Introduction

This morning, Michael Gronager, CEO of the on-chain analysis company Chainalysis, kicked off the highly anticipated “Links NYC 2024” event with a riveting speech. Discussing the current state and outlook of the crypto and Web3 industry, Gronager shed light on the progress his company has made over the years and shared some intriguing insights about what the future holds for this rapidly evolving sector. For those who couldn't make it to New York, there's good news: the event will have a digital premiere in May, featuring keynote speeches, case studies, panel discussions, live demos, and more. You definitely don’t want to miss it!

Chainalysis CEO: the state of the crypto and Web3 sector

Michael Gronager, co-founder and CEO of Chainalysis, began his speech by recounting the journey of his company, which has morphed from a trio of visionaries into a 750-strong team in just over a decade. This expansion underscores the growing complexity and vastness of the Web3 sector, which now requires fresh talent to navigate its labyrinthine development and market opportunities. The adoption curve for blockchain technology and cryptocurrencies paints a rosy picture, with market capitalization and on-chain asset transfer values on a consistent upward trajectory, even during bearish phases. Interestingly, it's not just about hoarding cryptos but making transactions too. People seem quite keen on moving chunky sums across cryptographic networks, hinting at increasing practical use of these digital assets. According to Gronager, the crypto industry saw a particularly thrilling period in late 2023 and early 2024, largely fueled by the hot topic of Bitcoin spot ETFs in the U.S. These ETFs have seen unprecedented growth, setting records with an inflow of $12 billion by March. It’s quite a feat when you consider gold ETFs raised similar sums back in 2014. Gronager also noted the meteoric rise of stablecoins, which now account for about 60% of transactions involving amounts from $1,000 to $100,000. This surge suggests stablecoins are carving out a dominant niche in the crypto space, while Bitcoin steadily gears up as a store-of-value asset.

Future growth prospects and evolution of the Web3 sector

Gronager struck a chord of optimism with his outlook on Web3's future. What was once a niche arena populated by industry insiders and the odd speculator has now blossomed into a bona fide financial ecosystem. Investors, companies, retail players, institutional bodies, regulators, advisors, and even modern-day influencers are diving into this new-age market headfirst. Plus, the technology behind these innovations just keeps getting better. The DeFi ecosystem, for instance, has substantially advanced since its fledgling days in 2021, becoming significantly more technical and enriched. An excellent barometer for Web3's growth is the TVL (Total Value Locked) in decentralized finance markets. Back in 2021, this figure stood at $24 billion, 96% of which was Ethereum-based. Fast forward to January 2024, and that number has exploded to $98 billion, with only 57% locked in Ethereum; the rest is spread across over 60 EVM chains and more than 5000 tokens. This evidences a flourishing broader blockchain landscape that's pulling in new investment capital. However, increased wealth in cryptographic environments has also led to a rise in illicit activities. Despite making up a tiny fraction of all blockchain transactions, illegal deeds like illegal gambling, violent crimes, CSAM, terrorism financing, drug trafficking facilitation, and fraudulent shopping persist. Chainalysis has been instrumental in mitigating these issues. Over the past year, they've collaborated with international law enforcement to seize over $10 billion in crypto assets, including $3.36 billion from the Silk Road hacker. Their efforts have also thwarted financial support for Iranian terrorism and economic sanctions circumvention in Russia and Palestine. The company’s advanced research techniques have doubled the number of identified real-world entities on the blockchain, connected to an additional $7 trillion in assets. Chainalysis keeps tabs on roughly 63,000 real-world entities transacting about $29 trillion in value, highlighting their role as the digital sheriffs of Web3.

Growth of the DeFi environment

The transformative power of decentralized finance (DeFi) was a major highlight in Michael Gronager’s address at “Links NYC 2024.” According to Gronager, the DeFi ecosystem has seen unprecedented expansion, evolving from its humble beginnings in 2021. Back then, the total value locked (TVL) in DeFi protocols was around $24 billion, with Ethereum being the dominant force, capturing 96% of the market share. Fast forward to 2024, and the TVL has skyrocketed to an impressive $98 billion. More intriguing is how Ethereum’s dominance has slightly waned, now capturing only 57% of the share. The remaining 43% is diversified across a plethora of over 5,000 tokens on more than 60 EVM chains, showcasing the sector's diversification and growth.

This flourishing environment is fueled by continuous technological advancements and a richer, more technical DeFi landscape. We’re no longer in the wild west of 2021 where DeFi was the playground for early adopters and risk-takers with a flair for experimental finance. Now, DeFi stands as a robust player, increasingly intertwined with traditional finance (you know, the one where your uncle Frank works), attracting a mix of retail investors, institutional investors, and even regulators. It's as if the DeFi sector went from being the rebellious teenager to a more seasoned professional in the finance world, donning a suit while keeping its edgy sneakers on.

Illicit activities in the crypto space

One can't bring up the wonders of the crypto world without addressing the murkier side of the digital coin: illicit activities. But let's shake our heads not in dismay, but in curiosity. Gronager shed light on how the landscape of crypto crime has evolved alongside its legitimate counterpart. Back in the day, the dark corners of the internet—that your mother told you to avoid—were the primary playgrounds for cryptocurrencies, facilitating exchanges on the darknet. Today, however, such nefarious usage represents a smaller portion of overall transactions. In 2024, Chainalysis identified illicit activities totaling around $24.2 billion, which amounts to just 0.34% of all cryptocurrency transactions.

Interestingly, the types of crimes have also morphed. It's not just about shady darknet dealings anymore. The list now includes illegal gambling, violent crimes, child sexual abuse material (CSAM), terrorism financing, drug trafficking facilitation, and, of course, your legally questionable online shopping endeavors. The crypto space is like that sketchy neighborhood that’s getting gentrified—there are fewer dubious activities, but they’re more sophisticated and diverse.

