Coinbase Report: Crypto Market Outlook for 2025

Original title: "2025 Crypto Market Outlook"

Author:Coinbase

Compiled by: Felix, PANews

Looking forward to 2025, the encryption market will usher in transformative growth. The maturity of the asset class continues to gain momentum as institutional adoption increases and use cases continue to expand across various sectors. Just in the past year, spot ETFs have been approved in the United States, the tokenization of financial products has increased significantly, stablecoins have grown significantly, and are further integrated into the global payments framework.

Achieving this goal will not be easy. While it's easy to see these successes as the culmination of years of hard work, there's a growing consensus that this is actually just the beginning of a much bigger journey.

Cryptocurrency’s progress is even more impressive considering that just a year ago, the asset class was reeling from rising interest rates, regulatory crackdowns and an uncertain path forward. Despite all these challenges, cryptocurrencies have become a solid alternative asset, proving the resilience of cryptocurrencies.

However, from a market perspective, the 2024 uptrend does have some clear differences from previous bull cycles. Some of this is superficial: "Web3" was replaced by the more appropriate "onchain". Others are more far-reaching: The need for fundamentals has begun to overtake the influence of narrative-driven investing strategies, in part due to increased institutional involvement.

Furthermore, not only is Bitcoin’s dominance surging, but innovation in DeFi is pushing the boundaries of blockchain—putting the foundations of a new financial ecosystem within reach. Central banks and major financial institutions around the world are discussing how cryptography 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’re looking at decentralized peer-to-peer exchanges, decentralized prediction markets, and artificial intelligence (AI) agents equipped with crypto wallets. On the institutional side, there is huge potential for 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 level of cryptocurrency awareness, the technology remains obscure to many people due to its novel technical structure. But technological innovation is also expected to change this, as more and more projects focus on improving user experience by abstracting blockchain complexity and enhancing smart contract functionality. Success on this front could expand the accessibility of cryptocurrencies to new users.

At the same time, the United States has laid a clearer regulatory foundation in 2024, well before the November election. This sets the stage for greater progress in 2025, potentially cementing digital assets’ place in mainstream finance.

As the regulatory and technological landscape evolves, the crypto ecosystem is expected to see substantial growth as wider adoption will push the industry closer to realizing its full potential. 2025 will be a pivotal year, with breakthroughs and advancements that are likely to help shape the long-term trajectory of the crypto industry for decades to come.

Theme 1: 2025 Macro Roadmap

What the Fed wants What the Fed needs

Trump’s victory in the 2024 US presidential election is the most important crypto market catalyst in Q4’24, pushing Bitcoin up 4-5 standard deviations (compared to the three-month average). But looking forward, the short-term fiscal policy response will not be as meaningful as the long-term direction of monetary policy, especially with the Fed approaching a critical moment. However, it may not be so easy to separate the two. 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. That's because tax cuts and tariffs are likely to push up inflation, and while overall CPI has fallen to 2.7% year-on-year, core CPI is still hovering around 3.3%, above the Fed's target.

Regardless, the Fed wants to keep inflation under control from current levels, which means prices need to rise, but more slowly from now on, to help achieve another of its mandates - full employment. Households, on the other hand, have been demanding lower prices after experiencing the pain of rising prices over the past two years. However, while falling prices may be politically expedient, they risk falling into a vicious cycle that ultimately leads to economic recession.

Still, a soft landing appears to be the base case for now, thanks to lower long-term interest rates and American Exceptionalism 2.0. At this point, the Fed's rate cuts are just a formality as credit conditions are already loose, which is a supportive backdrop for cryptocurrency performance over the next 1-2 quarters. At the same time, the next administration’s projected deficit spending (if realized) should translate into greater risk-taking (cryptocurrency purchases) as more dollars circulate through the economy.

The most pro-cryptocurrency US Congress ever

After years of struggling with regulatory ambiguity, the next U.S. legislative session may bring greater regulatory clarity to the crypto industry. The election sent a strong message to Washington that the public is dissatisfied with the current financial system and wants change. From a market perspective, both parties in the House and Senate support cryptocurrencies, which means that U.S. regulation may shift from "headwinds" to "tailwinds" in 2025.

