Original author: Coinbase
Original translation by: Felix, PANews
Looking ahead to 2025, the crypto market is set to experience transformative growth. With increasing institutional adoption and expanding use cases across various sectors, the maturity of the asset class continues to gain momentum. Just in the past year, spot ETFs have been approved in the U.S., tokenization of financial products has surged, stablecoins have seen significant growth, and further integration into the global payments framework.
Achieving this is no easy task. While it's easy to view these successes as the result of years of effort, more and more believe it is merely the beginning of a grand journey.
Given that just a year ago, this asset class was stumbling under the weight of interest rate hikes, regulatory crackdowns, and uncertain paths forward, the progress in cryptocurrency is even more impressive. Despite facing all these challenges, cryptocurrency has emerged as a solid alternative asset, demonstrating its resilience.
However, from a market perspective, the upward trend in 2024 does exhibit some distinct differences from previous bull market cycles. Some of these are superficial: 'Web3' has been supplanted by the more appropriate 'on-chain.' Others are more profound: demand for fundamentals has begun to replace the influence of narrative-driven investment strategies, partly due to increased institutional participation.
Moreover, not only has Bitcoin's dominance surged, but innovations in DeFi have also pushed the boundaries of blockchain—making the foundation of the new financial ecosystem within reach. Central banks and major financial institutions around the world are discussing how crypto technology can make asset issuance, trading, and record-keeping more efficient.
Looking ahead, the current crypto landscape presents many promising developments. At the forefront of disruption, we focus on decentralized peer-to-peer exchanges, decentralized prediction markets, and AI agents equipped with crypto wallets. On the institutional side, significant potential exists in stablecoins and payments (bringing crypto and fiat banking solutions closer together), low-collateral on-chain lending (facilitated by on-chain credit scoring), and compliant on-chain capital formation.
Despite the high awareness of cryptocurrency, the technology's novel structure remains vague for many. However, technological innovation is expected to change this status quo, as more projects focus on improving user experience by abstracting blockchain complexity and enhancing smart contract functionality. Success in this regard may increase the accessibility of cryptocurrency to new users.
Meanwhile, the U.S. has laid a clearer regulatory foundation in 2024, well ahead of the November elections. This sets the stage for even greater progress in 2025, potentially solidifying the role of digital assets in mainstream finance.
As the regulatory and technological landscape evolves, the crypto ecosystem is expected to experience significant growth as broader adoption pushes the industry closer to realizing its full potential. 2025 is poised to be a pivotal year, with breakthroughs and advancements likely shaping the long-term development trajectory of the crypto industry for decades to come.
Theme 1: 2025 Macro Roadmap
What the Federal Reserve wants, what the Federal Reserve needs
Trump's victory in the 2024 U.S. presidential election is the most significant crypto market catalyst for Q4 2024, driving Bitcoin up 4-5 standard deviations (compared to the three-month average). However, looking ahead, the short-term reactions of fiscal policy may not be as meaningful as the long-term direction of monetary policy, especially with the Fed's critical moments approaching. However, separating the two may not be as easy. The Fed is expected to continue easing monetary policy in 2025, but the pace may depend on the expansionary nature of the next set of fiscal policies. This is because tax cuts and tariffs could push inflation higher, although the overall CPI year-on-year has dropped to 2.7%, the core CPI still hovers around 3.3%, above the Fed's target.
In any case, the Fed aims to suppress inflation from current levels, which means prices need to rise but slow down from now on to help achieve its other mission—full employment. On the other hand, households have been demanding lower prices after experiencing price increases over the past two years. However, while price drops may be politically expedient, they risk falling into a vicious cycle that could ultimately lead to an economic recession.
Nevertheless, thanks to falling long-term interest rates and U.S. exceptionalism 2.0, a soft landing seems to be the current baseline. At this point, the Fed's rate cuts are just a formality, as credit conditions have already loosened, creating a supportive backdrop for crypto performance in the next 1-2 quarters. Meanwhile, as more dollars circulate in the economy, the anticipated deficit spending of the next government (if realized) should translate into greater risk-taking (crypto purchases).
