Author: David Duong & David Han
TechFlow by: TechFlow
Key Takeaways
In 2025, the cryptocurrency market will experience transformative growth and continue to advance towards maturity and popularization.
Our four major focus areas for 2025 include: macroeconomic situation, blockchain meta games, disruptive innovation, and upgrades to user experience.
Executive Summary
Looking ahead to 2025, the cryptocurrency market is heading towards a transformative growth phase. As this asset class matures, institutional adoption continues to rise, and various application scenarios are expanding. In the past year, the United States approved the first batch of spot ETFs, the tokenization of financial products has developed rapidly, and the growth of stablecoins has been even more significant, and they have gradually been integrated into the global payment system.
These achievements have not come easily. They may seem like the culmination of years of hard work, but they are likely just the beginning of a much larger transformation.
Looking back a year ago, crypto assets were still struggling due to rising interest rates, regulatory pressure and uncertain prospects. Today's achievements show the resilience of cryptocurrencies and prove that they have become a robust alternative asset class.
From a market perspective, the upward trend in 2024 is significantly different from previous bull market cycles. For example, the term "Web3" is gradually replaced by the more appropriate "Onchain". At the same time, market investment strategies have also shifted from narrative-driven to more focused on fundamental analysis, thanks in part to the widespread participation of institutional investors.
In addition, Bitcoin's market share has increased significantly, and the innovation of decentralized finance (DeFi) has continuously expanded the application boundaries of blockchain, laying the foundation for building a new financial ecosystem. Central banks and financial institutions around the world are also exploring how to use encryption technology to improve the efficiency of asset issuance, transactions and record management.
Looking ahead, the prospects for the cryptocurrency space are promising. Cutting-edge innovations include decentralized peer-to-peer exchanges, prediction markets, and artificial intelligence (AI) agents with built-in crypto wallets. In the institutional space, stablecoins and payment solutions (bridging cryptocurrencies with the traditional banking system), unsecured lending supported by on-chain credit scores, and compliant on-chain capital formation all have great potential.
Although crypto technology is widely known, its complex technical structure is still unfamiliar to many people. However, technological innovation is working to change this situation. More and more projects are focusing on simplifying the use experience of blockchain and improving the functionality of smart contracts. These developments will make cryptocurrencies more accessible to new users.
Meanwhile, the U.S. laid the groundwork for clearer crypto regulation in 2024, a development that could further solidify digital assets’ place in the mainstream financial system in 2025.
As regulation and technology advance together, we expect the cryptocurrency ecosystem to see significant growth in 2025. Wider adoption will push the industry closer to its full potential. This year will be a critical juncture, with breakthroughs that could lay the foundation for industry development in the coming decades.
Key Theme 1: Macro Roadmap to 2025
The Fed's Goals and Needs
In 2024, Donald Trump’s victory in the U.S. presidential election was the biggest catalyst for crypto markets in the fourth quarter of that year, driving Bitcoin prices up 4-5 standard deviations from the three-month average. However, looking ahead, we believe that the short-term fiscal policy response may be less important than the long-term direction of monetary policy, especially with the Federal Reserve at a critical decision-making juncture.
We expect the Fed to continue easing monetary policy through 2025, but the exact pace may depend on the extent of the next round of fiscal policy expansion. Tax cuts and tariffs could lead to higher inflation, and although the overall consumer price index (CPI) has fallen to 2.7% year-on-year, the core CPI is still as high as 3.3%, exceeding the Fed's target.
The Fed's current goal is to achieve "disinflation," meaning that prices continue to rise, but at a slower pace, to achieve its "maximum employment" mission. In contrast, ordinary households would like to see "deflation," meaning that prices fall, to ease the high cost pressures of the past two years. However, falling prices may bring the risk of a recession, so it is not an ideal choice.
At present, a soft landing is still the main expectation, thanks to the support of lower long-term interest rates and "American Exceptionalism 2.0". The Fed's interest rate cut is almost a foregone conclusion, and the easing of credit conditions provides a favorable background for the performance of cryptocurrencies in the next 1-2 quarters. At the same time, if the next government implements a deficit spending policy, this may further boost market risk appetite and benefit the cryptocurrency market.
