I. Introduction
The cryptocurrency market in 2023 has shown a paradox: despite the tepid investor activity, the market price has risen significantly. While most financial institutions are wary of serving crypto users, the recent ETF application marks a significant step forward in the adoption of crypto by institutional investors. Regulators have warned of market risks and taken appropriate enforcement measures, but the judiciary has countered this over-regulation. At the same time, the upgrade of Ethereum has made it possible to withdraw staked assets, which in turn has contributed to the growth of the total amount of ETH staked.
In terms of blockchain platforms, Ethereum continues to solidify its leadership position as a Layer 1 blockchain and is focused on developing a scalability strategy with Rollup at its core. At the same time, competing blockchains such as Solana, Avalanche, and Cosmos have gradually expanded their market share through their own unique scaling strategies, with Solana's integrated approach delivering significant results at the end of the year.
In on-chain applications, liquid staking providers such as Lido dominate the market, despite the steady performance of blue-chip lending and trading protocols. DeFi has seen substantial growth in things like the tokenization of physical assets. The non-fungible token (NFT) market has experienced stiff competition, resulting in a significant decline in market share for platforms like OpenSea, while the introduction of Ordinals on the Bitcoin network has spurred the growth of NFTs and meme tokens. In addition, the rise of decentralized social protocols heralds a new era in blockchain application development.
In this year full of contradictions, the blockchain industry has seen a remarkable array of innovations and growth. This article will provide an in-depth analysis of the core developments and major trends of the blockchain industry during the year, providing readers with a comprehensive and profound perspective of the industry.
2. Blockchain platform and extension
(1) Layer 1
In 2023, Ethereum continues to be the market leader in the Layer 1 network based on smart contracts. Whether it's in terms of total value locked (TVL), transaction volume, or transaction fees, Ethereum dominates relative to other smart contract-based Layer 1 networks. By looking at the level of transaction fees, we can gauge the degree of demand users have for different blockchain networks. Obviously, in 2023, most of the demand is focused on the Ethereum network, which is evident from its higher transaction fees.
(来源:DefiLlama)
Tron and BNB Chain
In 2023, Ethereum's main competitors have undergone some noticeable changes. From the beginning of the year to the end of the year, Tron's total value locked (TVL) increased by about 100%, while BNB Chain's TVL decreased by about 38% over the same period. The main reasons for these changes are the impact of macroeconomic factors and regulatory events. For example, Tron's TVL growth is mainly attributed to the trend of stablecoin users switching from USDC and BUSD to USDT, while BNB Chain's TVL decline is related to the market's regulatory policies.
(来源:DeFiLlama)
In 2023, Ethereum's share of the stablecoin market declined as stablecoin users switched from USDC to USDT, and correspondingly, Tron gained a large market share. By December 2023, Ethereum's share of the total stablecoin supply fell to 51.6% from 62.1% at the beginning of the year.
Meanwhile, BNB Chain faced a range of regulatory issues in 2023, including lawsuits from the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). With the suspension of Binance USD (BUSD), the supply of stablecoins on BNB Chain continues to decrease. By November, regulatory issues surrounding Binance reached a climax, leading to its CEO Changpeng Zhao (CZ) striking a plea deal with the United States and resigning. From the beginning to the end of 2023, BNB's market capitalization fell by more than $4.5 billion.
Solana and Celestia
One of the hot spots in the market in 2023 is about two opposing blockchain scaling options: Modularity and Integration. The market valuation of the token price of the Layer 1 network reflects the health of its ecosystem, and we can observe that the market capitalization of the modular blockchain Celestia (TIA) and Solana (SOL) has increased by about 300% in the month following the launch of the TIA token in November, and the market capitalization of the integrated blockchain Solana (SOL) has increased by about 800% in 2023.
(来源:CoinMarketCap)
One of the most notable trends in 2023 is the resurgence of Solana, both in terms of its valuation and the market's acceptance of its integrated scaling approach. Among the smart contract protocols with the highest total value locked (TVL), Solana is unique in that it uses a custom-built execution environment, the Solana Virtual Machine (SVM), which enables the network to execute transactions in parallel. To achieve high throughput and scalability while reducing user costs, Solana validators must be able to coordinate complex processing tasks with other validators in the network. This is due to a series of custom techniques, such as the Proof of History synchronization mechanism and the Turbine block propagation protocol, all of which ultimately result in higher requirements for Solana validators than other Layer 1 (L1) networks.
