The Breakdown - One Crypto VC's 2025 Predictions

Episode Date: December 22, 2024

A reading and discussion inspired by https://www.coindesk.com/opinion/2024/12/16/paul-veradittakit-8-predictions-for-crypto-in-2025 Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Sunday, December 22nd, and that means it's time for Long Reade Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, welcome back to a pre-Christmas LRS. We are fully in the thick of prediction season and today is no exception. The piece that I will be reading, or rather I will turn over to an 11 Labs version of

myself to read, is Pantara investor Paul Verrat-Tackett's eight predictions for crypto in 2025. Paul did this last year and did a little summary of how well his predictions performed, and then gets into two categories of predictions that he grouped into rising trends and new ideas. Let's listen to what Paul has to predict, and then I'll come back for, a little bit of discussion at the end. Every year, Bulls and Bears use short-term case studies to forecast crypto-armageddon or exponential growth. And every year, neither group is right. Some notable events this year. Ethereum's Denkin upgrade, the U.S. election, crypto-ethefs, Wyoming's Duna, the WBTC controversy, Robin Hood's Wells Notice, hyperliquids near $2 billion air drop, Bitcoin hitting

$100,000, and SEC Chair Gary Gensler's January resignation announcement. 2024 was a year with no major market shocks. And though it didn't bring in an explosion of new capital, it proved that a growing number of companies in the crypto ecosystem are sustainable. Bitcoin is worth $1.9 trillion, and all other cryptos are worth $1.6 trillion. The market cap of all crypto has doubled since the start of 2024. The diversification of crypto has strengthened its ability to react to shocks. Payments, defy, gaming, ZK, infrastructure, consumer, and more are all growing subsections. Each of these now have their own funding ecosystems, their own markets, their own incentives, and their own bottlenecks. This year at Pantera, we've invested in companies that target these ecosystem-specific problems.

Crypto-gaming companies face issues adopting Web3 data analysis tools, so we invested in Helika, a gaming analysis platform. Web3 AI products often face adoption challenges because of the fragmentation of the AI stack, so Sahara AI aims to create an all-in-one platform to allow permissionless contribution, while keeping a seamless web-2-like user experience. Intent infrastructure is messy and order flow is fragmented, so Everclear standardizes the process by connecting all stakeholders. ZKVMs are complicated to integrate, so Nexus uses modularity in order to cater to customers who want only parts of their hyper-scalable layer. Building consumer apps faces the issue of attracting users, so we made our largest ever investment in Ton, the blockchain that directly

plugs into Telegram's 950 million monthly active users. We enter 2025 on tailwinds of possible regulatory clarity, continued mainstream interest, and rising crypto prices. Even after a bit of a summer slump this year, crypto users are entering the new year with strong optimism or greed. Review of 2024 predictions. Before we dive into 2025 predictions, let's take a look back at how I did predicting 2024. I'll score myself with one being the least accurate and five being the most accurate. The resurgence of Bitcoin and DeFi Summer 2.0. Accuracy, 4 out of 5. Tokenize social experiences for new consumer use cases. Accuracy 2 out of 5, an increase in tradfied D5 bridges such as stablecoins and mirrored assets. Accuracy 5 out of 5, the cross-pollination of modular blockchains and zero

knowledge proofs. Accuracy 4 out of 5, more computationally intensive applications moving on chains, such as AI and D-PIN, accuracy 2 out of 5, consolidation of public blockchain ecosystems, and a hub-and-spoke model for app chains, accuracy 2 out of 5, 20-25 predictions, This year, I enlisted the help of investors on the Pantera team. I've split my predictions into two categories, rising trends and new ideas. Rising trends. By year end, RWA's, excluding stable coins, will account for 30% of on-chain TVL, 15% today. RWA's on-chain has increased over 60% this year to $13.7 billion. Around 70% of RWAs are private credit, and the majority of the rest are in T-bills and commodities. Inflows from these categories are accelerating, and

2025 may see the introduction of more complex RWAs. Firstly, private credit is accelerating because of improving infrastructure. Figure accounts for almost all of this, increasing by almost $4 billion worth of assets in 2024. As more companies enter this space, there is increasing ease to use private credit as a means to move money into crypto. Secondly, there are trillions of dollars worth of T-bills and commodities off-chain. There is only $2.67 billion worth of T-bills on-chain, and their ability to generate yield, as opposed to stable coins, which allow the ones who mint the coin to capture the interest, makes it a more attractive alternative to stable coins. BlackRock's Butel T-Bee-Bill Fund only has $500 million on chain, as opposed to the tens of billions

of government bills it owns off-chain. Now that D-Fi infrastructure has thoroughly embraced stable coins and T-Bill RWAs, integrating them into D-FSI pools, lending markets, and perps, the friction to adopt them has drastically decreased. The same goes for commodities. Finally, the current extent of RWA's is limited to these basic products. The infrastructure to mint and maintain the RWA protocols has drastically simplified, and operators have a much better understanding of the risks and appropriate mitigations that come with on-chain operations. There are specialized companies that manage wallets, minting mechanisms, sibyl sensing, crypto-neobanks, and more, meaning it may finally be possible

and feasible to introduce stocks, ETFs, bonds, and other more complex financial products on-chain. These trends will only accelerate the use of RWA's heading into 2025. Bitcoin Phi. Last year, my prediction of Bitcoin finance was strong, but didn't reach the 1-2% of all Bitcoin's TVL mark. This year, pushed by Bitcoin-Native finance protocols that do not require bridging, like Babylon, high returns, high Bitcoin prices, and increased appetite for more BTC assets, Rooms, Ordnals, BRC-20,

