IOSG Outlook 2025: Crypto’s Schrödinger’s Cat

Author: Momir @IOSG

Schrödinger's cat is a very interesting thought experiment - simply put, this law summarizes the fact that in quantum mechanics, a macroscopic object can be in multiple states until you observe it. In Schrödinger's cat experiment, the cat was placed in a sealed box. Before the box was opened, the cat could be in a superposition of alive and dead. It's not until you open the box that it all "collapses" into one outcome: live or die.

This experiment is actually quite similar to the current cryptocurrency market. Just like the cat in the box with two states at once, the crypto industry is now in an uncertain phase where many possibilities will coexist in the future. Only when the market changes or external factors intervene, will these possibilities become a clear reality.

The “superposition state” of head assets

BTC

1. Survival

BTC has the potential to solidify its status as a global reserve asset and truly realize its vision of “digital gold.” But realizing this vision relies heavily on several key factors:

• The U.S. government will include BTC in the national reserve and start buying BTC (low possibility).
• Multiple governments or central banks from the top 20 economies hold BTC as a reserve asset (low to medium likelihood).
• An increasing number of global public companies, influenced by MicroStrategy's success, are beginning to convert large cash reserves into BTC (medium to high likelihood).
• Systemic shocks (such as the collapse of governments or banks) increase BTC's appeal as a hedge, further strengthening its role as a "safe haven asset."

2. Death

If the above key scenarios fail to be achieved, BTC’s future momentum may be weakened:

• The government is indifferent: If large economies are not interested in BTC, market sentiment may become pessimistic, and everyone's attention will shift from chasing new highs to whether large investors like MicroStrategy will cash out or even sell.
• Risks for MicroStrategy: Right now, MicroStrategy is a big supporter of BTC, but it could become a “liability” for BTC if its leveraged operations lead to a sharp market sell-off. Do you still remember how giants like Alameda Research and Three Arrows Capital (3AC) were killed by the market? Once the liquidation line is triggered, short sellers chase their targets one after another as if they smell blood, triggering waves of selling. If MicroStrategy follows this path, things could get out of hand.
• Technical issues: Whether BTC can meet the challenges of quantum computing is also a big question. If BTC cannot adapt to this new risk, it will not be able to function as a secure, immutable store of value.

BTC is now in a quantum superposition state, either becoming the cornerstone of the crypto economy or being regarded as an obsolete technology - it all depends on market attitude and ultimately which outcome it will "collapse" into.

ETH

1. Survival:

ETH is expected to dominate the blockchain field in the future and further strengthen its status as a "programmable BTC alternative". So why might institutional investors pay more attention to ETH next? There are many reasons:

• Institutional interest: ETH’s level of decentralization is extremely high. Besides BTC, it may be the only blockchain asset that governments and institutions are willing to accept.
• Quantum-resistant computing power: In the long run, ETH is more likely than BTC to successfully transition to the quantum-resistant technology stage. We expect ETH’s transition to be much smoother than BTC’s.
• Sustainable economy: ETH has a large amount of on-chain activity, and the natural fees generated can provide a stable income stream for validators and miners. Its flexible token economics can adjust between inflationary and deflationary modes based on market demand, making it far superior to BTC's model in terms of long-term economic sustainability.
• Developer Ecosystem: ETH has attracted the most developers and has been the preferred ecosystem for development teams for seven years.
• Diverse leadership: ETH has multiple teams driving its adoption, including Base (arguably the most important crypto agency in the United States), Arbitrum, ZkSync, Starknet, and others.
• Resist the risk of centralization: ETH does not need to worry about MicroStrategy, a single entity monopolizing the market voice, like BTC.
• Blockchain trilemma: ETH is the only public chain that successfully balances the blockchain trilemma - it achieves decentralization, scalability and security through innovative solutions like Rollups. This makes ETH the most technologically advanced and versatile blockchain, suitable for both institutions and retail users.
• Ecosystem Growth: ETH has a large and active ecosystem. The momentum created by such a huge ecology can enable ETH to benefit to the greatest extent under new favorable policies and clear regulatory policies.

