Key themes for 2025 include the macro environment, the blockchain metagame, transformative innovation, and changes in user experience.
Article written by: David Duong & David Han
Source: Coinbase
Article translation: Wu Blockchain blockchain
Looking ahead to 2025, the cryptocurrency market is on the verge of transformative growth. As the asset class matures, institutional adoption continues to increase, and use cases in various fields are expanding. In the past year alone, the United States approved spot ETFs, the tokenization of financial products increased dramatically, and stablecoins ushered in huge growth and further integrated into the global payment framework.
These achievements have not been easy to come by. Yet while they appear to be the culmination of years of hard work, there are growing signs that they may be just the beginning of a much larger transformation.
As we look back over the past year, the crypto market has shown remarkable resilience in emerging from interest rate hikes, regulatory crackdowns, and an uncertain future. Despite these challenges, cryptocurrencies have established themselves as a reliable alternative asset class and have shown lasting vitality.
From a market perspective, the 2024 uptrend is significantly different from previous bull cycles. Some differences are superficial: the term “web3” is replaced by the more appropriate “onchain,” for example. Others are more profound: fundamental demand is gradually replacing narrative-driven investment strategies, partly due to deepening institutional participation.
In addition, not only has Bitcoin’s dominance increased, but innovations in decentralized finance have also pushed the boundaries of blockchain’s possibilities, laying the foundation for building a new financial ecosystem. Major central banks and financial institutions around the world are discussing how to use cryptocurrencies to improve the efficiency of asset issuance, transactions, and record keeping.
Looking ahead, the current crypto market shows many exciting developments. At the forefront of change, decentralized peer-to-peer exchanges, decentralized prediction markets, and AI agents equipped with crypto wallets are emerging. In the institutional space, stablecoins and payments (more closely integrating crypto with fiat banking solutions), unsecured on-chain lending supported by on-chain credit scores, and compliant on-chain capital formation all show great potential.
Although cryptocurrencies are widely known, the innovative nature of their technical structure still makes them complex and difficult to understand for many people. However, technological innovation is also changing this situation, and more and more projects are committed to improving user experience by simplifying blockchain complexity and enhancing smart contract functions. This success may open the door to the crypto world for a new class of users.
Meanwhile, earlier in 2024, the United States laid the groundwork for regulatory clarity, progress that will accelerate further in 2025, potentially cementing digital assets’ place in mainstream finance.
As the regulatory and technological landscape evolves, we expect the crypto ecosystem to see significant growth, with wider adoption driving the industry closer to its full potential. 2025 will be a defining year, with breakthroughs and advances that will shape the long-term trajectory of the crypto industry for decades to come.
Theme 1: Macro Roadmap to 2025
The Fed's Needs and Goals
Donald Trump’s victory in the 2024 US presidential election was the most significant catalyst for the crypto market in Q4 2024, sending Bitcoin prices 4-5 standard deviations above the three-month average. However, looking ahead, we believe that the impact of the short-term fiscal policy response will be less important than the long-term direction of monetary policy, especially as the Fed is about to enter a critical moment. Still, distinguishing the two is not easy. We expect the Fed to continue to ease policy in 2025, but the specific pace may depend on the strength of the next round of expansionary fiscal policy. This is because tax cuts and tariffs are likely to push up inflation levels, and although the headline CPI has fallen to 2.7% year-on-year, the core CPI is still hovering around 3.3%, above the Fed’s target.
What the Fed wants is disinflation from current levels , meaning prices need to continue to rise, but at a slower pace, to help achieve its other mandate, maximum employment. In other words, they want to control the pace of price increases. On the other hand, after two years of high spending, households want deflation, meaning falling prices. However, while falling prices may be more politically popular, they could set off a vicious cycle that ultimately leads to a recession.
Nonetheless, the current baseline scenario is still a soft landing , supported by lower long-term interest rates and "American Exceptionalism 2.0". The Fed's rate cuts have become largely a matter of form as credit conditions are already easing, creating a favorable environment for cryptocurrencies to perform over the next 1-2 quarters. At the same time, if the new administration's projected deficit spending is realized, it could lead to greater risk appetite (including purchases of crypto assets) as more dollars circulate in the economy.
