Some Things Never Change, Even In 2025

One of the best quotes from Jeff Bezos is:

“What's going to change in the next 10 years?' And that is a very interesting question; it's a very common one. I almost never get the question: 'What's not going to change in the next 10 years?' And I submit to you that that second question is actually the more important of the two -- because you can build a business strategy around the things that are stable in time. ... [I]n our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now. They want fast delivery; they want vast selection. It's impossible to imagine a future 10 years from now where a customer comes up and says, 'Jeff I love Amazon; I just wish the prices were a little higher,' [or] 'I love Amazon; I just wish you'd deliver a little more slowly.' Impossible. And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.”

Earlier this week, we published a stereotypical VC post about new areas that our investment team is looking forward to seeing in 2025. In the spirit of the Jeff Bezos quote, we thought it would make sense to also highlight some of the trends that we generally take for granted, but that are quietly compounding and provide a stable foundation on top of which we can invest.

The Relentless Pursuit of Capital Efficiency

Kyle Samani

DeFi started with very poor capital efficiency. The Uniswap xyk curve was infamous for its poor capital efficiency.

Over the last 5 years, capital efficiency has improved in DeFi in every way. CLOBs, looping/multiply products, concentrated liquidity, using USDe as collateral on derivatives exchanges, facilitating borrow/lend using derivatives collateral, using LP positions as derivatives collateral, and more. The market will always relentlessly pursue capital efficiency.

This is the beauty of DeFi. Permissionless innovation has facilitated all of these improvements in capital efficiency.

We believe that Drift, the leading derivatives DEX on Solana, represents one version of the logical end point of capital efficiency in DeFi. Spencer and David spoke about these issues in their presentations from the 2024 Multicoin Summit.

The Insatiable Desire To Play New Financial Games

Tushar Jain

Humans will always want to gamble but the games change.

Meme coins are the next generation of gambling. Meme coins are much more volatile and therefore much more fun than traditional casino or sports betting. Meme coins offer a higher maximum return than other forms of gambling, and their extreme volatility offers a level of excitement and risk that surpasses traditional casino games or sports betting. The potential for massive returns, far exceeding those of established gambling forms, is a major draw for risk-tolerant individuals. This potential for huge gains, combined with the inherent unpredictability of meme coins, creates an experience that traditional gambling cannot match.

Meme coins also have a unique social dimension. The tokenization of internet culture into meme coins offers a social aspect which other forms of gambling lack. They are often tied to internet culture and online communities, fostering a sense of shared experience among gamblers. This social aspect transforms meme coin trading into a group activity, where individuals can connect over shared interests and experiences. This creates a sense of belonging and shared identity, which is absent in other forms of gambling.

Meme coins represent a convergence of gambling, internet culture, and social interaction. They offer a high-stakes, high-reward experience that caters to the thrill-seeking nature of humans, while also tapping into the social and communal aspects of online communities. As internet culture continues to evolve, meme coins are likely to remain a prominent fixture in the gambling landscape, offering a unique and engaging experience for those willing to embrace the risk.

The human urge to gamble is constant, but the games we play change. Meme coins are the next step in this evolution, but they won’t be the last.

The Drive For Transparency in Financial Markets

Spencer Applebaum

In TradFi trading markets, brokerages are able to offer zero fee trading for retail clients because Citadel Securities, Susquehanna International, Wolverine Trading, and other HFT firms bid to execute against that order flow. This is called payment for order flow (PFOF).

These firms are willing to bid at/near mid-price for this order flow in large quantities because by definition the order flow is uninformed. There is plenty of literature out there about why PFOF is good for the world, and is not evil (even though it often has a negative connotation).

The challenge with Robinhood and E-Trade type payment for order flow is that it is opaque, and the auctions are confined to market makers that the brokerage works with. There’s also layers of intermediaries, like clearinghouses, exchanges, brokerages, etc, all of which extract fees that are hidden from end users, and are often baked into the spread.

