Throughout the past year, the crypto industry has undergone a major transformation.
On the regulatory front, Congress made significant progress on the GENIUS Act / clear rules of the road for stablecoins. The White House formed the Working Group on Digital Asset Markets, which has met with – and worked toward clarity for – many industry participants. And the SEC announced Project Crypto, with the intent of making the US a crypto capital via initiatives like exploration of how we can tokenize a broader set of assets in the financial market.
Crypto builders have also made significant strides. There are multiple large, liquid prediction markets (and a number of new ones set to launch soon). Both stablecoin supply and usage are at all-time highs, with more people (in more geographies) holding these assets than ever before. Many onchain protocols are making 8-to-9 figures in revenue. A number of these also function as developer platforms with robust ecosystems of startups (startups which are also making money!). There’s arguably never been a better time to be a builder in crypto.
One of my favorite things to say is: The TAM for digital assets is the largest it’s ever been, and the smallest it’ll ever be. That feels especially true right now. So given these developments, I’ve put together a list of some of the startup ideas I’m most excited about. And if you’re a builder thinking about any of these categories, please reach out!
Stablecoin-Enabled Markets
Much of the current discourse regarding stablecoins focuses on their use in payments. But historically, new markets that have a need for stablecoins have actually played a much larger role in driving stablecoin adoption and growth. The growth of crypto exchanges in Asia was a major contributor to Tether’s rise: instead of offramping crypto profits into local fiat, traders would hold USDT on exchanges as a store of value. Similarly, the 2020 boom in defi helped USDC find a foothold by providing new venues that demanded digital dollars.
We now have nearly $300B stablecoins in circulation. There’s significant interest in using them for payments. But payments admittedly feel like largely an incumbent’s opportunity to win, where existing distribution and infrastructure give existing fintech companies an advantage relative to new startups.
I’m on the lookout for new markets uniquely enabled or created by stablecoins. We have two stealth investments that fit this theme. One is working on infrastructure geared toward making all stablecoins feel fungible to the end user. The other is building local liquidity markets.
What are some examples of the surface area for stablecoin-enabled markets? Here are three ideas:
- New leverage instruments that require instantaneous funding. Stablecoins can move 24/7, which means users can instantly deposit more collateral into their accounts (whereas in traditional rails, the exchange may have to pre-fund the margin account as they wait for a wire).
- Company-to-company lending. I think we’ll see a world where many companies hold a portion of their cash (& cash equivalents) in stablecoins. Stablecoins can move 24/7, whereas moving money over traditional rails can take several days and incur material costs. Holding cash in stablecoins can enable companies to earn yield on these assets in much more expansive and creative ways – such as by engaging in shorter-term capital markets (e.g. overnight repo markets) or onchain liquidity provision.
- Global lotteries. Crypto provides rails to accept, aggregate, and distribute capital to and from anywhere in the world. Not only could stablecoins help scale lotteries, but their programmability means that both the lottery deposits and proceeds can be used in more interesting and exciting ways.
Stablecoin-enabled markets can emerge from a) anywhere a stablecoin is being used as at least one leg of exchange; b) products built around large pools of (idle) capital held in stablecoins; and c) markets that use stablecoins to benefit from global scale.
Second-Order Prediction Market Opportunities
There are now several large and growing prediction market platforms, and a slew of additional platforms set to launch this fall. Market volumes have remained strong throughout the year, refuting critics who claimed prediction markets only had pmf during election season.
This setup has created additional greenfield opportunities for founders to build within / around prediction markets – opportunities that capitalize on the new market liquidity, greater distribution of users, fragmentation of market platforms, and more. These are some of the products I'd especially like to see built.
Conditional wagers. Parlays are common in sports betting. They’re hard to structure within prediction markets because participants are betting against other peers rather than the house. The difference means that the bettor is taking positions against multiple distinct counterparties vs. a single counterparty (the house). As a result, it’s both harder to close the bet if a parlay leg fails and more challenging to price / control the total risk.
