Executive Summary
As we look forward into 2025, the cryptocurrency market is poised for transformative growth. The maturation of the asset class continues to gain momentum, with increasing institutional adoption and expanding use cases across its various sectors. In just the past year, spot ETFs were approved in the US, tokenization of financial products increased dramatically, and stablecoins saw massive growth and greater integration into the global payments framework.
Getting here has been no easy task. But while it’d be easy to think of these successes as the culmination of years of work, increasingly it looks like they’re actually just the beginning of something much bigger.
Crypto’s strides are all the more impressive when we consider that, only a year ago, the asset class was reeling from interest rate hikes, regulatory crackdowns, and an uncertain path forward. It’s a testament to crypto’s resilience that despite all of those challenges, it has become a firmly established alternative asset class with real staying power.
From a markets perspective though, the uptrend in 2024 does belie some stark differences with previous bull cycles. Some of them are cosmetic: the term “web3” was replaced with the more fitting “onchain.” Others are more profound: a demand for fundamentals has started to replace the waning influence of narrative-driven investment strategies, partly due to wider institutional participation.
Moreover, not only did bitcoin dominance surge, but the innovations in decentralized finance pushed the boundaries of what’s possible with blockchain – putting the foundations of a new financial ecosystem within reach. Central banks and major financial institutions around the world are discussing how crypto can potentially make things like asset-issuance, trading, and record-keeping more efficient.
Going forward, the current crypto landscape presents a multitude of promising developments. At the bleeding edge of disruption, we’re looking at decentralized peer-to-peer exchanges, decentralized prediction markets, and artificial intelligence (AI) agents equipped with crypto wallets. Closer to the institutional front, we see significant potential in stablecoins and payments (bringing crypto and fiat banking solutions closer together), undercollateralized onchain lending (facilitated by onchain credit scores), and compliant onchain capital formation.
Despite widespread crypto awareness, the technology remains largely obscure to many due to its novel technical structure. But technological innovations are also poised to change this, as more projects focus on improving the user experience by abstracting away blockchain complexities and enhancing smart contract functionality. Success here may broaden crypto’s accessibility for a new class of users.
Meanwhile, the foundations for greater regulatory clarity in the US were laid in 2024, long before November’s elections. This has set the stage for greater advancements in 2025, potentially solidifying the role of digital assets in mainstream finance.
As the regulatory and technological landscapes evolve, we expect to see substantial growth in the crypto ecosystem as wider adoption drives the industry closer to achieving its full potential. This will be a pivotal year. The breakthroughs and advancements of 2025 may very well help shape the long-term trajectory of the crypto industry for decades to come
Key Theme 1: The 2025 Macro Roadmap
What the Fed Wants, What the Fed Needs
President Donald Trump’s victory in the 2024 US presidential election was the most significant crypto market catalyst for 4Q24, driving bitcoin prices 4-5 standard deviations higher (compared to the three month average). But looking ahead, we think the short-term fiscal policy reaction will not be as meaningful as the long-term direction for monetary policy, particularly as we’re coming to a crucial moment for the Federal Reserve. Separating the two may not be so easy, however. We expect the Fed to continue easing in 2025, but the pace may depend on how expansionary the next set of fiscal policies will be. That’s because tax cuts and tariffs could contribute to higher inflation, and while headline CPI has fallen to 2.7% YoY, core CPI still lingers near 3.3%, above the Fed’s target.
For what it’s worth, the Fed wants disinflation from current levels, meaning prices need to rise but more slowly from here to help attain its other mandate – maximum employment. They simply want the tempo of price rises to be controlled. Households, on the other hand, have been demanding deflation, or a decrease in prices, after dealing with the pain of higher expenses for the last two years. But while falling prices might be politically expedient, they risk spiraling into vicious cycles that can end in recession.
Still, a soft landing seems to be the base case for now, enabled by lower long-term interest rates and American exceptionalism 2.0. The Fed’s rate cuts are simply a formality at this point, as credit conditions are already easing, which is a supportive backdrop for crypto performance over the next 1-2 quarters. Meanwhile, the next administration’s projected deficit spending (if it materializes) should translate into greater risk taking (crypto buying) as more dollars circulate in the economy.