The most supportive U.S. Congress for cryptocurrency in history
After years of battling regulatory ambiguity, the next U.S. legislative session could enhance regulatory clarity for the crypto industry. This election sends a strong message to Washington that the public is dissatisfied with the current financial system and desires change. From a market perspective, bipartisan support for cryptocurrencies in both the House and Senate suggests that U.S. regulation could shift from 'headwinds' to 'tailwinds' by 2025.
A new topic of discussion is the possibility of establishing strategic Bitcoin reserves. Following the Bitcoin Nashville conference, Senator Cynthia Lummis (WY) not only introduced a Bitcoin bill in July 2024 but also proposed a Pennsylvania Bitcoin Strategic Reserve bill. If passed, the latter would allow the state treasurer to invest up to 10% of the general fund in Bitcoin or other crypto-based tools. Michigan and Wisconsin have already held cryptocurrency or crypto ETF in their pension funds, with Florida following suit. However, creating strategic Bitcoin reserves may face some challenges, such as legal limitations on the amount of Bitcoin the Federal Reserve can hold on its balance sheet.
Meanwhile, the U.S. is not the only jurisdiction preparing to make regulatory progress. The growing demand for crypto globally is also changing the competitive landscape of regulation internationally. The EU's regulatory market for crypto assets (or MiCA) is being implemented in phases, providing a clear framework for the industry. Many G20 countries and major financial centers like the UK, UAE, Hong Kong, and Singapore are also actively developing rules that adapt to digital assets, creating a more favorable environment for innovation and growth.
Crypto ETF 2.0
The approval of spot Bitcoin and Ethereum exchange-traded products and funds (ETP and ETF) by the United States is a watershed moment for the crypto economy, with a net inflow of $30.7 billion since inception (about 11 months). This far exceeds the $4.8 billion attracted by the SPDR Gold Shares ETF (GLD) in its first year after launching in October 2004 (adjusted for inflation). According to Bloomberg, this places these tools in the top 0.1% among approximately 5,500 new ETFs launched in the past 30 years.
ETFs have reshaped the market dynamics of BTC and ETH by establishing new demand anchors, driving Bitcoin's dominance from 52% at the beginning of the year to 62% by November 2024. According to the latest 13-F filings, virtually all types of institutions are now holders of these products, including endowment funds, pension funds, hedge funds, investment advisors, and family offices. Meanwhile, the introduction of U.S. regulated options on these products (November 2024) could enhance risk management and improve the cost-effectiveness of these assets.
Looking ahead, the focus of the industry is that issuers may expand the range of exchange-traded products to include other tokens such as XRP, SOL, LTC, and HBAR, although potential approvals may only have a positive effect on a limited group of assets in the short term. But what is more noteworthy is what would happen if the U.S. SEC allows for staking ETFs or lifts the authorization for cash-based rather than physical creation and redemption of ETF shares. The latter authorization introduces settlement delays between when authorized participants (AP) receive buy or sell orders and when issuers can create or redeem the corresponding shares. This delay, in turn, causes a misalignment between the ETF share price on screen and the actual net asset value (NAV).
The introduction of physical creation and redemption can not only improve price consistency between share prices and asset net values but also help narrow the price spread of ETF shares. That is to say, participants (APs) do not need to quote cash prices above the trading prices of Bitcoin, thus lowering costs and increasing efficiency. The current cash-based model has also introduced other implications associated with the continuous buying and selling of BTC and ETH, such as increased price volatility and triggering taxable events, which do not apply to physical transactions.
Stablecoins, the 'killer app' of cryptocurrency
In 2024, stablecoins achieved significant growth, with total market capitalization increasing by 48% to $193 billion (as of December 1). Some market analysts believe that based on current trajectories, the industry could grow to nearly $3 trillion within the next five years. While that may seem lofty, considering that valuation is comparable to the current size of the entire cryptocurrency market, it only represents about 14% of the U.S. M2 total supply of $21 trillion.
