Binance Research 2024 Outlook: Bitcoin Narrative, AI, RWA and Other Tracks Still Worth Attention

Original Author: Binance Research

Original Compilation: Shenchao TechFlow

With the arrival of 2024, the cryptocurrency market is ushering in new development opportunities.

Binance Research has written a 140-page research report summarizing the landscape of the cryptocurrency sector over the past year and expressing their views on 2024.

Due to space limitations, we have selected the section regarding the outlook for 2024, focusing on the innovative dynamics of Bitcoin, the growth of ownership economy applications, and the deep integration of artificial intelligence and cryptocurrency.

Shenchao has compiled the above outlook section.

Bitcoin Narrative Continues to Lead

Throughout 2023, Bitcoin has been the focal point of attention, thanks to various narratives such as Ordinals/BRC-20, the approval of Bitcoin spot ETFs, and the halving event in 2024. Ordinals and BRC-20 mark the innovation from 0 to 1 in Bitcoin's development process, introducing the deployment, minting, and transfer of fungible tokens on the Bitcoin network for the first time. These tokens have quickly become the preferred tools for speculators. Meanwhile, the recently approved spot ETFs may introduce significant liquidity into the crypto market and signify Bitcoin's recognition as a legitimate asset by the mainstream.

As we enter 2024, these dynamics may continue. Historically, the crypto market has performed strongly in the year following a halving event. Therefore, the recent approval of spot ETFs and the optimistic expectations for the April halving may trigger significant market volatility. Additionally, if Bitcoin's price surges due to these events, we may witness more dramatic fluctuations in the prices of Ordinals and BRC-20, as they have smaller market capitalizations and meme-like attributes. However, it is also expected that the Ordinals and BRC-20 ecosystems will further develop. Notably, the introduction of more Bitcoin scaling solutions, such as Stacks' sBTC, will be an interesting trend that will help enhance Bitcoin's functionality.

Ownership Economy Applications Gaining More Attention

Blockchain technology empowers users to reclaim resource sovereignty traditionally dominated by large entities, including personal data, creative content, and computing resources. For example, centralized storage services may require users to relinquish control over their data, exposing them to privacy breaches and single points of failure. To address these issues, various projects are exploring alternatives that grant users more control over their assets and information. Two notable areas in this regard are decentralized physical network infrastructure (DePin) and decentralized social media (DeSoc).

Although the concepts of DePin and DeSoc have existed for some time, they began to gain more attention only in 2023. This shift can be attributed to factors such as the maturation of infrastructure development, increased awareness, and the expanding user base of cryptocurrency. For DeSoc, Friend.tech emerged as a major growth driver in 2023, generating substantial revenue comparable to some top protocols. Friend.tech exemplifies the potential of decentralized social media, enabling users to monetize their creations without the constraints of centralized platforms. In 2024, we may see similar applications exploring various forms of social media, including music, video, and written content.

Meanwhile, DePin became a popular topic by the end of 2023. These protocols are considered to have high growth potential due to their broad potential market size and the ability to scale rapidly through bottom-up growth strategies. In 2024, we will witness accelerated applications of DePin and DeSoc projects.

Increased Integration of Artificial Intelligence

Since OpenAI's ChatGPT sparked a global frenzy for AI applications in 2023, the intersection of artificial intelligence and cryptocurrency has become one of the main topics in recent months, with numerous projects emerging. We believe that the combination of AI and cryptocurrency is a potential growth area. Although this is still in the early stages of development, integrating AI into the crypto ecosystem opens up a range of possibilities for potential use cases and provides alternative options for existing solutions.

Projects that incorporate artificial intelligence have begun to offer services such as trading automation, predictive analytics, generative art, data analysis, and DAO operations. Looking ahead, more use cases are yet to be discovered. For instance, training AI models requires vast amounts of data input, necessitating significant resources, and this activity is often limited to tech giants. This leads to reduced transparency and fragmented development efforts. However, by leveraging distributed storage for data management, we can achieve greater transparency and security. This will democratize the AI model training process, allowing for broader participation, which could lead to a surge in innovation and technology. This will drive innovation and development in the field.