A new element of the discussion is the possibility of establishing a strategic Bitcoin reserve. Following the Bitcoin Nashville conference, Senator Cynthia Lummis (WY) not only introduced a Bitcoin bill in July 2024, but also the Pennsylvania Bitcoin Strategic Reserve Act. 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 already hold cryptocurrencies or cryptocurrency ETFs in their pension funds, and Florida is not far behind. But creating a strategic Bitcoin reserve may face some challenges, such as legal limits on the amount of Bitcoin that can be held on the Fed’s balance sheet.

Meanwhile, the U.S. is not the only jurisdiction poised to make regulatory progress. The growth of global encryption demand is also changing the competitive landscape of international regulation. The European Union’s Regulated 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 such as the United Kingdom, United Arab Emirates, Hong Kong, and Singapore are also actively formulating rules to adapt to digital assets to create a more favorable environment for innovation and growth.

Crypto ETFs 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). That's far more than the $4.8 billion (inflation-adjusted) the SPDR Gold Shares ETF (GLD) attracted in its first year after launching in October 2004. According to Bloomberg, this puts these instruments “in the top 0.1% of approximately 5,500 new ETFs launched over 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% in November 2024. According to the latest 13-F filings, nearly every type of institution is now a holder of these products, including endowments, pension funds, hedge funds, investment advisors and family offices. At the same time, the introduction of US-regulated options on these products (November 2024) is likely to enhance risk management and improve the cost-effectiveness of these assets.

Going forward, the focus for the industry is that issuers may expand the scope of exchange-traded products to include other tokens such as XRP, SOL, LTC and HBAR, although potential approvals may only be positive for a limited group of assets in the short term Influence. But of greater concern is what would happen if the U.S. SEC allowed staking of ETFs or removed the authorization to create and redeem ETF shares for cash rather than in kind. The latter authorization introduces a settlement delay between when an authorized participant (AP) receives a buy or sell order and when the issuer can create or redeem the corresponding shares. This delay, in turn, creates a misalignment between the ETF share price on the screen and the actual net asset value (NAV).

Introducing physical creation and redemption could not only improve price alignment between share price and NAV, but also help narrow the spread on ETF shares. That is, participants (APs) do not need to quote cash higher than the transaction price of Bitcoin, thus reducing costs and increasing efficiency. The current cash-based model also brings with it other impacts associated with the ongoing buying and selling of BTC and ETH, such as increased price volatility and triggering taxable consequences, that do not apply to physical transactions.

Stablecoins, the “ killer app ” for cryptocurrencies

Stablecoins have experienced significant growth in 2024, with total market capitalization increasing by 48% to $193 billion (as of December 1). Some market analysts believe that based on current trajectory, the industry could grow to nearly $3 trillion over the next five years. While it may seem high, consider that this valuation is comparable to the size of the entire cryptocurrency today and represents only about 14% of the total US M2 supply of $21 trillion.

The next real wave of cryptocurrency adoption may come from stablecoins and payments, which could explain the surge in interest in the space over the past 18 months. Their ability to facilitate faster and cheaper transactions compared to traditional methods has led to an increasing number of payment companies looking to expand their stablecoin infrastructure, thereby increasing the utilization of digital payments and remittances. In fact, we may soon see the main use case for stablecoins not just in transactions, but in global capital flows and commerce. However, beyond broader financial applications, stablecoins’ ability 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, almost three times the $9.3 trillion in the same 11 months of 2023. These include a large number of peer-to-peer (P2P) transfers and cross-border business-to-business (B2B) payments. Businesses and individuals are increasingly leveraging stablecoins like USDC to meet regulatory requirements and have extensive integration with payment platforms such as Visa and Stripe. Stripe acquired stablecoin infrastructure company Bridge for $1.1 billion in October 2024, the largest deal in the crypto industry to date.

Tokenization revolution

Tokenization continues 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), according to rwa.xyz data ), an increase of more than 60%. Predictions from multiple analysts suggest that the industry could grow to at least $2 trillion and as much as $30 trillion over the next five years—possibly growing nearly 50 times. Asset managers and traditional financial institutions such as BlackRock and Franklin Templeton are increasingly embracing the tokenization of government securities and other traditional assets on permissioned and public blockchains, allowing for near-instant Cross-border settlement and 24/7 trading.