Role of Chainalysis in combating crypto crimes

Enter Chainalysis, the digital detectives of the crypto world, donning their virtual magnifying glasses and crypto-sniffing algorithms. The company's gargantuan effort over the past year has played an instrumental role in combating digital misdeeds. Thanks to their rigorous and sophisticated on-chain analyses, they’ve assisted law enforcement agencies in seizing over $10 billion worth of crypto assets. Notable instances include the massive $3.36 billion haul from the Silk Road hacker (you know, the digital pirate saga) and interruptions in illicit financial flows supporting terrorism in regions like Iran and Palestine.

This initiative isn’t just a victory leap; it’s a testament to how much Chainalysis has refined its investigative techniques. The company can now identify double the number of real-world entities on the blockchain, totalling data on about 63,000 entities responsible for a mind-boggling $29 trillion in exchanges. This leap in technological prowess aims to create a cleaner and more trustworthy crypto environment—a place your grandma might not need to worry about (as much).

Technological advancements and monitoring of real-world entities

Today, Michael Gronager, co-founder and CEO of Chainalysis, one of the most well-known and respected on-chain analysis companies in the world, opened the event “Links NYC 2024” by giving a recap of how his company has evolved in recent years and presenting his perspectives on the future of the crypto market and Web3. Over 10 years of activity, Chainalysis has grown from a staff of 3 people to expand to a total of 750 individuals including employees and contributors, given the need to cover the increasingly vast and dense field of the web3 sector with new market players. The adoption curve of blockchain technology and cryptocurrencies, which is calculated by taking as reference the growth of the total market capitalization and the value of assets transferred on-chain, shows an extremely positive overall outlook with numbers constantly growing despite years of bear market. In particular, it seems that adoption rewards more the side of transactions made rather than the capitalization of funds stored in crypto, with users appearing increasingly inclined to move large amounts of assets on cryptographic networks. According to Chainalysis CEO the last months of 2023 and the beginning of 2024 have been particularly exciting for the entire cryptocurrency industry, with most of the market attention focused on the narrative of Bitcoin spot ETFs in the United States. 5 months after the approval of these new regulated investment tools, we can observe the fastest growth in the history of ETFs for the Bitcoin asset class. Already in March we could count an inflow of capital equal to 12 billion dollars, an extremely high figure if we think about the capital raised by ETFs on gold in the first months of trading in 2014. Gronager then focused on the unchecked growth of stablecoins compared to other types of cryptographic tokens, which have recently dominated the blockchain transaction space. According to Chainalysis studies, stablecoins represent approximately 60% of all transactions involving an amount exchanged between 1000 and 100,000 dollars. This represents a strong indicator of the growth of exchanges in stablecoins and the growth of a use case becoming dominant within this industry. It is important to underline how according to the co-founder of Chainalysis this trend will increase more and more over time, with stablecoins becoming the most traded cryptographic asset on-chain, while Bitcoin will increasingly take on the characteristics of a store of value asset.

From Michael Gronager’s speech emerges a strong optimism for the future of the web3 sector. Although the crypto world until a few years ago represented a niche sector mostly participated by industry experts and occasional speculators, now it seems to be more integrated into the realm of real finance. Investors, market makers, companies of various types from all over the world, retail investors, institutional investors, regulators, advisors, and modern influencers all contribute together to form a completely new industry compared to what we could recently observe. In addition to all this, we can see a set of technologies constantly improving, and a DeFi environment decidedly more technical and enriched compared to its beginnings in 2021. One of the factors that most demonstrate the evolution and growth of the web3 industry is the metric of the TVL of the decentralized finance market which in 2021 marked a sum of locked capital equal to 24 billion dollars, of which 96% was stored within the Ethereum blockchain. In January 2024, we could count a total of 98 billion dollars in TVL, with only 57% included within Ethereum, while the remaining 43% is divided among over 5,000 tokens on more than 60 EVM chains, demonstrating how the broader blockchain landscape is experiencing strong growth and is able to attract new investment capital. The growth of the “wealth” in the cryptographic environments has inevitably led to an expansion of illicit activities carried out in this field, although they now make up a small portion of all regular transactions initiated through blockchain technology. Until 2014, in the early years of cryptocurrency popularity, the total sum of exchanges in digital assets was drastically smaller, but the main use cases were directed towards exchange activities on the darknet. Today, however, the situation seems to have changed significantly: according to the “Crypto Crime Report” by Chainalysis, in 2024 illicit activities totaling approximately $24.2 billion were identified, representing 0.34% of all cryptocurrency activities. One change, in addition to the overall weight compared to legal activities, has been the type of “cryptographic crime” that has emerged in recent years. Today, the most common types of illicit activities in the crypto world according to Chainalysis are represented by illegal gambling, violent crimes, CSAM, terrorism financing, drug trafficking facilitation, fraudulent shopping. The hard work carried out by Chainalysis in the past year, consisting of continuous updates regarding the refinement of digital crimes and increasingly detailed on-chain analysis, has allowed the analysis company to help international law enforcement agencies seize crypto assets worth over $10 billion. Among the most noteworthy operations, we can highlight the seizure of 3.36 billion by the Silk Road hacker and the halt of money flows incentivized to support Iranian terrorism and circumvent economic sanctions on Russia and Palestine. This milestone highlights Chainalysis’ commitment to cleaning up the web3 from dishonest actors, aiming for an environment where legality and technological innovation prevail. These results are the result of an advancement in research techniques that have allowed to double the number of real-world entities identified on the blockchain with an additional $7 trillion in associated assets. In particular, Chainalysis monitors about 63,000 real-world entities operating on the blockchain for a total exchanged value of 29 trillion dollars.