The next wave of real adoption for cryptocurrency may come from stablecoins and payments, which can explain the surge of interest in this area over the past 18 months. Compared to traditional methods, they are able to facilitate faster and cheaper transactions, leading more payment companies to seek to expand their stablecoin infrastructure, thereby increasing the utilization of digital payments and remittances. In fact, we may soon see the main use cases for stablecoins extend beyond just transactions to global capital flows and commerce. However, in addition to broader financial applications, the ability of stablecoins to address the U.S. debt burden has also generated political interest.
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 11 months of 2023. This includes a substantial amount of peer-to-peer (P2P) transfers and cross-border business-to-business (B2B) payments. Businesses and individuals are increasingly utilizing stablecoins like USDC to meet regulatory requirements and integrate extensively with payment platforms like Visa and Stripe. Stripe acquired the stablecoin infrastructure company Bridge for $1.1 billion in October 2024, marking the largest deal in the crypto industry to date.
The Tokenization Revolution
According to data from rwa.xyz, tokenization continued to make significant progress in 2024, with tokenized real-world assets (RWA) growing from $8.4 billion at the end of 2023 to $13.5 billion on December 1, 2024 (excluding stablecoins), an increase of over 60%. Multiple analysts' forecasts suggest that the industry could grow to at least $20 trillion or as much as $30 trillion within the next five years—potentially increasing nearly 50 times. Asset management firms and traditional financial institutions like BlackRock and Franklin Templeton are increasingly embracing the tokenization of government securities and other traditional assets on permissioned and public blockchains, enabling near-instant cross-border settlement and 24/7 trading.
Institutions are attempting to use such tokenized assets as collateral for other financial transactions (like derivatives trading), which can simplify operations (such as margin calls) and reduce risk. Moreover, the RWA trend is expanding beyond U.S. Treasuries and money market funds, gaining traction in private credit, commodities, corporate bonds, real estate, and insurance. Ultimately, tokenization could streamline the construction and investment process of entire portfolios by bringing them on-chain, although this may still take a few years.
Of course, these efforts face a range of unique challenges, including liquidity fragmentation across multiple chains and ongoing regulatory hurdles—although significant progress has been made in both areas. Tokenization is expected to be a gradual and ongoing process; however, recognition of its advantages is clear. This period is an optimal time for experimentation to ensure that businesses remain at the forefront of technological advancements.
DeFi Revival
DeFi is dead. Long live DeFi. DeFi suffered significant blows in the last cycle as some applications used token incentives to direct liquidity, offering unsustainable yields. However, a more sustainable financial system has emerged, combining real-world use cases with transparent governance structures.
A shift in the U.S. regulatory landscape could revitalize the prospects for DeFi. This may include establishing a framework for regulating stablecoins and pathways for traditional institutional investors to participate in DeFi, particularly as the synergy between off-chain and on-chain capital markets becomes increasingly apparent. In fact, DEXs currently account for about 14% of CEX trading volume, up from 8% in January 2023. Faced with a more favorable regulatory environment, even decentralized applications (dApps) sharing protocol revenue with token holders is becoming more likely.
Furthermore, the role of cryptocurrency in disrupting financial services has also been recognized by key figures. In October 2024, Fed Governor Christopher Waller discussed how DeFi could largely complement centralized finance (CeFi), suggesting that distributed ledger technology (DLT) could make record-keeping in CeFi faster and more efficient, while smart contracts could enhance the capabilities of CeFi. He also noted that stablecoins could be favorable for payments and serve as 'safe assets' on trading platforms, although they require reserves to mitigate risks such as runs and illegal financing. All of this indicates that DeFi may soon expand beyond the crypto user base and begin to engage more with traditional finance (TradFi).