The Most Pro-Crypto Congress in U.S. History
The United States has faced political ambiguity in the crypto space for many years, but we believe the next legislative session could be an opportunity for the United States to establish regulatory clarity for the crypto industry. This election sent a strong signal to Washington that the public is dissatisfied with the current financial system and is eager for change. From a market perspective, a bipartisan pro-crypto majority in the House and Senate could shift the U.S. regulatory stance from crypto-unfavorable to crypto-supportive, providing a boost to crypto market performance in 2025.
A new focus of discussion is the possibility of creating a strategic Bitcoin reserve. In July 2024, Senator Cynthia Lummis (Wyoming) introduced the Bitcoin Act after the Bitcoin Nashville conference, and the Pennsylvania State Assembly also introduced the Pennsylvania Bitcoin Strategic Reserve Act. If passed, the bill would allow the state treasurer to invest 10% of Pennsylvania's general fund in Bitcoin or other crypto-based instruments. Currently, pension funds in Michigan and Wisconsin already hold crypto assets or crypto ETFs, and Florida is following closely. However, there may be some challenges to creating a strategic Bitcoin reserve, such as legal restrictions on holding assets on the Federal Reserve's balance sheet.
At the same time, the United States is not the only jurisdiction making progress in regulation. The growth of global demand for cryptocurrencies is also driving more careful regulatory competition internationally. Looking overseas, the European Union's Markets in Crypto-Assets Act (MiCA) is being implemented in stages, providing a clear framework for the industry. Many G20 countries and major financial centers such as the United Kingdom, the United Arab Emirates, Hong Kong and Singapore are also actively formulating rules to accommodate the development of digital assets, thereby creating a more favorable environment for innovation and growth.
Crypto ETF 2.0
The U.S. approval of spot Bitcoin and Ethereum (ETH) exchange-traded products (ETPs and ETFs) is a major milestone for the crypto economy, with net inflows reaching $30.7 billion since launch (about 11 months). This figure far exceeds the inflation-adjusted $4.8 billion that the SPDR Gold Shares ETF (GLD) attracted in its first year after its launch in October 2004. According to Bloomberg data, the performance of these ETFs puts them in the top 0.1% of the best performing ETFs of about 5,500 listings in the past 30 years.
These ETFs have changed the market dynamics of BTC and ETH, pushing Bitcoin's market share from 52% at the beginning of the year to 62% in November 2024 by establishing a new demand anchor. According to the latest 13-F filing, almost all types of institutional investors already hold these products, including endowments, pension funds, hedge funds, investment advisors and family offices. At the same time, the launch of US-regulated related options in November 2024 may further enhance risk management capabilities and provide more cost-effective asset exposure.
Looking ahead, the market's focus will be on whether issuers will expand the scope of exchange-traded products to include other tokens such as XRP, SOL, LTC, and HBAR. Although potential approval may only benefit a limited portfolio of assets in the short term, the more noteworthy impact is if the U.S. Securities and Exchange Commission (SEC) allows staking to be included in ETFs, or removes its requirement for cash rather than physical ETF share creation and redemption.
Introducing a physical creation and redemption mechanism will not only improve price consistency between ETF share prices and actual net asset value (NAV), but will also help narrow the spread of ETF shares. This means that authorized participants (APs) do not need to quote cash prices above the Bitcoin trading price, thereby reducing costs and improving efficiency. The current cash-based model also raises some issues, such as increased price volatility caused by the continuous buying and selling of BTC and ETH, and triggering taxable consequences, which would not apply in physical transactions.
Stablecoins: The “Killer App” of Cryptocurrency
Stablecoins have seen significant growth in 2024, with total market capitalization up 48% to $193 billion as of December 1. Some market analysts predict that the industry could grow to nearly $3 trillion over the next five years based on current trends. While this valuation may seem large, being equivalent to the current size of the entire crypto market, it only represents about 14% of the U.S. $21 trillion M2 broad money supply.
