Multicoin: Some trends never change, even in 2025

Author: Multicoin Capital, Translated by: 0xjs@Golden Finance

Jeff Bezos Bezos famously said:

"What's going to change in 10 years? That's a very interesting question, and it's a very common question. But almost no one asks me, 'What won't change in 10 years?' And I'll tell you, the second question is actually more important - because you can build a business strategy around the things that don't change over the long term. ... In our retail business, we know that customers want low prices, and I know that's going to be the case 10 years from now. They want fast shipping, and they want selection. It's hard to imagine a future where 10 years from now there's a customer coming to me and saying, 'Jeff, I love Amazon, I just wish the prices were higher,' or 'I love Amazon, I just wish the shipping was slower.' That's impossible. So the effort we put into those areas, and the progress we make in those areas, we know that the effort we put in today will still be paying off for our customers 10 years from now. When you know something is true over the long term, you can invest a lot of energy in it."

Earlier this week, we published a classic VC article aboutNew areas the Multicoin investment team is looking forward to in 2025. In the spirit of Jeff Bezos’ quote, we thought it would be equally important to highlight some of the trends we often take for granted, but which are quietly accumulating and providing a stable foundation for our investments.

The Relentless Pursuit of Capital Efficiency

By Kyle Samani, Co-Founder of Multicoin Capital

DeFi started out with extremely low capital efficiency. Uniswap’s xyk curve is notorious for being capital inefficient.

Over the past five years, capital efficiency in DeFi has improved in all aspects. Limit order books (CLOBs), revolving/multi-products, pooled liquidity, using USDe-pegged stablecoins (USDe) as collateral on derivatives exchanges, using derivatives collateral to facilitate lending, using liquidity provider (LP) positions as derivatives collateral, and more. Markets will always be in a relentless pursuit of capital efficiency.

That’s the beauty of DeFi. All of these improvements in capital efficiency are driven by permissionless innovation.

We believe that Drift, the leading derivatives decentralized exchange (DEX) on Solana, represents a form of the logical endpoint of DeFi capital efficiency. Spencer and David spoke about these issues in their presentation at the 2024 Multicoin Summit.

The Endless Desire for New Financial Games

By Tushar Jain; Co-founder of Multicoin Capital

Humans have always wanted to gamble, it’s just that the games are changing.

Memecoins are a new generation of gambling. Memecoins are far more volatile and therefore more fun than traditional casino gambling or sports betting. Memecoins offer higher maximum returns than other forms of gambling, and their extreme volatility creates a level of excitement and risk that goes beyond traditional casino games or sports betting. The potential for huge returns far exceeds traditional forms of gambling, which is a huge attraction for those who dare to take risks. This potential for huge gains, combined with the inherent unpredictability of memecoins, creates an experience that is unmatched by traditional gambling.

Memecoins also have a unique social dimension. The tokenization of internet culture into memecoins provides a social element that other forms of gambling lack. They are often associated with internet culture and online communities, creating a sense of shared experience between gamblers. This social aspect transforms memecoin trading into a group activity, allowing people to interact with each other based on common interests and experiences. This creates a sense of belonging and shared identity that other forms of gambling do not have.

Memecoins represent a fusion of gambling, internet culture, and social interaction. They offer a high-risk, high-reward experience that appeals to the human thrill-seeking nature, while also leveraging the social and group nature of online communities. As internet culture continues to evolve, memecoins will likely continue to play an important role in the gambling space, providing unique and engaging experiences for those willing to take the risk.

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

The Quest for Transparency in Financial Markets

By Spencer Applebaum, Venture Partner at Multicoin Capital

In the traditional financial (TradFi) trading markets, brokers are able to offer zero-commission trading to retail clients because high-frequency trading firms such as Citadel Securities, Susquehanna International, and Wolverine Trading compete to execute these order flows. This is called “Payment for Order Flow (PFOF)”.

These firms are willing to take large amounts of this order flow at a price close to the mid-price because this order flow is, by definition, lacking inside information. There is a lot of literature on why PFOF is good for the world and not a bad thing (even though it often has negative connotations).