Sui 和 Aptos
In 2023, Solana is one of the most widely used blockchains with integrated architectures. Over the past two years, a number of Layer 1 blockchains that have integrated architectures and can execute in parallel at a low cost have begun to emerge. This is particularly evident in Aptos and Sui, both of which originated from Meta's Diem project and used the Move virtual machine as the execution environment. As of December 2023, the total value locked (TVL) of the two chains is approximately $377 million.
Sui, in particular, has shown faster growth than Aptos over the past year, with TVL nearly doubling that of Aptos by the end of December. Trends for 2023 show that integrated architecture Layer 1 blockchains are likely to play an increasingly important role in the smart contract platform space. However, these emerging platforms still have a long way to go before they can surpass the dominance of the EVM (Ethereum Virtual Machine).
(来源:DeFiLlama)
Cosmos and Avalanche
Since its inception, the Cosmos community has embraced the idea of modularity. In the Cosmos ecosystem, launching a new blockchain is easier than any other blockchain ecosystem, thanks to its native infrastructure and tools like the Blockchain Communication (IBC) protocol and the Cosmos SDK. Developers can customize the parameters of the chain according to their needs, such as inflation rate, staking unbonding time, validator rewards, governance voting parameters, etc. At the same time, the IBC protocol can realize the interoperability of different Cosmos chains.
The inherent advantages of modular blockchains come at the cost of decentralized user attention and Cosmos interchain liquidity. While IBC allows assets to be transferred between Cosmos chains, these assets must pass through the same IBC channel. If not, these assets are still not interchangeable. For example, ATOM sent from Osmosis to Canto via IBC is different from ATOM sent from Cosmos Hub to Canto. Therefore, in terms of composability and liquidity, Cosmos' appchain still has certain disadvantages compared to general-purpose Layer 1 blockchains.
In 2023, the number of active subnets in the Avalanche ecosystem continues to grow, but user activity remains low compared to the major Avalanche C-chains. By the end of the year, the two active subnets, DFK Chain and Beam, had a combined TVL of approximately $13.8 million.
(来源:DeFiLlama)
The Avalanche subnet and the newly launched Cosmos chain face similar challenges when it comes to network security. In the initial phase, these networks need to accumulate enough money to act as a moat to prevent economic attacks. On Avalanche, validators need to stake 2,000 AVAX at a price of approximately $35 per AVAX. However, most Avalanche subnets currently have no more than 10 total validators. The largest of these subnets is the MELD subnet, which also has only 16 validators. A smaller number of validators will likely affect the security and decentralization of the network.
（二）Layer 2
As the demand for Ethereum transactions continues to grow, the issue of scaling has become more and more urgent. Currently, Ethereum has a processing capacity of about 15 transactions per second (TPS), which is clearly not enough to meet the growing demand for large-scale use. This restriction could become a key obstacle to Ethereum's future development.
The issue of Ethereum's scaling has been a controversial topic. The core conundrum lies in the so-called "impossible triangle" theory, which is decentralization, security, and scalability. In a distributed network, it is difficult to optimize these three features at the same time, and usually only two aspects can be optimized. Enhancing scalability often requires some sacrifice in decentralization or security. However, the Ethereum community is cautious about making this trade-off and is reluctant to sacrifice decentralization or security lightly.
(来源:DeFiLlama)
Ethereum's scaling methods are mainly divided into on-chain and off-chain. On-chain scaling involves modifications to Ethereum's core protocol, while off-chain scaling is about building additional protocols and infrastructure on top of Ethereum. At present, off-chain scaling is developing faster than on-chain scaling. In particular, for most of 2021 and 2022, off-chain scaling solutions based on optimism and rollups have gained sustained traction in the venture capital market.
(Source: The Block)
Optimistic Rollups
Arbitrum One
Among the four categories of Layer 2 solutions currently available on Ethereum, Optimistic Rollups (ORs) have the largest total value locked (TVL), with Arbitrum One's TVL ranking first. Even before the launch of the ARB governance token, Arbitrum One was already a Layer 2 platform with the highest TVL. After the release of the ARB token, more than $2 billion in liquidity was introduced into Arbitrum One's ecosystem, of which about $1.25 billion in tokens has been unlocked, further cementing Arbitrum One's leading position among all Layer 2 platforms.