2. Death:

In the worst case, ETH may miss the entire cycle due to some internal and external risks:

• Leadership, leadership, leadership:

• Leadership vacancy: Since the ETH community is large and dispersed, this feature allows some opinion leaders to continuously create chaos among the ETH community and spread conflicting opinions, making the ETH ecosystem more fragmented.

• Cultural Challenge: America’s new administration promotes a cultural shift from a “woke culture” to a “down to earth” culture. This shift means society is moving away from political correctness and moral discussions towards unconventional communication. The culture of ETH is often considered to be more "awakened" than other ecologies. It emphasizes inclusion, political correctness and community-led ethical discussions. While these values ​​contribute to diversity, they sometimes present challenges (ineffective communication, moral judgment, hesitation in making bold decisions). Some of the more vocal members of the community often act as moral tribunals, which can limit direct dialogue and can also create friction when it comes to adopting a more forceful leadership style.

• Challenges from competing chains: Competitors like Solana continue to challenge ETH’s dominance. A large number of public chains outside the ETH ecosystem have developed vigorously. If this trend continues, ETH's status as the preferred platform to attract outstanding developers will be further challenged.

In the future, ETH may be hailed as an upgraded version of BTC and become the king of the blockchain; it may also be in trouble because of some of its blood-derived characteristics.

Solana

1. Survival:

Solana can shine with its flexibility and active community:

• The combination of Meme and AI: In 2025, Meme will still dominate the economic attention of the currency circle. And Solana is leading a new trend in this Meme trend – in response to the rapid growth of AI Agent in the industry, the very forward-looking Solana team immediately introduced the Agent SDK.
• DePIN: Solana’s years of deployment on the DePIN track are finally bearing fruit. As high-volume DePIN solutions finally come to fruition, Solana has the opportunity to become a leader in integrating blockchain with DePIN.
• Developer Leadership: Solana challenges ETH’s dominance among developers by focusing on the industry’s cutting-edge verticals and rapid innovation. Sonala’s focus on the developer community makes it a game-changer among many ETH challengers.
• Institutional Certification: If the Solana ETF is approved, it would be a crucial milestone. This shows that Solana’s ecology has been recognized by institutions, and its status among institutional and retail investors will be further improved.

2. Death:

• From hunter to prey: Solana has undergone a stunning transformation in the past 18 months. Its alternative roadmap and calm response to the FTX collapse have allowed it to regain its place among the leading blockchains. But now Solana is no longer the dark horse, but a player with a bit of "boss" temperament. As a result, attention among speculative investors began to turn to its opponents, such as Sui, Hyperliquid, Aptos, Monad, etc. Looking back at these emerging chains, they all claim to provide fast and integrated solutions, and each of them is challenging Solana's position.
• Over-Betting on Memes: Solana’s rise is inseparable from memes and speculation. While this strategy has been successful in attracting market attention, it also brings the risk that speculative enthusiasm may wane for Solana. Without sustainable on-chain activity (such as a prosperous DeFi ecosystem or other lasting narratives), Meme's decline will severely hit Solana's on-chain economy. The attention economy is very short-lived in nature, and the long-term growth of an ecosystem cannot rely too much on market attention.
• Developer stickiness: In 2022, Solana experienced the largest loss of developers in the history of the blockchain, and the public’s concerns about the long-term growth of Solana’s ecosystem also come from this. Solana's success over the past 18 months can be attributed to speculators, but we remain skeptical about whether Solana has cultivated a loyal and resilient developer community during this time. When competition intensifies in the next few years, an excellent developer community will be a moat for Solana to maintain its leading position.