The problem with PFOF models like Robinhood and E-Trade is the lack of transparency and the auction is limited to market makers that the broker works with. In addition, there are layers of intermediaries such as clearing houses, exchanges, and brokers, all of which extract fees that are hidden from end users and are usually included in the bid-ask spread.

Regarding the opacity of payment for order flow, the research report pointed out: "Robinhood's agreement with wholesalers sacrifices price improvement (PI) in exchange for more payment for order flow - this is exactly the conflict of interest that SEC Chairman Gensler is worried about...If consumers can easily discern the difference in execution quality between different brokers, then this is not a problem in itself. However, these differences cannot be inferred from the current disclosure mechanism."

The beauty of DeFi is that it compresses settlement, trading, custody, and execution into a single application programming interface (API), and all links are transparent. This brings a natural advantage to DeFi because the market always values ​​transparency.

DFlow, a portfolio company of Multicoin, is pioneering a concept called "conditional liquidity", which stipulates that liquidity can only be obtained if the front-end application recognizes the recipient as a non-harmful trading party (or the recipient obtains a more favorable price from the market maker through the algorithm). Market makers can provide liquidity on an on-chain capped order book like Phoenix, or an on-chain automated market maker (AMM) like Orca, providing significant price improvements to retail order flow that lacks inside information, while avoiding being taken advantage of by harmful takers.

The entire stack is open and transparent, and conditional liquidity can be used to build payment for order flow models on top of it. This model is clever because it combines the best of traditional finance and decentralized finance: the ability to segment order flow and provide better prices to retail traders, but with the openness, transparency, and auditability that DeFi provides.

Value capture will always be split and reassembled throughout the system

By Shayon Sengupta, Venture Partner at Multicoin Capital

Last year, I published a post on the “Value Attention Theory” in which I described the core breakthrough of cryptocurrency in consumer applications as permissionless asset issuance and trading (issue-trading platform) in arbitrary interfaces and environments.

In 2024, asset issuance is concentrated on a handful of platforms — most prominently pump.fun. These platforms became the dominant platforms for asset issuance, but crucially, trading of assets is done elsewhere — via bots in Telegram group chats, aggregators like DexScreener and Birdeye, and sometimes directly in Phantom Wallet. Rather than being coupled in a single issuance-trading platform, asset issuance and asset trading are split across a range of decentralized platforms. Since the birth of crypto capital markets, asset issuance and trading have been separated. Bitcoin was launched on a cryptography mailing list called metzdowd.com and is now traded on Nasdaq (via an ETF). Tokens launched on ICOBench in 2017 are still traded on major centralized exchanges (CEXs).

So, while pump.fun dominated the issuance side last year, the trading side was dominated by Telegram bots and retail aggregator products — these are new sources of order flow. Long term, I expect being able to control trading or order flow to be a more profitable business.

For issue-trade platforms, this is just the beginning. The venue for asset issuance and trading will be split and reassembled thousands of times across thousands of platforms, because attention on the internet is not limited to one set of applications - it exists on forums, live video platforms, instant messengers, and various other interfaces we interact with.

More importantly, I expect these applications to more clearly understand that controlling attention has the opportunity to control order flow, and order flow is a very profitable business. Get ready for wallets and trading capabilities embedded in more consumer applications in 2025.

Money is always looking for yield

By Eli Qian, Venture Partner at Multicoin Capital

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

Until recently, most sources of yield have been reserved for sophisticated market participants and investors. For example, if you put your money in a savings account at Bank of America, you’ll only earn an annualized rate of return of 0.01% (and Bank of America will lend your money out at 10%!). Only when you buy a money market fund can you get a more reasonable rate of return. But the demand for yield has always been there, and products like exchange-traded funds (ETFs), which take the hassle out of picking individual stocks, and robo-advisors, which can manage your entire portfolio, have made it easier for non-professional market participants to access previously restricted yields.

