Introduction
The second quarter of 2023 saw huge growth and development in the Web3 space. That’s the verdict of Alchemy’s latest Web3 Developer report, which surveyed over 600 Web3 developers and found that Web3 developer activity continued to surge, despite dropping NFT and DeFi trading volumes.
The report gives a thumbs-up to Web3 developers who picked up the slack and responded strongly to Vitalik Buterin’s vision for Ethereum’s next steps as a mature tech stack. Buterin outlined in his “The Three Transitions” paper that layer-2 scaling such as zero-knowledge rollups, smart contract wallets, and account abstraction are key to Ethereum’s future. Ethereum Virtual Machine (EVM) chains, including Ethereum, Arbitrum, Optimism, and Polygon, witnessed a 300% QoQ increase in smart contract deployments in response.
This article provides an overview of the report’s findings, with some comments.
Ethereum SDK and Wallet SDK Installs Flourish in Q2
The Alchemy report showed that Ethereum Software Development Kit (SDK) installs reached 26.8 million, marking a 37% year-on-year increase. For comparison, there were only 2.9 million and 7.4m installs at 2019 and 2021’s respective midway points.
Wallet SDK installations, another critical measure of ecosystem health, were up by 22% quarterly, also reaching a new all-time high.
Specifically, weekly Web3 wallet SDK installs nearly tripled year-on-year in Q2 2023, with a total of 11.1 million downloads (compared to a mere 4.8k in 2019, 546k in 2021 Q2, and 3.8m in 2022).
These figures underscore the sustained growth in developer activity within the Web3 ecosystem, even as VC funding continued to crater in Q2 mainly due to AI mania and adverse macroeconomic policies.
The growth in Ethereum SDK and Wallet SDK installs is indicative of the increasing interest in Web3 development.
- Ethereum SDKs such as Ethers, Web3, Hardhat, Truffle, Foundry and others, facilitate easy interaction with the blockchain for Web3 developers.
- Wallet SDKs, such as Coinbase Wallet, Rainbow, Web3 Onboard, and Web3 Modal, enable developers to connect consumers to the Ethereum blockchain, therefore the rise in these installs signals an increase in Dapp development.
- Ethereum libraries like Ethers.js, Web3.js, Hardhat and Web3.py grew by over 1/3rd in Y/Y with a total of 26.8 million downloads in Q2 2023.
DeFi and NFTs Remain Vital To Web3 Landscape
ETH’s price increased by 3% quarter-on-quarter and 69% year-on-year, while Bitcoin, which has seen its own ecosystem of Ordinals and BRC20 tokens explode, rose by 9% in Q2 and 52% year-on-year.
However, despite these price increases, DEX trading volume decreased by 41% quarter-on-quarter and 46% year-on-year, indicating a divergence between token prices and trading volumes.
The NFT market, in particular, experienced a rather brutal downturn, with trading volumes dropping 27% quarter-on-quarter and 74% year-on-year.
Despite a slump in retail DeFi and NFT trading volumes, the number of DeFi users increased by 35% quarter-on-quarter, according to the Alchemy Report. This suggests that while trading activity may have decreased, user engagement within the DeFi space remains robust. Also, the NFT industry is still in its infancy, and with its near-limitless potential to provide decentralized ownership of both real-world assets (RWA) and digital assets, there is much development still ahead.
Web3 Devs Most Interested in Security, Account Abstraction, and ZK-Rollups
The 600+ Web3 developers surveyed were most interested in the following 3 areas: Smart contract security, account abstraction, and ZK-rollups (followed by AI and smart contract development).
- Smart contract security remains a key focus, with DeFi hacks in Q2 2023 totaling over $200 million. This unfortunate trend shows no signs of abating in Q3, with the recent Curve exploit threatening the whole DeFi sector at some point.
- On-chain active Account Abstraction users surged by an astounding 27,360% quarter-over-quarter, indicating a rapid adoption of this technology.
- ZK-rollups, the sophisticated Layer 2 scaling technology, continued to gain traction, highlighting the ongoing efforts to enhance the scalability of the Ethereum network and setting up a grand battle between optimistic and ZK rollup chains towards the end of 2023 and beyond.
Optimistic rollups, ever optimistic, seem unfazed and are taking the competition from ZK rollups in their stride. Arbitrum One hit 9.5 million unique addresses and more than doubled in Q2, while Polygon (which launched its own zkEVM chain) saw a 541% increase in monthly active smart contract accounts. Meanwhile, Optimism continued to build its influence as its OP Stack was used for Coinbase’s Base layer-2 network.
Overall, L2 bridging remained flat during the quarter, decreasing only by a marginal 0.25%. However, L1 gas used by Layer 2 blockchains nearly 2x in Q2 and jumped almost 400% Y/Y compared to Q2 2022. These metrics suggest that the adoption of L2s has real staying power, independent of trading activity.
Other takeaways include:
- Survey participants rated funding, awareness, regulation, and resource bandwidth as their biggest challenges to building in Web3.
- Web3 verticals targeted by startups for product building and funding are data and analytics (40%), security (20%), and DeFi, Layer 3, Zero Knowledge, and wallet technology (10% each).
More Web3 Use Cases Emerge From Web2
Q2 2023 also welcomed new Web3 use cases. For instance, Nike launched Our Force 1, an NFT experience that digitizes the option to buy a shoe as an NFT until it is redeemed for a physical shoe.
Google Play now also allows developers to integrate blockchain-based experiences, including NFTs and the use of tokenized assets within its apps and games. These examples are only the tip of the iceberg, as other big brands like Apple, Mercedes, and Louis Vuitton pile into Web3, and illustrate the innovative ways in which businesses are leveraging Web3 technologies to create unique user experiences.
Local Development Vital in the Web3 Building Cycle
Local development continues a crucial role in the Web3 development cycle. Before launching projects on testnets or main net blockchains, developers build on their personal computers to test and iterate before shipping. This approach allows developers to refine their product in a safe environment, without the need to spend real ETH.
Testnets provide a unique window into the industry’s future trends. The Goerli and Sepolia platforms, experimental playgrounds where developers can trial their new Dapps before launching them, gave more than a glimpse into upcoming industry shifts.
The activity on the testnets revealed a year-over-year increase of 282% in smart contracts deployed on Goerli. However, the recent quarter witnessed a shift in this trend due to the scarcity of supplies on Goerli, driven by the rise of expensive secondary markets and the depletion of faucets. Consequently, Sepolia has made significant strides, positioning itself as the preferred testnet for developers as a potential “flippening” approaches.
The Rise of Ethereum Smart Contract Deploys and EVM Contracts
Lastly, another positive for Web3 is that Ethereum smart contract deploys and EVM contracts experienced significant growth in Q2 2023. Ethereum smart contract deploys grew year-on-year and quarter-on-quarter, while EVM contracts, including those on Ethereum Mainnet and Layer 2s, grew a crazy 1100% year-on-year, with 54 million smart contracts created in Q2 alone.
Conclusion
Despite market and macroeconomic challenges, the Q2 2023 Web3 Development Report paints a picture of a vibrant and rapidly evolving Web3 ecosystem. The growth in developer activity, smart contract deployments, and the adoption of advanced technologies like Account Abstraction and Layer 2 solutions can be viewed as positive takeaways that indicate a promising future for the Web3 space.
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