The Most Pro-Crypto US Congress … Ever
After struggling with political ambiguity for many years, we think the next legislative session could be the United States’ chance to finally establish some regulatory clarity for the crypto industry. This election sent a strong message to Washington D.C. that the public is disaffected by the current financial system and wants change. From a markets perspective, a bipartisan pro-crypto majority in both the House and the Senate means that US regulation will likely flip from a headwind to a tailwind for crypto performance in 2025.
A new element of the conversation is the possibility of a Strategic Bitcoin Reserve. Not only did Senator Cynthia Lummis (WY) propose The Bitcoin Act in July 2024 following the Bitcoin Nashville Conference, but the Pennsylvania General Assembly also introduced the PA Bitcoin Strategic Reserve Act. The latter would allow the State Treasurer to invest up to 10% of the PA General Fund into bitcoin or other crypto-based instruments, if passed. Already Michigan and Wisconsin hold crypto or crypto ETFs in their pension funds, with Florida not far behind. That said, there could be some challenges to creating a Strategic Bitcoin Reserve such as legal constraints on what the Fed can hold on its balance sheet.
Meanwhile, the US isn’t the only jurisdiction poised to make regulatory progress. The increase in global crypto demand is also shifting the competitive dynamics for thoughtful regulation internationally as well. Looking abroad, the Markets in Crypto-Assets regulation in the European Union (or MiCA) is being implemented in phases, providing a clear framework for the industry. Many G20 countries and major financial hubs such as the United Kingdom (UK), United Arab Emirates (UAE), Hong Kong, and Singapore are also actively writing rules to accommodate digital assets, creating more conducive environments for innovation and growth.
Crypto ETFs 2.0
The approvals of spot bitcoin and ether exchange-traded products and funds (ETPs and ETFs) in the US were watershed moments for the cryptoeconomy, punctuated by a net inflow of $30.7B since inception (about 11 months). That far exceeds the inflation-adjusted $4.8B that the SPDR Gold Shares ETF (GLD) attracted in its first year after launching in October 2004. According to Bloomberg, this puts these vehicles “among the top 0.1% when it comes to new ETF launches out of the about 5,500 that took place over the past 30 years.”
ETFs have reshaped the market dynamics for BTC and ETH by establishing a new anchor for demand, driving bitcoin dominance up from 52% at the start of the year to a high of 62% in November 2024. According to the latest 13-F filings, almost every institutional type is now represented as holders of these products, including endowments, pension funds, hedge funds, investment advisors and family offices. Meanwhile, the introduction of US-regulated options on these products (in November 2024) will likely enable enhanced risk management and more cost-effective exposure to these assets.
Looking ahead, the industry is focused on issuers potentially expanding the set of exchange-traded products to include additional tokens like XRP, SOL, LTC, and HBAR, though we think potential approvals may only be constructive for a limited cohort of assets in the near term. Instead, we are more interested in what could happen if the Securities and Exchange Commission (SEC) allowed staking in ETFs or lifted its mandate on cash rather than in-kind creations and redemptions of ETF shares. The latter mandate introduced settlement latency between when authorized participants (APs) receive buy or sell orders and when issuers can create or redeem the corresponding shares. That time lag has in turn created misalignments between onscreen ETF share prices and the actual net asset value (NAV).
The introduction of in-kind creations and redemptions could not only improve price alignment between share prices and NAV, but it could also help narrow the spreads for ETF shares. That is, APs wouldn’t need to quote cash prices above bitcoin’s trading price, thus lowering costs and improving efficiency. The current cash-based model also carries other implications involved with the continuous buying and selling of BTC and ETH such as increased price volatility and the triggering of taxable outcomes, which wouldn’t be applicable to in-kind transactions.
Stablecoins, Crypto’s “Killer-App”
In 2024, stablecoins saw massive growth, bringing the total market capitalization up by 48% to $193B (as of December 1). Some market analysts believe that this sector can grow to almost $3T over the next five years based on its current trajectory. While that may seem high, given that this estimate rivals the size of the entire crypto complex today, this estimate would only comprise around 14% of the total US M2 money supply of $21T, indicating
Increasingly, we think the next wave of real adoption in crypto could come from stablecoins and payments, which helps explain the surge of interest in this sector over the last 18 months. Their ability to facilitate faster and cheaper transactions compared to traditional methods have led to increased utilization for digital payments and remittances with more payment firms looking to expand their stablecoin infrastructure. Indeed, we may very well be getting closer to the day when the first and primary use cases for stablecoins won’t just be trading but rather global capital flows and commerce. Beyond their broader financial applications, however, there is also political interest in stablecoins’ ability to potentially address the US debt burden issue.