A similar situation exists in the cryptocurrency space, where earning yield through staking or lending is not easy and requires knowledge. Products that simplify the process of earning yield will continue to develop and put an end to this knowledge arbitrage phenomenon that hurts retail users. Today, you can just bring your cryptocurrency to a wallet or app and earn staking or lending yield with a few simple clicks - knowledge of staking, lending, etc. is not required. Products like Fuse Wallet and StakeKit can do this. In the future, wallets and DeFi applications will automatically allocate and rebalance assets across validators, lending protocols, and liquidity pools, giving users the best returns 24/7.  

Innovation Reduces the Cost of Banking

By Vishal Kankani, Venture Partner at Multicoin Capital

In the 15th century, the Medici family led the development of modern banking. Banking at the time was slow, brick-and-mortar, expensive, and required a high level of trust. Over time, the cost of accessing financial services has dropped dramatically. With blockchain technology, we have a clear vision of 24/7, global, zero-cost banking.

No matter how advanced the financial infrastructure becomes, the need for banking will always exist. Banking as a Service (BaaS) emerged because it was difficult to build basic financial components within the framework of the traditional financial system, no matter how innovative the application layer was; naturally, this led to modularization at the software level, resulting in the separation of the front-end and back-end. Today, the back-end part is called BaaS.

BaaS providers license their infrastructure to fintech companies, enabling businesses to launch digital banking, corporate credit cards, and lending products with minimal time and cost. By providing these services through application programming interfaces (APIs), BaaS providers allow tech companies to focus on customer experience and unique products, while the BaaS provider handles the “boring but critical” back-end stuff: compliance, risk management, and money flows.

The hypothetical BaaS system before blockchain included banking infrastructure, KYC/AML compliance, payment processing, card issuance, and data aggregation. While this system works, it is complex and inefficient because it is still based on the traditional banking infrastructure built in the 1970s (SWIFT/ACH), is expensive, does not provide 24-hour service, is capital inefficient, and is not globally available.

Blockchain will disrupt modern BaaS because it represents a fundamental 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 blockchain-based BaaS system might look like this: self-custodial wallets like Squads, on-chain KYC and compliance protocols that enhance programmability (such as zkMe), stablecoin payment infrastructure (such as Bridge), and DeFi protocols for lending (Kamino) and trading (Drift).

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

Multicoin's portfolio company Squads, essentially provides a banking-as-a-service protocol on Solana, allowing businesses, individuals, and developers to create a secure account for storing value and making programmable transactions. Squads is the first formally verified protocol on Solana and has processed more than $1 billion in stablecoin trading volume. The assets protected using the Squads protocol are growing exponentially. We expect Squads to firmly lead the development of BaaS in 2025.

Removing Friction Increases Usage

By Matt Shapiro, Partner at Multicoin Capital

When you make something easier to do by removing cost and friction, people will naturally do it more. Email changed the way we communicate. The iPhone made it easier to take photos and document our lives. Amazon made it easier to shop online. Social media made sharing content seamless.

It’s clear that the same results would occur if transactions and transfers were made easier. Stablecoins could well spark one of the most significant financial transformations of our time. Being able to transfer money around the clock with near-instant settlement would have far-reaching consequences. It would allow dollars to penetrate new markets and get into the hands of real users in a way that Treasury auctions simply can’t. It would allow commerce to be conducted more efficiently, uninterrupted, at night, on weekends, or during holidays. It would reduce working capital requirements and drastically cut the cost and time of cross-border transactions. Stablecoin supply is already at record highs, as is stablecoin trading volume, both of which should accelerate as regulatory clarity opens the door to stablecoin acceptance.

The growth of stablecoins will further the concept of open finance. When it becomes easier to trade, more trading will occur. Stablecoin holders will seek yield on these assets and will gravitate to platforms like Kamino and Drift, which automatically match lenders and borrowers by reducing friction. Once on-chain, stablecoin holders will have access to money market funds like BlackRock’s BUIDL and decentralized exchanges like Drift, Jupiter, Raydium, and Uniswap with just a tap. As on-chain assets continue to grow, stablecoin holders will undoubtedly have more assets to choose from and participate in. Stablecoins are a Trojan horse into the on-chain economy, which has the potential to develop into a more inclusive and open global financial system.