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In a year dominated by L2 Scalability, Cross-Chain Integration, and AI what trends are moving the needle to onboard new users to Crypto?

Date published: August 2023

by Charlotte Kapoor, Head of Innovation Programs

Blockchain protocols are maturing, reaching consumer readiness. L2 ecosystems offer abundant block space, and long-speculated zkRollups are coming to mainnet. As we approach the end of 2023, the Shanghai upgrade and proto-dank sharding will be complete; Ethereum 2.0 will be nearing its final stages offering new scalability, security, and energy. As an EVM chain, Cronos will benefit from minimised data costs, while latency and responsiveness will be better than ever.

Despite this progress in infrastructure protocols, there is still a clear gap in consumer-grade dapps to run on this infrastructure. The Fat Protocol Thesis, which claims a blockchain's primary value lies at the protocol level doesn’t necessarily hold true any longer since the rise of cross-chain infrastructure enables dApps to function across multiple protocols, reducing the significance of protocol monopolies.

In addition to the strong foundations supporting dApp builders, there is buoyant market sentiment and regulatory battles are shaping the crypto industry for increased adoption in commerce, business, and society. While some innovative dApps may catch fire too quickly to be regulated, recent rulings like the XRP classification are regulatory wins for the crypto space. Positive market dynamics are further supported by Bitcoin's next halving event scheduled for April 2024, the FED's potential easing of monetary policy, and BlackRock's application for a Bitcoin ETF.

The confluence of crypto with artificial intelligence accelerates this favorable outlook. It's hard to find two technologies more of the zeitgeist, and it is at this intersection where the focus of the Cronos accelerator falls. By 2025, the market size of Web3 and AI is projected to reach $39.7 billion and $126 billion, respectively, offering ample opportunities for designers to create impactful and user-centric products that contribute to the ongoing digital revolution.

While big tech has favored centralized AI models, Web3 aims to democratize AI for broader accessibility and neutrality. Generative AI systems exhibit remarkable speed in generating ideas, but business transformation takes time and needs effective change management. Consumer applications are likely to lead the way in adoption, poised to drive rapid innovation, building on the Cronos chain offers a significant advantage, granting access to Crypto.com's 80 million active user ecosystem.

TLDR

The primitives are there. There is a clear need for consumer-grade dApps. There is positivity in the market. Blockchain technology is maturing and AI brings unparalleled speed and efficiency to take products to market. Now we need to focus on building practical use cases to drive increased adoption of dApps that genuinely attract users and contribute to real-world usage.

Across a range of verticals, we see these macro trends play out in specific areas of interest for Cronos. The following areas are to inspire, encourage discussion, and prompt applicants to apply to be part of the Cronos accelerator or to join our community. Building something from this list is not a requirement.

💸 DeFi

Prediction markets

Web2 betting sites face problems like frozen/stolen funds and users getting de-platformed for being too profitable. A gap exists in the market, apps like Rollbit have been on the rise, and Polymarket, one of the largest decentralized crypto prediction platforms, has ~1,000 monthly active users.

There is an opportunity for:

AI-driven prediction platforms (e.g. Augur) covering a wide range of topics, that create a community-based forecasting approach, using tokens to incentivize accurate predictions.
DeFi protocols powered prediction platforms

Liquid staking protocols and the downstream use of liquid staking tokens (LSTs)

In 2023, liquid staking protocols and liquid staking tokens (LSTs) in DeFi gained significant momentum. The Shapella upgrade drove this trend, with over half of ETH stake in liquid form by the end of Q2 2023, including Coinbase's cbETH, which saw a 25% year-to-date increase, enhancing liquidity and creating more opportunities in DeFi. LS Tokens enable DeFi applications to benefit from predictable, low-risk, and crypto-native real yield.

We are looking for further innovations in LSTfi, which could include:

Using LSTs as collateral in lending protocols, structured products and creating LST-backed stablecoins.
Projects looking to consolidate fragmented and thin liquidity, giving Cronos users more opportunities to leverage their LSTs, contributing to a more robust DeFi ecosystem.