The stablecoin market has settled nearly $27.1T in transactions through November 30, 2024, almost tripling the $9.3T observed over the same 11-month period in 2023. This includes significant volumes of peer-to-peer (P2P) transfers and cross-border business-to-business (B2B) payments. Indeed, businesses and individuals increasingly leverage stablecoins like USDC for their regulatory compliance and widespread integrations with payment platforms such as Visa and Stripe. Indeed, Stripe’s acquisition of stablecoin infrastructure company Bridge for $1.1B in October 2024 was the largest deal in the crypto industry to date.
The Tokenization Revolution
Tokenization continued to make significant progress in 2024, as tokenized real world assets (RWA) grew over 60% from $8.4B at the end of 2023 to $13.5B as of December 1, 2024 (excluding stablecoins), according to rwa.xyz. Projections from various analysts suggest this sector can grow to a minimum of $2T and a maximum of $30T over the next five years – potentially a nearly 50x increase. Asset managers and traditional financial institutions like BlackRock and Franklin Templeton have increasingly embraced the tokenization of government securities and other traditional assets on both permissioned and public blockchains, enabling near-instant cross-border settlements and 24/7 trading hours.
Firms are experimenting with using such tokenized assets as collateral for other financial transactions like those involving derivatives, which could streamline operations (with margin calls, for example) and mitigate risk. Moreover, the RWA trend is expanding beyond assets like US Treasuries and money market funds – finding traction with private credit, commodities, corporate bonds, real estate, and insurance as well. Eventually, we think tokenization can streamline the entire portfolio construction and investing process by bringing it onchain, although this may yet be a few years away.
Of course, these efforts face their own set of unique challenges, including liquidity fragmentation across multiple chains and persistent regulatory hurdles – though there have been notable advancements on both fronts. Ultimately, we anticipate tokenization to be a gradual and continuous process; however, the acknowledgment of its advantages is unequivocal. This period represents a prime opportunity for experimentation, ensuring firms remain at the forefront of technological advancements.
The DeFi Resurgence
DeFi is dead. Long live DeFi. Decentralized finance took a significant hit in the previous cycle, as it became clear that some applications were offering unsustainable yields using token incentives to bootstrap liquidity. In response, a more sustainable financial system has since emerged, incorporating real-world use cases and transparent governance structures.
But it’s the shift in the US regulatory landscape that may yet reinvigorate DeFi’s prospects, in our view. That may include the establishment of a framework for governing stablecoins and a path for traditional institutional investors to participate in DeFi, particularly as we’re seeing the increasing synergies between offchain and onchain capital markets. Indeed, decentralized exchanges now represent around 14% of centralized exchange trading volumes, up from 8% back in January 2023. Even the possibility of decentralized applications (dApps) sharing protocol revenue with token holders is becoming increasingly more likely in the face of a more friendly regulatory environment.
Moreover, crypto’s role in disrupting financial services is being recognized by key figures as well. In October 2024, Federal Reserve Governor Christoper Waller prepared remarks about how DeFi can largely complement centralized finance (CeFi), arguing that distributed ledger technology (DLT) can make CeFi's record-keeping faster and more efficient, while smart contracts can boost CeFi’s capabilities. He also argued that stablecoins can be potentially beneficial for payments and as “safe assets” on trading platforms, albeit they require provisions to mitigate risks like runs and illicit finance. All of this suggests that DeFi could soon extend its reach beyond its primarily crypto-oriented user base and start engaging more with traditional finance (TradFi).