On the opacity of PFOF, this research piece suggests “that Robinhood’s agreements with wholesalers sacrifice PI (price improvement) in exchange for increased PFOF—exactly the conflict of interest that Chairman Gensler has expressed concerns about… If consumers could readily discern the differences in execution quality across brokers, then this alone would not be a problem. However, these differences cannot be inferred from the current disclosure regime.”

The beauty of DeFi is that it compresses settlement, exchange, custody, and execution into a single API, and all of it is transparent. This gives DeFi a natural tailwind because the market always values transparency.

DFlow, a Multicoin portfolio company, is pioneering a concept called conditional liquidity, which specifies that liquidity can only be taken if the taker is endorsed as non-toxic by a front end application (or the taker algorithmically receives improved pricing from makers). Makers can provide liquidity on an on-chain CLOB like Phoenix, or an on-chain AMM like Orca, and provide significant price improvement for retail uninformed flow, while avoiding getting picked off by toxic takers.

The entire stack is open and transparent, and utilizing conditional liquidity, PFOF can be built on top of it. It is elegant because it provides the best of TradFi and DeFi: the ability to segment order flow and offer better prices to retail traders, with the openness, transparency, and auditability that DeFi offers.

Value Capture Will Always Unbundle & Rebundle Across The Stack

Shayon Sengupta

Last year, I published a piece on the Attention Theory of Value in which I described the core unlock of crypto in consumer applications to be permissionless asset issuance and exchange in arbitrary interfaces and environments (Publisher-Exchanges).

2024 saw asset issuance converge on a handful of venues — pump.fun most prominently. These venues emerged as dominant for issuance, but critically, the assets were exchanged (traded) elsewhere — in Telegram group chats via bots, on aggregators like DexScreener and Birdeye, and sometimes directly in Phantom. Asset issuance and asset exchange were not coupled in one publisher-exchange, rather unbundled across a fragmented set of venues. Issuance and exchange of assets has been decoupled for as long as crypto capital markets have existed. Bitcoin launched on a cryptography mailing list called metzdowd.com, today it trades (via ETF) on the Nasdaq. Tokens launched on ICOBench in the 2017 era continue to trade on every major CEX.

So while pump.fun won the issuance piece of the equation last year, the exchange portion was won by Telegram bots and retail aggregator products — the new sources of orderflow. In the long run, I expect that being able to own exchange, or orderflow, is the more lucrative line of business.

These are the first innings for publisher-exchanges. The venues where asset issuance and exchange occur will be bundled and unbundled a thousand times across a thousand venues, because attention on the internet is not relegated to a single set of applications — it is everywhere on forums, live video platforms, messengers, and every other interface we interact with.

More importantly, I expect a more clear recognition among these applications that owning attention creates the opportunity to own orderflow, and orderflow is a very profitable business. Prepare to see embedded wallets and exchange functions embedded into more consumer applications in 2025.

Money Looks For Yield

Eli Qian

Everyone with money is looking for a way to earn yield, ideally in a simple and straightforward way.

Until recently, most sources of yield were gatekept to sophisticated market participants and investors. For example, if you deposit money into a savings account with Bank of America, you will earn 0.01% APY (whereas BofA will take your money and lend it back out at 10%!). Only if you then purchase money market funds can you earn a more reasonable yield. But the demand for yield persists, and products such as ETFs, which abstract away individual stock picking, and robo-advisors, which can manage your whole portfolio, have made it easier for non-sophisticated market participants to access previously gatekept yield.

Crypto follows a similar story where accessing yield from staking or lending is non-trivial and requires know-how from the user. Products that simplify access to yield will continue to compound, ending the knowledge arbitrage that has left retail users holding the short end of the stick. Today, you can show up to a wallet or app with crypto and earn staking or lending yield with a few simple clicks—knowledge of staking, borrow/lend, etc is optional. This is possible with Fuse Wallet, StakeKit, and others. In the future, wallets and DeFi apps will automatically allocate and rebalance assets across validators, lending protocols, and liquidity pools to get users the best yield 24/7.