Defi native trading experience

Derivatives

Crypto derivatives account for 79% of global crypto trading and will remain vital. Perpetual futures are popular among both retail and institutional traders for their efficiency, while decentralised options have historically struggled with retail appeal. DOVs simplify options indirectly, democratising retail trading.

As the industry matures, we are looking for:

New simplified user experiences with AMM-powered perpetual and derivative products
Projects utilising AI-driven analysis to provide accurate market trends and predictions

Automated Strategy Vaults

Strategy Vaults has undergone continuous refinement progressing from simple approaches like Auto-compounding Vaults and leverage yield farming Vaults. As DeFi continues to progress, more sophisticated strategies have come up in recent months - which include more advanced automated UniV3 rebalancing Vaults (such as Arrakis) and Vaults designed to replicate Market-Making strategies (like Hyperliquid).

Vaults provide easy access to end consumers to seamlessly provide liquidity into complex strategies without the need for active management, we are looking for:

Teams that are building innovative complex strategy vaults on top of existing DeFi primitives (Market making strategies, delta neutral strategies)

Trading bots

Trading bots, primarily focused on Telegram, are emerging as a tool for exposure to crypto markets and services in the sluggish market. Cumulative trading volume surpassed $190 million by early August 2023. This is for numerous reasons; Telegram's role as an essential social network for crypto allows it to serve as a convenient tool for trading, marketing, and address propagation. The TG Bot Token is also seen as a meme, appealing to anti-institutional sentiment.

There is room for further growth in this area, for example:

Bots that could further integrate into the crypto ecosystem, enabling on-chain buying, selling, automation, and MEV protection.
Further diversification of bot functions and aggregation, could extend to bot use within integrated social apps as we see many users habitually combine chat and trading.
Bots that solve wallet security to accommodate larger funds

New DEX models

New and interesting ways for traders to experiment always attract interest. For example, Maverick Protocol is newly launched capital efficient DEX that differs from most other AMMs. Maverick uses liquidity bins; price discovery within a bin uses a constant-sum curve, allowing for 0 slippage trades. It allow allows incentivized pools, custom liquidity shaping, custom fees, and directional liquidity provisioning.

Access to Tradfi

Compliant DeFi

Insufficient privacy in DeFi raises the potential harm to consumers, as it allows other blockchain users to access transaction history and asset holdings, leaving users vulnerable to fraud, social engineering, and asset theft by malicious actors. Zero-knowledge proofs offer potent protection for user privacy, safeguarding personal information, data, and financial actions. They assure compliance while preserving pseudonymity, like verifying non-citizen status in sanctioned states or accredited investor status.

We are looking for:

Digital identity management powered by ZKPs, enabling private deposit and withdrawal screening, along with selective de-anonymization for transactions meeting regulatory requirements.

Tokenising and accessing real-world assets

Post the 2023 banking crisis, diversifying on-chain treasuries is critical for crypto-native entities. Correlation among native crypto assets limits diversification. Tokenized Treasury Bonds offer higher returns and lower risks than some DeFi protocols, making real-world assets (led by U.S. Treasury bonds) a popular crypto theme this year. Ondo Finance, an emerging player, with tokenization market share next to the Franklin Templeton Fund, has a $160 million TVL in OUSG, providing 5.13% APY.

In emerging markets, diversification challenges arise due to limited accessible financial services for retail users. Currency instability, inflation, a strong dollar, and ensuing political unrest emphasize BTC and stablecoins as "insurance" and "hedge." These markets require platforms for peer-to-peer lending and microfinance, bypassing traditional credit processes.

We are looking for:

Products overcoming regulatory hurdles to tokenize real-world assets like US treasuries and gold, but with more accessibility for retail investors (Ondo demands an initial $100k investment), hold huge potential. Such offerings could synergize effectively with Crypto.com, providing exposure to their 80 million users.
Projects utilizing Cronos to offer cost-effective solutions for new markets, including remittances, fixed-rate lending, RFQ, and exposure to the USD economy.