Institutions are trying to use such tokenized assets as collateral for other financial transactions, such as those involving derivatives, which can simplify operations (such as margin calls) and reduce risk. Additionally, the RWA trend is expanding beyond assets such as U.S. Treasuries and money market funds, gaining traction in private credit, commodities, corporate bonds, real estate and insurance. Ultimately, tokenization could simplify the entire portfolio building and investing process by bringing it on-chain, although this may still be a few years away.

Of course, these efforts face a unique set of challenges, including fragmented liquidity across multiple chains and ongoing regulatory hurdles — although significant progress has been made on both fronts. Tokenization is expected to be a gradual and ongoing process; however, recognition of its advantages is clear. This period is the perfect time to experiment and ensure your business remains at the forefront of technological advancements.

DeFi renaissance

DeFi is dead. Long live DeFi. DeFi took a major hit in the last cycle as some applications used token incentives to channel liquidity, providing unsustainable gains. Yet a more sustainable financial system has emerged that combines real-world use cases and transparent governance structures.

A shift in the U.S. regulatory landscape could reinvigorate DeFi’s prospects. This could include establishing a framework to govern stablecoins, as well as ways for traditional institutional investors to participate in DeFi, especially seeing growing synergies between off-chain and on-chain capital markets. In fact, DEX currently accounts for approximately 14% of CEX trading volume, up from 8% in January 2023. In the face of a friendlier regulatory environment, even decentralized applications (dApps) are increasingly likely to share protocol revenue with token holders.

Additionally, the role of cryptocurrencies in disrupting financial services has been recognized by key players. In October 2024, Federal Reserve Governor Christoper Waller discussed how DeFi can complement centralized finance (CeFi) to a large extent, arguing that distributed ledger technology (DLT) can make CeFi’s record-keeping faster and more efficient, while smart contracts The capabilities of CeFi can be improved. He also believes that stablecoins could be beneficial for payments and serve as “safe assets” on trading platforms, although they would require reserves to mitigate risks such as runs and illicit financing. All of this suggests that DeFi may soon expand beyond the crypto user base and begin to engage more with traditional finance (TradFi).

Theme 2: Subverting the Paradigm

Telegram Trading Bot: Cryptocurrency’s Hidden Profit Center

After stablecoins and native L1 transaction fees, Telegram trading bots became the most profitable segment in 2024, surpassing even major DeFi protocols such as 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 track in 2024 (as measured by total market cap growth), with meme token trading activity (on Solana DEXs) surging throughout Q4’24.

Telegram bots are a chat-based interface for trading these coins. Escrow wallets are created directly in the chat window and can then be funded and managed via buttons and text commands. As of December 1, 2024, bot users are primarily focused on the Solana token (87%), followed by Ethereum (8%), and Base (4%).

Like most trading interfaces, Telegram bots earn a percentage of each transaction, up to 1% of the transaction amount. However, users may not be deterred by high fees due to the volatility of the underlying assets they trade. As of December 1, Photon, the top-earning bot, has accumulated year-to-date fees of $210 million, close to Solana’s largest memecoin launcher Pump’s $227 million. Other major bots, such as Trojan and BONKbot, also made impressive profits of $105 million and $99 million respectively. This compares to Aave's full year 2024 protocol revenue of $74 million, net of fees.

The appeal of these applications stems from their ease of use in DEX trading, especially for tokens that are not yet listed on the exchange. Many bots also offer additional features, such as “sniping” coins on launch, and integrated price alerts. Telegram’s transaction experience is quite attractive to users, with nearly 50% of Trojan users remaining for four days or more (only 29% stopped using it after one day), and each user brought in a high of $188. average income. While increasing competition among Telegram trading bots may eventually reduce transaction fees, Telegram bots (along with the other core interfaces discussed below) will remain a major profit center through 2025.

Prediction Markets: Betting

Prediction markets could be one of the biggest winners in the 2024 U.S. election, as platforms like Polymarket outperform polling data that predict the outcome of the race to be closer than the final outcome. It’s a win for crypto more broadly, as prediction markets using blockchain show significant advantages over traditional polling data and demonstrate the technology’s potentially differentiated use cases. Not only do prediction markets demonstrate the transparency, speed, and global access cryptography offers, but their blockchain underpinnings also allow for decentralized dispute resolution and automated outcome-based payment settlement.

