Original title: 2025 Crypto Market Outlook
Source: Coinbase
Original translation by: Felix, PANews
Looking ahead to 2025, the crypto market is poised for transformative growth. With increasing institutional adoption and expanding use cases across various sectors, the maturity of the asset class continues to gain momentum. In just the past year, spot ETFs have been approved in the U.S., there has been a significant increase in the tokenization of financial products, substantial growth in stablecoins, and further integration into the global payment framework.
Achieving this is no easy task. While it is easy to perceive these successes as the result of years of effort, an increasing number of people believe that this is actually just the beginning of a grand journey.
Considering that just a year ago, this asset class was stumbling due to interest rate hikes, regulatory crackdowns, and an uncertain path forward, the progress of cryptocurrencies is even more impressive. Despite facing all of these challenges, cryptocurrencies have established themselves as a solid alternative asset, proving their resilience.
However, from a market perspective, the upward trend in 2024 indeed has some marked differences from previous bull market cycles. Some of these are superficial: "Web3" has been replaced by the more appropriate term "onchain." Others have more profound implications: a demand for fundamentals has begun to supplant the influence of narrative-driven investment strategies, partly due to increased institutional participation.
Moreover, not only has Bitcoin's dominance surged, but DeFi innovations have also pushed the boundaries of blockchain—making the foundation for new financial ecosystems accessible. Central banks and major financial institutions worldwide are discussing how crypto technology can make asset issuance, trading, and record-keeping more efficient.
Looking ahead, the current crypto space presents many promising developments. At the forefront of disruption, we focus on decentralized peer-to-peer exchanges, decentralized prediction markets, and AI (artificial intelligence) agents equipped with crypto wallets. On the institutional side, there is tremendous potential in stablecoins and payments (tightening the integration of crypto and fiat banking solutions), low-collateral on-chain lending (facilitated by on-chain credit scoring), and compliant on-chain capital formation.
Despite the high awareness of cryptocurrencies, the technology remains obscure to many due to its novel structure. However, technological innovation is expected to change this situation as more projects focus on improving user experience by abstracting the complexities of blockchain and enhancing smart contract functionalities. Success in this area could broaden cryptocurrency accessibility 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 greater progress in 2025, potentially solidifying the position of digital assets in mainstream finance.
With the evolving regulatory and technological landscape, significant growth is expected in the crypto ecosystem, as broader adoption will propel the industry closer to realizing its full potential. 2025 will be a pivotal year, as breakthroughs and advancements are likely to shape the long-term development trajectory of the crypto industry for decades to come.
Theme 1: Macro Roadmap for 2025
What the Federal Reserve wants, what the Federal Reserve needs
Trump's victory in the 2024 U.S. presidential election was the most significant crypto market catalyst in Q4 2024, driving Bitcoin up 4-5 standard deviations (compared to the three-month average). However, looking ahead, the response of short-term fiscal policy may not be as meaningful as the long-term direction of monetary policy, especially with the Federal Reserve approaching a critical moment. However, separating the two may not be that easy. The Federal Reserve is expected to continue easing monetary policy in 2025, but the pace may depend on the expansiveness of the next set of fiscal policies. This is because tax cuts and tariffs could push inflation higher, although overall CPI has fallen to 2.7%, core CPI remains around 3.3%, above the Federal Reserve's target.
Nonetheless, the Federal Reserve aims to suppress inflation from current levels, which means prices need to rise but slow down from now on to help achieve another mission—full employment. On the other hand, households have been calling for price reductions after experiencing the pain of rising prices over the past two years. However, while price declines may be politically expedient, they could also risk falling into a vicious cycle that ultimately leads to economic recession.
Nevertheless, thanks to declining long-term interest rates and American exceptionalism 2.0, a soft landing seems to be the current baseline. At this point, the Federal Reserve's interest rate cuts are merely formalities, as credit conditions have already loosened, providing a supportive backdrop for cryptocurrency performance in the next 1-2 quarters. Meanwhile, with more dollars circulating in the economy, the anticipated deficit spending of the next government (if realized) should translate into a greater risk appetite (crypto purchases).
The most supportive U.S. Congress for cryptocurrencies ever
After years of grappling with regulatory ambiguity, the upcoming U.S. legislative session may 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 exists in both the House and Senate, suggesting that U.S. regulation may shift from "headwinds" to "tailwinds" in 2025.