📱Consumer applications

Loyalty and rewards

Fueled by depressed economic growth, loyalty, and rewards programs are more prominent than ever, shaping our daily interactions with platforms, services, and products. Every well-known brand, ranging from Starbucks to Disney, is actively seeking a strategy for Web3. An opportunity exists to innovate stagnant systems challenged by enterprise baggage, legacy practices, and technological incompatibility to bring new users to Web3.

We are looking for:

Projects building developer tools or no-code tools for large Web2 companies to build Web3 products.
Projects porting tokenized loyalty points from one program to another and across blockchains, looking to leverage the low gas fees on Cronos.

Fan engagement

Web3 can revolutionize relationships, align incentives, and enable true ownership. This reshapes the creator-audience dynamic enhancing fan engagement and activating global fanbases. Young sports fans are familiar with digital assets and eager to connect with the entertainment industry, Manchester United’s Discord has over 100,000 engaged members.

We are interested in projects that serve personal brands (athletes, musicians, influencers, artists) and:

Offer a seamless fan onboarding process, bridging the gap between Web3 and Web2.
Immersive digital environments that use new interactivity, methods of loyalty, and social experiences. Utility tokens should not be reduced to digital collectibles but token-based reward systems, fractional ownership, or democratized investment opportunities that gamify the fan experience, and drive more active participation and loyalty.
Growth hack tooling & platform for Web3 projects. For example, Quest N provides a one-stop solution for Web3 native projects to conduct growth hacking, outreach to new communities, and smooth the user onboarding journey.

Social culture

Projects that tap into the emotional side of community growth, can foster a sense of belonging, and encourage wider adoption and active participation in our ecosystem. As demonstrated in the rise of Pepe chain memes have become a powerful force within the Web3 community, transcending humor and entertainment to influence marketing and user engagement.

We are looking for projects innovating with Ai and blockchain using different ways to tap into this in their go-to-market strategy and ability to adopt new users:

New Meme concepts where the principles of decentralisation and community governance are embraced, allowing token holders to actively participate in decision-making.
DApps utilizing randomness (lotteries etc.), and user-generated content.

Web3 gaming

Web3 gaming is undergoing a dynamic shift; current games struggle to retain user engagement or generate sufficient speculation to warrant growth. The sector's complexity requires years of development and financial commitment and investment has been hindered by a stigma of NFTs among gamers. The upcoming game wave should prioritize retail-oriented, enjoyable experiences with excellent user interfaces, rather than financial products that involve excessive wallet permissions.

Driving the transformation is AI-Web3 gaming. Games have long been the frontier playground for AI, and the alliance with Web3 offers a new era of immersive, fair, and personalized experiences. AI shapes interactive game worlds by analyzing player behavior and crafting dynamic events and challenges. It enables "endless, cause-and-effect" landscapes evolving as you progress, or unique settings influenced by your actions, empowering players as architects of their gaming world.

We are looking for teams building these experiences, ideas include:

AI-powered gaming infrastructure where non-playable characters can change and react to what the player does, for example building NFT character experiences (e.g. CharacterGPT). This extends to monetization schemes that tailor experiences based on complex data mining and player behavior. For example, Parallel Colony: an AI simulation game with on-chain projects. Each avatar, an ERC-6551 wallet, can own ERC-20 and ERC-1155 assets for trading with other AI avatars.
Integrated market analysis in games, predicting digital asset values, empowering players and developers.
Games that are composable and democratic enable communities to participate in character, scene, and storyline decisions through voting.
Games using ZKPs. zkSync introduced the 'Boojum' upgrade with proofs for mid-to-high-end gaming GPUs. This lets provers work on consumer hardware, enhancing decentralization for zk-proofs. This could mean identity management, like a portable gaming wallet for Cronos games, or asymmetric games and engines using ZKP for controlled information. Dark Forest showed that ZKPs can help design interactive games where players' actions stay private until they choose to disclose them.

Onchain social applications

As Web3 grows, its future benefits are indescribable. This is particularly evident in social apps, where history teaches us that the first successful social app is unlikely to resemble the current Web2 players.