The most crypto-friendly Congress in U.S. history
After years of policy uncertainty, we believe the next U.S. Congress is poised to bring real regulatory clarity to the cryptocurrency industry. This election sent a clear signal to Washington, DC: the public is increasingly dissatisfied with the existing financial system and eager to see change. From a market perspective, the bipartisan support for cryptocurrency in the House and Senate means that the U.S. regulatory environment may change from a resistance to the development of cryptocurrency.
A new hot topic is the possibility of a "strategic bitcoin reserve." In July 2024, after the Bitcoin Nashville conference, Wyoming Senator Cynthia Lummis introduced the Bitcoin Act , while the Pennsylvania State Assembly proposed the passage of the Pennsylvania Bitcoin Strategic Reserve Act. If passed, the bill would allow the state treasurer to invest up to 10% of Pennsylvania's general fund in Bitcoin or other cryptocurrency instruments. Currently, pension funds in Michigan and Wisconsin have begun holding cryptocurrencies or related ETFs, and Florida is planning to follow suit. However, the creation of a "strategic bitcoin reserve" may face legal obstacles, such as whether such assets are allowed to be held in the Federal Reserve's balance sheet.
At the same time, the United States is not the only country making progress in cryptocurrency regulation. The growth of global demand for cryptocurrencies has also driven competition among countries in regulation. Take the European Union as an example. Its Crypto Asset Market Regulation (MiCA) is being implemented in stages, providing a clear operating framework for the industry. Major financial centers such as the United Kingdom, the United Arab Emirates, Hong Kong and Singapore are also actively formulating rules to create a more favorable environment for innovation and growth of digital assets.
Cryptocurrency ETF 2.0
The U.S. approval of spot Bitcoin and Ethereum exchange-traded funds (ETFs) is a major milestone for the crypto economy. These products have attracted $30.7 billion in inflows since their launch (about 11 months), far exceeding the $4.8 billion (adjusted for inflation) attracted by the SPDR Gold Shares ETF (GLD) in its first year when it was launched in 2004. This puts these ETFs in the top 0.1% of the best performers among the approximately 5,500 new ETFs in the past 30 years, according to Bloomberg data.
The launch of ETFs has reshaped the market ecology of Bitcoin (BTC) and Ethereum (ETH), establishing new support points for demand. Bitcoin's market dominance has increased from 52% at the beginning of the year to 62% in November 2024. According to the latest 13-F report, almost all institutional investors - including endowment funds, pension funds, hedge funds, investment advisors and family offices - have participated in the investment of these products. At the same time, the regulated options launched in November 2024 provide investors with more flexible risk management tools and lower-cost asset exposure.
Looking ahead, the market is focused on whether ETFs covering more tokens such as XRP, SOL, LTC, and HBAR will be launched. However, we believe that these approvals may be limited to a few assets in the short term. In contrast, we are more concerned about whether the SEC will allow staking in ETFs or remove restrictions on cash transactions and instead allow physical creation and redemption. This change will not only improve the consistency of ETF share prices with net asset value (NAV), but also reduce transaction costs and improve market efficiency.
The current cash-based model introduces price volatility and tax issues, while physical transactions avoid these issues and bring greater stability and transparency to investors.
Stablecoins: The “Killer App” of Cryptocurrency
In 2024, the stablecoin market has experienced explosive growth, with total market capitalization increasing by 48% to $193 billion (as of December 1). Some market analysts predict that based on the current growth trajectory, the stablecoin market size could reach nearly $3 trillion in the next five years. While this number may seem large, it actually only accounts for about 14% of the total U.S. M2 money supply ($21 trillion).
We believe that the next real wave of cryptocurrency adoption may come from the stablecoin and payment sectors. This also explains the rapid development of this sector in the past 18 months. Stablecoins are faster and cheaper than traditional payment methods, which has led to their increasing application in digital payments and cross-border remittances. Many payment companies are also expanding their stablecoin infrastructure. In the future, the main use of stablecoins may not only be limited to transactions, but also expand to global capital flows and commercial payments. However, in addition to broader financial applications, the ability of stablecoins to solve the problem of the US debt burden has also attracted political interest .