A new discussion point is the possibility of establishing strategic Bitcoin reserves. Following the Bitcoin Nashville conference, Senator Cynthia Lummis (WY) not only proposed a Bitcoin bill in July 2024 but also introduced 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 instruments. Michigan and Wisconsin have already held cryptocurrencies or crypto ETFs within their pension funds, followed closely by Florida. However, establishing strategic Bitcoin reserves may face some challenges, such as legal limitations on the amount of Bitcoin the Federal Reserve's balance sheet can hold.
Meanwhile, the U.S. is not the only jurisdiction ready to make regulatory progress. The growing global demand for crypto is also changing the competitive landscape of regulation internationally. The EU's Crypto Asset Regulation Market (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 to adapt to digital assets, creating a more favorable environment for innovation and growth.
Crypto ETF 2.0
The U.S. approval of spot Bitcoin and Ethereum exchange-traded products and funds (ETPs and ETFs) is a watershed moment for the crypto economy, with net inflows of $30.7 billion since their inception (approximately 11 months ago). This far surpasses 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 positions these tools in the top 0.1% of the approximately 5,500 new ETFs launched in the past 30 years.
ETFs reshaped the market dynamics of BTC and ETH by establishing new demand anchors, pushing Bitcoin's dominance from 52% at the beginning of the year to 62% in November 2024. According to the latest 13-F filings, nearly all types of institutions are now holders of these products, including endowments, pension funds, hedge funds, investment advisors, and family offices. Meanwhile, the introduction of U.S. regulatory options on these products (in November 2024) may enhance risk management and improve the cost-effectiveness of these assets.
Looking ahead, the industry is focusing on issuers potentially expanding the range of exchange-traded products to include other tokens such as XRP, SOL, LTC, and HBAR, although potential approvals may only positively impact a limited asset group in the short term. But of greater interest is what might happen if the U.S. SEC allows spot ETF staking or lifts restrictions on cash versus physical creation and redemption of ETF shares. The latter introduces a settlement delay between when authorized participants (APs) receive buy or sell orders and when the issuer can create or redeem corresponding shares. This delay, in turn, causes a misalignment between the ETF price on the screen and the actual net asset value (NAV).
Introducing physical creation and redemption can not only improve the price consistency between the ETF price and the net asset value but also help narrow the spread of ETF shares. In other words, authorized participants (APs) do not need to place cash quotes above the trading price of Bitcoin, thereby lowering costs and increasing efficiency. The current cash-based model also brings other implications related to the ongoing buying and selling of BTC and ETH, such as increased price volatility and triggering taxable results, which do not apply to physical trading.
Stablecoins, the "killer application" of cryptocurrencies
In 2024, stablecoins achieved significant growth, with a total market cap increase of 48%, reaching $193 billion (as of December 1). Some market analysts believe that based on the current trajectory, the industry could grow to nearly $3 trillion within the next five years. While this may seem high, considering this valuation is comparable to the entire cryptocurrency market today, it only accounts for about 14% of the $21 trillion U.S. M2 total supply.
The next wave of true adoption for cryptocurrencies 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 facilitate faster and cheaper transactions, prompting an increasing number of payment companies to expand their stablecoin infrastructure, thereby enhancing the utilization of digital payments and remittances. In fact, it is likely that we will soon see major use cases for stablecoins not only in trading but also in global capital flows and commerce. However, beyond broader financial applications, the potential of stablecoins to address the U.S. debt burden has also garnered 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 in 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.
Tokenization revolution
According to data from rwa.xyz, tokenization continues to make significant strides in 2024, with tokenized real-world assets (RWA) growing from $8.4 billion at the end of 2023 to $13.5 billion by December 1, 2024 (excluding stablecoins), an increase of over 60%. Multiple analysts predict that the industry could grow to at least $2 trillion and as much as $30 trillion within the next five years—potentially increasing nearly 50-fold. 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 (such as those involving derivatives), potentially simplifying operations (e.g., margin calls) and reducing 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 simplify the construction and investment processes for entire portfolios by bringing them on-chain, although this may still take several 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, the recognition of its merits is clear. This period is the best time for experimentation to ensure that businesses remain at the forefront of technological advancements.