We are looking for social products that grant creators content ownership and allow for flexible monetization, with the ultimate goal of enabling a new value flow system. The ideal Web3 social app offers self-sovereign identity, portable connections, customizable curation, and resistance to speech censorship. How these features manifest themselves is wide open; the more creative, weird, and wonderful, the better – focusing on building unique social worlds that drive distinctive web3-native engagement models.

Some interesting areas to explore:

Applications that embrace and cater to AI agents. As we trend towards a proliferation of virtual beings, AI agents will gradually replace human interactions, communicating with each other via smart contracts. They will have different UX needs compared to humans, moving to Web3 platforms where they don't need to worry about being de-platformed.
Projects integrating ZKPs to create innovative experiences. This could include pseudonymous social networks like Sealcaster or Blind, where individuals utilize ZKPs to verify specific details, like being an employee of a specific company or the ability to transfer social capital from wallet A to wallet B using anonymous but verified NFTs.
Innovation in identity management for social, Patch Wallet allows anyone with a Twitter account to have a smart account by default, bridging web2 social graphs with crypto wallets.
Projects incorporating virtual influencers and virtual identities like Lil Miquela and Imma, who are ready to be incorporated into any virtual environment.
Social DApps using innovative economics model. For example, Friend.tech allows KOLs to tokenize their online presence where their followers can buy and sell shares of the KOLs. Ownership of a share gives you access to a gated chat with the KOL. Share price fluctuates according to supply and demand.

🏗️ Enablers and UX abstraction

Account abstraction

Solving the wallet issue is vital for widespread crypto adoption. ConsenSys is advocating for an ecosystem-driven solution with MM Snaps, aiming to directly integrate account abstraction. Signing transactions via browser extensions is clunky and inconvenient, and key management is confusing. The multi-chain experience needs to be simplified so users can use many smart contract accounts across many chains. Wallets will become the default way for web3 users to interact and represent the future of composable, permissionless innovation.

We are interested in the following:

Interoperable wallets embedded within other apps, especially those focused on abstracting the multichain experience. We are seeing more dApps that compose functions across multiple ecosystems. Squid, on Axelar, is a DEX using multiple DEXs' liquidity on various chains for cross-chain swaps. Wallets that support these composable network effects with different participants aggregate a lot of value.
Specialised, customised wallets, using permissionless combinations of smart account modules capture market share as they tailor more closely to specific user needs. (Safe is focusing on additional security required by organisations; Metamask is spinning up Snaps to customise for certain use cases whilst Castle specialises their smart wallet to high-net-worth NFT owners). This will likely leverage and integrate bundlers, paymasters, and session keys built by specialised infra players.
Intent-centric wallets and wallet module builders that simplify transaction signing (eg. batched transactions, sign-in with biometrics, AI-driven, cross-chain smart accounts) using MPC or AA.

Content authentication

In a growing world of generative content, it will become highly relevant to understand the provenance. Deepfakes exploit human susceptibility to believing visuals and audio; the manipulation increases the potential for fraud, disinformation, and deception, and undermines trust in institutions.

We are interested in projects tackling the authentication of content in different forms including:

Content oracles that witness users pulling information about themselves, for example, the content being from a government site, and can attest to the provenance of that information.
Using ZKML to prove if a statement has been generated by a specific AI model, verifying the computation of these models by creating ZK proofs.
Projects using digital signatures, and content signed by creator private keys to authenticate the source. Many Web3 natives already associate their current social media profiles with a cryptographic public address, lending legitimacy to the adoption of digital signatures as a means of authenticating content.

Conclusion

We're looking for Cronos-based applications to onboard the next billion web3 users. We are looking for teams building at the intersection of AI and Crypto, where AI brings unparalleled speed and efficiency to take products to market and decentralised infrastructure aims to democratize AI for broader accessibility and neutrality. These apps should offer Web2-like interfaces driven by Web3 tech, solving real-world needs.

A huge opportunity lies in creating apps and tools for users who have never touched a blockchain. This requires smart abstractions, intent-focused design, and user-ready solutions to overcome the current adoption hurdles.

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If you're working on these concepts or have ideas, apply at cronos.org/accelerator or reach out to accelerator@cronoslabs.org.