2024 crypto market review: ETF boosts BTC dominance to 56.8%, DeFi TVL doubles

1. Market Overview

1.1 Cryptocurrency Market Fundamentals

In 2024, the total market capitalization of the cryptocurrency market grew from $2.31 trillion to $3.33 trillion, an increase of 44.2%. This is mainly attributed to favorable factors such as the approval of spot Bitcoin ETFs and Trump's victory in the election. Bitcoin's dominance rose to 56.8%, primarily driven by institutional investors' enthusiasm for Bitcoin ETFs.

Despite the launch of the Ethereum ETF, its performance has been relatively subdued. Solana has performed exceptionally well, with the price of SOL rising by 29.3% and a net inflow of $2 billion into the ecosystem.

The market share of DeFi continues to expand, with the total locked value doubling. The ratio of DEX to CEX trading volume has increased to 11.05%, with an annual trading volume of 2.67 trillion USD. Solana and Base have both doubled their market share in DeFi TVL, reaching 7.17% and 3% respectively.

Stablecoins have accelerated, with a market capitalization growth of 26.8%, surpassing $205 billion. New entrants like Ethena are driving this trend. The potential approval of ETFs for assets such as XRP and SOL in the future will have a positive impact.

1.2 Macroeconomic Environment and Politics

Trump wins the 2024 election against Harris and is re-elected as president, with the Republican Party winning a majority in Congress. Trump's America First and isolationist policies may bring uncertainty to international situations. His crypto-friendly policies are expected to promote industry development, but the actual implementation still needs to be observed.

Europe continues to be affected by the ongoing Russia-Ukraine war, with the discourse power of right-wing parties significantly strengthened. Europe is following the United States in terms of cryptocurrency regulation, with the MiCA legislation officially implemented.

The situation in the Middle East is tense, and the conflict between Israel and Hamas is entering its final stages. Many countries in South America are advancing the legalization of cryptocurrency.

Global GDP growth rate is 2.6%, and the inflation rate is 2.5%. Inflation in the United States has been partially controlled, and interest rates have begun to decrease. The Eurozone's economic growth is slowing down due to geopolitical influences. China is facing deflation and real estate risks. Emerging market countries are experiencing currency depreciation due to the dollar's interest rate hike.

The three major U.S. stock indices surged, with technology stocks performing exceptionally well. The development of AI has driven up the stock prices of related companies. The Japanese stock market reached a 30-year high, benefiting from carry trades and export advantages.

2. Bitcoin

2.1 Product and Agreement Design

In the second half of 2024, there will be significant software upgrades for Bitcoin, such as Bitcoin Core 28.0 introducing flexible transaction forwarding strategies and the Lightning Network launching BOLT12. These upgrades will impact various application scenarios, including support for fee-less transaction forwarding.

Discussions about protocol layer design continue, mainly focusing on soft fork proposals. There are divergences among developers, roughly divided into several camps: adding new opcodes, improving the Lightning Network, promoting the "big script recovery movement", etc. No consensus has been reached yet, and progress is expected by 2025.

The implementation of BitVM is progressing steadily, with a focus on the design and implementation of cross-chain bridges. Some test versions of cross-chain bridges based on BitVM have already begun to operate.

2.2 Layer 2 - Lightning Network

The total amount of Lightning Network channels remains at around 5000 BTC. The number of nodes is stable, but the number of channels has decreased, which may indicate that liquidity is concentrated among large node service providers.

BOLT12( offer ) is adopted by many clients and supports static payment methods. Some Layer 1 networks are developing Layer 2 solutions compatible with the BOLT specification.

The feasibility of the business model remains a major focus. Service-oriented projects, especially those utilizing the Lightning Network as a settlement layer for cross-border transactions, may receive more attention. Future development depends on the issuance of stablecoins on the Lightning Network.

2.3 Layer 2 - Side Chains

Layer 2 sidechains exhibit uneven performance. Some projects have seen a decline, while others continue to grow. The TVL of various projects shows a noticeable alternating trend.

Challenges facing Bitcoin Layer 2 include reliance on unsustainable TVL surges and airdrop incentives. Building a robust ecosystem to ensure lasting liquidity is crucial. BTCFi can achieve better liquidity abstraction and protocol layer stacking by leveraging existing infrastructure.

The key to the success of Bitcoin L2 lies in ensuring asset security and pursuing a vertical integration strategy.

On-chain Assets

On-chain assets of Bitcoin have not significantly appreciated with the rise in Bitcoin prices, showing low activity. Altcoins overall are underperforming compared to other altcoins.

Assets like BRC20 and Runes have recently underperformed, with market value and growth far behind popular Meme assets.

RGB is being promoted and has already achieved technical support for integration with the Lightning Network. The issuance of Tether stablecoins is the main narrative, but the specific implementation plan is still unclear.

Taproot Assets enable low-cost minting of stablecoins and instant settlement on Bitcoin. Tether has announced that it will issue stablecoins based on this.

The on-chain asset track faces challenges such as insufficient DEX experience and liquidity, and CEX also has difficulties integrating new asset types.

2.5 BTCFi

BTCFi provides additional returns for Bitcoin holders, and with the improvement of infrastructure, the total locked value is expected to grow.

The type of returns pursued by BTC assets has shifted from L2 to staking, liquid staking, and liquid restaking. Babylon, as the cornerstone of this return path, has attracted a significant amount of TVL. Various LST projects have emerged, unlocking liquidity and driving DeFi activity.

