Web3 Industry Trend Analysis Report

ZK Track

ZK technology made significant progress in 2023, with an expanding range of application scenarios.

zkEVM

zkEVM has made progress across different types. Type 0 is fully equivalent to Ethereum but faces technical challenges. Type 1 has made improvements on the EVM foundation, currently offering a better application experience and compatibility. Type 2 has been launched on the mainnet and is developing its ecosystem. The progress of each project varies and requires specific analysis.

zkVM

zkWASM is the main technical route, with strong architectural scalability, suitable for high-performance DEX. Major projects include Delphinus Labs, ICME, wasm0, etc.

The RISC V direction focuses on RISC0, which is more friendly to languages and hardware, but there are efficiency issues. Application scenarios include simulating the Ethereum environment, FHE runtime environment, etc.

zkLLVM technology can quickly compile high-level languages into zkSNARK circuits.

ZK Mining

GPUs and FPGAs have comparable efficiency, but GPUs are more expensive. ASICs may lead to the emergence of specialized purpose chips. The increase in Prover DAOs makes computing power the core competitive advantage.

ZK Middleware

Including scenarios such as zkBridge, zkPoS, ZK Coprocessor, and zkML. ZK Coprocessor is relatively clear, with most projects already at the testnet stage. The zkML track is hot but has significant differentiation. ZK proof sharing is an emerging track.

MEV

• Focus on the early stages of the trading supply chain, especially the intention stage.
• The new generation of DEX design and infrastructure will attract more capital
• Private auctions/trade pools may significantly improve the trading supply chain
• The development of FHE, MPC, and ZKP is worth paying attention to.
• The endgame for the industry may be permissionless systems, forming the most competitive market.
• The MEV supply chain will change in areas such as APS, document execution, and PEPC.

OFA

Order flow auctions rose in popularity in 2023. High-value trades will flow to OFA instead of public trading pools. There may be more ETH trades conducted through OFA in the future.

Blockbuilder

The builder market is concentrated in a few companies, mainly high-frequency trading firms. In the future, as CEX/DEX arbitrage decreases, the advantages of high-frequency trading may weaken.

Relay

The relay market faces two major issues: high concentration and a lack of incentive mechanisms. In the future, optimistic relays and relay incentive schemes may emerge.

AA( Account Abstraction )

AA is mainly divided into two categories: smart contract wallets and modular services.

The market landscape for smart contract wallets has been established, and relying solely on functionality is insufficient to attract traffic. The wallet factory is worth paying attention to.

In modular services, Bundler and Paymaster have become standard services.

Main Trend:

• The track has entered a period of rapid growth.
• The AA development of L2 is better than L1
• DApp support for AA is still an issue
• Private mempool may be combined with MEV and intent

Intents

Intents are developing rapidly, facing some problems but have feasible solutions.

Need to consider order flow and user acquisition, suitable for combining with MEV and AA.

The Telegram Bot may evolve towards Intent, having advantages in order flow.

DA( Data Availability )

There are not many participants, and the head effect is obvious. The main projects include Celestia, Eigenlayer, and Avail.

It is necessary to consider factors such as security, customizability, interoperability, and cost.

DA is essentially a B2B business, with revenue related to the quality of ecological projects.

Large Rollup projects tend to choose Ethereum as the DA layer. Other DA project clients mainly come from the Cosmos ecosystem and RaaS projects.

Rollup Frameworks & RaaS

The rollup market is basically saturated, with more than 30 VC-backed RaaS projects entering the market.

Some L2/L3 frameworks have received substantial funding support and developer adoption.

Specific applications such as DePIN may utilize custom execution environments.

New technologies like Risc0 Zeth may change the way rollup verification is done. FHE rollup is expected to provide universal privacy for DeFi.

Cosmos

Cosmos Hub will continue to strengthen its ecological status:

• Some validators provide more flexible cross-chain shared security (PSS)
• Plan to enable multi-hop IBC to enhance user experience
• Add Megablocks and Atomic IBC features to provide atomic cross-chain transactions.

The development of Cosmos ecological application chains has slowed down due to influences like L2, but it still possesses a high degree of customization advantages.