As of November 30, 2024, the transaction volume of the stablecoin market has reached nearly 27.1 trillion US dollars, almost three times that of the same period in 2023. This includes a large number of peer-to-peer (P2P) transfers and cross-border corporate payments. Stablecoins such as USDC are being adopted by more and more businesses and individuals due to their wide payment platform integration and compliance.
The Tokenization Revolution
In 2024, the tokenization space has made significant progress. According to rwa.xyz, the market size of tokenized physical assets (RWA) has grown from $8.4 billion at the end of 2023 to $13.5 billion on December 1, 2024, an increase of more than 60% (excluding stablecoins). Analysts predict that this space could grow to between $2 trillion and $30 trillion in the next five years, with a potential growth rate of up to 50 times.
An increasing number of asset managers and traditional financial institutions, such as BlackRock and Franklin Templeton , are beginning to adopt tokenized government securities and other traditional assets on permissioned or public blockchains, which not only enable nearly instant cross-border settlements but also support trading around the clock.
In addition, companies are exploring the use of tokenized assets as collateral for financial transactions (such as derivatives trading), thereby simplifying operational processes (such as margin management) and reducing risks. The scope of application of RWA is also expanding, from US Treasury bonds and money market funds to private credit, commodities, corporate bonds, real estate and insurance. We believe that in the future, tokenization will further optimize the portfolio construction and management process and move the entire investment process to the chain, although it may take several years to realize this vision.
Of course, tokenization also faces some challenges, such as the fragmentation of liquidity between multiple chains and regulatory barriers . However, significant progress has been made in both aspects in recent years. We expect tokenization to be a gradual process, but its advantages have been widely recognized. The current stage provides companies with valuable opportunities for experimentation, helping them stay ahead of the wave of technological innovation.
DeFi’s Resurgence
In the last market cycle, decentralized finance (DeFi) suffered a heavy blow. Some projects attracted liquidity through token incentives, but provided unsustainable high returns. With the adjustment of the market, a more robust DeFi ecosystem is now taking shape, characterized by application scenarios that are closer to actual needs and a transparent governance structure.
We believe that changes in the U.S. regulatory environment could be a key driver of DeFi's recovery. For example, the establishment of a stablecoin regulatory framework and providing a clear path for traditional institutional investors to participate in DeFi. The synergy between on-chain and off-chain capital markets continues to increase, and the current trading volume of decentralized exchanges accounts for 14% of centralized exchanges, a significant increase from 8% in January 2023. At the same time, the possibility of decentralized applications (dApps) sharing protocol revenue with token holders is also increasing.
In addition, the potential of DeFi has also been officially recognized. In October 2024, Christopher Waller, a member of the Federal Reserve Board, pointed out that DeFi can complement centralized finance (CeFi), distributed ledger technology (DLT) can improve the recording efficiency of CeFi, and smart contracts can enhance its functionality. He also mentioned that stablecoins have potential in payment and as "safe assets", but risks such as runs and illegal financing need to be addressed. All these signs indicate that DeFi is moving beyond its traditional crypto user base and gradually establishing closer ties with traditional finance (TradFi).
Theme 2: Subversive Paradigm
Telegram trading bots: a hidden profit center
Outside of stablecoins and native L1 transaction fees, Telegram trading bots have become the most profitable sector in the crypto space in 2024. In terms of net protocol revenue, it has even surpassed top DeFi protocols such as Aave and MakerDAO (now known as Sky). This phenomenon is mainly due to the growth of trading activity and the hot performance of meme tokens. In fact, meme coins are the best performing cryptocurrency sector in 2024 (measured by total market capitalization growth), and meme coin trading activity has seen a significant surge in Q4 2024 (especially on Solana DEX ).
