Multicoin 2024 Outlook: The next exchange will emerge in a non-exchange form, and cryptocurrency will become the driving force behind products

Written by: Multicoin Capital

Compiled by: Deep Tide TechFlow

Original Title: 《What Multicoin Is Excited About For 2024》

Multicoin Capital summarizes their expectations and outlook for the upcoming year. This article publicly shares their thoughts for the first time, covering a range of areas from cryptocurrencies to social networks.

The article delves into multiple topics such as the theory of attention value, the rise of NFT collector social networks, and the role of stablecoins in remittances in emerging markets. Additionally, it discusses how cryptocurrencies are transforming from products into driving forces for products, as well as the anticipated growth of on-chain data and new forms of token distribution.

These insights not only showcase the latest developments in cryptocurrencies and blockchain technology but also hint at new trends and opportunities that may emerge in 2024.

Theory of Attention Value

Shayon Sengupta (Investment Partner at Multicoin Capital) focuses on the theory of attention value.

Exchanges trade things that are easy to price—stocks, commodities, interest rates, etc. There are standard methods to measure these assets (for example, the discounted cash flow function for a stock, the price of a barrel of oil at the border, or the willingness to pay $1.05 for a future redemption). This is what price discovery means for liquid markets.

However, there is another class of goods whose price discovery revolves entirely around attention. Sneakers, artworks, sports collectibles, vintage furniture—these items are inherently less liquid than stocks or commodities, and their value derives entirely from social consensus rather than DCF models (a valuation model).

In recent years, particularly due to the internet, the theory of attention value has permeated traditional markets. TSLA, GME, AMC, DOGE, and CryptoKitties have all experienced significant price discovery under this model. The primary pricing mechanism for these assets used to be cash flow and liquidation prices, but now the main mechanism comes from the amount of attention they receive.

Cryptocurrencies play two important roles in the theory of attention value: the first is the ability to quickly create new assets, and the second is the ability to trade these new assets.

If attention is the core pricing factor, then cryptocurrencies can issue and trade assets that track attention. "Financializing attention" requires the two most important attributes of cryptocurrencies to achieve their natural end state: permissionless and composability.

• Permissionless: Anyone can issue any kind of asset
• Composability: Anyone can trade these assets anywhere

This experimental design space:

• Increases the surface area for new asset issuance (i.e., historically creator tokens, prediction market LP positions, Meme coins)
• Embeds issuance and trading into new venues (i.e., historically communication bots like bonkbot or Bananagun, leaderboards like friend.tech, in-game markets)
• Facilitates coordination among asset holders (e.g., historically, crowdfunding to purchase a copy of the Constitution)

The recent implication of this trend is that the next large exchange will not look like an exchange. It will resemble a live streaming platform where creators and audiences can bet together, or a group chat where friends and communities can instantly initiate crowdfunding campaigns to raise millions to build a network, or a forum similar to Stack Exchange where top contributors receive not only points on a specific platform but also tangible economic rewards.

In 2024, we will see entrepreneurs experiment along these three major patterns. We will witness the emergence of the first "non-exchange" exchanges, applicable to both liquid and illiquid assets. These exchanges will climb the rankings in terms of trading volume and take the place of Wall Street Bets.

Social Networks for NFT Collectors

Vishal Kankani (Investment Partner at Multicoin Capital) focuses on social networks for NFT collectors.

In 2024, I am excited about collectible NFTs, more people getting involved in collecting, and the social experience of collectors.

Collecting has a long history, from the unique treasures gathered by monarchs in ancient Egypt and Chinese civilizations to the cabinets of curiosities in Renaissance Europe. Museums have actually evolved from these private collections.

From a psychological perspective, collecting serves as a means of self-expression beyond speculative opportunities. In certain circles, collectibles have become symbols of status, intertwining the act of collecting with personal identity, marking commitment and expertise. The internet has amplified this behavior, connecting previously isolated enthusiasts and fostering a new sense of belonging within their respective tribes.

Despite this progress, collectors still face several obstacles:

• Fraud related to authenticity and provenance
• Trading and interchangeability
• Security, damage, and loss
• Space and storage issues

Blockchain fundamentally breaks down these barriers and attracts more people to collecting. Blockchain is particularly appealing to the younger generation already enthusiastic about collecting digital items, such as Pokemon Go, virtual sneakers, and in-game skins. These collectibles are the precursors to digital-native collectibles existing on public blockchains.

Even as digital collectibles transition from private databases to public blockchains, certain behaviors of collectors will remain unchanged: the desire to showcase their collections, the ease of exchanging collectibles, and the need to connect and interact with their tribes. These behaviors will lay the groundwork for the rise of social experiences based on ownership graphs.