Key Theme 2: Disrupting Paradigms
Telegram Trading Bots: Crypto’s Hidden Profit Center
Behind stablecoins and native L1 transaction fees, Telegram trading bots have been the most profitable sector in crypto in 2024, eclipsing even major DeFi protocols like Aave and MakerDAO (now Sky) in net protocol revenue. Much of this has been the result of elevated trading and memecoin activity. Indeed, meme tokens have been the best performing crypto sector by a wide margin in 2024 (as measured by total market cap growth), and memecoin trading activity (on Solana DEXs) has surged throughout 4Q24.
Telegram bots are a chat-based interface for trading these tokens. Custodial wallets are created directly in a chat window, which can then be funded and managed via buttons and text commands. As of December 1, 2024, bot users were primarily focused on Solana tokens (87%), followed by Ethereum (8%), and then Base (4%). (Note: Most Telegram trading bots are separate from The Open Network, or TON, that is integrated into Telegram’s native wallet.) This reflects the focus of the highest revenue bots like Photon, Trojan, and BONKbot, which integrate primarily with Solana.
Like most trading interfaces, Telegram bots earn a proportion of each swap as fees, which can be as high as 1% of the transactions. However, we think their users may be undeterred by the high fees due to the volatile nature of the underlying assets they trade. Through December 1, cumulative YTD fees for the highest revenue bot, Photon, reached $210M, nearing the $227M collected by Solana’s largest memecoin launcher, Pump. Other major bots like Trojan and BONKbot have also earned impressive profits of $105M and $99M respectively. In comparison, Aave earned $74M in protocol revenue throughout 2024 after accounting for expenses.
We think the allure of these apps stems from their ease of use in DEX trading, particularly for tokens not yet listed on exchanges. Many bots also provide additional functionalities such as “sniping” tokens instantly on launch as well as integrated price alerting. The Telegram trading experience appears fairly attractive to users, with nearly 50% of Trojan users returning over four or more days (only 29% of users stopped after one day of use), which has contributed to a high average revenue per user of $188. Although the growing competition between Telegram trading bots may eventually lower trading fees, we think Telegram bots (and other core interfaces discussed below) will remain a leading profit center throughout 2025.
Prediction Markets: Table Stakes
Prediction markets may have been one of the biggest winners of the 2024 US election cycle, as platforms like Polymarket outperformed polling data that had forecast a much closer race than what ultimately transpired. We view that as a win for crypto more broadly, as prediction markets utilizing blockchain rails revealed significant advantages over traditional polling data and showcased a potential differentiated use case for the technology. Prediction markets not only demonstrated the transparency, speed, and global access that crypto rails provide, but their blockchain foundations also allowed for decentralized dispute resolution and automatic payment settlements based on outcomes, setting them apart from non-blockchain variants.
While many believe the relevance of such dApps could fade post-election, we’re already seeing their utility expand into other areas like sports and entertainment. In finance, they have proven to be more accurate sentiment indicators than traditional surveys for economic data releases like inflation and nonfarm payrolls, which could sustain their use and relevance post-election.
Games: If It Bleeds, It Leads
Games have long been a core theme within crypto due to the potentially transformative impact of onchain assets and marketplaces. However, garnering loyal userbases for crypto games – a hallmark of most traditionally successful games – has been challenging so far due to the comparatively profit-driven motives of many crypto gaming users, who may not play for fun. Furthermore, web-browser-based distributions for many crypto games (and their self-custodial wallet requirements) tend to restrict the audience to crypto enthusiasts rather than gamers at large.
However, crypto-integrated games have improved massively compared to the last cycle. Central to this trend has been a shift away from the early cypherpunk ethos of “own your game fully onchain” and towards selectively placing assets onchain in a way that unlocks new capabilities without detracting from the gameplay itself. Indeed, we think many prominent game developers now view blockchain technology more as a facilitation tool rather than a core marketing feature.
Off the Grid, a first person shooter and battle royale game, was a prime example of this trend. On launch, the game’s core blockchain component – an Avalanche subnet – remained on testnet even as it became the #1 free-to-play game on Epic Games. Its core appeal centered on its unique gameplay mechanics rather than its blockchain token or item-trading marketplace. Critically, we think this game is also paving the way for crypto-integrated games to expand their distribution channels for more broad market appeal, and is available on Xbox, Playstation, and PC (via the Epic Games store).