Theme 2: Disruption Paradigm
Telegram Trading Bots: Hidden Profit Centers of Cryptocurrency
After stablecoins and native L1 transaction fees, Telegram trading bots became the most profitable area in 2024, even surpassing major DeFi protocols like Aave and MakerDAO (now Sky) in terms of net protocol revenue. This is largely a result of increased trading and memecoin activity. In fact, meme tokens have been the best-performing crypto sector in 2024 (measured by total market capitalization growth), with trading activity in meme tokens (on Solana DEXs) soaring throughout Q4 2024.
Telegram bots are a chat-based interface for trading these tokens. Hosted wallets are created directly in the chat window and can be funded and managed through buttons and text commands. As of December 1, 2024, bot users primarily focus on Solana tokens (87%), followed by Ethereum (8%), and then Base (4%).
Like most trading interfaces, Telegram bots earn a percentage fee from each trade, up to 1% of the trade amount. However, due to the volatility of the underlying assets they trade, users may not be deterred by high fees. As of December 1, the highest-grossing bot, Photon, has charged a total of $210 million year-to-date, close to Solana's largest memecoin launcher, Pump, which reached $227 million. Other major bots, such as Trojan and BONKbot, also achieved significant profits of $105 million and $99 million, respectively. In contrast, Aave's net protocol revenue for the entire year of 2024, after fees, was $74 million.
The appeal of these applications stems from their ease of use in DEX trading, particularly for tokens not yet listed on exchanges. Many bots also offer additional features, such as 'sniping' tokens at launch and integrated price alerts. The trading experience on Telegram is quite appealing to users, with nearly 50% of Trojan users retaining for four days or longer (only 29% of users stop using it after one day), generating a high average revenue of $188 per user. While the increasing competition between Telegram trading bots may ultimately reduce trading fees, by 2025, Telegram bots (along with other core interfaces discussed below) will still be major profit centers.
Prediction Markets: Betting
Prediction markets may be one of the biggest winners in the 2024 U.S. elections, as platforms like Polymarket have outperformed polling data, which often forecasts campaign outcomes closer to the final results. This is a victory for the broader crypto technology, as blockchain-based prediction markets demonstrate significant advantages over traditional polling data and showcase the technology's potential for differentiated use cases. Prediction markets not only exhibit the transparency, speed, and global access that crypto technology provides, but their blockchain foundation also allows for decentralized dispute resolution and outcome-based automated payment settlements.
While many believe the relevance of these dapps may wane after the election, their utility has expanded into other areas such as sports and entertainment. In finance, they have proven to be more accurate sentiment indicators compared to traditional surveys that coincide with the release of economic data like inflation and non-farm payrolls, which may continue to play a role and remain relevant post-election.
Games
Games have long been a core theme in the crypto space due to the potentially transformative impact of on-chain assets and markets. However, so far, attracting a loyal user base for crypto games—an indicator of success for most traditional games—has been a challenge, as many crypto game users are profit-driven and may not be playing for entertainment. Furthermore, many crypto games are web-based, often limiting their audience to cryptocurrency enthusiasts rather than the broader gaming demographic.
However, compared to the previous cycle, the integration of cryptocurrency into gaming has made significant advances. The core of this trend is shifting from the early crypto-punk ethos of 'fully owning your game on-chain' to selectively placing assets on-chain, thus unlocking new features without compromising the gameplay itself. In fact, many prominent game developers are now regarding blockchain technology more as a convenient tool rather than a marketing gimmick.
First-person shooters and battle royale games (Off the Grid) exemplify this trend. At launch, the game's core blockchain components (Avalanche subnet) were still in testnet, although it became the number one free game on Epic Games. Its core appeal lies in its unique game mechanics rather than its blockchain tokens or item trading markets. Crucially, this game also paves the way for crypto-integrated games to expand their distribution channels for broader market appeal and is accessible on Xbox, PlayStation, and PC (via the Epic Games store).