Stablecoin-Driven Remittances in Emerging Markets

Spencer Applebaum (Investment Partner at Multicoin Capital) focuses more on stablecoin-driven remittances in emerging markets.

After interning at Bitspark, I became fascinated by cryptocurrencies. Bitspark was one of the first companies to use BTC as a remittance channel, primarily in Southeast Asia and Africa. Cryptocurrency-driven cross-border payments are one of the most exciting use cases I've encountered since discovering cryptocurrencies.

In some low-income countries, the remittance industry is one of the largest drivers of GDP and a means for many economies to sustain themselves:

Based on data from World Bank development indicators

Historically, the challenges of remittances have been high costs, and only a few fiat currencies (like USD, EUR, JPY, GBP) can be exchanged and traded abroad, making many remittance channels slow and difficult to use. According to the World Bank, the average cost of remittances is about 6.2%, but this percentage can significantly increase for less common remittance channels. For example, the cost of remitting from South Africa to China exceeds 25%.

Against this backdrop, I am excited about the emergence of two products in 2024:

• Consumer-facing remittance applications
• Opportunities for B2B SaaS companies targeting remittance operators (MTOs), especially those using stablecoins in traditionally hard-to-enter or costly remittance channels.

The operational flow of these products is:

• Exchanging local currency for USDC/USDT via local payment methods in a P2P manner (e.g., oRamp or El Dorado)
• Sending USDC to another country
• Either holding USDC or exchanging USDC for local currency with another broker or liquidity provider through familiar domestic payment methods

Over the past 12 years, digital payments have profoundly impacted global remittances:

World Bank Global Remittance Prices Quarterly Report

Stablecoins will accelerate this trend and further reduce remittance costs. With the rapid adoption of stablecoins in 2023, 2024 will be a year of rapid development for stablecoin remittances.

Cryptocurrencies Transitioning from Products to Driving Products

Matt Shapiro (Partner at Multicoin Capital) believes that in 2024, cryptocurrencies will transition from being products to driving other products.

By 2024, we will see cryptocurrencies shift from being a product to driving other products. Signs of this transformation are already emerging, and I believe new sprouts are about to emerge.

Last year, cryptocurrencies incubated new types of markets that were either previously impossible or extremely inefficient. Hivemapper created a brand new map that is viewed 24 to 100 times more frequently than Google Street View, mapping nearly 10% of the Earth's surface in less than a year, incentivizing permissionless contributions in a scalable way using cryptographic mechanisms. During the global GPU shortage, Render Network created a brand new GPU supply market, a field we believe will continue to face supply-demand imbalances in the coming years. Helium Mobile is attempting to fundamentally change the cost structure of the telecommunications industry by leveraging user-owned infrastructure and devices supported by cryptographic technology.

Nubank, one of the largest neobanks with over 80 million customers, is actively entering the cryptocurrency space by launching Nucoin as a loyalty reward. Starbucks is also actively entering the cryptocurrency space through its Odyssey program. Blackbird is using cryptocurrencies as an entry point into the food and beverage industry (which could become a pioneer for driving a robust payments business, thus providing additional profits for restaurants).

BAXUS is leveraging cryptocurrencies to build a market for trading and investing in whiskey and other premium spirits, opening the market to a new group of participants. oRamp is using cryptocurrencies to build a new market for local and regional foreign exchange, narrowing spreads and reducing costs for customers.

While all these examples differ, they share a common core: they all use cryptographic technology to drive products, resulting in meaningful economic outcomes. In some cases, like Starbucks, Nucoin, and Blackbird, cryptocurrencies are mostly hidden behind the scenes. In other cases, like Hivemapper and Render, cryptocurrencies are tightly integrated with the product, highly visible, and a key part of the product itself. The infrastructure built over the past five years has paved the way for cryptographic technology to power everyday use cases. By 2024, attempts in this area will explode.

On-Chain Data

Eli Qian from Multicoin Capital focuses more on on-chain data.

By 2024, he expects the volume of on-chain data to grow by several orders of magnitude. As new users join, the use cases and functionalities of decentralized applications (dApps) and protocols will also expand. Data from decentralized social protocols will be particularly rich—people do more on social products than on financial products, generating more data.

How will we handle such explosive data? In the past, people have viewed on-chain data through the lens of advertising and personalization. However, I am eager to see teams take a more first-principles approach and recognize that contextualizing on-chain data when building social products is not just a luxury but a necessity.

Currently, our on-chain social data and identities are built on a unified graph (e.g., Farcaster), making it difficult to build social products for different social contexts. Humans are multifaceted, and we live in a variety of social contexts. Our behaviors and demands differ based on specific situations. We access Facebook, Twitter, LinkedIn, and Snapchat for different reasons, and the social graphs create specific environments and experiences on each platform.