Growth of Real-World Assets

The tokenization of real-world assets provides a powerful use case for blockchain technology. By bringing off-chain assets onto the blockchain, RWA tokenization achieves greater transparency, enhances efficiency, and opens up new possibilities in terms of composability and potential use cases. As we enter 2024, we expect RWA to benefit from a higher interest rate environment. In particular, tokenized government bonds may continue to be a highlight, as they provide cryptocurrency investors with an alternative and attractive source of yield. Additionally, as institutional adoption of RWA accelerates, the development of related infrastructure such as decentralized identity, oracle, and interoperability solutions is also expected to gain momentum. These elements are crucial for establishing a comprehensive RWA ecosystem. As more institutions delve into the tokenization of RWA, the development of this supporting infrastructure is likely to follow closely.

On-Chain Liquidity Thriving

Liquidity is crucial for on-chain ecosystems, especially for decentralized finance (DeFi), and has undergone significant evolution since Uniswap introduced the automated market maker model. This evolution has given rise to multi-faceted liquidity models that support various on-chain activities, including token swaps, derivatives trading, and yield management. As the market gradually gains momentum, on-chain liquidity and financial activity are expected to scale up. Two noteworthy categories are liquidity management and request-for-quote (RFQ) systems. Uniswap V3's concentrated liquidity market maker (CLMM) model addresses the issue of capital inefficiency. However, challenges such as impermanent loss (IL) and instant liquidity (JIT) still pose difficulties for inexperienced participants, requiring active position management to mitigate these challenges. This has led to the emergence of various liquidity protocols with strategies to optimize CLMM liquidity providers' positions. Currently, Uniswap V3 alone has a total locked value (TVL) of $2.4 billion, but the total value managed by these liquidity management protocols is only $400 million. This gap highlights the growth potential, especially with the upcoming Uniswap V4, which will introduce more advanced liquidity optimization features.

Projects like Uniswap X, CoW Swap, and 1nch Fusion exemplify how RFQ systems facilitate matching between traders and market makers, often utilizing mechanisms such as Dutch auctions to ensure competitive pricing. The advantages of the RFQ model include competitive pricing, MEV-proofing, zero slippage, and gas-free order processing. As on-chain trading infrastructure continues to advance, the adoption of this efficient model may increase.

Accelerated Institutional Adoption

In 2023, institutions flocked to the cryptocurrency market, and we can expect more institutions to join the cryptocurrency space. Reputable traditional asset management giants like BlackRock and Fidelity entered the cryptocurrency sector during the bear market of the past year, demonstrating their confidence in the long-term potential of the industry. As we approach the Bitcoin halving and the approval of Bitcoin spot ETFs, we can anticipate increased coverage of the cryptocurrency sector in 2024. This will encourage more institutions to explore this technology and consider how to participate.

Security Remains Crucial

Security plays a vital role in building and maintaining user trust within the cryptocurrency industry. Past vulnerabilities serve as valuable lessons that prompt the industry to refine processes and strengthen defenses. According to DeFiLlama, the DeFi sector lost over $1 billion in 2023, which, while a significant improvement compared to approximately $3.28 billion lost in 2022, is still an unacceptable level of loss.

Given the importance of security, we expect 2024 to continue emphasizing this area. This focus may manifest in various forms, such as product innovation, educational initiatives, and enhancements to user experience.

Account Abstraction Becoming Increasingly Important

To attract the next billion users and accelerate the adoption of blockchain technology, accessibility and inclusivity are crucial. Ideally, users should be able to easily use decentralized applications and engage in any on-chain activities without encountering difficulties. However, the reality is that there is still significant room for improvement in this area. For example, most trading still occurs on centralized exchanges (CEX). Even at its peak in May 2023, trading volume on decentralized exchanges accounted for only 20% of the total trading volume on centralized exchanges.

Several innovative technologies give us hope for the future. For instance, account abstraction facilitates the creation of smart contract wallets, enhancing usability and social recovery features, significantly improving the overall user experience. Given the fierce competition among wallet providers, we would not be surprised to see rapid advancements in wallets, as this will further reduce the difficulty of using Web3 wallets.

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