Mobile has also been an important distribution channel for crypto-integrated games, via both native applications and embedded apps (like Telegram minigames). Many mobile games similarly incorporate blockchain components selectively, with the majority of activity actually running on centralized servers. Generally, these games can be played without any external wallet setup, reducing onboarding friction and making the games accessible to those unfamiliar with crypto.
In our view, the line between crypto and traditional games may continue to blur. Upcoming major “crypto games” are likely to be crypto-integrated rather than crypto-focused, with an emphasis on polished gameplay and distribution rather than play-to-earn mechanics, in our view. That said, while this may lead to a broader adoption of crypto as a technology, it’s less clear to us how this would directly translate to demand for liquid tokens. In-game currencies are likely to remain segregated across games, and we think gamers who are not crypto enthusiasts are unlikely to appreciate external investors impacting the in-game economy.
Decentralizing the Real World
Decentralized physical infrastructure networks (DePIN) can potentially transform “real world” distribution problems by bootstrapping the creation of resource networks. That is, DePIN can theoretically overcome the initial economies of scale commonly associated with these types of projects. The scope of DePIN projects range from computational power to cellular towers to energy and is creating a more resilient and cost effective means to aggregate these resources.
The foremost example of this is Helium, which distributes tokens to individuals providing local cellular hotspots. By issuing tokens to hotspot providers, Helium was able to bootstrap a coverage map spanning most metropolitan areas in the US, Europe, and Asia without the overhead of constructing and distributing cell towers and spending large amounts of upfront capital. Instead, early adopters were motivated by gaining early exposure and equity in the network itself via tokens.
That said, we think the long-term revenue and sustainability of these networks should be evaluated on a case-by-case basis. That is, we do not think DePIN is a blanket panacea for resource allocation as industry pain points can vary significantly. Pursuing a decentralization strategy may not be applicable to an industry, for example, or it may only solve a niche subset of problems within that industry. In our view, this space is likely to have a wide dispersion between network adoption, token utility, and revenues generated – all of which are likely linked to the underlying industry they target more than the underlying technology network they utilize.
Artificial Intelligence, Authentic Value
Artificial intelligence (AI) has continued to be a key investor focus in traditional and crypto markets. However, the impact of AI in crypto has been multifaceted, with its narrative regularly shifting, in our view. In the earliest stages, blockchain technology was purported to resolve questions around data provenance for AI-generated content and users (i.e. tracking the veracity of data). AI-powered intent-driven architecture was also floated as a potential improvement to crypto’s user experience. Later, the focus moved toward decentralized training and compute networks for AI models as well as crypto-powered data generation and collection. Most recently, attention has centered on autonomous AI agents with the ability to both control crypto wallets and communicate via social media.
In our view, the full impact of AI on crypto is not yet clear as evidenced by the quick cycling of narratives. We don’t think this uncertainty diminishes the potential transformations that AI could bring to crypto, however, as AI technologies are constantly seeing new breakthroughs. AI applications are also becoming increasingly accessible to non-technical users, which we think will further accelerate creative use cases.
We believe that the largest question is determining how these transformations manifest into durable value accrual for liquid tokens versus company equity. Many AI agents, for example, run on traditional technology rails with the near-term “value accrual” (i.e. market attention) flowing to memecoins rather than any underlying infrastructure. While liquid tokens linked to the infrastructure layer have seen price appreciation too, their usage growth has generally lagged behind their price increases over the same period. We think this outpacing of price relative to network metrics – in conjunction with the rotational focus to AI memecoins – reflects a lack of strong consensus on how investors can capture AI growth in crypto.
Key Theme 3: The Blockchain Metagame
Multichain Future or Zero Sum Game?
One of the big themes that has come back from the last bull cycle is the prevalence of alternative layer-1 (L1) networks. Newer networks are increasingly competing on lower transaction costs, redesigned execution environments, and minimized latency. That said, we think the L1 space has expanded to the point where there is now an excess of generic blockspace, even if premium blockspace still remains scarce.
That is, additional blockspace is not inherently more valuable in and of itself. However, a vibrant protocol ecosystem coupled with an active community and dynamic crypto asset can still enable certain blockchains to command a fee premium. Ethereum, for example, remains the center of high-value DeFi activity despite not improving its mainnet execution capacity since 2021.
