A Crypto Future

Jun 7, 2023 11:46 PM

At Compound we believe in building views of the various futures that we believe in across all of our core areas of focus. We do this over long time horizons and multiple cycles because the best way to learn about things is to study them when they are coming apart.

In 2023, crypto has in some ways done just that. Facing an uncertain future with inevitable tailwinds and formidable headwinds, we’ve been internally trying to think through the nuanced progression of a category we care deeply about. This has resulted in a living, breathing exploration in understanding how our world could evolve, year by year, in granular detail, and how crypto as an industry and technology could play its role in that evolution.

This is that exploration.


2024Search For Adoption

2025Burn (ETH) After Reading

2027Coming Soon

2028Coming Soon


Search For Adoption

DeFi is back. But not in the way many expected it. We quietly cross 30 million total DeFi usersbut the adoption pace is bittersweet for some; permissioned KYC products have seen a boom in activity. The discourse is mixed as some delight in watching their bags increase in value thanks to wider participation and a continued push into the space from traditional institutions. Others claim the essence of crypto is being undermined by these products, specifically the white-glove financial services offerings that HNW individuals now have access to (via forward-thinking TradFi shops).

OG permissionless DeFi adoption returns to a lesser degree. US Treasuries have been brought on-chain en masse, through both synthetic off-shore operators and more regulated, albeit slower-moving on-shore ones. Though stablecoin volume crosses $500 billion, the new metric crypto focuses on to measure scale is stables + treasuries, which eclipses $1 trillion at its peak during this period.

On-chain options markets are still not there yet, though they’re incrementally more mature thanks to added institutional liquidity. A path to development actually seems feasible now. As expected, this manifests via exchanges that offer both perps & options, allowing for cross-margining & dynamic risk engines. The most exciting novel primitive is a wallet mobile application that has abstracted away all of the difficulties for non-native users and offers multi-chain, multi-asset yield generation. Lots of others claim to do this but the UI & product detail are what sets this standout apart.

Games are not the killer use-case that brings new people into the space. Hundreds of millions of dollars in funding for crypto games has very little to show for it by the end of 2024. Trailers continue to be released but no crypto-native game sees any meaningful sustained traction. Crypto gaming begins to take on the same meme zk tech did during 2017-2020 (“don’t worry, THIS will be the year, it’s coming”). But blockchains still aren’t performant enough for fully on-chain, continuous state-changing games & the development cycle for building a compelling off-chain game with on-chain assets proves longer than anticipated.

The unlock in “user adoption” comes from far more intelligent, user-friendly, guided-search that makes it infinitely easier for normies to explore on-chain. There is a lot of revisionist history that suggests this was obvious.

“There are advanced on-chain search buddies that integrate seamlessly into on-chain data and wallets.”

There are advanced on-chain search buddies that integrate seamlessly into on-chain data and wallets. “Show me the most popular NFTs over the last month”, “Buy $100 of ETH for me over the next 2 hours”. These are just some of the queries anyone can make from increasingly slick interfaces that look more like Runway products and less like Notion tables. We’re not quite there yet from an application integration perspective, but it’s clear that’s where we’re headed.

More advanced user operations will soon include things like “Show me the list of stablecoin farm yields that launched in the last month and have APY’s between 10-20%. Move 10% of my existing stablecoin exposure evenly across these for the next 2 weeks”. The actual extent of “user adoption” is overblown but mostly because there’s not a lot of new, non-financial things that can be done on-chain still.

“Solana establishes itself as the lead horse for mobile-focused non-native developers.”

While games remain disappointing the lone bright spot here is Solana, which sees itself reinvigorated as the gaming chain both on desktop but also increasingly through mobile. The head start it has on building a mobile experience pays dividends as the network sees an explosion of mobile Solana games launched on the Saga. Saga sales aren’t astronomical (50k-100k units sold) but Solana establishes itself as the lead horse for mobile-focused non-native developers.

Polygon falls behind here as it lacks the in-game throughput performance of Solana and composability in the early days of these limited games doesn’t matter much. Polygon finds its place acting as the layer most commonly used for web2 brand partnerships and onboarding to crypto. It further cements itself as the de facto retail “loyalty program” partnership channel.

More broadly across crypto, some social apps are temporarily intriguing but the depth of differentiation & new behavior enablement is mostly shallow. Though there is a sense by the end of 2024 that this vertical finally has enough talented crypto-product people to build novel applications normies will actually use. Electric Capital’s developer report for 2024 will reveal we’ve crossed the 75,000 monthly active developer mark and 25k full-time developers.