DeFi Renaissance
DeFi is dead. Long live DeFi. DeFi suffered significant blows in the last cycle as some applications leveraged token incentives to steer liquidity, offering unsustainable yields. However, a more sustainable financial system has emerged that integrates real-world use cases with transparent governance structures.
Changes in the U.S. regulatory landscape could revitalize the prospects of DeFi. This might include establishing a framework for governing stablecoins, as well as pathways for traditional institutional investors to participate in DeFi, especially as the synergy between on-chain and off-chain capital markets becomes increasingly evident. In fact, DEXs currently account for about 14% of CEX trading volume, up from 8% in January 2023. In a more favorable regulatory environment, even decentralized applications (dApps) sharing protocol revenue with token holders is becoming more likely.
Moreover, the role of cryptocurrencies in disrupting financial services has also been recognized by key figures. In October 2024, Federal Reserve Governor Christopher Waller discussed how DeFi largely complements centralized finance (CeFi), believing that distributed ledger technology (DLT) can make record-keeping for CeFi faster and more efficient, while smart contracts can enhance CeFi's capabilities. He also noted that stablecoins could be beneficial for payments and serve as "safe assets" on trading platforms, although they need reserves to mitigate risks like runs and illicit financing. All of this suggests that DeFi may soon extend beyond the crypto user base and begin to engage more with traditional finance (TradFi).
Theme 2: Disruption Paradigm
Telegram trading bots: The hidden profit center of cryptocurrencies
After stablecoin 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 segment in 2024 (measured by total market cap growth), with trading activity in meme tokens (on Solana DEXs) soaring throughout Q4 of 2024.
Telegram bots are a chat-based interface for trading these tokens. Custodial wallets are created directly in the chat window, and funding and management can be done via button and text commands. As of December 1, 2024, bot users are primarily focused on Solana tokens (87%), followed by Ethereum (8%), and then Base (4%).
Like most trading interfaces, Telegram bots earn a certain percentage of fees from each transaction, up to 1% of the transaction 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-earning bot, Photon, has charged $210 million from the year-to-date, close to Pump, Solana's largest memecoin launcher, which has charged $227 million. Other major bots, such as Trojan and BONKbot, have also made significant profits of $105 million and $99 million, respectively. In contrast, Aave's protocol revenue for all of 2024, after fees, amounted to $74 million.
The appeal of these applications stems from their ease of use in DEX trading, particularly for tokens that have not yet been listed on exchanges. Many bots also provide 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. Although the increasing competition among Telegram trading bots may eventually lower transaction fees, by 2025, Telegram bots (and other core interfaces discussed below) will still be major profit centers.
Prediction markets: Betting
Prediction markets could be one of the biggest winners of the 2024 U.S. elections, as platforms like Polymarket outperformed polling data, predicting campaign outcomes closer to the final results. This is a victory for broader crypto technology, as blockchain-based prediction markets show significant advantages over traditional polling data, showcasing the potential differentiated use cases of the technology. Prediction markets not only demonstrate the transparency, speed, and global access offered by crypto technology, but their blockchain foundation also allows for decentralized dispute resolution and automated outcome-based payment settlements.
While many believe that the relevance of these dapps may wane after the elections, 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 accompany economic data releases like inflation and non-farm payroll data, which may continue to play a role and remain relevant after the elections.
Games
For a long time, gaming has been a core theme in the crypto space due to the transformative potential of on-chain assets and markets. However, so far, attracting a loyal user base for crypto games (a hallmark of most traditional successful games) has been a challenge, as many crypto game users are profit-driven and may not play for entertainment. Additionally, many crypto games are browser-based, often limiting their audience to cryptocurrency enthusiasts rather than the broader gaming community.
However, compared to the previous cycle, games that integrate cryptocurrencies have made significant progress. At the heart of this trend is a shift from the early crypto-punk spirit of "fully owning your game on-chain" to selectively placing assets on-chain, unlocking new features without compromising the gameplay itself. In fact, many prominent game developers now view blockchain technology more as a utility tool rather than a marketing tool.
First-person shooter and battle royale games (Off the Grid) are a prime example of this trend. At launch, the core blockchain component of the game (Avalanche subnet) remains in testing, although it has already become the top 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 has also paved the way for crypto-integrated games to expand their distribution channels to gain wider market appeal, available on Xbox, Playstation, and PC (through the Epic Games Store).
