This article is from | Multicoin Capital

Translation by | Odaily Planet Daily (@OdailyChina)

Translator | Azuma (@azuma_eth)

Two days ago, Multicoin Capital published an article titled “Multicoin Capital: Frontier Narratives Before 2025,” which outlined the most uncertain yet imaginative frontier narratives for 2025.

Today, Multicoin Capital has published another article, but this time the focus is on the most certain "eternal narratives."

Below is the full content from Multicoin Capital, translated by Odaily Planet Daily.

Amazon founder Jeff Bezos has a famous saying.

What will change in the next 10 years? That’s a very interesting question and one that is often asked. But I am almost never asked this question — what will not change in the next 10 years? In my view, the second question is actually more important because knowing what won’t change allows you to build a business strategy around those certain events. In our retail business, we know customers want lower prices, and I know that will be true 10 years from now; they want faster delivery; they want a wider selection of products… Clearly, no matter how many years from now, no customer will come to me and say, “Hey, Jeff, I love Amazon, but I’d like you to charge me a little more and deliver a little slower”… That’s never going to happen. So we need to focus our energy on those things and get better at them. We know that the energy we put in today will still yield positive feedback for our customers 10 years from now. When you know something is valuable in the long term, you can invest a lot of energy into it.

Earlier this week, we published a typical VC article mainly about the new opportunities the Multicoin Capital investment team looks forward to seeing in 2025. Based on Bezos's logic, we believe it is also necessary to emphasize those trends that we often take for granted but are still evolving. This provides us with a stable opportunity on which we can continue to invest.

Eternal Narrative One: The Unrelenting Pursuit of Capital Efficiency

Narrator: Kyle Samani (Co-founder of Multicoin Capital)

The capital efficiency of DeFi was very low at the beginning. The xy=k curve of Uniswap is notoriously low in capital efficiency.

Over the past five years, capital efficiency in DeFi has improved in various ways. CLOB, looping/multiply products, concentrated liquidity, USDe-based derivatives exchanges, borrowing against derivatives collateral, using LP positions as derivatives collateral, and so on… The market has always relentlessly pursued capital efficiency.

That’s the charm of DeFi. Permissionless innovation has driven all these improvements in capital efficiency.

We believe that Drift, a leading derivatives exchange on Solana, represents a key direction in the quest for capital efficiency in DeFi. A version of the logical endpoint. Spencer and David discussed these issues in their talk at the 2024 Multicoin Summit.

Eternal Narrative Two: The Irresistible New Financial Games

Narrator: Tushar Jain

Humans have always wanted to gamble, but the games keep changing.

Meme tokens are the new generation of gambling games. The volatility of meme tokens is greater, making them more interesting than traditional casinos or sports betting. Compared to other forms of gambling, meme tokens offer higher potential returns, and the thrill and risk associated with their extreme volatility far exceed those of traditional casino games or sports betting, making them highly attractive to those with a higher risk tolerance. The potential for massive gains, combined with the inherent unpredictability of meme tokens, creates an experience unmatched by traditional gambling.

Meme tokens also have a unique social dimension. Abstracting internet culture into a meme token provides social attributes that other forms of gambling lack. They are often associated with internet culture and online communities, fostering a "consensus" among gamblers. This social attribute transforms trading meme tokens into a collective activity where individuals can connect through shared interests and experiences. This creates a sense of belonging and a shared identity that other forms of gambling do not possess.

Meme tokens represent a fusion of gambling, internet culture, and social interaction. They offer a high-stakes, high-reward experience that caters to humanity's quest for excitement while leveraging the sociability and collectiveness of online communities. As internet culture continues to evolve, meme tokens are likely to remain an important part of the gambling industry, providing unique and appealing experiences for those willing to take risks.

The human impulse to gamble is eternal, but the games we play are constantly changing. Meme tokens are the next step in this evolution, but they will not be the last step.

Eternal Narrative Three: Transparency in Financial Markets

Narrator: Spencer Applebaum

In TradFi trading markets, brokers can offer zero-fee trading services to retail investors because high-frequency trading (HFT) firms like Citadel Securities, Susquehanna International, and Wolverine Trading bid to execute these orders. This is known as payment for order flow (PFOF).