We believe that the next wave of real adoption in crypto could come from the stablecoin and payments space, which explains the surge in interest in this space over the past 18 months. Stablecoins are enabling faster and cheaper transactions than traditional methods, which has led to their increasing use in digital payments and cross-border remittances, with more payment companies expanding their stablecoin infrastructure. In fact, we may be getting closer to a day when the primary use case for stablecoins will no longer be transactions, but global capital flows and commercial activities. Beyond that, the potential political significance of stablecoins cannot be ignored, especially their potential in addressing the U.S. debt burden.
As of November 30, 2024, the stablecoin market has completed nearly $27.1 trillion in transactions, nearly three times the $9.3 trillion in the same period of 2023. This includes a large number of peer-to-peer (P2P) transfers and cross-border business-to-business (B2B) payments. Businesses and individuals are increasingly using stablecoins such as USDC because they have good compliance and are widely integrated with payment platforms such as Visa and Stripe. For example, Stripe acquired the stablecoin infrastructure company Bridge for $1.1 billion in October 2024, the largest deal in the crypto industry to date.
The Tokenization Revolution
In 2024, the tokenization space continued to make significant progress. According to rwa.xyz, tokenized real-world assets (RWA, excluding stablecoins) grew by more than 60% from $8.4 billion at the end of 2023 to $13.5 billion as of December 1, 2024. Analysts predict that the industry could grow to at least $2 trillion and as much as $30 trillion over the next five years, a potential increase of nearly 50 times. Asset managers and traditional financial institutions, such as BlackRock and Franklin Templeton, are increasingly focusing on tokenizing government securities and other traditional assets on permissioned and public blockchains, enabling near-instant cross-border settlement and 24/7 trading.
Firms are experimenting with using such tokenized assets as collateral for other financial transactions, such as derivatives trading, which could optimize operations (e.g., margin calls) and reduce risk. In addition, the RWA trend is expanding beyond U.S. Treasuries and money market funds to private credit, commodities, corporate bonds, real estate, and insurance. Ultimately, we believe tokenization has the potential to optimize processes by fully on-chaining the portfolio construction and investment process, but this vision may still be several years away.
Of course, these efforts also face unique challenges, including fragmented liquidity across multiple chains and ongoing regulatory hurdles. However, significant progress has been made on both fronts. Ultimately, we expect tokenization to be a gradual and ongoing process; however, its benefits are already widely recognized. Now is a prime time for experimentation and exploration, ensuring that companies stay ahead of the curve as technology advances.
The resurgence of decentralized finance (DeFi)
DeFi is dead. Long live DeFi. Decentralized finance took a major hit in the last cycle as certain applications proved to offer unsustainably high returns by bootstrapping liquidity through token incentives. However, since then, a more sustainable financial system has gradually emerged, incorporating real-world use cases and transparent governance structures.
We believe that changes in the U.S. regulatory environment could breathe new life into the DeFi landscape. This could include establishing a regulatory framework for stablecoins and providing a path for traditional institutional investors to participate in DeFi, especially as we see increasing synergies between off-chain and on-chain capital markets. In fact, decentralized exchange (DEX) volumes now account for approximately 14% of centralized exchange (CEX) volumes, up significantly from 8% in January 2023. More importantly, in a friendlier regulatory environment, there is an increasing likelihood that decentralized applications (dApps) will share protocol revenues with token holders.
In addition, the role of crypto technology in disrupting financial services has also been recognized by key figures. In October 2024, Christopher Waller, a Federal Reserve governor, pointed out in a speech that DeFi can largely complement centralized finance (CeFi). He believes that distributed ledger technology (DLT) can speed up CeFi's record keeping and improve its efficiency, while smart contracts can enhance CeFi's capabilities. He also mentioned that stablecoins may have potential benefits in payments and as "safe assets" on trading platforms, but measures are needed to reduce risks such as bank runs and illegal financing.
All these signs suggest that DeFi’s influence may soon extend beyond its predominantly crypto user base and begin to more deeply integrate and interact with traditional finance (TradFi).