Mobile devices are also an important distribution channel for crypto games, including native apps and embedded applications (like Telegram mini-games). Many mobile games also 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 barriers to entry and allowing those unfamiliar with crypto to engage with these games.
The lines between crypto and traditional gaming may continue to blur. Upcoming mainstream "crypto games" may incorporate crypto technology without focusing on it, emphasizing polished gameplay and distribution rather than game-earning mechanics. In other words, while this may lead to broader adoption of cryptocurrency as a technology, it remains unclear how this will directly translate to demand for liquid tokens. In-game currencies are likely to remain siloed across different games.
Decentralized realities
Decentralized Physical Infrastructure Networks (DePIN) could potentially change the allocation issues in the "real world" by guiding the creation of resource networks. In other words, DePIN could theoretically overcome the initial economies of scale typically associated with such projects. The scope of DePIN projects ranges from computational power to cellular towers to energy, 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 has been able to launch coverage maps in metropolitan areas across the U.S., Europe, and Asia without the overhead of building and distributing cellular towers or spending significant upfront capital. Instead, early adopters' motivation is 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 may only address a small portion of the issues within that industry. There may be wide variations in network adoption, token utility, and generated revenue in this field—all of which may relate more to the underlying industry they target rather than the underlying technological network they utilize.
Artificial Intelligence, Real Value
Artificial intelligence (AI) has been a focal point for both traditional and crypto market investors. However, the impact of AI on cryptocurrencies is multifaceted, and its narrative frequently shifts. In the early stages, blockchain technology was designed to address issues around the authenticity of AI-generated content and the sources of user data (i.e., tracking data veracity). AI-driven intent-driven 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, as well as 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 comprehensive impact of artificial intelligence on cryptocurrencies remains unclear, as evidenced by the rapid cycles of various narratives. However, this uncertainty does not diminish the potential transformations AI may bring to cryptocurrencies, as breakthroughs in AI technology continue to unfold. Non-technical users are also finding it increasingly easier to use AI applications, further accelerating the development of creative use cases.
The biggest question is how these shifts will manifest in the durable value accumulation of tokens versus company equity. For example, many AI agents operate on traditional technology, and short-term "value accumulation" (i.e., market attention) flows to memecoins rather than any underlying infrastructure. While tokens related to infrastructure layers have also seen price increases, their utilization growth generally lags behind the price increases during the same period. Relative to network metrics, the speed of price increases reflects a lack of strong consensus among investors on how to capture AI growth within cryptocurrencies.
Theme 3: Blockchain Metagame
Multi-chain future or zero-sum game?
One major 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, the expansion of L1 space has reached a point where there is now a surplus of general block space.
Additional block space is not necessarily more valuable in itself. However, a vibrant protocol ecosystem, coupled with an active community and dynamic crypto assets, can still allow certain blockchains to accrue extra fees. For example, Ethereum remains the hub for high-value DeFi activity, despite its mainnet execution capacity not improving since 2021.
Nonetheless, investors are drawn to the potential differentiated ecosystems on these new networks, even as the threshold for differentiation is rising. High-performance chains like Sui, Aptos, and Sei are competing with Solana for market share.
Historically, DEX trading has been the largest driver of on-chain fees, necessitating strong user logins, wallets, interfaces, and capital—creating a cycle of increasing activity and liquidity. This concentration of activity often leads to winner-takes-all scenarios across different chains. However, the future may still be multi-chain, as different blockchain architectures offer unique advantages to meet various needs. While application chains and L2 solutions can provide tailored optimizations and lower costs for specific use cases, multi-chain ecosystems allow 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 about Ethereum's rollup-centric roadmap continue. Criticisms include L2s' "extraction" of L1 activity and their fragmented liquidity and user experience. In particular, L2s are seen as the source of the decline in Ethereum network fees and the demise of the "ultrasound money" narrative. New focal points in the L2 debate are also emerging, including decentralized trade-offs and the potential fragmentation of different virtual machine environments (EVM).
Nevertheless, from the perspective of increasing block space and lowering 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 Ethereum L2 activity tenfold. Furthermore, various execution environments and architectures are able to experiment in 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 overall 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 speed and costs have improved, the requirement for users to first interact with cross-chain bridges reduces the overall on-chain experience.