Telegram trading bots provide users with a simple chat-based interface for trading these tokens. Users can create custodial wallets directly in the chat window and perform fund management and trading operations through buttons and text commands. As of December 1, 2024, most bot users' trading focus is Solana tokens, accounting for as much as 87%, followed by Ethereum (8%) and Base (4%). It should be noted that most of these bots have nothing to do with the open network (TON) integrated in the Telegram native wallet. High-income bots such as Photon, Trojan, and BONKbot are mainly deeply integrated with the Solana network, which also reflects the preferences of their users.
Similar to other trading interfaces, Telegram bots charge a percentage of each transaction, up to 1% of the transaction amount. However, due to the volatility of the assets traded by users, these higher fees do not seem to have much impact on users. As of December 1, 2024, the highest-earning bot Photon has accumulated annual revenue of $210 million, close to Solana's largest meme coin issuance platform Pump 's $227 million. In addition, other well-known bots Trojan and BONKbot also generated revenues of $105 million and $99 million, respectively. In contrast, Aave's net protocol revenue in 2024 was only $74 million.
The appeal of Telegram trading bots lies in their convenience, especially for token transactions that have not yet been listed on exchanges. In addition, these bots also provide additional features such as "snatching" new tokens and price alerts. Data shows that nearly 50% of Trojan users reuse them for four days or more, contributing an average of $188 in revenue per user. Although competition between bots may reduce transaction fees in the future, we expect Telegram bots to continue to be the main source of profit in the crypto space in 2025.
Prediction Market: Demonstrating the Potential of Blockchain
Prediction markets have been one of the biggest winners in the 2024 U.S. election cycle. Platforms like Polymarket have far outperformed traditional polling data, which predicted a closer election, but the actual results were far from that. This achievement is not only a victory for prediction markets, but also a victory for blockchain technology. Blockchain-based prediction markets have shown significant advantages over traditional polls and have become a unique application scenario for blockchain technology. Not only do these markets provide greater transparency, transaction speed, and global accessibility, their blockchain foundation also supports decentralized dispute resolution and automatic payment settlement based on results, which makes them significantly better than non-blockchain versions.
While some believe that prediction markets may fade after the election, we have actually seen their use expand into areas such as sports and entertainment. In the financial sector, prediction markets have been shown to more accurately reflect market sentiment around economic data (such as inflation and non-farm payrolls) than traditional surveys, making them of continued value and relevance beyond elections.
Games: From player appeal to market mainstream
Gaming has always been an important application area for cryptocurrency technology because of the huge potential of on-chain assets and trading markets. However, to date, many crypto games still face challenges in cultivating loyal players. This is mainly because many players are motivated by profit rather than pure entertainment. In addition, many crypto games rely on web browsers for distribution and require users to set up self-hosted wallets, which limits the audience mainly to crypto enthusiasts rather than the wider mainstream player base.
However, compared with the previous cycle, crypto-integrated games have made significant progress. Today, developers no longer pursue the extreme idea of "full on-chain", but selectively put some assets on-chain to unlock new features without affecting the core game experience. Many developers have also begun to view blockchain as an auxiliary tool rather than a core selling point for marketing.
For example, Off the Grid is a first-person shooter and battle royale game whose blockchain component (Avalanche subnet) was still in beta when it went online, but the game itself has become the number one free game on Epic Games. The main reason for the game to attract players is the unique gameplay, not the blockchain token or trading market. In addition, the game has also broadened the distribution channels for crypto-integrated games and is now available on Xbox, PlayStation, and PC platforms (through the Epic Games store).
Mobile has also become an important distribution channel for crypto-integrated games, including native applications and embedded applications (such as Telegram mini-games). Many mobile games selectively adopt blockchain components while running most activities on centralized servers. These games usually do not require the setting up of external wallets, which greatly reduces the entry barrier for users and makes it easy for players who are not familiar with cryptocurrencies to get started.
In the future, we believe that the boundaries between crypto games and traditional games will be further blurred. Upcoming mainstream "crypto games" may be more inclined to crypto integration rather than being completely crypto-centric. Their focus will be on high-quality gaming experience and a wide range of distribution channels rather than a simple "earn while playing" mechanism. However, while this trend may promote the popularity of crypto technology, whether it will directly increase the demand for liquid tokens remains to be seen. In-game currencies may continue to remain isolated in individual games, and ordinary players may not welcome external investors' intervention in the game economy.