While many believe the relevance of these dapps may fade after the election, their use has expanded into other areas such as sports and entertainment. In the financial sector, they have proven to be more accurate sentiment indicators than traditional surveys released by economic data such as inflation and non-farm payrolls, which are likely to continue to be useful and relevant after the election.

Games

Gaming has long been a core theme in the crypto space due to the transformative impact that on-chain assets and markets can bring. However, attracting a loyal user base for crypto games (a hallmark of most traditionally successful games) has been a challenge so far, as many crypto game users are motivated by profit and may not play for fun game. Additionally, many crypto games are web browser-based, often limiting their audience to cryptocurrency enthusiasts rather than gamers at large.

However, games integrating cryptocurrencies have come a long way compared to the previous cycle. At the core of this trend is a shift away from the early cryptopunk ethos of “owning your game entirely on-chain” towards selectively placing assets on-chain to unlock new features without affecting the gameplay itself. In fact, many prominent game developers now view blockchain technology more as a convenience tool than a marketing tool.

First-person shooter and battle royale game Off the Grid exemplifies this trend. At launch, the game's core blockchain component (the Avalanche subnet) is still in the testnet, although it has become the number one free-to-play game on Epic Games. Its core appeal is its unique game mechanics, not its blockchain token or item trading market. Crucially, the game also paves the way for crypto-integrated games to expand their distribution channels to gain wider market appeal and be available on Xbox, Playstation and PC (via the Epic games store).

Mobile devices are also an important distribution channel for crypto games, including native apps and embedded apps (such as Telegram mini-games). Many mobile games will also selectively integrate blockchain components, with most activities actually running on centralized servers. Generally speaking, these games can be played without setting up any external wallets, reducing the friction of entry and making these games accessible to those who are new to crypto.

The lines between crypto and traditional gaming may continue to blur. Upcoming mainstream “crypto games” are likely to be integrated with crypto rather than crypto-focused, emphasizing refined gameplay and distribution rather than in-game earning mechanics. That said, while this could lead to wider adoption of cryptocurrencies as a technology, it’s less clear how this will directly translate into demand for liquid tokens. In-game currency will likely remain segregated across games.

Decentralized real world

Decentralized Physical Infrastructure Networks (DePIN) can potentially transform “real world” distribution problems by guiding the creation of resource networks. That said, DePIN could theoretically overcome the initial economies of scale typically associated with such projects. DePIN projects range from computing power to cell towers to energy and are creating a more resilient and cost-effective way to integrate these resources.

The most typical example is Helium, which distributes tokens to individuals providing local cellular hotspots. By issuing tokens to hotspot providers, Helium is able to launch coverage maps in large urban areas in the United States, Europe, and Asia without the overhead of building and distributing cell towers or spending large amounts of upfront capital. Instead, early adopters are motivated by gaining early exposure and equity in the network itself via 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 can vary widely. For example, pursuing a decentralized strategy may not be appropriate for a certain industry, or it may only solve a small subset of the problems in that industry. The space can vary widely between network adoption, token utility, and revenue generated – all of which may have more to do with the underlying industry they target than the underlying technology network they use.

artificial intelligence, real value

Artificial intelligence (AI) has always been a focus for investors in both traditional and crypto markets. However, the impact of artificial intelligence on cryptocurrencies is multifaceted, and its narrative often changes. In its early stages, blockchain technology aims to solve the problem of data provenance for AI-generated content and users (i.e., tracking the authenticity of the data). AI-powered intent-driven architecture has also been cited as a potential improvement to crypto user experience. Later, the focus shifted to decentralized training and computing networks for AI models, and encryption-driven data generation and collection. Recently, attention has been focused on autonomous artificial intelligence agents capable of controlling crypto wallets and communicating via social media.

The full impact of artificial intelligence on cryptocurrencies is unclear, as evidenced by the rapid recycling of narratives. However, this uncertainty will not diminish the potential transformation that AI could bring to cryptocurrencies, as AI technology continues to achieve new breakthroughs. AI applications are also increasingly accessible to non-technical users, which will further accelerate the development of creative use cases.