1% of Bitcoins will participate in Bitcoin Phi. Fintechs become crypto gateways. Tone, Venmo, PayPal, WhatsApp have seen crypto growth because of their neutrality. They are gateways where users can interact with crypto but do not push specific apps or protocols. In effect, they can act as simplified entryways into crypto. They attract different users, Tone for its existing 950 million telegram users, Venmo and PayPal for their respective 500 million payments users, and WhatsApp for its 2.95 billion in monthly active users. Felix, which operates on WhatsApp, allows instant money transfers via a message, to be either digitally transferred or can be picked up in cash at partner locations, like 7-11. Under the hood, they use stablecoins and bitso on Stellar. Users can now buy crypto on

Metamask using Venmo, Stripe-acquired Bridge, a stablecoin company, and Robin Hood acquired BitStamp, a crypto exchange. Whether intentionally or because of their ability to support third-party apps, every fintech will become a crypto gateway. FinTech will grow in prevalence and may perhaps rival smaller centralized exchanges in crypto holdings. Unichane becomes leading L2 by transaction volume. Uniswap has a TVL of almost $6.5 billion, 50 to 80K transactions per day, and volume of $1 to $4 billion daily. Arbitrum has about $1.4 billion of transaction volume a day, a third of which is Uniswap and base has about $1.5 billion a volume a day, a fourth of which is Uniswap? If Unichain captures just half of Uniswop's volume, it would easily surpass the largest

L2S to become the leading L2 by transaction volume. NFT resurgence, but in an application-specific way. NFTs were meant as a tool in crypto, not a means to an end. NFTs are being used as a utility on-chain gaming, AI, to trade ownership of models, identity and consumer apps. Blackbird is a restaurant rewards app that integrates NFTs into customer identification in their platform of connecting Web3 into dining. By integrating the open, liquid, and identifiable blockchain with restaurants, they can provide consumer behavior data to restaurants and easily create mint subscriptions, memberships, and discounts for customers. Sofamon creates Web 3-bit mojis, which are NFTs, called wearables, unlocking the financial layer of the emoji market. They recognize the increasing

relevance of IP on chain and embrace collaboration with top KOLs and K-pop stars, for example, to fight digital counterfeiting. Story Protocol, which recently raised $80 million at a 2.2 $25 billion valuation, has the broader goal of tokenizing the world's IP, putting originality back as the centerpiece of creative exploration and creators. IWC, the Swiss luxury watch brand, has a membership NFT that buys access to an exclusive community and events. NFTs can be integrated to ID transactions, transfers, ownership, memberships, but can also be used to represent and value assets leading to monetary, possibly speculative growth. This flexibility is what brings NFTs power. The use cases will only increase. Restaking launches.

In 2025, restaking protocols like eigenlayer, symbiotic, and kerak will finally launch their main nets, which would pay operators from AVS and slashing. It seems that through this year, restaking lost relevance. Restaking draws power as more networks use it. If protocols use infra that is powered by a particular restaking protocol, it derives value from that connection, even if it is not direct. It is by this power that protocols can lose relevance but still hold huge valuations. We believe restaking is still a multi-billion dollar market, and as more,

More apps become app chains, they harness restaking protocols or other protocols that are built on restaking protocols. New ideas. ZKTLS bringing off-chain data on-chain. ZKTLS uses zero knowledge proofs to prove the validity of data from the web to world. This new technology has yet to be fully implemented, but when it hopefully does this year, it will bring in new types of data. For example, ZKTLS can be used to prove that data came from a certain website to others.

Currently, there is no way to do this. This tech takes advantage of advancements made in TEEs and MPCs, and may be further improved to allow some of the data to be private. This is a new idea, but we predict that companies will step up to begin building this and integrating it into on-chain services like verifiable or infanancial data or cryptographically secured data oracles. Regulatory support. For the first time, the U.S. regulatory environment seems crypto-positive.

278 pro-Crypto-house candidates were elected versus 100,000. 22 anti-crypto candidates. Gary Gensler, an anti-crypto SEC chair, announced that he will be resigning in January. Reportedly, Trump is set to nominate Paul Atkins to lead the SEC. He was previously an SEC commissioner from 2002 to 2008 and is outspokenly supportive of the crypto industry and an advisor to the Chamber of Digital Commerce, an institution focused on promoting the acceptance of crypto. Trump also named David Sacks, a tech investor and former CEO of Yammer and COO of PayPal to head the new role of AI and crypto czar. Trump's announcement said that David Sachs will work on a legal framework so the crypto industry has the clarity it has been asking for.

We hope for a winding down of SEC lawsuits, clear definitions of crypto as a particular asset class, and tax considerations. All right, back to Real NLW here. One of the big things that I see in these predictions is a search for the narrative for what brings external audiences back into crypto. It's very clear at this point that institutions are participating in crypto financial markets, but there still isn't really a clear reason for Normies to get back and get involved, other than number go up and investing in Bitcoin, etc. One of the big points of speculation and exploration right now is whether there is some narrative coming. Some think it's going to be about AI agents and AGI using crypto.

Some think it's going to be about crypto-improving provenance and authenticity. In his predictions, Paul hits out a couple that have been candidates' as well. RWA's, for example, Bitcoin finance or defy as another, and his take on NFTs is pretty interesting to me as well. I do have this sense that there is something inherently interesting to lots of people about NFTs, and that even if the prices from the previous cycle never return, they may ultimately resolve into something that looks different, but is still important. Paul painted one picture of how that might happen, and I think it's pretty interesting. Overall, I predict we will have a lot more predictions in these shows upcoming. For now, though,

that is going to do it for this episode of The Breakdown. Appreciate you listening as always, and until next time, be safe and take care of each other. Peace.