(来源:L2 beat)
The liquidity introduced by the ARB token has contributed to the growth of Arbitrum One decentralized applications (Dapps). On the Arbitrum One platform, the Dapp with the highest total value locked (TVL) is the exchange GMX, followed closely by the lending platform Radiant. These two apps account for the majority of the TVL market share on Arbitrum One.
(来源:DeFiLlama)
ON Mainnet
Among the Optimistic Rollups (ORs), the second-highest total value locked (TVL) is OP Mainnet, formerly known as Optimism, which has more than $3.4 billion in assets. OP Mainnet's governance token, OP, was airdropped in May 2022, a year before Arbitrum One's airdrop. While OP Mainnet's TVL growth is slower than Arbitrum One's, its growth trend is more stable.
In July 2023, the network's TVL increased significantly as WorldCoin launched its token, WLD, on OP Mainnet. WorldCoin was co-founded by OpenAI co-founder Sam Altman to build the largest digital identity and financial network. The WLD airdrop is designed to guide the growth of the network and incentivize new users to sign up for the app. To date, more than 700,000 users have claimed the WLD airdrop.
(来源:DeFiLlama)
An important milestone in the development of the OP Mainnet mainnet was the open-sourcing of the OP Stack in August 2022. The OP Stack is a development stack that powers the OP Mainnet, built and maintained by the Optimism Collective. The current version of the OP Stack, also known as Optimism Bedrock, enables developers to develop their own optimistic rollups using the same technology as OP Mainnet.
With the open-sourcing of OP Stack, many projects based on OP Stack have emerged, the most notable of which is Coinbase's Base mainnet, which was launched in August 2023. Base aims to provide decentralized application (Dapp) services to exchange users. Base has quickly grown to become the third largest Layer 2 network in terms of total value locked (TVL).
(来源:L2 beat)
Zero-Knowledge Rollups
In Zero-Knowledge Rollups (ZKR), there is no clear leader yet. While dYdX previously had the largest share of TVL in ZKR, it has now begun to transition to Layer 1 Cosmos. ZKR currently has a TVL of $539 million for zkSync Era and $145 million for Starknet. While zkSync Era's TVL is significantly higher than Starknet's, some of its TVL comes from the original zkStnc Lite.
(来源:L2 beat)
Rollups as a Service
As the rollup ecosystem matures, we're starting to see rollups being used as a versatile tool, not just as a means of scaling. Those applications that want to have a custom execution layer can choose to launch their own rollups, gaining ample block space by sacrificing a certain degree of decentralization and security. Based on this demand, Rollups-as-a-Service (RaaS) applications are beginning to emerge, which provide decentralized application (dapp) developers with the ability to quickly launch new rollups for deployment. Notable examples include Altlayer, a RaaS framework focused on the Ethereum Virtual Machine (EVM), and dYmension, a RaaS framework focused on Cosmos.
Layer 3
At present, Layer 2 networks are also experimenting with Layer 3 technology. For example, Starknet and zkSync Era have both mentioned that they could theoretically build a Layer 3 network on top of the existing Layer 2 infrastructure using the recursiveness of validity proofs. However, these solutions are not a priority at this time, as both Starknet and zkSync Era are focused on the development of their Layer 2 technology. In addition, the use of Layer 3 technology is designed to allow developers to quickly deploy customizable execution environments, similar to what Rollups-as-a-Service (RaaS) provides.
(4) Cross-chain bridges
While Multichain suffered a security hour in July, bridging technology has retained its importance throughout the year 2023. In particular, the Portal bridge, which uses a lock-and-mint mechanism, has grown steadily and become the cross-chain bridging platform with the highest total value locked (TVL). The main driver of this growth was the recovery of Solana in Q4, making Portal the primary gateway to the Solana ecosystem.
In addition, the Stargate Bridge, which is based on LayerZero technology and the funding pool model, followed closely behind as the second largest cross-chain bridging platform, with a stable Total Value Locked (TVL). Throughout 2023, the cross-chain ecosystem has shown a growth trend, mainly due to the continued development of Layer-2 technology.
