of content generated by AI engines and open up new markets for content creators.

By 2024, more builders will leverage these technologies to empower decentralized, open-source networks with good governance that will revolutionize the way we produce and consume digital experiences. The seamless integration of blockchain and AI is not just the sum of their respective strengths, but a multiplier synergy with outstanding features in each product. Incentivizing-compatible AI-enabled products and sustainable protocol designs will go beyond existing web2 applications.

参考案例:Worldcoin、Lovo AI、Zettablock、Gensyn、Modulus labs、Ritual.net

Lead the way in L2 by embracing application-specific rollups (L3).

2023 is a time of expansion for L2 availability. As Arbitrum experienced explosive growth and numerous companies used the OP stack to create their own Rollup solutions, numerous L2 solutions began to emerge. The viral release of services such as GMX and Friend.Tech bodes well for the potential for wider adoption of L2.

Application-specific rollups (L3) that leverage their own high-performance CPUs for computing will have a bigger impact in 2024 to build on this momentum. In his 2020 Rollup-centric roadmap, Vitalik Buterin emphasized that Ethereum needs to address scalability issues in terms of data and computational scalability. Data scalability is expected to be addressed gradually through the implementation of EIP-4844 and sharding. However, computational scalability is mostly solved by Rollups. Layer 3 proposes a practical solution for computational scalability by continuing to provide settlement and composability within the Rollup, relying on the generic layer for dispute resolution, maintaining the same level of security as the base layer.

However, it's a trade-off. Although it runs applications efficiently at a lower cost and high performance, it sacrifices composability with other applications on Rollups. Nonetheless, applications that benefit more from having their own ecosystem (e.g., dYdX, Ronin, etc.) and serve in a more controlled environment are better suited for application-specific rollups. With the launch of several well-funded games and social apps targeting mass adoption in 2024, L3 will play a bigger role in games that provide high-quality services to a large number of users at the same time, social services that host large volumes of text, images, and videos, and order-based exchanges that handle large amounts of traffic from traders.

Which part of the infrastructure layer will benefit the most? could be sequential layer items that manage validator computation and ordering, and layers that enhance composability between different application-specific rollups. In addition, significant progress is expected to be seen in products designed to minimize miner extractable value (MEV) in application-specific convolutions, privacy solutions to curb centralized validators, and solutions to quickly build high-performance validator nodes for application-specific rollups.

参考例子:Radius, Cartesi, Espresso, Astria, Automata, AltLayer

The euro and the US dollar in crypto form are provided to the global financial markets

The stablecoin ecosystem has grown into a huge market, valued at about $130 billion by the end of 2023, of which Tether has about $90 billion in USDT issuance. A big reason for USDT's success is that it is the first stablecoin targeting the financial markets of the blockchain space, but we believe that in 2024 in particular, stablecoins will undergo a major shift as they move to customized solutions designed for specific user groups and uses. This shift will include consideration of factors such as onshore vs. offshore objectives, level of compliance and base currency selection. While it's still unlikely to see federal-level stablecoin laws in the U.S. next year, we think we'll continue to see attempts to subvert existing dominant products.

Currently, the stablecoin market is dominated by USD-based options such as USDT, USDC, and DAI. The dollar has almost monopolized the currency denomination of the financial markets formed in cryptocurrencies, and at the same time, people in countries that need strong monetary support are turning to the most proven reserve currency of all - the dollar, instead of using a secondary or tertiary reserve currency. At the same time, Tether is now one of the largest buyers of U.S. Treasuries, ranking in the top 15 in terms of holdings even when compared to all countries that hold U.S. Treasuries, indicating how much demand there is for the use of the U.S. dollar as a medium of exchange online or outside the U.S. that is not fully regulated and authorized by the U.S.

In 2024, we will continue to see different ways to realize the disruptive potential of dollar-denominated stablecoins (aka crypto-Eurodollars), and in a market dominated by USDT and USDC, there will be constant competitors entering the market. In the process, we will see the emergence of stablecoin issuers that provide specialized services for financial markets, B2B payments, C2C remittances, and more, all of which have been handled by a single stablecoin until now. At the same time, UX innovations will emerge in the end-user-facing space, leading to more stablecoin-based services, including new banking, bank cards, and API tools that compete or collaborate with existing fintech applications.

While the uses of stablecoins are diverging, the future application of the crypto EUR/USD will be characterized by the disruption of the major players that dominate these traditional financial markets. Builders working on stablecoin Lego in the current fintech landscape will have great potential to eventually create a stablecoin-based financial market that includes primary and secondary markets, derivatives, and foreign exchange markets.

参考例子：Circle, First Digital, StraitsX, Mountain Protocol, REAP, BasedApp, Bleap

The impact of blockchain on the digital advertising market

Blockchain technology has the potential to revolutionize the advertising industry, solving the privacy and efficiency issues that have long plagued traditional online advertising models. As the backbone of the Internet business, advertising has been criticized for monopolizing user data. However, the advent of Web3 – with its emphasis on autonomy and privacy – presents a new paradigm.

In Web3 applications, relying on server-side data stores or client-side cookies to obtain user information becomes redundant. The transparency of blockchain, i.e. all transaction data is stored and accessible, provides a robust database for analyzing and identifying potential customers, greatly improving advertising efficiency. For advertisers, this means a more straightforward targeting process, as wallet information shared across various media platforms can be used to deliver relevant ads to users, even if they browse on different platforms. This approach is especially advantageous given the limitations of previous privacy laws on the effectiveness of advertising.

This shift to a Web3-based advertising model is expected to break the monopoly of large companies in the advertising market, paving the way for a more competitive and diverse media landscape. By minimizing intermediary fees, both media agencies and advertisers reap significant benefits. In addition, the possibility of advertising slots and keyword futures markets, taking advantage of their value fluctuations over time, can introduce new impetus to the capital market and provide an opportunity to hedge against market volatility.

In addition, user privacy remains the most important concern. Advanced encryption technology being developed can provide users with the option to hide their transaction data, thus maintaining their privacy while using these services. This balance between effective advertising and privacy protection is the cornerstone of the future of blockchain-powered advertising, bringing a vibrant and fairer marketplace to all stakeholders in the industry.

参考例子：Brave Browser, Hypelab, Persona, Slise