Decentralized Real World: The Potential and Limitations of DePIN
Decentralized Physical Infrastructure Networks (DePIN) are expected to solve real-world allocation challenges by guiding the creation of resource networks. In theory, DePIN can overcome the initial economies of scale common in such projects. Currently, DePIN projects cover a variety of areas from computing power to cellular networks to energy, creating a more resilient and cost-effective way to aggregate resources.
Helium is a representative example of DePIN. By distributing tokens to individuals who provide local cellular hotspots, Helium has successfully built a network covering major cities in the United States, Europe, and Asia without investing in building cellular towers or a lot of upfront capital. Instead, early participants are incentivized by gaining stakes in network tokens.
However, we believe that the long-term revenue and sustainability of such networks needs to be evaluated on a case-by-case basis. Not all industries are suitable for a decentralized strategy, and the pain points of some industries may be limited to specific areas. In our opinion, there may be significant differences between network adoption, token utility, and revenue generation of DePIN projects.
Artificial Intelligence: Exploring True Value
Artificial intelligence (AI) continues to dominate investor attention in both traditional and crypto markets. However, the impact of AI in crypto is varied and the narrative is constantly changing. Blockchain technology was first thought to address authenticity issues for AI-generated content and user data (e.g., verifying data provenance). Subsequently, AI-driven user intent recognition architectures were proposed as a way to improve the crypto user experience. Subsequently, the focus shifted to decentralized AI model training and computation networks, as well as crypto-driven data generation and collection. More recently , the market focus has shifted to autonomous AI agents that can control crypto wallets and interact through social media.
At present, the full impact of AI on the crypto industry is still unclear, which can be seen from the rapid change in the narrative. However, this uncertainty does not reduce the possibility of AI's potential transformation of the crypto industry. With the continuous breakthroughs in AI technology and the friendliness of applications to non-technical users, we believe that more innovative application scenarios will emerge in the future.
The biggest challenge is how these technological changes translate into lasting value between liquidity tokens and company equity. For example, many AI agents run on traditional technology frameworks, and their recent "market attention" has flowed more to Meme Tokens rather than the underlying technology infrastructure. Although the price of infrastructure-related liquidity tokens has increased, the growth in usage generally lags behind the price increase. This disconnect between price and network indicators, coupled with investors' rotational attention to AI Meme Tokens, reflects that the market has not yet formed a consensus on how to use encryption to capture AI growth.
Theme 3: Blockchain meta games
Multi-chain ecosystem or zero-sum competition?
The popularity of alternative Layer-1 (L1) networks has again become a significant theme from the last bull cycle. Emerging networks are increasingly competing through lower transaction costs, redesigned execution environments, and minimized latency. Nonetheless, we believe the L1 space has expanded to the point where there is now a surplus of general purpose blockspace, even if high-value blockspace remains scarce.
In other words, additional block space itself is not necessarily more valuable. However, a vibrant protocol ecosystem, coupled with an active community and dynamic crypto assets, can still allow certain blockchains to earn a fee premium. For example, Ethereum remains a center of high-value DeFi activity despite not improving mainnet execution since 2021.
Nonetheless, we believe investors are still attracted to the differentiated ecosystems that new networks can potentially create, even if the bar for such differentiation is rising. High-performance chains like Sui, Aptos, and Sei are competing with Solana for market attention, while the upcoming launch of Monad is also seen as a strong competitor for developers.
Historically, trading on decentralized exchanges (DEXs) has been the largest driver of on-chain fees, which requires strong user onboarding, wallets, interfaces, and capital support, creating a cycle of growing activity and liquidity. This concentration of activity often leads to a winner-take-all situation between different chains. However, we believe the future may still be multi-chain, as different blockchain architectures offer unique advantages that can meet a variety of needs. While application chains and layer-2 solutions can provide customized optimizations and lower costs for specific use cases, a multi-chain ecosystem allows for specialization while still benefiting from the broader network effects and innovation in the blockchain space.
