Developers undeterred by DeFi and NFT headwinds, Alchemy finds

Alchemy dropped its quarterly report assessing the state of Web3 development on Thursday Among other details, the analysis found that Ethereum and wallet SDK installs have reached all-time highs.

Large numbers of developers installing these software development kits shows that there’s still an appetite for app building in the Web3 space, despite the marked slowdown in NFT and DeFi trading volumes — down 41% and 27%, respectively, according to the report.

Weekly wallet SDK installs reached 11.1 million in the second quarter of 2023, up 22% on a quarter-over-quarter basis, the report found. Similarly, Ethereum SDK installs were up 7% quarterly, hitting nearly 27 million.

Adding to the picture of confidence, developers created more Ethereum virtual machine smart contracts this quarter than ever before. Across Ethereum, Polygon, Optimism and Arbitrum, the number of smart contracts deployed neared 80 million; a spike of more than 300% from last quarter.

Blake Tandowsky, Alchemy’s growth analyst, commented on this trend specifically, saying that a layer-2 future is coming.

“What you’re seeing is the gradual shift of Ethereum from a largely [layer-1]-centric use case environment to a fast-growing [layer-2] environment, and we expect that trend to continue,” Tandowsky said.

The future isn’t entirely rosy for DeFi builders though. Experts say that market sentiment still hasn’t recovered, and that little attention is being paid to crypto overall.

Alchemy also surveyed 625 Web3 developers to gauge their mood. The top obstacle to growth over the next year in their eyes? Funding.

They also said that concern about capital drying up trumped their worries about how regulation may impact Web3 growth; a fear that lingers despite US authorities actively pursuing numerous high-profile cases to determine the classification of digital assets. Think Ripple, Coinbase and Binance.

The survey also found that developers’ top priorities are smart contract security and account abstraction. In his June blog post, Vitalik Buterin brought up both of these topics during a discussion about the three transitions Ethereum needs to make to become truly secure and permissionless.

“When we look at the last few years, one of the common feedbacks that we have heard from our developers…is that there’s still a long way to go on the security frontier,” Tandowsky told Blockworks.

He cited how people continue to lose seed phrases, lose custody of their assets and get locked out of their MetaMask wallets.

Account abstraction, the standard for which was set by the Ethereum Foundation’s ERC-4337 in March, can resolve some of those issues, Tandowsky said.

With Metamask, Coinbase Wallet or any of the myriad of externally owned accounts, he explained that “the only way to like sign transactions…to and from peers or to dApps is by signing with a wallet that has your seed phrase.”

With account abstraction, users could authenticate themselves to send money through alternative, more familiar means, such as a social media account, an email or Face ID.

“We think that will help to increase the retention of people’s assets and help to bring more users into the space where they may otherwise be scared,” he said.

Get the news in your inbox. Explore Blockworks newsletters:

Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
Empire: Start your morning with the top news and analysis to inform your day in crypto.
Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
The Drop: For crypto collectors and traders, covering apps, games, memes and more.
Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.