Nansen shares predictions for cryptocurrencies in 2024

On December 17, blockchain analytics platform Nansen published a report containing details on four “high-conviction bets” that analysts are hyping for cryptocurrencies in 2024. Report The report spans many fields from artificial intelligence (AI) to projects creating infrastructure using the Bitcoin blockchain as a base layer.

AI and blockchain are intertwined

Integration between AI and blockchain is Nansen analysts’ first bet for 2024, representing significant progress for both technologies. While initially designed for deterministic tasks, AI agents have evolved to operate with greater autonomy and are now capable of processing transactions and managing value exchange across blockchain networks. .

As such, it is safe to bet that AI will become the dominant user category in the blockchain ecosystem. However, blockchain also has the potential to make advanced cases for the AI ​​industry, and Nansen’s report addresses the diversity of human-AI interactions.

Some examples are using cryptographic proofs for digital signatures, IPFS & Merkle Trees to ensure the integrity of datasets and AI models, Zero-Knowledge Machine Learning (zkML – is a concept that allows verification of AI models without revealing their details).

Furthermore, the application of token rewards to AI agents and the move to user-facing applications are also part of analyst Nansen’s bet on AI and blockchain integration.

Improvements in user experience

User experience (UX) is a pain point for cryptocurrency users and is what determines mass adoption. However, Nansen’s second bet for 2024 is overall UX improvement for decentralized applications (dApps).

One of the catalysts driving this outlook is the push to adopt user experience improvements throughout 2023, including simplifying navigation and making the app more intuitive.

Another catalyst is the popularity of intent-focused DeFi applications. Intents are a way for users to specify their desired outcomes and rely on third parties to perform tasks efficiently. This process removes the complexity of operations from users, improving capital efficiency.

Teams like Anoma and Flashbots are mentioned in Nansen’s report as players working to create a general-purpose solution to the permissionless nature of blockchain, moving towards a system where Deploying new applications does not require setting up new parameters like mempool.

The upcoming ERC-4337 is the standard for account abstraction, also seen by Nansen analysts as a major improvement in user experience. This concept allows users to delegate on-chain actions to smart contracts without losing custody of their wallet. ERC-4337 is expected to significantly upgrade the UX when interacting with blockchains. The ERC-4337 standard is expected to be implemented in Ethereum’s Dencun upgrade.

One year for the DEX

The cryptocurrency market, especially in the field of perpetual swaps and decentralized exchanges (DEX), is undergoing significant development and growth. The reason Nansen argues like this is because:

– Perpetual swaps demonstrate high product-market compatibility in the crypto market, leading to innovative designs for market makers based on LPs (like GMX), CLOBs (like dYdX) and hybrids (like Vertex);

– The perpetual contract DEX (perp DEX) segment has a lucrative business model, generating significant revenue for many stakeholders.

The above arguments are used by analysts to point out that the market for DEXs is expanding, with the ability to provide markets for a variety of assets, including less liquid ones, while also having the ability to expand to other asset classes such as equity and commodity derivatives.

Furthermore, the design space is evolving with unique features to solve problems such as maximum extractable value (MEV) and incorporating innovations such as regular batch auctions, threshold encoding .

According to Nansen analysts, those catalysts could deliver a number of improvements:

– Increased market activity corresponds to higher trading volumes.

– Liquidity is attracted to places with incentives.

– Continue to develop the protocol’s monetary incentives through a point system and trading rewards.

– Improved scalability, fees, and user experience on DEX.

– Scaling solutions such as application chains and specific rollups will enhance DEX performance.

With that in mind, Nansen bets perp DEX’s derivatives volume market share could grow from the current 2-10% to 20% by the end of 2024.

Bitcoin as layer data

In the cryptocurrency market, Bitcoin is currently the price leader and ETH follows. ETH/BTC chart has been in consistent decline since the beginning of the year regardless of news about a potential ETH spot ETF.

Bitcoin’s resilience and reliability are demonstrated by its history of continuous operation and resistance to attacks. Thereby, it consolidates its leading position in the cryptocurrency industry. A strong network, significant market capitalization, and enthusiastic community contribute to the perception of BTC as one of the safest digital assets.

According to Nansen, all of that can be applied to more use cases on Bitcoin and grow beyond its role as a store of value, a medium for transactions. The trust and security of the Bitcoin network positions it as a leading candidate for an indispensable role in future financial infrastructure.

While there have been many efforts to extend the utility of Bitcoin through layers to increase throughput, such as Lightning or Liquid, and even smart contract features (e.g. Rootstock or Stacks), these efforts has yet to gain significant momentum. There are many challenges that arise such as user experience issues, scalability limitations, and concerns in the Bitcoin community about potential centralization and network risks.

Despite these obstacles, many recent developments such as the Ordinals Protocol have attracted significant interest. Ordinals allows data to be recorded into the smallest Bitcoin unit, the Satoshi, which has opened the door for NFT creation on the Bitcoin blockchain.

Similarly, the BRC-20 standard leverages Ordinals, allowing the creation of fungible tokens on top of Bitcoin, although currently lacking the functionality and usability of their Ethereum counterparts.

The positive market reaction to these innovations (demonstrated by the significant trading volume of BRC-20) shows that Bitcoin is ready to take on its role as infrastructure. This future may involve the emergence of layer 2 solutions and modular architectures, supported by platforms such as Celestia or OP Stack, the developer toolkit used by Optimism Network.

Given Bitcoin’s stature as the most prominent and trusted cryptocurrency, expansion into areas beyond basic trading seems inevitable in the minds of Nansen’s analysts. Therefore, they bet that tracking Bitcoin usage developments for various applications could be beneficial in 2024 and beyond.

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