Mobile devices are also a significant distribution channel for crypto games, including native apps and embedded applications (like Telegram mini-games). Many mobile games selectively integrate blockchain components, with most activities actually running on centralized servers. Generally, these games can be played without setting up any external wallets, reducing the entry barrier and allowing those unfamiliar with crypto to engage with these games.
The boundaries between crypto and traditional gaming may continue to blur. Upcoming mainstream 'crypto games' may integrate with crypto technology rather than focusing on it, emphasizing polished gameplay and distribution over game-earning mechanisms. In other words, while this may lead to broader adoption of cryptocurrency as a technology, it is unclear how this will directly translate to demand for liquid tokens. In-game currencies are likely to remain isolated across different games.
Decentralized Real World
Decentralized Physical Infrastructure Networks (DePIN) could potentially change the allocation issues of the 'real world' by guiding the creation of resource networks. That is, DePIN theoretically can overcome the initial economies of scale typically associated with such projects. DePIN projects range from computing power to cellular towers to energy and are creating a more resilient and cost-effective way to integrate these resources.
A typical example is Helium, which distributes tokens to individuals providing local cellular hotspots. By issuing tokens to hotspot providers, Helium was able to launch coverage maps in major urban areas in the U.S., Europe, and Asia without the overhead of building and distributing cellular towers, nor the need for significant upfront capital. Instead, the early adopters' motivation was to gain early exposure and stake in the network through tokens.
The long-term revenue and sustainability of these networks should be assessed on a case-by-case basis. DePIN is not a panacea for resource allocation, as industry pain points may vary significantly. For example, pursuing decentralized strategies may not be suitable for a particular industry, or it may only address a small segment of issues within that industry. There may be wide disparities in network adoption, token utility, and the revenue generated—all of which may relate more to the underlying industry they target than the underlying technology networks they use.
Artificial Intelligence, Real Value
Artificial intelligence (AI) has been a focal point for investors in both traditional and crypto markets. However, the impact of AI on cryptocurrency is multifaceted, with narratives frequently changing. In its early stages, blockchain technology was aimed at resolving issues related to the authenticity of AI-generated content and the sources of user data (i.e., tracing data authenticity). AI-driven intent architectures are also seen as potential improvements to the crypto user experience. Later, the focus shifted to decentralized training and computation networks for AI models, along with crypto-driven data generation and collection. Recently, attention has turned to autonomous AI agents capable of controlling crypto wallets and communicating through social media.
The overall impact of artificial intelligence on cryptocurrency is unclear, as evidenced by the rapid cycling of various narratives. However, this uncertainty does not diminish the potential transformations that AI could bring to cryptocurrency, as AI technologies continue to achieve new breakthroughs. Non-technical users are also increasingly able to utilize AI applications, which will further accelerate the development of creative use cases.
The biggest question is determining how these shifts manifest as lasting value accumulation for tokens versus corporate equity. For example, many AI agents run on traditional technology, with short-term 'value accumulation' (i.e., market attention) flowing to memecoins rather than any underlying infrastructure. While tokens related to infrastructure layers have also seen price increases, their usage growth often lags behind concurrent price increases. Relative to network metrics, the speed of price increases reflects a lack of strong consensus among investors on how to capture AI growth within cryptocurrency.
Theme 3: Blockchain Metagames
Multi-Chain Future or Zero-Sum Game?
One significant theme returning from the last bull market cycle is the popularity of L1 networks. Newer networks are increasingly competing to lower transaction costs, redesign execution environments, and minimize latency. Even though premium block space remains scarce, L1 space has expanded to the point of general block space surplus.
Additional block space in itself is not necessarily more valuable. However, a vibrant protocol ecosystem combined with an active community and dynamic crypto assets can still allow certain blockchains to command additional fees. For instance, Ethereum remains the center of high-value DeFi activity, even though its mainnet execution capacity has not improved since 2021.