As usual, privacy moves to the backburner as animal spirits take hold and the bull market marches on. The development on zkEVMs appears sluggish for this reason though there are green shoots emerging for very specific use-cases of privacy technology (most notably health data & location data). But in general, people continue to not care about privacy, yet.

Hong Kong continues moving quickly to court the crypto industry writ large. It senses an opportunity as the United States is in a presidential election year, and thus very little political energy is spent trying to get crypto regulation across the line in the States. This unfortunately leads to crypto becoming a partisan issue in Washington with Republicans calling for a looser regulatory framework while fear mongering about the US losing to China. On the other side, Democrats call for more oversight, regulation & freedom limitations, leaning hard into an anti-crypto position. Both parties are simply catering to their constituencies despite crypto-native policy people desperately trying to avoid this partisan split.

The worries about a dystopian CBDC cool given the underwhelming launch of FedNow. Some banks are using it, but it’s a glorified version of SWIFT rails with some limited decentralization theatre. It is for all intents & purposes a nothingburger.

On the bright side, we do see bipartisan support for US custodial stablecoin regulation and a bill looking very similar to the Toomey Bill gets passed. There continues to be no clarity on the default way crypto is treated (commodity vs security) at least from the legislative branch of government. However, there is some judicial precedent that provides the industry with what it views as “strong enough” clarity to feel comfortable the space isn’t being choked off. When a Republican – as a slight underdog – wins the presidential election, many in crypto over-index on what this means from a regulatory perspective and kick-off an undeserved period of mania. Gary Gensler remains in his position and a thorn in the side of crypto, though his influence wanes.

“One of the major “seemingly safe” protocols (Uniswap, Aave, Curve) falls victim to the largest hack in crypto history.”

A downside to the continued expansion of the space is a new proliferation of ever more sophisticated hacking attacks. One of the major “seemingly safe” protocols (Uniswap, Aave, Curve) falls victim to the largest hack in crypto history. This sets off narrative alarm bells. “Security” as a narrative becomes en vogue for investors, with talking points mostly centered around the fact we now have a “real” number of non-native users. These people aren’t comfortable with the idea of regular rugs, bugs or malicious contracts in the same way crypto-natives are. “We need way more sophisticated security infrastructure!” becomes the hot stance to take.

The crypto-to-AI VC pipeline turns out to be real. Lots of LP capital gets burned by investors who didn’t really understand crypto beyond a surface-level and definitely do not understand AI. Many of these investors who pivoted in ‘22 will quietly return to crypto as prices improve, touting a “return to my roots, the community I most closely associate with, & where I have deep expertise”. It’s tiresome, but not unexpected.

The inevitability of crypto becomes clear to the COVID crypto class, many of whom – though they won’t admit it now – internally had doubts about the space during ‘22. By the end of 2024, there’s still material skepticism from the outside world about “what has really been built?” but for those within crypto, this strawman argument no longer carries weight, even as a contrarian take.

Burn (ETH) After Reading

The hype cycle is now in full swing. Gensler is a lame duck sitting SEC Chair and it’s clear he won’t be back when his term ends in 2026. While the CFTC hasn’t officially been deemed the regulator of choice for crypto, it’s evident that’s now just a formality; the United States averts what was previously viewed as an existential threat.

All of the major banks and brokerages now offer crypto services of some kind. Most of this business runs through the asset management side of these firms, but every sell-side desk now has a dedicated crypto-asset team. Major banks aren’t market-making yet but that’s only being delayed by a slow-moving regulatory landscape; the banks have slowly built & hired to be ready for this inevitability.

“The 4 largest US financial institutions – now holding assets >$20 trillion push for private blockchains”

The more pressing debate now centers around the extent to which blockchains should remain public. Very sophisticated black-hat hackers continue to stay ahead of the quickly-developing security infrastructure – because the space has grown, the aggregate $ amounts of these exploits grab negative headlines. The reality is on-chain environments are far safer than just 2-3 years ago. The 4 largest US financial institutions – now holding assets >$20 trillion – take these opportunities to push for private blockchains; JPMorgan unsuccessfully attempts to launch JPM-chain, but it dies quietly, not unlike Goldman’s Marcus push a few years earlier.