Innovation Collapses The Cost of Banking

Vishal Kankani

The Medici family led the development of modern banking in the 1400s. Banking was slow, physical in nature, expensive, and required a great deal of trust. Over time, the cost of accessing financial services has plummeted. With blockchains, we have a clear line of sight to round-the-clock, global, $0-cost banking.

No matter how advanced financial rails become, the need for banking will always persist. Banking-as-a-Service (BaaS) started because it was hard to build basic financial building blocks on TradFi rails, regardless of application-layer innovation; naturally, this modularized in software, leading to separation of the front-ends and back-ends. Today, the back-ends are called BaaS.

BaaS providers licensed their infrastructure to fintechs, allowing companies to launch digital banks, corporate cards, and lending products with minimal time and cost. By providing these services through APIs, BaaS providers allowed tech companies to focus on customer experience and unique products, while BaaS providers handled the “boring but critical” backend: compliance, risk management, and money movement.

A hypothetical pre-blockchain BaaS stack includes banking infrastructure, KYC/AML compliance, payment processing, card issuance and data aggregation. This system works but is complex and inefficient, because it is still rooted in legacy banking infrastructure that was built in the 70s (SWIFT/ACH), has high fees, is not 24x7, is capital inefficient and not global.

Blockchains will disrupt modern BaaS because they represent a seachange innovation. By using blockchain-based assets and protocols, we can build a new BaaS model that is simpler, cheaper, faster, global, and more transparent.

A post-blockchain BaaS stack would look something like: self-custodial wallets such as Squads, programmability enhancing onchain KYC and compliance protocols such as zkMe, stablecoin payments infrastructure such as Bridge, and DeFi protocols for borrow/lend (Kamino) and trading (Drift).

The evolution of BaaS to a blockchain-based model is inevitable. As infrastructure matures, we’ll see blockchain protocols replace each component in today’s BaaS stack, creating a leaner, more efficient, and transparent model for financial services.

Squads, a Multicoin portfolio company, at its core, offers a banking-as-a-service protocol on Solana that allows businesses, individuals and developers to create a secure account that can store value and be used to transact programmatically. Squads was the first formally verified protocol on Solana, has processed more than a billion in stablecoin volumes, and assets secured using Squads Protocol are growing exponentially. We expect Squads to firmly lead the BaaS evolution in 2025.

Removing Friction Increases Usage

Matt Shapiro

When you make things easier to do by removing cost and friction, then people inherently will do more of it. Email transformed how we communicate. The iPhone increased the ease of taking pictures and capturing our lives. Amazon streamlined how we buy goods online. Social media made it seamless to share content.

It seems apparent that if you make it easier to transact and send money, the same result will occur. Stablecoins will likely spur one of the biggest financial transformations of our time. The ability to send money 24/7 with near-instant settlement will have a profound impact. It will enable the US Dollar to penetrate new markets and get into the hands of real people in a way that Treasury auctions do not. It will enable commerce to be more effective with no down-time on nights, weekends, or holidays. It will reduce working capital requirements and materially cut down on costs and time of cross-border transactions. Stablecoin supply has already reached new highs, as have stablecoin transactions, and both should accelerate as regulatory clarity opens the door toward stablecoin acceptance.

The growth of stablecoins is going to further catalyze the concept of open finance. When it's easier to transact, more transactions will happen. Those with stablecoins will seek yield on those assets, gravitating to platforms like Kamino and Drift, which autonomously match lenders and borrowers by reducing friction. Once on-chain, holders of stablecoins are one touch away from money market funds such as Blackrock’s BUIDL, and decentralized exchanges such as Drift, Jupiter, Raydium, and Uniswap. As on-chain assets continue to grow there will undoubtedly be more assets in which stablecoin holders can choose to own and participate in. Stablecoins are the trojan horse to the on-chain economy, which is poised to grow into a more inclusive and open, global financial system.