The Path to Layer-2 Upgrade
Despite Layer-2 (L2)’s exponential scaling capabilities, debate continues around Ethereum’s Rollup-centric roadmap. Criticisms include L2’s “extractiveness” of L1 activity, and the resulting fragmentation of liquidity and user experience. In particular, L2 has been cited as the root cause of Ethereum’s falling network fees and the decline of the “ultrasonic money” narrative. New areas of L2 debate also include decentralization tradeoffs, different virtual machine environments (potentially leading to EVM fragmentation), and the differences between “based on” and “native” Rollups.
Nonetheless, we believe that L2 has been a huge success from the perspective of increasing block space and reducing costs. In March 2024, Ethereum's Dencun (Deneb+Cancun) upgrade introduced binary large object (blob) transactions, reducing the average cost of L2 by more than 90% and driving Ethereum L2 activity to grow 10 times. In addition, we believe that allowing multiple execution environments and architectures to experiment in the ETH ecosystem is a long-term advantage of the L2 centralized approach.
This roadmap also brings short-term trade-offs. For example, interoperability across Rollups and the overall user experience become more complex, especially for newcomers who may not fully understand the differences between ETH on different L2s or how to bridge between them. Although the speed and cost of bridging have improved, we believe that the fact that users need to interact with the bridge reduces the quality of the overall on-chain experience.
While this is a current problem, the community is actively exploring multiple solutions to the user experience issue, such as (1) Hyperchain interoperability in the Optimism ecosystem, (2) real-time proofs and hypertransactions for zkRollup, (3) Rollup-based sorters, (4) resource locking, (5) sorter networks, etc. Of course, these challenges are mainly focused on improvements at the infrastructure and network layers, and may take time to be reflected at the user interface level.
Meanwhile, the growing Bitcoin L2 ecosystem is more difficult to navigate in our opinion, as there are no unified Rollup security standards and roadmaps. In contrast, Solana's "network extensions" tend to be more application-specific and may be less disruptive to current user workflows. Overall, L2 is being implemented in most major crypto ecosystems, although in significantly different forms.
Everyone can have their own blockchain
As the technical threshold for customized blockchain network deployment continues to decrease, more and more applications and enterprises are starting to build blockchains that they can control independently. Major DeFi protocols such as Aave and Sky (formerly MakerDAO) have clearly stated the goal of launching independent chains in their long-term development plans, and the Uniswap team has also announced plans to launch a Layer-2 chain focused on DeFi. Even some traditional companies have joined this trend, such as Sony’s announcement that it will launch a new chain called Soneium.
As blockchain infrastructure technology matures and becomes commoditized, we believe that owning block space is becoming increasingly attractive, especially for regulated institutions or scenarios with specific application requirements. At the same time, the technology stack that supports this trend is also evolving. In past cycles, application-centric blockchains often relied on Cosmos or Polkadot Substrate SDK. Now, the rise of the "Rollup as a Service (RaaS)" industry, such as companies such as Caldera and Conduit, is helping more projects quickly launch their own Layer-2 chains. These platforms provide convenient service docking through their integrated markets. Similarly, Avalanche's managed blockchain service AvaCloud also simplifies the process of creating custom subnets, which may further promote its adoption rate.
The rapid growth of modular chains is also likely to significantly increase demand for Ethereum Blob space, while driving the development of other data availability solutions such as Celestia, EigenDA, and Avail. Since early November, Ethereum's Blob usage has reached saturation (3 Blobs per block), an increase of more than 50% from mid-September. Despite this, demand continues to grow as existing Layer-2 networks such as Base continue to expand throughput and new Layer-2s come online. The Pectra upgrade, expected to be launched in the first quarter of 2025, may increase the target number of Blobs from 3 to 6, further easing demand pressure.