Still, we think investors are attracted to the potentially differentiated ecosystems that can develop on these new networks, even if the bar for differentiation is rising. High performance chains like Sui, Aptos, and Sei are competing against Solana for mindshare, and Monad’s forthcoming launch is seen as a strong contender for builders.
Historically, trading on DEXs has been the largest driver of onchain fees, which requires robust user onboarding, wallets, interfaces, and capital – creating a cycle of increasing activity and liquidity. This concentration of activity often leads to a winner-takes-most scenario across different chains. However, we think the future could still be multichain because different blockchain architectures offer unique advantages that cater to various needs. Although appchains and layer-2 solutions can offer tailored optimizations and lower costs for specific use cases, a multichain ecosystem allows for specialization while still benefiting from the broader network effects and innovations across the blockchain space.
Leveling Up Layer-2s
Despite the exponential scaling capacity of layer-2s (L2s), the debate around Ethereum’s rollup-centric roadmap continues. Criticisms include the “extractiveness” of L2s on L1 activity as well as their fragmented liquidity and user experience. In particular, L2s have been perceived to be the root of Ethereum’s declining network fees and the demise of the “ultrasound money” narrative. Newer axes of the L2 debate have also come to light, including decentralization tradeoffs, differing virtual machine environments (potential fragmentation of the EVM), and “based” versus “native” rollups.
Still, we think that L2s have been an incredible success from the perspective of increasing blockspace and reducing costs. The introduction of binary large objects (blob) transactions in Ethereum’s Dencun (Deneb+Cancun) upgrade in March 2024 lowered average L2 costs by more than 90% and contributed to a 10x increase in activity across Ethereum L2s. Furthermore, we think the ability for multiple execution environments and architectures to experiment on an ETH-based environment is a long-term advantage of the L2-centric approach.
This roadmap has come with near-term tradeoffs, however. Cross-rollup interoperability and the general user experience have become more difficult to navigate, particularly for newcomers who may not fully understand how ETH differs from one L2 to another, or how to bridge between them. Indeed, while bridging speeds and costs have improved, we think the need for users to interact with bridges in the first place degrades the overall onchain experience.
Although this is a real problem today, the community is pursuing many different solutions to address this user experience issue, such as (1) Superchain interoperability in the Optimism ecosystem, (2) real-time proving and super transactions for zkRollups, (3) based sequencing, (4) resource locks, (5) sequencer networks, and others. That said, many of these challenges are being tackled on the infrastructure and network layer and it may take time for these improvements to be reflected at the user interface level.
Meanwhile, the growing Bitcoin L2 ecosystem is harder to navigate, in our view, as there is no unifying standard for rollup security and roadmaps. In contrast, Solana’s “network extensions” tend to be more application-specific and potentially less disruptive to current user workflows. Overall, L2s are materializing across most major crypto ecosystems, though their forms vary significantly.
Everyone Gets a Chain
The increased ease of customized network deployment is driving an increasing number of applications and corporations to build chains that they have more control over. Major DeFi protocols like Aave and Sky (formerly MakerDAO) have explicit goals to launch chains as part of their long-term roadmaps, and the Uniswap team has also announced plans for their own DeFi- focused L2 chain. Even more traditional corporations are involved. Sony has announced plans for a new chain, Soneium.
As the blockchain infrastructure stack matures and becomes increasingly commoditized, we think that owning blockspace is perceived to be increasingly attractive – particularly for regulated entities or applications with specific use cases. The technology stack for doing this is also changing. In previous cycles, application-centric chains primarily leveraged the Cosmos or Polkadot Substrate SDKs. Moreover, the growing rollup-as-a-service (RaaS) industry, exemplified by firms like Caldera and Conduit, is enabling more project-owned L2 launches. These platforms facilitate easy integration with other services via their marketplaces. Similarly, Avalanche subnets may see an adoption boost due to their managed blockchain service, AvaCloud, which simplifies the launch of customized subnets.
The growth of modular chains may have a corresponding impact on the demand for Ethereum blob space as well as other data availability solutions like Celestia, EigenDA, or Avail. Ethereum blob usage has reached saturation (3 blobs per block) since early November, rising more than 50% since mid-September. Demand doesn’t seem to be slowing down as existing L2s like Base continue to scale throughput and new L2s launch on mainnet, though the upcoming Pectra upgrade in 1Q25 may double the target blob count from 3 to 6.