These firms are willing to bid for large orders at mid-price or close to mid-price. There is a wealth of literature on why PFOF is beneficial to the world rather than evil (despite its often negative connotation).

The challenge faced by order flow payment models like Robinhood and E-Trade is that they are opaque, and bidding is limited to market makers that partner with brokers. Additionally, there are multiple layers of intermediaries, such as clearinghouses, exchanges, and brokers, all of which charge hidden fees to end users, often embedded in the spread.

Regarding the opacity of PFOF, a research paper noted: "The agreements that Robinhood has with wholesalers have come at the expense of slippage in exchange for the growth of PFOF — which is precisely the conflict of interest issue that SEC Chair Gensler is concerned about… If consumers could easily discern the differences in execution quality among different brokers, that in itself would not be a problem. However, these differences cannot be inferred from the current disclosure regime."

The allure of DeFi lies in its ability to compress settlement, exchanges, custody, and execution into a single API, all of which are transparent. This gives DeFi a natural advantage, as the market always values transparency.

The project DFlow, invested in by Multicoin, is pioneering a concept called "conditional liquidity." This concept stipulates that liquidity can only be matched when the matching party is recognized as non-malicious by the front-end application (or the matching party can obtain better pricing from market makers through algorithms). Market makers can provide liquidity on on-chain CLOBs like Phoenix or on-chain AMMs like Orca, offering better slippage performance for retail orders while avoiding exploitation by malicious matching parties.

The entire stack is open and transparent, and using "conditional liquidity," PFOF can be built on this foundation. It elegantly combines the best features of traditional finance and DeFi: the ability to segment order flow and provide better quotes to retail investors while maintaining the openness, transparency, and auditability that DeFi offers.

Eternal Narrative Four: Value Capture Models Will Continue to Split and Bundle

Narrator: Shayon Sengupta

Last year, I published an article on the “Attention Theory of Value,” in which I described that the core way to introduce cryptocurrency into consumer applications is through permissionless asset issuance and trading in any interface and environment.

In 2024, asset issuance is concentrated in a few venues, with pump.fun being the most prominent. These venues dominate asset issuance, but importantly, assets are traded elsewhere — on Telegram bots, on aggregators like DexScreener and Birdeye, within Phantom wallets… The issuance and trading of assets do not occur on the same "issuance platform/trading platform," but across a series of decentralized venues. As long as the crypto capital market exists, the issuance and trading of assets have always been decoupled. Bitcoin was initially issued on a crypto mailing list called metzdowd.com, but today it trades on Nasdaq (via ETFs). Tokens launched during the ICOBench period in 2017 are traded on major CEXs.

Therefore, while pump.fun won the issuance segment last year, the trading segment was taken by Telegram bots and retail aggregation products (new sources of order flow). In the long run, I believe that owning exchanges or order flow will be the more profitable business.

This is just the beginning of the issuance platform/trading platform. The issuance and trading of assets will be split and bundled a thousand times across a thousand venues because attention on the internet is not confined to a single application; it exists across forums, live streaming platforms, chat tools, and other interfaces we interact with, omnipresent.

More importantly, I hope these applications can more clearly recognize that having attention provides the opportunity to own order flow, and order flow is a very profitable industry. Get ready to see wallets and trading features embedded in more consumer applications by 2025.

Eternal Narrative Five: The Quest for Yield

Narrator: Eli Qian

Everyone is looking for ways to earn yield, preferably in a simpler and clearer manner.

Until recently, most sources of yield were only available to mature market participants and investors. For example, if you deposit money into a savings account at Bank of America, you will earn an annual interest rate of 0.01% (while Bank of America lends your money out at a 10% interest rate!). Only by purchasing money market funds can one achieve more reasonable yields. However, the demand for yield still exists, and products like ETFs (which abstract stock selection) and robo-advisors (which can manage your entire portfolio) have made it easier for non-expert market participants to access previously locked yields.