Theme 2: Subversive Paradigm
Telegram Trading Bots: Crypto’s Hidden Profit Center
After stablecoins and native L1 transaction fees, Telegram trading bots became one of the most profitable sectors in crypto in 2024, with net protocol revenue even surpassing major DeFi protocols such as Aave and MakerDAO (now Sky). This profitability was largely driven by a surge in trading and memecoin activity. In fact, meme tokens became the best performing cryptocurrency sector in 2024 as measured by total market capitalization growth. And memecoin trading activity on the Solana decentralized exchange (DEX) continued to soar in the fourth quarter of 2024.
Telegram trading bots are chat-based token trading interfaces that allow users to create custodial wallets directly in the chat window, fund the wallets and manage funds through buttons and text commands. As of December 1, 2024, bot users are mainly concentrated in Solana tokens (accounting for 87%), followed by Ethereum (8%) and Base (4%). (Note: Most Telegram trading bots are independent of Telegram’s native wallet, The Open Network, or TON.) This also reflects the focus of high-income bots such as Photon, Trojan, and BONKbot, which are mainly integrated with Solana.
Similar to most trading interfaces, Telegram trading bots charge a percentage of each trade, up to 1% of the trade value. However, due to the high volatility of the assets users are trading, we believe these high fees have little impact on user appeal. As of December 1, Photon bots had accumulated $210 million in year-to-date fee revenue, close to the $227 million collected by Solana's largest memecoin launch platform, Pump. Other major bots such as Trojan and BONKbot also had considerable revenues, reaching $105 million and $99 million respectively. In comparison, Aave's protocol revenue after expenses in 2024 is $74 million.
The appeal of these apps stems primarily from their ease of trading on DEXs, especially for tokens that are not yet listed on an exchange. Many bots also offer additional features, such as a “snatch” function for when a token is listed, and integrated price alerts. Telegram’s trading experience is attractive to users, with nearly 50% of Trojan users returning for four days or more (only 29% stop after one day), which has contributed to its high average revenue per user of $188. Although increasing competition among Telegram trading bots may eventually reduce trading fees, we believe Telegram bots (and other core interfaces discussed below) will continue to be leading profit centers in 2025.
Prediction Market: Basic Capabilities
Prediction markets have been one of the biggest winners in the 2024 US election cycle. Platforms like Polymarket have outperformed traditional polling data, which had predicted a closer election outcome. This is a win for the crypto industry, as prediction markets using blockchain technology have shown significant advantages over traditional polling while demonstrating unique use cases for the technology. Prediction markets not only demonstrate the transparency, speed, and global accessibility that blockchain provides, but their blockchain foundation also enables decentralized dispute resolution and automated payment settlement based on outcomes, unlike non-blockchain versions.
While many believe that the relevance of such dApps may decline post-election, we have seen their use expand into other sectors such as sports and entertainment. In the financial sector, these markets are more accurate than traditional surveys in reflecting economic data releases such as inflation and non-farm payrolls, which may keep them relevant and useful post-election.
Games: Putting entertainment in the spotlight
Gaming has always been one of the core themes in the crypto space due to the potentially transformative impact of on-chain assets and markets. However, cultivating a loyal user base for crypto games has always been a challenge. Compared to the player base of traditional successful games, many crypto game users are more motivated by profit rather than pure entertainment. In addition, many crypto games are distributed through web browsers and require self-hosted wallet setup, which limits the audience to crypto enthusiasts rather than a wider group of players.
However, compared to the previous cycle, games integrating crypto technology have made significant progress. The core trend is to gradually move away from the early cypherpunk idea of "owning the game completely on-chain" and move towards selectively on-chaining assets to unlock new features without affecting the gaming experience. In fact, we believe that many well-known game developers now view blockchain more as a supporting tool than a core marketing feature.
Off the Grid is a prime example of this trend. This first-person shooter battle royale game launched while its core blockchain component (the Avalanche subnet) was still in the testnet phase, yet it became the number one free game on the Epic Games platform. Its appeal came primarily from its unique gameplay, rather than its blockchain tokens or item trading marketplace. Notably, the game is paving the way for an expanded distribution channel for crypto-integrated games, with distribution covering Xbox, PlayStation, and PC (via the Epic Games store).