Security

Security projects cover multiple aspects:

• On-chain detection and interception
• On-chain tracking tool
• Manual Audit and Bounty Services
• Development Environment Tools
• Various technical methodologies applied ( such as fuzz testing )

Different tools are suitable for detecting specific types of vulnerabilities, but they are difficult to completely replace a full audit.

When evaluating a project, factors to consider include: speed of maintenance and updates, size of the vulnerability database, carriers, actual needs of partners, etc.

AI

The direction of the combination of Crypto and AI:

• Underlying computing power infrastructure
• Training with specific data sources
• Chat Tool
• Data Labeling Platform

The innovations of underlying computing power projects vary, but they are generally early-stage and need to consider future business expansion paths.

The data labeling platform needs to focus on the ability to obtain orders, centering around high-value data acquisition.

As a Crypto fund, we focus more on projects with ZKML, those that have advantages in crypto vertical data, or consumer products that are closely integrated with AI.

DeFi

Changes in 2023:

• Investors need products with actual yield, such as LSDfi or RWA.
• DEX opportunities are increasing, especially on L2 DEX.
• Non-crypto native users (, including institutions ), have huge project opportunities to access Web3 yields.

The fees generated by perpetual DEX account for the highest proportion among various segments.

The growth of liquid staking continues, making it the largest DeFi track.

Games and Entertainment

Game Studio

Game Studio Categories:

1. Casual Games: Low-cost user acquisition, mini-games attract users
2. Large-scale games: primarily PC games, with long development times and high costs.
3. Moderate games: card games, tower defense, strategy, easy to pick up but with depth
4. IP Construction: Focused on games, combined with other media forms.
5. AI Featured Games: Centered around AI, innovative but the practical implementation remains to be observed.

The overall quality and the team's professionalism have significantly improved compared to the previous period.

Attention:

• Mature studio enters web3
• A versatile founder with strong learning ability and sensitivity to crypto and the community.
• UGC direction, especially teams with web2 creator resources

Game UA

Focusing on building user profiles, combining on-chain, off-chain, and social dimensions.

Divided into customer acquisition and operational strategy directions, but generally facing challenges in user retention.

Game data analysis can capture some value, increasing as the number of users grows.

User/Fan Interaction

Mainly involves entertainment, sports events, and the film and television industry.

It is divided into two forms: direct operation by IP parties and operation through IP licensing cooperation.

Platforms with a certain community foundation often find it easier to succeed than starting from scratch.

Focus on projects with high IP value, overlapping user groups with games/gambling, and direct cooperation with IP.

Institutional Services

Sub-track:

• Trading/Brokerage Services
• Asset Management
• Bank/Payment
• Other Services

Trend:

• Expected to continue stable growth
• Compliance construction is an important trend.
• The division of responsibilities among service providers is becoming increasingly clear.
• The market share of PB service companies is expected to increase.
• During the ETF application window, traditional financial companies will impact native crypto service companies.
• Europe is a hotspot region, while emerging markets like South America have potential.

Bitcoin

The construction on the Bitcoin chain needs to adopt a different approach than Ethereum.

Worth noting:

• Taproot Assets
• Rollup
• Lightning Network
• Statechain and other new technological routes

side chain

Occupying the mainstream narrative, it is easy to achieve high programmability and ecological effects, but it relies on cross-chain technology.

Layer2

More often use the Ethereum technology model to build a complete framework, with different choices for each layer of the technology stack.

Client Verification

Asset issuance and trading that can achieve minimal on-chain footprints, such as RGB and Taproot Assets.

Lightning Network

Lightning Labs plans to launch stablecoins and other assets on Taproot Assets. Products like LSP can achieve native asset yield.

BRC20 class

Dependence on specific infrastructure requires attention to new asset types and technological risks.

DLC

The expansion of ecological construction may become more widespread, but it is important to be aware of centralization risks.

DePIN

DePIN can easily gain traction in a bull market and convert traditional users.

Key Elements:

1. The decentralized mechanism is the core.
2. The timing of the project's launch is very important.
3. The fundamentals of the industry determine the success or failure of a project.

Classification Suggestions:

• Focus on toC scenarios and the hardware underdeveloped market, which may bring revolutionary changes.
• Approach improvement-related hardware with caution, as it needs to break through technical and commercial barriers.
• Observing the unique direction of mining machines makes it difficult to predict long-term development.