Theme 4: User Experience
Optimizing user experience
In our opinion, a simple and easy-to-use user experience is one of the key factors driving the mass adoption of crypto. While the crypto industry used to focus on technical details due to its "cypherpunk" background, we believe that the focus is now rapidly shifting to simplifying the user experience. In particular, the industry is working to hide the complexity of crypto in the background of applications. Some recent technological breakthroughs are driving this shift, such as the adoption of account abstraction technology to make the user onboarding process smoother, and reducing the cumbersome steps of signing operations through session keys.
The proliferation of these technologies will make security components in crypto wallets (such as seed phrase and recovery keys) become "invisible" to most users, similar to the seamless security experience of the Internet today (such as HTTPS, OAuth, and Passkey). In fact, we expect Passkey onboarding and in-app wallet integration to become a major trend by 2025. Some current examples include Coinbase Smart Wallet's Passkey onboarding feature and Google's integrated login solution to Tiplink and Sui Wallet.
However, we believe that the complexity of cross-chain architecture will remain a major challenge to the crypto user experience in the short term. Although the abstraction of cross-chain architecture remains an important topic for the research community at the network and infrastructure level (e.g. ERC-7683), these technologies are currently still a long way from front-end applications. Improvements in this area require dual optimizations at the smart contract application layer and the wallet layer. Protocol upgrades are essential for unifying liquidity, while wallet improvements are needed to provide users with a more intuitive operating experience. We believe that although current industry research and discussions are mainly focused on the protocol layer, in the long run, wallet optimization is more important for promoting user adoption.
User interface dominance
In our view, the key shift in the cryptocurrency user experience will come from further strengthening the relationship with users through optimized interface design. This transformation is mainly reflected in two aspects. The first is the improvement of the experience of independent wallets. Now, the user's onboarding process has become more simplified and can better meet their actual needs. At the same time, functions directly integrated into the wallet (such as token swaps and lending) allow users to complete operations in a familiar ecosystem, thereby improving user retention.
The second is to hide the complexity of blockchain technology in the background by integrating wallets. This strategy is particularly common in scenarios such as trading tools, games, on-chain social and membership applications. For example, users can register an account through familiar methods such as Google or Apple OAuth, and the system will automatically configure a wallet for them. After going online, the user's on-chain transactions are paid by the "payer" on their behalf, and these fees are ultimately borne by the operator of the application. This model brings a whole new challenge: the application needs to ensure that the revenue brought by each user can cover the cost of its on-chain operations. Although these costs are gradually decreasing as blockchain technology expands, it also forces developers to rethink what data actually needs to be submitted to the chain.
Overall, future competition in the cryptocurrency space will revolve around attracting and retaining users. As reflected by the average revenue per user (ARPU) of Telegram’s trading bot, cryptocurrency traders are relatively less price sensitive than traditional financial users. We expect that in the coming year, how to “own the user relationship” will become a key focus for protocols outside of the trading space.
Decentralized Identity
As the regulatory environment becomes clearer and more assets are tokenized off-chain, simplifying the Know Your Customer (KYC) and Anti-Money Laundering (AML) processes is becoming increasingly important. For example, some assets are only available to qualified investors in specific regions, making identity authentication and qualification verification a core element of the future on-chain experience.
In our view, the construction of decentralized identity mainly includes two key parts.
The first is the creation of on-chain identity itself. The Ethereum Name Service (ENS) provides a standard for mapping human-readable ".eth" names to one or more cross-chain wallet addresses. Similar services have emerged in other networks, such as Basenames and Solana Name Service. With traditional payment giants such as PayPal and Venmo starting to support ENS address resolution, the popularity of these on-chain identity services is accelerating.
The second is to add attributes to on-chain identities. These attributes include KYC verification and jurisdiction information for other protocols to view to ensure compliance. The Ethereum Attestation Service is at the heart of this technology, providing entities with a flexible way to assign specific attributes to other wallets. These attributes are not limited to KYC and can be extended based on different needs. For example, Coinbase uses the service to verify whether the wallet is associated with the user of the Coinbase trading account and confirm whether the user is located in a specific jurisdiction. Some new licensed lending markets based on Base are also using this service to verify on-chain identities associated with real assets.