The big question is determining how these shifts manifest into lasting value accumulation in tokens versus company equity. For example, many AI agents run on legacy technology, with short-term “value accumulation” (i.e. market attention) flowing to memecoin rather than any underlying infrastructure. While tokens related to the infrastructure layer have also seen price increases, their usage growth has generally lagged behind price increases over the same period. The pace at which prices are rising relative to network indicators reflects a lack of strong consensus among investors on how to capture AI growth in cryptocurrencies.

Topic Three: Blockchain Metagame

Is the future of multi-chain still a zero-sum game?

A big theme coming back from the last bull cycle is the popularity of L1s networks. Newer networks are increasingly competing for lower transaction costs, redesigned execution environments, and minimized latency. Even though prime block space remains scarce, L1 space has expanded to the 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 enable certain blockchains to command additional fees. Ethereum, for example, remains the center of high-value DeFi activity, despite its mainnet execution capabilities not improving since 2021.

Still, investors are attracted to the potentially differentiated ecosystems on these new networks, even as the bar for differentiation is rising. High-performance chains like Sui, Aptos, and Sei are competing with Solana for market share.

Historically, trading on DEXs has been the largest driver of on-chain fees, which requires strong user logins, wallets, interfaces, and capital—creating a cycle of ever-increasing activity and liquidity. This concentration of activity often results in a winner-take-all situation across different chains. However, the future may still be multi-chain, as different blockchain architectures offer unique advantages to meet various needs. While AppChains and L2s solutions can offer tailored optimization and lower costs for specific use cases, multi-chain ecosystems allow for specialization while still benefiting from broader network effects and innovation across the blockchain space.

Upgrade L2s

Despite the exponential growth in the scaling capabilities of L2s, the debate surrounding Ethereum’s rollup-centric roadmap continues. Criticisms include L2s’ “extraction” of L1 activity, and their fragmented liquidity and user experience. In particular, L2s are believed to be at the root of the decline in Ethereum network fees and the demise of the “ultrasonic currency” narrative. New focuses of the L2 debate are gradually emerging, including decentralization trade-offs, different virtual machine environments (potential fragmentation of EVM), etc.

Nonetheless, L2s has achieved some success from the perspective of increasing block space and reducing costs. The introduction of blob transactions in the Ethereum Dencun (Deneb+Cancun) upgrade in March 2024 reduced the average L2 cost by more than 90% and increased the activity of Ethereum L2s by 10 times. Additionally, multiple execution environments and architectures enable experimentation in ETH-based environments, a long-term advantage of the L2-centric approach.

However, this roadmap also has some short-term shortcomings. Cross-rollup interoperability and general user experience become more difficult to navigate, especially for newbies who may not fully understand how ETH differs between different L2s, or how to bridge between them. Indeed, while bridge speeds and costs have improved, users first needing to interact with a cross-chain bridge degrades the overall on-chain experience.

While this is a real problem, the community is pursuing many different solutions, such as superchain interoperability in the Optimism ecosystem, real-time proofs and supertransactions with zkRollups, resource lock-based, sequencer networks, and more. Many of these challenges are being addressed at the infrastructure and network layers, and it may take time for these improvements to be reflected in the user interface.

At the same time, the growing Bitcoin L2 ecosystem is more difficult to navigate because there is no unified security standard and roadmap. In contrast, Solana's "network extensions" tend to be more application-specific and potentially less disruptive to current user workflows. Overall, L2s are being implemented in most major crypto ecosystems, although their forms vary widely.

Everyone has a chain

The increasing ease of customizing network deployments is prompting more and more applications and companies to build chains over which they have more control. Mainstream DeFi protocols such as Aave and Sky have clear goals and include releasing blockchains in their long-term roadmaps, and the Uniswap team has also announced plans for a DeFi-focused L2 chain. Even more traditional companies are getting involved. Sony announced its new chain Soneium plan.

As the blockchain infrastructure stack matures and becomes increasingly commoditized, owning the block space is considered increasingly attractive – especially for regulated entities or applications with specific use cases. The technology stack that enables this is also changing. In previous cycles, application-centric chains primarily leveraged the Cosmos or Polkadot Substrate SDKs. Additionally, the growing RaaS industry, represented by companies such as Caldera and Conduit, is driving more projects to release L2. These platforms facilitate easy integration with other services through their marketplaces. Likewise, the Avalanche subnet may see increased adoption due to its managed blockchain service AvaCloud, which simplifies the launch of custom subnets.