A solution may be to make it so the user is actually only betting against one party. For instance, one could imagine a third-party service emerging / built on top of open prediction markets that acts like the house. This service would use the liquidity in the prediction markets to structure odds and offer parlays. It could operate cross-platform and accept third-party liquidity for its strategies (similar to Hyperliquid’s HLP). If the parlays focus on things like the price action of Bitcoin, this service could also use other mechanisms to hedge the overall risk.
The ability to bet on users. A major feature of platforms like Polymarket is the leaderboard. It gives a ranking of traders by both P&L and volume, and lets third parties explore what positions those power users hold. Say I believe that a certain trader is going to do well – my “bet” is that the trader bets well. My main option today to build exposure to that bet is to manually copy trade the user. A future form of a product, though, could let a user like myself deposit capital into a pool that the pro trader can use for their bets. This design space gets even more exciting when one starts to think about AI agents betting in markets – and the different ways that humans could pool capital and provide information / feedback for those agents to utilize.
There are many other types of second-order opportunities stemming from the growth of liquidity, interest, and platforms supporting prediction markets. Leverage, exposure to the size of a market, and exposure to the popularity of a market (in terms of users participating) are all areas of interest.
Tokenized Equity Orchestrators
We’re at the early stages of equity tokenization. It’s becoming increasingly clear that a spectrum of architectures is emerging.
Some products, like Robinhood’s Stock Tokens, are designed with the sole intent of providing price exposure to the real-world stock. These instruments are entirely synthetic: they track price action through a series of structured derivatives without ever taking custody of the actual stock.
Other products, like BackedFi’s xStocks, custody the desired stock and create a digital representation (similar to how stablecoin issuers custody fiat dollars and create tokenized wrappers of those assets). These products offer both a more direct / secure tie to the price of the asset, as well as the ability to redeem the underlying stock.
Finally, there are even more native onchain equities. Last week, Superstate announced that it had issued shares of Galaxy Digital common stock directly onchain – tokenized assets that have the same rights and benefits as traditional shares.
Each of these are various constructions for “tokenized equities.” It’s not yet clear if one structure will be a power law winner. Consumers will likely use many of these instruments without knowing the full constructions. As a result, interfaces will be the ones responsible for selecting / listing the different tokens. My guess is that liquidity and compliance will present major factors in listings but, so long as multiple tokenized equity constructions meet the interface’s standards, several could be integrated under the hood. We could easily end up in a world where an interface offers BackedFi’s xAPPL but Superstate-issued GLXY because each transfer agent offers the most liquid onchain markets for the respective stocks. And to the consumer, it should all just look like equities.
A similar pattern has been playing out in stablecoins. There are many different stablecoins, all intended to proxy a US dollar, but they’re not all fungible. Consequently, networks have emerged to orchestrate between different stablecoins so that it feels like the end user is just transacting with dollars. There’s an opportunity to build the same type of infrastructure for tokenized equities, especially as the category continues to grow and evolve.
The Next Big Category: New Ways to Earn Online
One of the most shocking, recurring themes I heard this summer was how many new college grads are struggling to find jobs. I was under the impression we still had a few more years until AI encroached on some of the more sophisticated entry jobs. Turns out, that was wrong.
As a result, I think how people spend their time is going to dramatically change over the next few years. One second-order effect is that people are going to have more free time, with an even greater desire to make money through creative means. This could manifest in many ways: greater participation in financial markets, the financialization of entertainment, an expansion of the types of things people can create & monetize online, and much more.
Crypto provides some of the most useful rails on which to build these types of products and services. It provides inexpensive global money rails, meaning the potential customer set is near limitless. And anyone, at any age, can build and earn so long as they have a wallet and internet connection.
We have a number of companies in the Variant portfolio that fit these themes. Zora gives creators new tools to monetize their media. Remix helps gamers (of any age) create, distribute, and monetize their games. And The Clearing Co is working on building and expanding the set of markets available to trade.
The design space for new types of products and services that help people earn online is wide open. Making money – whether it be from content, ideas, investments, entertainment, or something else – has always been a killer use case, and crypto provides some of the best rails to help people do so.