(Raigen: THE BLOCK)
（五）BTC Layer 2
Lightning Network
Bitcoin's Lightning Network is its best-known scaling solution. Starting in early 2023, the total number of bitcoins in the Lightning Network will increase from about 5,000 to a maximum of about 5,400. In the same year, its total value locked (TVL) grew from an initial $80 million to about $200 million at the end of the year, an increase of about 150%. The growth of TVL was mainly driven by the rise in the price of Bitcoin.
(来源:bitcoinvisuals)
Rootstock, Stacks, and DeFiChain
In addition to the Lightning Network, Bitcoin has a number of other scaling solutions, primarily Layer 2 technology based on sidechains. Rootstock, Stacks, and DeFiChain, among others, have a total value locked (TVL) of $116 million, $54 million, and $128 million respectively at the end of 2023, which is much lower than the Lightning Network's $200 million. Notably, DeFiChain and Rootstock's TVL also includes the value of their respective native tokens, DFI and RSK. From this data, the adoption rate of these sidechain solutions is significantly lower compared to the Lightning Network.
(来源:DeFiLlama)
Ordinals and BRC-20
Bitcoin's Ordinals protocol allows for the assignment of unique identifiers to satoshis (the smallest unit of Bitcoin) and reduces transaction fees for storing metadata in satoshis using SegWit and Taproot upgrades. This protocol enables users to issue non-fungible tokens (NFTs) on the Bitcoin network. Subsequently, the BRC-20 standard, based on the Ordinals protocol, further expanded its capabilities, enabling it to be used for the minting of tokens. BRC-20 tokens and Bitcoin NFTs have sparked a lot of speculation, increased on-chain activity on the Bitcoin blockchain, and led to a significant increase in the portion of gas fees that comes from transaction fees.
（来源：bitinfocharts）
Although the technical architecture of the Ordinal NFTs and BRC-20 tokens is not designed to expand the functionality of Bitcoin itself, they do demonstrate the possibilities of innovation on the Bitcoin blockchain. Considering the limitations of Bitcoin's scripting language, we look forward to seeing more innovation on the Bitcoin blockchain in the future.
BitVM
BitVM is the latest Bitcoin upgrade proposed in late 2023 to bring Turing completeness to Bitcoin. According to BitVM's whitepaper, the technical implementation described is through "bit-value commitments" and the method of constructing logic gate commitments, which make Bitcoin contracts Turing-complete. This approach enables Turing completeness without changing the consensus mechanism of the Bitcoin network.
（来源：BitVM 白皮书）
Under BitVM's architecture, any logic can be encapsulated and published on-the Bitcoin chain, while its execution takes place off-chain. A "fraud proof" mechanism will be used to verify the execution result during the off-chain execution process. If an entity wants to challenge the proposal of an on-chain publisher, they can implement fraud proofs on-chain. This mechanism allows the logic of any smart contract to be expressed and verified on-chain while being executed off-chain. While this approach is more complex than Ethereum's smart contracts, it offers great potential for Bitcoin's Turing completeness beyond the limitations that Bitcoin currently demonstrates. As time progresses, BitVM could bring a new wave of innovation to Bitcoin.
3. On-chain applications
(1) Decentralized Finance (DeFi)
Decentralized finance (DeFi) is a form of financial services that does not rely on traditional financial institutions, such as banks or exchanges. It provides users with an open and borderless financial services experience that allows them to access these services without the approval of traditional financial institutions. Since 2020, DeFi has attracted a lot of attention and experienced a series of peaks and troughs. During previous bull runs, DeFi has demonstrated its great potential as an alternative financial system.
However, events like the Luna crash have exposed the potential risks of DeFi systems. At present, DeFi is still in the early stages of development, and many aspects are still not mature and stable enough. In addition, because DeFi is detached from the regulatory system of traditional markets, it also comes with some inherent risks.
While the crypto market experienced a winter-like bear market in 2022, the DeFi ecosystem in 2023 has been marked by consolidation and resilience. The year saw the consolidation of key areas of DeFi, covering key segments such as decentralized exchanges (DEXs), lending markets, liquid staking, and collateralized debt positions. In particular, liquid staking accounts for the largest total value locked (TVL) in the DeFi ecosystem, which not only highlights the stability of liquid staking yield, but also reflects its strong performance against the competition.