The growth of modular chains will likely have a corresponding impact on the demand for the Ethereum blob space and other data availability solutions such as Celestia, EigenDA or Avail. Ethereum blob usage has reached saturation (3 blobs per block) since early November and has grown by more than 50% since mid-September. Demand doesn't appear to be slowing down, as existing L2s (like Base) continue to scale throughput and new L2s are launched on mainnet, although the upcoming Pectra upgrade in Q1'25 may increase the target blob number from 3 to 6.

Theme 4: User experience

User experience improvements

Simple user experience is one of the most important drivers of mass adoption. While cryptocurrencies have historically focused on deep technology, the focus is now rapidly shifting toward a streamlined user experience. In particular, there is an industry-wide push to abstract the technical aspects of cryptocurrencies into the context of applications. A number of recent technological breakthroughs have made this shift possible, such as the adoption of account abstraction to simplify onboarding and the use of session keys to reduce signing friction.

The adoption of these technologies will make the security components of crypto wallets (such as mnemonic phrases and recovery keys) invisible to most end users - similar to the seamless security experience of today's Internet (such as https, OAuth and password protection). key). Expect to see key login and in-app wallet integration trends more in 2025. Early signs include key login for Coinbase Smart Wallet and Google integrated login for Tiplink and Sui Wallet.

The abstraction of cross-chain architecture will likely continue to pose the greatest challenge to the crypto experience in the short term. Cross-chain abstraction, while still a focus of research at the network and infrastructure levels (e.g. ERC-7683), is still far away from front-end applications. Improvements in this area 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 provide a clearer experience for users. The latter will ultimately be more important for expanding adoption, although current research efforts and industry debate are focused on the former.

Have an interface

The most critical shift in crypto user experience will come from efforts to “own” the user relationship through better interfaces. This will happen in two ways. The first is the improvements to the standalone wallet experience mentioned above. Onboarding processes are becoming increasingly streamlined to meet user needs. Integrating applications (such as trading and lending) directly within the wallet may also lock users into a familiar ecosystem.

At the same time, apps are increasingly competing for user relationships by abstracting blockchain technology components into the backend through integrated wallets. This includes trading tools, games, on-chain social and membership applications that automatically provide wallets to users who sign up through familiar methods such as Google or Apple OAuth. Once logged in, on-chain transactions are funded through the payer, the cost of which is ultimately borne by the application owner. This creates a unique dynamic where revenue per user needs to be consistent with covering the costs of their on-chain operations. While this latter cost continues to decrease as blockchains scale, it also forces crypto applications to consider which data components to commit on-chain.

Overall, there will be fierce competition to attract and retain users in the crypto space. As the aforementioned Telegram trading bot’s average revenue per user (ARPU) shows, many retail crypto traders tend to be relatively price-insensitive compared to existing TradFi entities. Over the next year, it is expected that building user relationships beyond the realm of transactions will also become a focus of the protocol.

Decentralized identity

As regulatory transparency continues to increase and more assets are tokenized off-chain, streamlining KYC and anti-money laundering (AML) processes becomes increasingly important. For example, certain assets are only available to accredited investors located in certain regions, making identification and authentication core pillars of the long-term on-chain experience.

There are two key components to this. The first is creating the on-chain identity itself. The Ethereum Name Service (ENS) provides a standard for resolving human-readable ".eth" names to one or more wallets across the chain. This change now exists in networks like Basenames and Solana Name Service. With major traditional payment providers such as PayPal and Venmo now supporting ENS address resolution, adoption of these core on-chain identity services has accelerated.

The second core component is building properties for on-chain identity. This includes confirmation of KYC verification and other protocols which jurisdiction data can then be viewed to ensure compliance. At the heart of this technology is the Ethereum Attestation Service, a flexible service that allows entities to attribute attributes to other wallets. These properties are not limited to KYC, they can be freely extended to meet the needs of the prover. For example, Coinbase’s on-chain verification utilizes this service to confirm that a wallet is associated with a user who has a Coinbase exchange account and is located in certain jurisdictions. Some of the new permissioned lending markets on Base for real-world assets will use these verifications to control usage.