On-chain options markets are finally developing as the architecture is performant enough now to handle the complexity of pricing inputs. Crypto options as a percentage of spot are growing but still sit at just 50% (albeit up from 2% a few years earlier). Somewhat expectedly, the structured products markets on-chain are thriving. While the 2010’s saw an explosion of fintech lenders launch & fail, a lot of this alternative lending activity has moved on-chain. The data is far richer, payment processing is continuous, the diversity of global businesses participating has limited correlation, and there is now a robust market of on-chain entities who periodically issue bonds secured by this collateral.

One unintended consequence of this hype cycle is an emerging concern with the rate of Ethereum’s burn (now up to 15,000 ETH/day). An existential discussion becomes very divisive as one group looks to adjust the share of rewards given to stakers, while the other side argues this type of change is sacrilege. The current state (80% burn / 20% to stakers) is great for ETH holders who point to how in-demand ETH is, but there are real concerns about long-term sustainability if nothing is done.

Further muddying the issue is traditional finance’s infatuation with Ethereum; a steady-state ETH yield has become an easy meme for TradFi to grok. The idea of introducing a “minimum/maximum staking yield” is hotly debated. One of the important social coordination developments is the emergence of better frameworks for evaluating protocols and valuing crypto assets. Nobody is shouting about TVL anymore as there are enough protocols (30+) generating meaningful fee revenue ($100M annualized) now. Incentivizing initial liquidity matters, but the key metrics most focus on are tied to:

  • The number of fee-paying addresses
  • Repeat fee-paying addresses
  • “Power user” penetration; a metric developed thanks to improved data visualization allowing us to easily see wallets that have meaningful 2nd, 3rd & 4th order effects on attracting sticky future fee-paying users
  • Integrations permitted; another new metric allowing insight into how “trusted” a protocol is by measuring the degree to which users grant autonomous wallet actions to be carried out via each protocol

Some of the more mature protocols are now valued based on multiples of fee revenue or fee generation, but there is still discussion about whether flows are more relevant. The multiples are still significantly larger than prevailing growth tech multiples, but the gap is closing as the largest protocols now generate 9-figure fees.

“Crypto protocols & foundations use tokens to acquihire traditional tech startups”

BTC & ETH ETFs are finally approved, bringing further liquidity to the space and opening the door to wider retail participation. Crossover M&A crops up with crypto protocols & foundations using tokens to acquihire traditional tech startups; while questioned at first, these end up as fruitful marriages: crypto pulls a new wave of highly talented people in, while fizzling startups salvage better outcomes.

There is significant ongoing traction within developing countries for crypto writ large. Latin America as well as developing regions of Asia continue to experience incredible adoption. Stablecoins now account for the majority of transaction volume in a select number of these countries. Digital assets are squarely in the top 5 of most widely held assets across Asia, behind just equities, cash, fixed income & real estate.

On the consumer side, the earliest adopters of consumer AR products were made fun of for wearing clunky AR products out in public, similar to early Google Glass or 1st Gen Airpod wearers. However more & more people are wearing the next generation of these devices, which are smaller, more comfortable, can be worn much longer and are socially acceptable now.

Crypto projects have taken to AR advertising as a means to bootstrap new networks and solidify mindshare among younger-generations, who have disproportionately adopted these products. A common behavior now includes users interacting with AR crypto ads, completing small tasks/minigames/surveys & being rewarded with tokens for providing direct feedback to the project. This new behavior inadvertently fixes a lot of the lingering sybil attack problems too.

On-chain search continues to improve and the search buddies that were limited to relatively simple actions before (“Move 10% of my existing stablecoin exposure evenly across these two lending protocols for the next 2 weeks”) are beginning to mature. With new session key & smart contract account innovation, users have the option of providing varying levels of agency to these search buddies. Even while users aren’t online or using their wallets, if they’ve allowed for maximum agency, the search buddy can decide to carry out specific actions like exploiting an arbitrage of owned assets in the smart contract account. Or electing to stake assets because of attractive yields. All without any explicit user direction. Some will feel comfortable providing this level of autonomy, but there will be costly bugs that deter most.

“Solana Labs continues to push on hardware and doubles down on gaming, announcing a VR partnership”

V2 of the Saga is released and it’s markedly better than v1 (500k units sold), though its success leads a few other ecosystems to wrongly predict they can replicate this. Solana Labs continues to push on hardware and doubles down on gaming, announcing a VR partnership to build Solana-enabled VR games on their own device. The timing of this release is ambiguous but there’s no question about the ambitious vision.