The launch of Threads provides a case study. There are many reasons why Threads did not replace Twitter, but one reason is the uncertainty of the social environment. The social graph of Threads was imported from Instagram (a social network primarily related to real life). However, the way Threads users interact comes from Twitter, an online-first, often anonymous social environment. Due to the mismatch between the product and the environment, Threads users are unclear about how to act.

By 2024, the edges and nodes of social graphs will be segmented and categorized into more specific and relevant environments. Some solutions within protocols already exist (e.g., channels on Farcaster), but I expect that as developers begin to demand data more relevant to the products and social experiences they want to build, solutions outside of protocols will emerge. I look forward to the next wave of data infrastructure and developer infrastructure that will support the next generation of social applications.

New Forms of Token Distribution

Tushar Jain (Managing Partner at Multicoin Capital) focuses on new forms of token distribution.

Every bull market in cryptocurrency has been sparked by a new method of token distribution. Examples include:

• PoW chain diffusion --- 2013/2014
• ICO --- 2017
• IEO --- 2019
• Liquidity mining --- 2020
• NFT minting --- 2021

In the recent bear market, two new token distribution mechanisms have emerged that could fuel a new bull market:

• DePIN --- rewarding those who help build productive capital assets with tokens (e.g., Helium, Hivemapper, Render)
• Points --- incentivizing people to use products before all token mechanisms are determined. Issuing tokens is a cumbersome process, and once a token is live, changing its economic model becomes even more difficult. Points have no units, no maximum supply, and due to their non-transferability, they carry lower regulatory risks.

New forms of token distribution are a powerful way to bring new users into the crypto ecosystem. I believe the next wave of large users will come from those who acquire rather than purchase crypto assets. Both DePIN and points provide novel ways for users who have never owned a crypto wallet to obtain crypto assets.

UI Layer Composability and Client-Side Zero-Knowledge Proofs

Kyle Samani (Managing Partner at Multicoin Capital) focuses on UI layer composability and client-side zero-knowledge proofs.

UI Layer Composability

In a talk at the 2021 Multicoin Summit, I explored the concept of composability. At that time, I was more focused on on-chain atomic composability. However, over the past few years, I have begun to downplay on-chain atomic composability (hence I changed my name on X from "Composability Kyle" to "Integrated Kyle"). Recently, I have become more interested in permissionless UI layer composability. In 2023, we witnessed the first significant breakthrough in UI layer composability: Unibot. Unibot is an on-chain terminal and DEX bot on Telegram. Previously, people would typically gather information somewhere on the internet (X, Reddit, news, Bloomberg, Telegram chats, etc.) and then navigate to a separate UI to trade (e.g., Drift, Binance, Coinbase, etc.). Unibot brings trading into Telegram, where people are already socializing and exchanging information.

By 2024, there is a huge opportunity to bring trading activities into many environments across the web, beyond just Telegram group chats.

Building on this idea, I hope to see more UI layer composability that applies not only to capital accounts but also to social products, especially Farcaster. The dream of Farcaster is bold: a single event subscription source, with each event signed by a person, and countless user interfaces to read and write to that event source.

We often discuss X as if it provides unique product experiences for different use cases: crypto Twitter, finance Twitter, sports Twitter, political Twitter, etc. Building a Farcaster client that can achieve this vision from first principles is a real opportunity. In 2024, this design space will open up to the public.

Client-Side Zero-Knowledge Proofs

In recent years, discussions about zero-knowledge (zk) have mostly focused on using zero-knowledge rollups and zk co-processors to scale asset ledgers. However, I believe the most interesting design space for zk lies in client-side privacy. I recently learned about two client-side zk configurations that I find very appealing:

• Zk.me, as the name suggests, is a system for generating zk proofs about oneself, particularly in terms of KYC and AML compliance. Without stricter on-chain KYC, I find it hard to imagine DeFi growing another 10x. Under this assumption, I would prefer users not to disclose their data, and zk proofs will be key to achieving this vision.
• Brave Boomerang, traditionally, ad trading has run on centralized servers. This is true for Google, Facebook, and other online ad trading platforms. Brave is disrupting the ad trading model. Users run ad trading on their local devices and submit proofs of their correctly executed ad trades to the blockchain. This model ensures that no personal identifying information is leaked while still providing advertisers with the precise targeting they seek (zk proofs can ensure that Honda's ads are shown to 16-year-olds rather than 6-year-olds).

As these two examples show, the greatest opportunity to reshape internet trust and establish new business models using zk lies in the client side.