Nonetheless, investors are drawn to the potential differentiated ecosystems on these new networks, even as the barriers to differentiation are rising. High-performance chains like Sui, Aptos, and Sei are competing with Solana for market share.
Historically, DEXs have been the biggest driver of on-chain fees, requiring strong user logins, wallets, interfaces, and capital—thus forming a cycle of increasing activity and liquidity. This concentration of activity often leads to a winner-takes-all situation across different chains. However, the future may still be multi-chain, as different blockchain architectures provide unique advantages to meet various needs. While application chains and L2 solutions can offer tailored optimizations and lower costs for specific use cases, a multi-chain ecosystem allows for specialization while still benefiting from the broader network effects and innovations across the blockchain space.
Upgrading L2s
Despite the exponential growth of L2s' scalability, debates continue around the rollup-centric roadmap for Ethereum. Criticisms include L2s' 'extraction' of L1 activity, as well as their fragmented liquidity and user experience. In particular, L2s are seen as the root cause of both decreasing fees on the Ethereum network and the demise of the 'ultrasound money' narrative. New focal points of the L2 debate are also emerging, including decentralized trade-offs and potential fragmentation of different virtual machine environments (EVM).
Nevertheless, from the perspective of increasing block space and reducing costs, L2s have achieved some success. The introduction of blob transactions in the Ethereum Dencun (Deneb+Cancun) upgrade in March 2024 reduced average L2 costs by over 90% and increased activity in Ethereum L2s by 10 times. Additionally, various execution environments and architectures allow for experimentation within ETH-based environments, which is a long-term advantage of the L2-centric approach.
However, this roadmap also has some drawbacks in the short term. Cross-rollup interoperability and the general user experience are becoming increasingly difficult to navigate, especially for newcomers who may not fully understand the differences between ETH across different L2s or how to bridge between them. In fact, while bridging speeds and costs have improved, the requirement for users to first interact with cross-chain bridges can diminish the overall on-chain experience.
While this is a pressing issue, the community is seeking many different solutions, such as super-chain interoperability within the Optimism ecosystem, real-time proofs of zkRollups and super trades, resource-lock based solutions, sequencer networks, and more. Many of these challenges are being addressed at the infrastructure and network layers, with improvements that might take time to reflect in the user interface.
Meanwhile, the growing Bitcoin L2 ecosystem is becoming more difficult to navigate, as there are no unified security standards or roadmaps. In contrast, Solana's 'network expansion' tends to be more application-specific and may be less disruptive to current user workflows. Overall, L2s are being implemented across most major crypto ecosystems, although their forms vary significantly.
Everyone has a chain
The convenience of custom network deployments is increasing, prompting more applications and companies to build chains over which they have greater control. Mainstream DeFi protocols like Aave and Sky have clear goals of listing blockchain releases on their long-term roadmaps, and the Uniswap team has also announced plans for an L2 chain focused on DeFi. Even more traditional companies are getting involved. Sony has announced a new chain called Soneium.
As the blockchain infrastructure stack matures and becomes increasingly commoditized, owning block space is being regarded as increasingly attractive—especially for regulated entities or applications with specific use cases. The technology stack used to achieve this is also changing. In previous cycles, application-centric chains primarily leveraged Cosmos or Polkadot Substrate SDK. Additionally, the evolving RaaS industry, represented by companies like Caldera and Conduit, is driving more projects to launch L2s. These platforms facilitate easy integration with other services through their marketplaces. Likewise, Avalanche's subnet may enhance adoption due to its hosted blockchain service, AvaCloud, which simplifies the launch of custom subnets.
The growth of modular chains may correspondingly impact the demand for Ethereum blob space and other data availability solutions (like Celestia, EigenDA, or Avail). Since early November, the usage of Ethereum blobs has reached saturation (3 blobs per block), increasing by over 50% since mid-September. Demand does not seem to be slowing, as existing L2s (like Base) continue to expand throughput, and new L2s are launching on the mainnet, although the upcoming Pectra upgrade in Q1 2025 may increase the target number of blobs from 3 to 6.