Not surprisingly, lots of liquidity & higher prices has led to renewed speculative fervor. This time it takes the form of crypto gambling adoption. Crypto-native gambling platforms are rampant – especially in Asia where most of the activity is concentrated from an aggregate $ amount. The collective crypto gambling industry now dwarfs the annual revenue of traditional players like Wynn & MGM (5x larger). Many of these projects launched without much concern for licensing & regulatory consequences – we see platforms go dark overnight as regulators crack down, specifically in the US. Users get rugged and comparisons to poker’s black friday in 2011 are apt.

“Crypto-enabled tools and their privacy protection guarantees are showing real promise – first for rare disease data collection aggregation, which has led to meaningful scientific breakthroughs that weren’t expected so quickly.”

The first real scaled use-cases of zk tech become clear, and not where many expected it – borrowing/lending/institutional privacy of financial positions – but instead it’s happening within the growing DeSci community. Health data protection & collection has been thrust to the forefront following continued leaks of sensitive health information. Crypto-enabled tools and their privacy protection guarantees are showing real promise – first for rare disease data collection aggregation, which has led to meaningful scientific breakthroughs that weren’t expected so quickly. Those surprise successes, as well increased discussion around when the cost to sequence the human genome will reach $1, have rallied many in the scientific community around this technology.

Multimodal transformer sizes have become hilariously large (many now >5 trillion parameters) and are trained on images, video, audio and movement. The compute workloads are massive. Multiple companies are now each spending >$1 billion/yr to train, and chip demand is so great there are now Congressional bills introduced to limit the number that can be used for this purpose. As such, we see a massive spike in demand for latent GPU’s. Crypto networks that provide access to these see parabolic growth in adoption with the leading provider rendering over 100 million frames in 2025. It’s become clear at this stage there are meaningful use-cases beyond financial speculation, many of which are solving massive problems that may not otherwise have been plausible.

We’re not quite there yet, but there are smaller groups of people across the energy & crypto spaces who are seeing real traction building independent infrastructure models, specifically distributed energy resources. Microgrids are becoming popularized in states like Texas, California, Florida and across the southwest.


Edge of Inflection

2026 will be viewed in retrospect as a key inflection point for crypto. This is the year we finally see constructive crypto legislation passed in the United States.

The guiding principles include:

  • Regulatory clarity with the CFTC deemed the default regulator of crypto assets, while the SEC has carve-out oversight for a subset of crypto assets, deemed security tokens
  • Clear tax treatment providing guidance on how different crypto assets are taxed; most are taxed as property while stablecoins & security tokens each have separate but clear laws
  • Flexible guidance that provides high-level principles rather than prescriptive rules given the rapidly evolving nature of the space; this approach balances the need for regulatory oversight with the flexibility to adapt to continued innovation
  • Minimal compliance burden: better education on Capitol Hill the last few years leads to an appreciation for avoiding undue compliance burdens on crypto startups
  • International cooperation is discussed and mostly viewed as necessary though it’s clear this will take some time given the existing fragmentation and regulatory arbitrage that persists
“The economic success Montenegro has enjoyed sets the stage for some existing EU member-states to seriously consider peeling off from the EU.”

Outside of the United States we see some intriguing experiments taking shape. Montenegro has become a hub for digital experimentation over the past few years and adopts ETH as legal tender. This is more representative than anything else, though the formal adoption is the strongest signal yet that it may no longer be interested in joining the European Union. The economic success Montenegro has enjoyed sets the stage for some existing EU member-states to seriously consider peeling off from the EU.

“We see the first large-scale attempt at introducing controlled UBI in Asia.”

Further east we see the first large-scale attempt at introducing controlled UBI in Asia. As Japan continues to face a demographic crisis with stagnant economic growth, the government ramps up efforts to spur activity. It begins the process of implementing digital identities with specific tokens issued to residents based on predefined income, location & employment status. These tokens are time-sensitive in that they must be spent at participating registered businesses within a predefined period or they’re burned from user wallets. Naturally this alarms the West who view it as dystopian; in reality it’s a desperate attempt by a motivated government to drive economic growth and stem the young talent exodus.

Several new crypto payment processors have emerged from a sea of startups and the entire crypto industry now operates on “superfluid continuous” payments (i.e. all payments within & across crypto-native companies is continuous, not weekly/biweekly/monthly). This real-time payments infrastructure sees initial adoption across Asia beyond just crypto companies, and a few forward-thinking traditional tech companies in the US also implement these rails.

Within DeFi, there are now a few competing fully-formed options markets on-chain. Aggregate options volume exceeds spot volume for the first time and DeFi enters a new phase of development and adoption. US Treasuries continue to proliferate, as the combined value of stables and treasuries on-chain flirts with $2 trillion at its peak.