Mobile has also become an important distribution channel for crypto-integrated games, both as native apps and embedded apps (such as Telegram mini-games). Many mobile games also selectively integrate blockchain components, while most of the activities are actually run on centralized servers. These games are usually playable without setting up an external wallet, which lowers the barrier to entry and makes it easy for players who are not familiar with crypto to get started.
We believe that the line between crypto and traditional games is likely to continue to blur. The main "crypto games" of the future are likely to be crypto-integrated rather than crypto-centric, focusing more on refined gaming experiences and distribution channels rather than mechanics for earning tokens. However, while this may drive wider adoption of crypto, it remains unclear how this will directly translate into demand for liquidity tokens. In-game currencies may continue to remain segregated between games, and non-crypto players may not welcome external investors intervening in in-game economies.
Decentralizing the real world
Decentralized Physical Infrastructure Networks (DePINs) have the potential to revolutionize real-world allocation problems by guiding the creation of resource networks. In theory, DePINs can overcome the initial scale economy challenges that such projects typically face. DePIN projects range from computing power to cellular towers to energy, offering a more resilient and less expensive way to aggregate resources.
The most notable example is Helium, which operates by distributing tokens to individuals who provide local cellular hotspots. By distributing tokens to hotspot providers, Helium is able to build coverage networks in most metropolitan areas in the United States, Europe, and Asia without having to bear the large upfront capital costs of building and distributing communication towers. Instead, early adopters are incentivized by tokens to gain early stakes in the network.
Nonetheless, we believe that the long-term revenue and sustainability of these networks requires a case-by-case analysis. DePIN is not a panacea for resource allocation problems, as pain points vary greatly across industries. Decentralization strategies may not be applicable to certain industries, or may only solve certain specific problems in that industry. We believe that there may be significant differences in network adoption, token utility, and revenue generation in this space, and these differences are more likely to depend on the target industry itself rather than the underlying technology network used.
Artificial Intelligence: Creating Real Value
Artificial intelligence (AI) continues to be a focus of investors in both traditional and crypto markets. However, we believe that the impact of AI in crypto is multifaceted and the narrative direction changes frequently. In the early stages, blockchain technology was seen as a solution to the problem of trusted data for AI-generated content and users (e.g., verifying the authenticity of data). AI-driven intent-based architectures were seen as a potential tool for improving user experience. Subsequently, the focus shifted to decentralized AI model training and computing networks, as well as crypto-based data generation and collection. More recently, the focus has shifted to autonomous AI agents that can control crypto wallets and communicate through social media.
We believe that the full impact of AI on crypto is not yet clear, as evidenced by the frequent changes in the narrative. However, this uncertainty does not diminish the potential for AI to transform crypto, as AI technology continues to make breakthroughs. AI applications are also becoming more accessible to non-technical users, which may further accelerate the development of creative use cases.
We believe the biggest suspense is how these changes will create lasting value for liquidity tokens rather than company equity. For example, many AI agents operate on traditional technology tracks, and short-term "value realization" (such as market attention) flows more to memecoins rather than the underlying infrastructure. While liquidity tokens associated with the infrastructure layer have also experienced price increases, their usage growth has generally lagged behind price gains. We believe this divergence between price and network metrics, coupled with the market's rotational attention to AI memecoins, reflects that investors have not yet reached a strong consensus on how to capture the growth of AI in the crypto space.
Theme 3: Blockchain Metagame
A multi-chain future or a zero-sum game?
After the last bull cycle, the popularity of alternative Layer-1 (L1) networks has once again become an important theme. New networks compete on lower transaction costs, redesigned execution environments, and minimized latency. However, we believe that the expansion of L1 space has reached a point where general purpose block space is in excess, even if high-value block space remains scarce.
In other words, additional block space itself does not have intrinsic high value. However, a vibrant protocol ecosystem, active community, and dynamic crypto assets can still enable certain blockchains to charge premium fees. For example, Ethereum remains at the core of high-value DeFi activity even though mainnet execution has not improved since 2021.