(来源:DefiLlama)
Decentralized exchanges
In the first half of 2023, many spot traders fled from centralized exchanges (CEXs) to decentralized exchanges (DEXs) as FTX's bankruptcy exacerbated concerns about the reliability of centralized custodians. The 2022 crash of cryptocurrency-centralized projects highlighted the importance of decentralization and highlighted the unique advantages that DeFi has to offer.
DEX spot trading volume fluctuated in 2023 due to the continued slump in market interest due to the bear market, followed by signs of recovery in the fourth quarter. In 2023, Uniswap maintained its leading position, accounting for 53% of the trading share for the year, with the majority of trading volume coming from Ethereum and Arbitrum One.
In contrast, Curve's market share fell from 10% last year to 3.7% this year. The main reason for this is that the shrinking market has hindered the diversification of stablecoins, thereby cutting the market demand for stablecoin swap DEXs.
(Raigen: THE BLOCK)
loan
In the lending space, Aave continued its dominance, capturing more than 60% of total outstanding debt, with Compound coming in second. In 2023, lending activity gradually recovered from the deleveraging seen in 2022 and showed a steady recovery.
One notable development was the entry of SparkLend, a Maker-branded company, into the lending market in May. At the same time, one of Aave's forks quickly gained market attention and quickly grew to become the third-largest lending agreement by total outstanding debt, with total outstanding debt exceeding $600 million six months after its launch. SparkLend is unique in that it offers predictable interest rates to DAI borrowers, while DAI is the largest decentralized stablecoin by market capitalization, which is achieved by directly leveraging Maker's line of credit.
Ethereum liquid staking
In 2023, Ethereum's liquid staking space has shown significant resilience and has become a bright spot in the DeFi space. This is mainly due to two aspects: First, in a bear market characterized by low volatility, liquid staking is more attractive than the yield generated by other DeFi activities. Second, the development of the "liquid staking finance" protocol has enhanced the utility of liquid staking tokens.
While demand for liquid staking for ETH seems to have peaked in the second half of 2022, in 2023, demand has grown rapidly, and this growth has not been affected by the implementation of Ethereum's Shanghai upgrade and staking withdrawal feature in April. In the liquid staking space, Lido continues to maintain its leadership position with a 78% market share, while Rocket Pool holds second place with a 10% market share
With the increasing development of liquid staking finance, several other segments in DeFi are also starting to emerge in 2023. In particular, the real-world asset (RWA) tokenization market has seen an explosion of expansion. RWA-collateralized debt positions have issued 2.8 billion DAI, representing more than half of the entire 5.4 billion DAI supply. The fees incurred by these RWA positions account for 80% of Maker's revenue
Derivatives
In 2023, decentralized perpetual contract (Perp) exchanges have shown a dynamic trend, especially in November, when the trading volume of perpetual contracts reached the highest point of the year. Although dYdX's market share has decreased, it still maintains its leading position as a mature decentralized perpetual contract exchange (DEX). The battle for the second spot has become extremely fierce, with platforms such as Vertex, GMX, Synthetix, ApeX, and others. dYdX is gradually migrating from the Ethereum-based StarkEx ZKR to the Cosmos sidechain, which brings a new competitive factor to the perpetual contract DEX market.
At the same time, with the launch of Aevo in Q3, decentralized options trading began to gain momentum. Aevo quickly became the leading decentralized options exchange, trading volumes far outpacing Lyra. The dynamics of decentralized derivatives trading volume throughout the year demonstrate the early nature of the industry and hint at the huge potential in the market as it continues to grow and mature.
(2) Non-fungible tokens (NFTs)
In 2023, the non-fungible token (NFT) market is undergoing a key shift, meaning that NFT assets are moving towards financialization.
OpenSea and Blur are two platforms that are active in the NFT market, and they each have different business models. OpenSea's business model relies on transaction fees, which charge a percentage of each NFT transaction as a source of revenue, but the downside of this model is that it can have an impact on market liquidity. Blur's business model, on the other hand, has disrupted the industry by prioritizing efficiency and liquidity over the traditional fee structure that rewards creators.