The focus in the future is on finding ways to make staking assets efficiently utilized and circulated. Protocols that can flexibly mobilize Bitcoin liquidity and support a richer variety of asset classes will have a better chance of success.

3. Ethereum

Despite the launch of the ETH ETF in July 2024, its performance has not replicated the success of the Bitcoin ETF. The ETH/BTC ratio has fallen to 0.037, highlighting institutional investors' preference for Bitcoin. Layer 2 gas fees are lower than Ethereum's, leading to capital inflow into Layer 2 projects.

However, in December, the ETH ETF achieved its best performance, setting a record of approximately $2 billion in net inflows. EVM remains the most dominant and active virtual machine in the ecosystem.

3.1 L2s

After the Dencun upgrade, rollups transaction fees decreased by over 90%. The daily transaction volume on Layer 2 increased by 325%, and the number of daily active addresses rose to 2.18 million.

The significant capital inflow to Base is attributed to a smooth user experience, partnerships with Coinbase, and the launch of popular applications. The daily active user count surged to 1.6 million. DeFi activity has significantly increased, and the stablecoin market has grown to 3.6 billion dollars.

Arbitrum has launched Stylus, which supports multiple programming languages for writing smart contracts. The future roadmap includes measures such as multi-client support and adaptive pricing.

OP Superchain continues to gain momentum, with the total number of chains based on OP-Stack reaching 56 by the end of the year. The number of active developers has surged to 3,446.

3.2 Re-staking

The amount of staked Ethereum has shown an overall upward trend, but the yield has decreased to 3%. This has prompted users to seek alternative returns through liquidity provision or lending activities. The re-staking protocol has attracted a large TVL, but the growth momentum has weakened.

Symbiotic's TVL has seen a significant increase, soaring from $307 million to $2.12 billion. Future catalysts will depend on the successful launch of the reduction mechanism and the flexibility offered to AVS, stakers, and node operators.

3.3 Ethereum Future Roadmap and EIP Proposals

In 2025, Ethereum plans to undergo a major upgrade called Pectra, expected to be completed in the first quarter. Key EIP proposals include:

• EIP-7691: Expand Blobs target capacity, reduce L2 costs
• EIP-7702: Implementing smart contract functionality for EOA accounts
• EIP-7251: Optimizing validator management to reduce network load

The long-term roadmap aims to introduce core technologies such as zero-knowledge proofs and post-quantum cryptography by 2029.

Ethereum needs to adjust the staking reward issuance curve in the future and attract high-throughput applications to create greater value for holders.

In terms of other infrastructure, decentralized ordering and data availability are expected to see greater growth by 2025. The cross-chain interoperability standard ERC-7683, related to intent and chain abstraction, is expected to become an important milestone. AI agents and intent-driven DeFi trading are also future directions for innovation.

4. Solana

In 2024, Solana performed excellently, with a price increase of about 75%, and the SOL/ETH ratio rising to 0.06. Thanks to low fees and high throughput, many high-performance applications have chosen to build on Solana. Developments in DeFi include the launch of cbBTC, PYUSD incentive programs, and more. The market capitalization of stablecoins has grown more than threefold, reaching $5.1 billion.

Solana has achieved significant growth in developer adoption, attracting more new developers than other blockchains. The partnership with Shopify and Visa has further strengthened the network's growth.

In 2024, the focus of the Solana ecosystem will mainly be on areas such as DePIN, meme, and PayFi.

• DePIN: Projects like Helium and Render Network are migrating to Solana, bringing a strong user community. Computing power projects like io.net are attracting a lot of attention.
• Meme: Platforms like Pump.fun are driving a significant increase in the trading volume of Meme coins on Solana. Data analysis platforms such as GMGN.ai provide investors with market insights.
• PayFi: Solana Pay and other infrastructures are creating a new era for payments and commerce. Partnering with VISA to open offline payment channels.

The activation of Firedancer in the future will further enhance network performance. The Solana plugin offers greater flexibility in token issuance capabilities. Factors such as the potential approval of ETFs and the growth of the stablecoin market will have a positive impact on the ecosystem.

5. Alt-L1s

In 2024, Alt-L1 continues to receive strong attention, competing with Ethereum in various aspects. Important and emerging Alt L1s worth noting include:

• Berachain: Introduced liquidity proof (PoL) mechanism, TVL quickly grew to over 1.5 billion dollars after launch.
• TON: Gained attention thanks to the Telegram user base, but its performance in Q4 was below expectations. Future growth relies on collaboration with Telegram.
• Kaia: Formed by the merger of Klaytn and Finschia, integrating applications such as LINE and KakaoTalk. The Kaia Wave program has been launched to promote ecological development.
• Move Ecosystem: Sui and Aptos are the main representatives. Sui outperforms Aptos on multiple metrics, with a net inflow of 1.2 billion USD in 2024. Aptos focuses more on institutional directions such as RWA tokenization.
• MegaETH: Solves transaction throughput and computing power limitations through node specialization, supporting high-performance applications.
• Monad: Implements optimistic parallel transaction execution, supporting high throughput and low latency.

The competitive landscape shows that the narrative in 2024 is no longer limited to the battle between Ethereum and Solana. More and more Alt L1 projects are expected to gain a larger market share in 2025.

6. Other Tracks

6.1 Meme

In 2024, the overall increase in the Meme sector is 218%, with Ethereum, Base, and Solana being the most active.