“Permissionless DeFi still generates over $100 billion in fees from its more than 500 million MAU.”

Multi-trillion dollars of traditional assets have been brought on-chain, split ⅔ to ⅓ permissioned to permissionless. Though the split favors permissioned pools, permissionless DeFi still generates over $100 billion in fees from its more than 500 million MAU. Flash loans, structured products and new primitives gain popularity but remain complex, tending to favor the most sophisticated actors.

This is also the year unsecured lending starts to meaningfully take shape thanks to a confluence of factors: much more effective reputation & identity infrastructure, the proliferation of permissioned DeFi and the now clear regulatory direction. A lot of early iterations of this lending happen first in LatAm, parts of Africa and Southeast Asia; in those regions especially, crypto continues to deliver on many of its promises. The cost of capital for emerging markets squeezes lower, setting off lively debate around how influential a role crypto has played in this shift.

Though it remains largely unbeknownst to much of the crypto-twitter crowd, DeSci chugs along finding real product-market fit. Several large pharmaceutical companies are running clinical trials with much richer sample sets by leveraging health data networks. There is real optimism that better health outcomes are on the horizon thanks to advancements in data capture and coordination.

Somewhat controversially, a Chinese drug discovery company announces a new cancer drug developed using large-scale analysis of genomic and treatment data from 1M+ patients in mainland China. The drug shows promising results in early studies though many in the US scoff at the validity of this announcement.

“There are now extremely sophisticated AI agents able to review protocol documents, smart contracts, and network architecture; these agents compete against one another”

As the discourse around AI becomes highly politicized, there are some within crypto seeking to evangelize the benefits it can provide. Specifically, this messaging is mostly around data privacy, fairness in the execution of proprietary models and authenticity of content generation. One specific area that’s seen radical efficiency gains thanks to AI agents is audit & on-chain security. There are now extremely sophisticated AI agents able to review protocol documents, smart contracts, and network architecture; these agents compete against one another to find the most lucrative exploits within a test environment as a final simulation before protocols go-live on mainnet.

There’s incremental progress on improving UI for users to publicly sign any content they post as a means of verification. Unfortunately no social consensus has formed yet and there’s still much work to be done. The music industry continues to struggle with novel technology; many artists try smothering any generative music made off their likeness, though the ones who lean in and share sales with new generative studios benefit most. We see the first ever fictional CGI musician recognized by the Recording Industry Association of America (RIAA) as going 5x Platinum. It’s still a bit ambiguous who actually owns the rights to the creative works of these artists given how slow copyright laws are adapting.

A mid-sized city (100k-500k people) in North Texas proposes a complete energy independent infrastructure powered by an emerging crypto network. The city operates a municipal utility that generates renewable energy from solar, wind and battery-storage systems throughout the city. Residential consumers are able to sell excess energy to their neighbors (via peer-to-peer) or back to the city (via peer-to-pool) during periods of peak demand. Commercial buildings are required to source a minimum percentage of their energy from renewable sources, further incentivizing activity on the network.

Battery storage systems throughout the city are optimized using an autonomous system to store excess energy during the day and discharge it as needed. The city’s utility operates some batteries while private owners can also operate their own and sell storage services. A city DAO is created enabling residents to propose and vote on new incentives, crypto distribution methods and smart city upgrades. The city provides an open data platform as well allowing residents transparency into energy supply & demand. Microgrids are set up to power critical infrastructure like hospitals in the event of a power outage. These microgrids automatically tap into on-site renewable energy generation and storage; residents have the option of connecting their homes to these microgrids for backup power or to be paid for contributing power & storage to the system. It’s an ambitious undertaking but one that grabs serious national interest and attention.

New emergent base layer public blockchains continue to launch, often dismissed by long-time cryptonatives as “unnecessary” or “not differentiated”, but there are indeed new consensus mechanisms developing. Developer growth remains steady with more than half a million monthly active developers and over 100k full-time. As 2026 comes to a close, the pace of progress has quickened, crypto has permeated mainstream finance and is pushing into other massive verticals. It feels ubiquitous to those working directly in crypto, and while it still seems niche for some households, the broader implications are better understood. Some in traditional tech move the goalposts rather than admit they were wrong, but it’s semantics at this stage and does nothing to slow progress heading into 2027.

"Once you have glimpsed the world as it might be, it is impossible to live anymore complacent in the world as it is."