In early 2022, OpenSea became a giant in the NFT ecosystem, reaching a valuation of $13.3 billion after completing a $300 million Series C funding round, accounting for more than 80% of the trading volume in all secondary markets. Its revenue model relies heavily on platform fees, with monthly revenues ranging from $5 billion to $120 million, and annualized revenues set to exceed $1 billion by early 2022.
However, by mid-2023, the situation was reversed, and their platform revenue decreased to less than $2 million per month. This significant drop (down nearly 90% from previous earnings) is largely attributed to the rise of "zero-fee platforms," where users have shifted transactions from platforms like OpenSea to zero-fee platforms like Blur. The NFT market is re-evaluating the traditional fee model in favor of a liquidity-focused strategy.
(Raigen: THE BLOCK)
In OpenSea's fee structure, NFT royalties typically range from 2.5% to 10% of final sales. Sellers are required to pay royalties and a transaction fee charged by OpenSea for each transaction. While Blur's business model has increased liquidity and trading volumes, it has also led to a significant reduction in royalty compensation for NFT creators, raising concerns about sustainability.
(Source: Galaxy)
NFT Finance
2023 marks a critical inflection point for the non-fungible token (NFT) market, marking a shift towards innovative liquidity solutions. NFT lending platforms have played an important role in the transformation, and they offer asset holders a whole new ability – unlocking the value of their digital assets. This marks an important step forward in the financialization of NFTs, especially for non-personal image (PFP) collectibles that have traditionally been less liquid.
In the NFT trading space, platforms such as OpenSea are mainly focused on retail trading. In contrast, NFT lending platforms are committed to serving those who are risk-averse and frequent traders, bringing more richness to the ecosystem by introducing new leverage methods similar to traditional asset endorsements. This market shift led to a significant increase in lending volumes, exceeding $3.3 billion.
In the NFT finance space, the Blend platform, launched by Blur, dominated, with its lending volume reaching $197 million in the second quarter of 2023. With more than 6,100 borrowers and 3,300 borrowers on board, Blend's activity has significantly driven growth in overall loan volumes, which have grown by 270% since the start of the year. But an in-depth analysis shows that 10% of these lenders and 26% of borrowers contribute the majority of the volume
Bitcoin NFTs
The Ordinals protocol, developed by Casey Rodarmor, enables data to be embedded directly onto the Bitcoin blockchain. The protocol numbers the smallest units of Bitcoin, Satoshi (Sats), and allows for the burning of a variety of content, from images to code, on these satosos, creating a new type of Bitcoin NFT. During the roughly 10-month development of Ordinals, Bitcoin developers built NFT tools similar to those on other major Layer 1 blockchains such as Ethereum, Polygon, and Solana.
Throughout 2023, the Bitcoin ecosystem has undergone significant changes due to the development of inscriptions. Since the beginning of the year, miners have accumulated more than $530 million in total fees, of which approximately $90 million has come from Ordinals-related activities. These burning activities led to fee increases and congestion in the Bitcoin mempool (transaction pool), with the total byte size of transactions waiting to be confirmed reaching an all-time high.
In order to achieve faster transaction confirmations, users began to pay higher fees, intensifying competition for the limited space available in each block. At the beginning of 2023, transaction fees began to grow significantly and reached a peak around April, largely driven by the creation of the BRC-20 meme token.
(来源:blockchain)
(3) Decentralized socialization
FriendTech&SoFi
FriendTech is a social media platform that incorporates the features of cryptocurrencies and calls itself the "Friends Marketplace". Similar to other non-crypto social media platforms that are still in beta, Friend.tech has an invitation code system, and users need to complete the registration by obtaining the invitation code of an existing user. The platform has introduced a unique mechanism that allows users to purchase "keys" that enable them to send messages to other users. This novel feature has attracted a large number of users. Since its launch less than three months ago, Friend.tech has already garnered a lot of attention from the community, with more than 900,000 users and $475 million in trading volume.
(Source: Dune)
FriendTech's success is rooted in the basic human need for social interaction. On this platform, users can publicly display their "scores" or values, and in this way gain recognition and respect from other users. This not only satisfies the user's intrinsic desire for social recognition and affirmation, but also strengthens their sense of engagement and belonging on the platform.