Solana is at the crossroads of life and death: its flexibility, active community, and ability to innovate give it the potential to disrupt ETH. But whether Solana can maintain momentum in the face of increasing competition, speculation and developer stickiness will determine whether it can continue to dominate the market.

Investment institutions look at the track

2.1 Crypto x AI

Crypto x AI is the most innovative and dynamic area in the industry recently. It attracted almost out-of-circle market attention and provided an extremely wide space for imagination. Sovereign AI (AI systems powered by decentralized cryptographic infrastructure) represents a revolutionary opportunity (but there are also many risks associated with giving AI such power). These systems can achieve true autonomy, utilizing non-custodial wallets to interact with other agents and humans on-chain. We may even see AI agents purchasing human services in the future when they need to perform off-chain tasks.

We had written about the potential of AI agents months before they became a market focus: The Agent Wars: Silicon Valley Titans vs. Crypto Challengers (Link: https://x.com/momir_amidzic/status/ 1825895123315458281)

In addition to AI Agent, many other areas in Crypto x AI also deserve our attention, which we have also shown in the Crypto x AI industry map in June 24:

2.2DePin

DePIN is a highly innovative and diverse field. It combines a cryptoeconomic model with off-chain hardware to solve many challenges in traditional industries.

Core target industries and application scenarios

The DePIN project covers multiple industries:

• In edge computing, DePIN provides distributed processing capabilities for latency-sensitive applications.
• When it comes to energy and power infrastructure, DePIN can incentivize the adoption of renewable energy.
• In the wireless networking space, DePIN focuses on community-driven 5G and IoT connectivity that bypasses the limitations of traditional telecom providers.
• DePIN supports decentralized crowdfunding solutions for a number of other important industries, such as mapping and high-precision positioning services.
• In terms of computing and storage, DePIN provides a decentralized alternative to traditional cloud services, providing secure data storage and processing.
• CDN enables cost-effective and scalable digital content distribution with DePIN.
• Data scraping projects like Grass can build a network of millions of nodes through token incentives. It can use the Internet bandwidth contributed by participating nodes to crawl massive amounts of data.

Although DePIN is an area with great potential, not all DePIN projects are equally promising, and the success of a specific project is highly dependent on itself.

We are looking forward to DePIN projects that can provide clear and measurable value, such as reducing costs, improving efficiency or entering untapped markets. DePIN's success often comes from the new business models it enables that cannot be replicated by centralized systems. This advantage allows projects to have better market penetration, distribution and accessibility. DePIN can also drive cost efficiencies and better unit economics by reducing operating costs or improving resource utilization, making its decentralized model more competitive and sustainable. In addition, capital expenditure optimization is an important advantage of the DePIN project, as it spreads infrastructure costs to the community through token incentives, allowing for faster scaling and wider participation.

On the other hand, we should try to avoid DePIN projects that use tokenization inappropriately. Their failed token economics often lead to unsustainable ecologies. The tokens of some projects do not bring actual efficiency gains or improvements over traditional methods, but rely solely on token incentives to cover up potential inefficiencies and subsidize usage costs in the short term. Tokenization alone cannot justify decentralization, and sometimes the results are worse than existing centralized models.

2.3 Payment

Stablecoins have become the mainstream payment medium in the crypto industry. And due to their programmability, cross-border utility and increasingly clear regulatory framework, stablecoins are expected to become the standard settlement currency for global payments.

Although stablecoins have clear advantages over fiat currencies in terms of programmability and cross-border liquidity, wider application is still constrained by regulatory challenges and inefficient inbound and outbound chain mechanisms. However, a crypto-friendly U.S. government may provide regulatory clarity, creating a healthier environment for efficient, liquid, and low-cost crypto and fiat trading.

Short term (1–3 years): remittances and consumer applications

Stablecoins will first dominate cross-border remittances, providing a faster and cheaper alternative to SWIFT. Cryptocurrency-related debit/credit cards (Visa/MasterCard) will also simplify spending and build a bridge between on-chain wealth and real-world transactions. This will benefit those outside the U.S. dollar banking system, individuals who have difficulty obtaining traditional payment cards, and cryptocurrency holders who want to spend their assets conveniently.