While this is a real issue, the community is seeking many different solutions, such as superchain interoperability in the Optimism ecosystem, real-time proofs of zkRollups, resource lock-based solutions, and sequencer networks, etc. Many of these challenges are being addressed at the infrastructure and network layers, and these improvements may take time to reflect on the user interface.
Meanwhile, the growing Bitcoin L2 ecosystem is becoming harder to navigate due to the lack of unified security standards and roadmaps. In contrast, Solana's "network scaling" often targets specific applications, potentially causing less disruption to current user workflows. Overall, L2s are becoming implemented in most major crypto ecosystems, although their forms vary widely.
Everyone has a chain
The convenience of customized network deployments is continuously improving, prompting more applications and companies to build chains where they have more control. Mainstream DeFi protocols like Aave and Sky have clearly set goals to include blockchain launches in their long-term roadmaps, with the Uniswap team also announcing plans for an L2 chain focused on DeFi. Even more traditional companies are getting involved. Sony has announced a new chain called Soneium.
With the maturation and increasing commodification of blockchain infrastructure stacks, owning block space is becoming increasingly attractive—especially for regulated entities or applications with specific use cases. The technology stack for achieving this is also changing. In previous cycles, application-centric chains primarily leveraged Cosmos or Polkadot Substrate SDKs. Additionally, the evolving RaaS industry, represented by companies like Caldera and Conduit, is driving more projects to launch L2. These platforms facilitate easy integration with other services through their marketplaces. Similarly, Avalanche subnets may see increased adoption due to its managed blockchain service AvaCloud, which simplifies the launch of custom subnets.
The growth of modular chains may have corresponding implications for the demand for Ethereum blob space and other data availability solutions (such as Celestia, EigenDA, or Avail). Since early November, the utilization of Ethereum blobs has reached saturation (3 blobs per block), increasing by over 50% since mid-September. Demand does not seem to be slowing down, 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 could increase the target blob count from 3 to 6.
Theme 4: User Experience
User Experience Improvements
A simple user experience is one of the most important drivers of mass adoption. While cryptocurrencies have traditionally focused on deep technology, the current emphasis is rapidly shifting towards 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 to streamline onboarding and using session keys to reduce signing friction.
The adoption of these technologies will make the security components of crypto wallets (such as seed phrases and recovery keys) invisible to most end users—similar to the seamless security experience of today’s internet (e.g., https, OAuth, and keys). More trends of keyless login and in-app wallet integration are expected to emerge in 2025. Early signs include keyless login for Coinbase Smart Wallet and Google-integrated login for Tiplink and Sui Wallet.
The abstraction of cross-chain architecture may continue to pose the greatest challenges to the crypto experience in the short term. While cross-chain abstraction remains a focus of research at the network and infrastructure level (e.g., ERC-7683), it is still far from the front-end applications. Improvements in this area require enhancements at the smart contract application level and wallet level. Protocol upgrades are necessary for unifying liquidity, while wallet improvements are essential for providing users with a clearer experience. The latter will ultimately be more important for scaling adoption, even though current research work and industry debates are focused on the former.
Interface ownership
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 previously mentioned, through improvements in independent wallet experiences. 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 to compete for user relationships through wallet integration. This includes trading tools, games, on-chain social, and membership applications that automatically provide wallets for users registered through familiar methods like Google or Apple OAuth. Once logged in, on-chain transactions are funded by payers, with costs ultimately borne by the application owner. This creates a unique dynamic where the revenue per user needs to align with the costs of processing their on-chain operations. Although the latter cost decreases as blockchains scale, 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 each Telegram trading bot, many retail crypto traders tend to be relatively price insensitive compared to existing TradFi entities. In the coming year, it is expected that building user relationships will also become a focus of protocols beyond the trading space.
Decentralized identity
As regulatory transparency increases, more assets are being tokenized off-chain, making it increasingly important to simplify KYC and anti-money laundering (AML) processes. For instance, certain assets are only available to qualified investors located in specific regions, making identification and certification a core pillar of the long-term on-chain experience.
This has two key components. First is the creation of on-chain identities themselves. 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 recognition services has accelerated.
The second core component is to build attributes for on-chain identity. This includes confirming KYC verification and jurisdictional data that other protocols can subsequently view to ensure compliance. The core of this technology is the Ethereum authentication 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 proof providers. For instance, Coinbase's on-chain verification uses 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.
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