Nonetheless, we believe investors are still attracted to the differentiated ecosystems these new networks are likely to foster, even though the bar for differentiation is rising. High-performance chains such as Sui, Aptos, and Sei are competing with Solana for market awareness, while the upcoming release of Monad is also seen as a strong contender for developer attention.
Historically, DEX trading has been the largest driver of on-chain fees, requiring strong user onboarding, wallets, interfaces, and capital support to create a cycle of growing activity and liquidity. This concentration of activity often leads to a "winner-takes-all" situation on different chains. However, we believe that the future may still be multi-chain, as different blockchain architectures provide unique advantages to meet diverse needs. While appchains and Layer-2 solutions can provide customized optimizations and lower costs for specific use cases, multi-chain ecosystems allow for specialization while benefiting from broader network effects and innovation across the blockchain space.
Improving Layer-2 Capabilities
Despite the exponential scaling capabilities of Layer-2 (L2), debate continues around Ethereum’s rollup-centric roadmap. Criticisms include L2’s “predatory” impact on L1 activity, fragmentation of liquidity and user experience, and L2 in particular has been cited as the cause of falling Ethereum network fees and the collapse of the “ultrasonic currency” narrative. New controversies around L2 also include decentralization trade-offs, the split between different virtual machine environments (such as the potential fragmentation of the EVM), and the choice of “based” versus “native” rollups.
Nonetheless, L2 has been a huge success from the perspective of increasing block space and reducing costs. The introduction of binary large object (blob) transactions in the Ethereum Dencun (Deneb + Cancun) upgrade in March 2024 reduced the average cost of L2 by more than 90% and drove a 10x increase in Ethereum L2 activity. In addition, we believe that allowing multiple execution environments and architectures to be experimented with in the Ethereum environment is a long-term advantage of the rollup-centric approach.
This roadmap also comes with short-term tradeoffs. Interoperability across rollups and the overall user experience become more complex, especially for new users who don’t fully understand the differences between different L2s or how to bridge across L2s. Despite improvements in bridging speed and cost, we believe the need for users to interact with the bridge still detracts from the overall on-chain experience.
Although this is a real problem at present, the community is addressing this user experience issue through various methods, such as: (1) Superchain interoperability in the Optimism ecosystem, (2) real-time proofs and super transactions for zkRollups, (3) based sorting, (4) resource locking, (5) sorter network, etc. However, most of these improvements are concentrated at the infrastructure and network level, and it may take time to be reflected at the user interface level.
Meanwhile, Bitcoin’s L2 ecosystem is more difficult to navigate due to the lack of unified rollup security and roadmap standards. In contrast, Solana’s “network extensions” are generally more application-specific and may be less disruptive to current user workflows. Overall, L2 is taking shape in most major crypto ecosystems, but in different forms.
Everyone can have a chain
The increased ease of custom network deployment is driving more and more applications and companies to build chains that they can better control. Major DeFi protocols, such as Aave and Sky (formerly MakerDAO), have explicitly included building chains in their long-term plans, and the Uniswap team has also announced plans to launch a DeFi-focused L2 chain. Even some traditional companies are getting involved, such as Sony announcing plans to launch a new chain called Soneium.
As the blockchain infrastructure stack matures and becomes increasingly commoditized, we believe that the appeal of owning block space is increasing, especially for entities with regulatory requirements or applications with specific use cases. The technology stack supporting this trend is also changing. In previous cycles, application-focused chains mainly used Cosmos or Polkadot's Substrate SDK. Now, the growth of the rollup-as-a-service (RaaS) industry is driving the launch of more project-owned L2 chains, and service platforms represented by companies such as Caldera and Conduit simplify integration with other services through their marketplace. Similarly, Avalanche's subnets may also usher in a wave of adoption due to the development of its managed blockchain service AvaCloud, which greatly simplifies the process of launching custom subnets.
The growth of modular chains could have a corresponding impact on demand for Ethereum blob space, as well as other data availability solutions such as Celestia, EigenDA, or Avail. Ethereum has reached saturation in blob usage (3 blobs per block) since early November, up more than 50% from mid-September. With existing L2s like Base continuing to scale throughput, and new L2s coming online on mainnet, demand doesn't appear to be slowing. However, the Pectra upgrade expected in Q1 2025 could lift the target blob count from 3 to 6, alleviating some of the pressure.