Key Theme 4: User Experience
User Experience (UX) Improvements
A simple user experience is one of the most important drivers for mass adoption, in our view. While crypto has historically focused on deep technological onboarding due to its cypherpunk roots, we believe the focus is now rapidly shifting towards a simplified user experience. In particular, there is a sector-wide push to abstract the technology aspects of crypto into the background of applications. A number of recent technological breakthroughs are making this transition possible, such as the adoption of account abstraction to streamline onboarding and the use of session keys that reduce signing friction.
The adoption of these technologies will enable the security components of crypto wallets (such as seed phrases and recovery keys) to become invisible to most end users – similar to the seamless security experience of the internet today (e.g. https, OAuth, and passkeys). Indeed, passkey onboarding and in-app wallet integrations are trends that we expect to see more of in 2025. Early signs of this include passkey onboarding to Coinbase Smart Wallet and Google-integrated logins to Tiplink and Sui Wallet.
That said, we think the abstraction of cross-chain architecture may continue posing the largest challenge to the crypto experience in the near term. Cross-chain abstractions, while still a focal point in the research community at the network and infrastructure level (e.g. ERC-7683), still remain far removed from frontend applications, in our view. Improvements in this domain require enhancements at both the smart contract application level and the wallet level. Protocol upgrades are necessary to unify liquidity, while wallet improvements are necessary to present a cleaner experience to the user. We think the latter will ultimately be of greater importance for expanding adoption, though research efforts and industry debates currently center on the former.
Owning the Interface
In our view, the most critical transformation to the crypto user experience will come from striving to “own” the user relationships through better interfaces. We think this will happen in two ways. First is improvements to the standalone wallet experience as mentioned above. Onboarding processes are becoming increasingly streamlined to meet users where they are. Application integrations directly within wallets (such as swaps and lending) may also keep users locked into a familiar ecosystem.
At the same time, applications are also increasingly competing to own the user relationships by abstracting blockchain technology components into the background via integrated wallets. This includes trading tools, games, onchain social, and membership apps where wallets are automatically provisioned for users who register via familiar methods like Google or Apple OAuth. After onboarding, onchain transactions are funded via paymasters, whose costs are ultimately borne by the application owners. This brings about a unique dynamic where the revenues per user need to be aligned with the cost of paying for their onchain actions. Although the latter cost is constantly decreasing as blockchains scale, it also forces crypto applications to consider what components of data to commit onchain.
In general, there will be intense competition to attract and retain users in the crypto space. As evidenced by the aforementioned average revenue per user (ARPUs) for Telegram trading bots, many retail crypto traders tend to be relatively price insensitive compared to existing TradFi entities. In the coming year, we expect the push to own user relationships to be a larger focus of protocols beyond the trading sector too.
Decentralized Identity
As regulatory clarity continues to improve and more assets are tokenized offchain, streamlining the know-your-customer (KYC) and anti money laundering (AML) processes are also becoming increasingly important. For example, some assets are only available to accredited investors located in certain regions, making identification and credentialing core pillars of the onchain experience in the long term.
In our view, there are two key components to this. First is creating an onchain identity itself. Ethereum Name Service (ENS) provides a standard for resolving human readable “.eth” names to one or more wallets across chains. Variations of this now exist across networks like Basenames and Solana Name Service. Adoption of these core onchain identity services has accelerated with major traditional payment providers like PayPal and Venmo now supporting ENS address resolution.
The second core component is building attributes for onchain identity. This includes confirming KYC verification and jurisdiction data that other protocols can subsequently view to ensure regulatory compliance. The heart of this technology is the Ethereum Attestation Service, which is a flexible service for entities to give attributions to other wallets. These attributions are not limited to KYC – they are freely expandable to suit the needs of the attestor. Onchain verifications by Coinbase, for example, leverage this service to confirm that wallets are linked to users with Coinbase trading accounts and are in certain jurisdictions. Some new permissioned lending markets on Base for real world assets will gatekeep usage via these verifications.