Theme 4: User Experience
User Experience Improvements
A simple user experience is one of the most critical drivers of mass adoption. While cryptocurrency has historically focused on deep technology, the current emphasis is rapidly shifting toward a simplified user experience. In particular, the entire industry is pushing to abstract the technical aspects of cryptocurrency into the background of applications. Many recent technological breakthroughs have made this shift possible, such as adopting account abstraction for easier onboarding and using session keys to reduce signature friction.
The adoption of these technologies will make the security components of crypto wallets (such as mnemonics and recovery keys) invisible to most end users—much like the seamless security experiences of today's internet (e.g., https, OAuth, and keys). It is expected that there will be more trends toward key login and in-app wallet integrations in 2025. Early signs include key logins for Coinbase Smart Wallet and Google-integrated logins for Tiplink and Sui Wallet.
The abstraction of cross-chain architectures may continue to pose the biggest challenges to the crypto experience in the short term. While cross-chain abstraction remains a focus of research at the network and infrastructure levels (e.g., ERC-7683), it is still far from the front-end applications. Improvements in this area need to be enhanced at the smart contract application level and wallet level. Protocol upgrades are necessary for unified liquidity, while wallet improvements are essential for providing users with a clearer experience. The latter will ultimately be more important for expanding adoption, although current research efforts and industry debates are focused on the former.
User Interface
The most critical shift for the crypto user experience will come from efforts to 'own' user relationships through better interfaces. This will happen in two ways. First, as mentioned, improvements to the independent wallet experience are being made. Onboarding processes are becoming increasingly streamlined to meet user needs. Direct integration of applications (such as trading and lending) within wallets may also lock users into a familiar ecosystem.
Meanwhile, applications are increasingly abstracting blockchain technology components to the background through wallet integration to compete for user relationships. This includes trading tools, games, on-chain social applications, and membership applications that automatically provide wallets for users who register through familiar methods such as Google or Apple OAuth. Once logged in, on-chain transactions are funded by the payer, with costs ultimately borne by the application owner. This creates a unique dynamic where each user's revenue needs to align with the cost of processing their on-chain operations. Although the latter cost continues to decrease as the blockchain scales, it also forces crypto applications to consider which data components to submit on-chain.
Overall, attracting and retaining users in the crypto space will be fiercely competitive. As indicated by the average revenue per user (ARPU) of Telegram trading bots mentioned earlier, many retail crypto traders tend to be relatively price-insensitive compared to existing TradFi entities. In the coming year, establishing user relationships beyond the trading space is also expected to become a key focus of protocols.
Decentralized Identity
With increasing regulatory transparency, more and more assets are being tokenized off-chain, making the simplification of KYC and Anti-Money Laundering (AML) processes increasingly important. For example, certain assets are only available to qualified investors located in specific regions, making identification and verification a core pillar of the long-term on-chain experience.
This has two key components. The first is the creation of on-chain identity itself. Ethereum Name Service (ENS) provides a standard for resolving human-readable '.eth' names to one or more wallets across chains. This variation now exists in networks like Basenames and Solana Name Service. With major traditional payment providers like PayPal and Venmo now supporting ENS address resolution, the adoption of these core on-chain identity services has accelerated.
The second core component is building attributes for on-chain identity. This includes confirming KYC verification and other jurisdictional data that can subsequently be accessed by protocols to ensure compliance. At the core of this technology is the Ethereum Certification Service, a flexible service that allows entities to assign attributes to other wallets. These attributes are not limited to KYC; they can be freely extended to meet the needs of the prover. For instance, Coinbase's on-chain verification utilizes this service to confirm that a wallet is associated with a user who has a Coinbase trading account and is located in certain jurisdictions. Some new permissioned lending markets for real-world assets on Base will control usage through these verifications.