Theme 4: User Experience
Improved User Experience (UX)
We believe that a simple user experience is one of the most important factors driving mass adoption. While the crypto industry has historically focused on deep technical onboarding due to its cypherpunk origins, today the focus is quickly shifting to simplifying the user experience. In particular, the industry is working to abstract the complexity of crypto into the background of applications. Several recent technical breakthroughs are enabling this shift, such as the adoption of account abstraction to simplify user onboarding and the use of session keys to reduce signing friction.
The adoption of these technologies will make crypto wallet security components (such as seed phrase and recovery keys) invisible to most end users - similar to the seamless security experience of the Internet today (such as https, OAuth, and passkeys). We expect to see more passkey onboarding and in-app wallet integration in 2025. For example, Coinbase Smart Wallet's passkey onboarding and Tiplink and Sui Wallet's integrated login with Google are early signs of this trend.
Despite this, we believe that abstraction of cross-chain architectures may still be the biggest challenge facing crypto user experience in the short term. Cross-chain abstraction remains a focus of the research community at the network and infrastructure layers (such as ERC-7683), but in our opinion, it is still quite far from front-end applications. To make progress in this area, both improvements at the smart contract application layer and improvements at the wallet layer are required. Protocol upgrades are necessary to unify liquidity, while wallet improvements are needed to provide users with a more streamlined experience. We believe the latter has a greater impact on expanding the user base, although current research and industry debate are mainly focused on the former.
Control interface
In our opinion, improving the user interface to "take charge" of the user relationship is one of the most important changes in the crypto user experience. This change will be achieved in two ways: First, improving the experience of independent wallets, as mentioned above. The user onboarding process becomes increasingly simplified to adapt to the needs of users. For example, application functions directly integrated in the wallet (such as exchange and lending) can keep users in a familiar ecosystem.
At the same time, applications are also racing to abstract blockchain technology components into the background by integrating wallets to take control of the user relationship. This includes trading tools, games, on-chain social and membership applications, which automatically configure wallets for registered users through familiar methods such as Google or Apple's OAuth. After the user is onboarded, on-chain transactions are funded by payment service providers (paymasters), whose costs are ultimately borne by the application owner. This model brings a unique dynamic, where the revenue of each user needs to match the cost of their on-chain operations. Although these costs are constantly decreasing as blockchains scale, they are also forcing crypto applications to rethink what data needs to be submitted on-chain.
Overall, the crypto industry will face intense competition to attract and retain users. As demonstrated by the average revenue per user (ARPU) of the aforementioned Telegram trading bot, many retail crypto traders are relatively less price sensitive than traditional financial (TradFi) entities. In the coming year, we expect efforts to “master” user relationships to go beyond the trading space and become a larger focus for protocols.
Decentralized Identity
As regulatory clarity continues to improve and more assets are tokenized off-chain, streamlining Know Your Customer (KYC) and Anti-Money Laundering (AML) processes becomes increasingly important. For example, certain assets are limited to qualified investors in specific regions, making identification and qualification a core pillar of the long-term on-chain experience.
In our view, this involves two key components. The first is the creation of the on-chain identity itself. The Ethereum Name Service (ENS) provides a standard for resolving human-readable “.eth” names to one or more wallets across chains. Variations of this technology are now available in networks such as Basenames and Solana Name Service. Adoption of these core on-chain identity services is accelerating, with major traditional payment providers such as PayPal and Venmo now supporting ENS address resolution.
The second core component is building attributes for on-chain identities. This includes confirming KYC verification and jurisdiction data, which other protocols can then look at to ensure compliance. At the heart of this technology is the Ethereum Attestation Service, which provides a flexible service for entities to provide attestation attributes to other wallets. These attestation attributes are not limited to KYC and can be freely extended to meet the needs of authenticators. For example, Coinbase's on-chain verification uses the service to confirm that the wallet is associated with the user of the Coinbase trading account and is located in a specific jurisdiction. Some new real-world asset permissioned lending markets will restrict access through these verifications on Base.