The situation in cryptocurrency is similar; earning yield from staking or lending is not easy and requires users to have a certain level of expertise. Products that simplify the process of obtaining yield will continue to emerge, ending the passive knowledge arbitrage situation for retail investors. Nowadays, with just a few simple clicks, you can log into a wallet or application with cryptocurrency and earn staking or lending yields without much relevant knowledge. Products like Fuse Wallet and StakeKit can do this. In the future, wallets and DeFi applications will automatically allocate and rebalance assets between validators, lending protocols, and liquidity pools, providing users with optimal yields around the clock.

Eternal Narrative Six: Reducing Banking Costs Through Innovation

Narrator: Vishal Kankani

The Medici family led the development of modern banking in the 14th century. At that time, banking was slow, physical, costly, and required a great deal of trust. Over time, the cost of accessing financial services has dramatically decreased. With blockchain, we can clearly see banking services that are available 24/7, global, and at zero cost.

No matter how advanced financial tools become, the demand for banking services remains constant. The rise of Banking as a Service (BaaS) stems from the difficulty of building basic financial components on the TradFi track, regardless of how innovative the application layer is; naturally, this has led to modularization in software, resulting in a separation of the front end and back end. Today, the back end is referred to as BaaS.

BaaS providers license their infrastructure to fintech companies, enabling them to launch digital banking, corporate cards, and lending products with minimal time and cost. By providing these services through APIs, BaaS providers allow tech companies to focus on customer experience and products, while BaaS handles the "boring but critical" back-end operations, including compliance, risk management, and cash flow.

The pre-blockchain era BaaS stack included banking infrastructure, KYC/AML compliance, payment processing, card issuance, and data aggregation. This system can operate but is complex and inefficient because it is still rooted in the traditional banking infrastructure established in the 1970s (SWIFT/ACH), which is costly, not available 24/7, has low capital efficiency, and is not global.

Blockchain will disrupt modern BaaS because it represents transformative innovation. By using blockchain-based assets and protocols, we can build a new BaaS model that is simpler, cheaper, faster, more global, and more transparent.

The post-blockchain era BaaS stack will include self-custody wallets like Squads, enhanced on-chain KYC and compliance protocols like zkMe, stablecoin payment infrastructure like Bridge, and DeFi protocols for lending (Kamino) and trading (Drift).

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

Squads is a project invested in by Multicoin, whose core is to provide Banking as a Service protocols on Solana, allowing businesses, individuals, and developers to create a secure account that can store value and be used for programmatic trading. Squads is the first formally verified protocol on Solana and has already processed over 1 billion stablecoin transactions, with assets collateralized using the Squads protocol growing exponentially. We expect Squads to lead the development of BaaS in 2025.

Eternal Narrative Seven: Eliminating Friction to Increase Usage

When you make things simpler by reducing costs and friction, people will naturally use them more. Email changed the way we communicate; the iPhone increased the convenience of taking photos and recording life; Amazon simplified the way we purchase goods online; social media made sharing content smoother.

Clearly, making transactions and remittances easier will yield the same results. Stablecoins may be one of the biggest financial revolutions of this era. The ability to remit funds 24/7 with near-instant settlement will have profound implications. It will allow the dollar to penetrate new markets and reach ordinary people in ways that Treasury auctions cannot. It will make business activities more efficient, eliminating downtime during nights, weekends, or holidays. It will reduce working capital needs and significantly lower the costs and time of cross-border transactions. The supply of stablecoins has reached new highs, trading volumes of stablecoins have also hit new records, and as regulations become clearer, the acceptance of stablecoins will increase.

The development of stablecoins will further catalyze the concept of open finance. When transactions become easier, more transactions will occur. Those who hold stablecoins will seek yields on these assets and will be inclined towards platforms like Kamino and Drift, which autonomously match borrowers and lenders by reducing friction. Once on-chain, stablecoin holders can earn yields from money market funds (like Blackrock's BUIDL) and decentralized exchanges (like Drift, Jupiter, Raydium, and Uniswap) with just a few clicks. As on-chain assets continue to grow, there is no doubt that stablecoin holders will have an increasing number of assets to own and participate in. Stablecoins are the Trojan horse of the on-chain economy, and they will grow into a more inclusive and open global financial system.

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