Mid-term (3–7 years): Commercial adoption

Enterprises will increasingly adopt stablecoins due to their low fees, instant settlement, and programmability. Companies will be able to seamlessly convert between cryptocurrencies and fiat currencies, offering customers both payment options. This dual-track approach will increase efficiency and further integrate stablecoins into mainstream commerce.

Long-term (7 years and above): Pay taxes with stablecoins

Stablecoins will become mainstream fiat currencies, widely accepted for paying taxes, eliminating the need to convert them into fiat currency. By then, stablecoins will subvert traditional financial infrastructure and promote P2P transactions between low-cost consumers and merchants, thereby significantly reducing dependence on banks and credit card companies.

2.4 Consumer Applications

This area of ​​consumer applications is very exploratory, but also more difficult to define, often overlapping with other areas such as AI, DePIN and payments. This area covers a wide range of applications, including but not limited to AI-driven consumer solutions, consumer-oriented DeIN projects, and payment solutions designed for consumers.

In addition to actual application scenarios, consumer applications also have speculation and gamification elements in the encryption field. A very important category here is chain games. Incorporating elements of speculative economics and memes, they remain one of the most successful consumer engagement experiments in the industry. These speculative applications often blur the lines between entertainment, finance, and practicality, creating unique opportunities for innovation.

Going forward, new experiments combining encryption with consumer-facing applications will bring even more opportunities. Game mechanics incorporating financial incentives show great potential, providing new ways to engage users and drive adoption. The design space in this area is vast, and we expect it to bring breakthrough innovation in 2025.

IOSG's investment portfolio

1. Usual

2024 has been a very successful year for Usual, which reached $1.5 billion in TVL in just six months and successfully ranked among the top five stablecoins. Governance tokens are also listed on Binance, the world’s largest CEX. Their ferocious momentum has not stopped, and Usual is expected to break into the top 3 stablecoin markets in the next 12 months, alongside giants such as Circle and Tether. Usual's scalability is on par with its competitors, and their ambitious goals appear within reach.

On the DeFi front, Usual’s strategic partnerships with Ethena, Ondo, and M0 will drive the next phase of growth. It’s worth noting that the yield offerings between Ethena and Usual can adapt to a variety of market conditions — delivering high crypto-native yields in bull markets and stable RWA-backed returns in bear markets. Meanwhile, on the CeFi side, the integration of Usual as collateral is just getting started. Usual assets will be deeply integrated into the foundation of the CeFi and DeFi ecosystems. As these integrations continue to advance, strong network effects will accelerate adoption and adoption.

Looking ahead, the Usual team remains focused on building a vibrant ecosystem around Usual assets. With their excellent execution, we can fully believe that Usual’s innovation and breakthroughs are just around the corner.

We have previously released Usual’s Thesis: Link, and our story with the Usual team “Unusual”: Link

2. BTC Ecology

Although BTC is the oldest and most mature cryptocurrency, its development is still in its very early stages. We have supported a series of groundbreaking projects around the BTC ecosystem, and they are shaping the next development frontier of BTC:

Babylon: A cryptographic breakthrough that allows trustless BTC staking, allowing BTC holders to secure external networks and earn rewards without relying on intermediaries.

BoB: Hybrid Rollup leveraging BitVM v2 for trustless BTC bridging. BoB creates a secure hub by combining Babylon’s fast finality with ETH’s data availability, allowing BTC to freely integrate with ETH’s DeFi ecosystem.

Solv: The largest BTCfi application, redefining the role of BTC in decentralized finance by unlocking earnings for BTC holders and promoting the development of BTC-based financial products.

2025 is a critical year. Several years of innovation and development in the BTC ecosystem will be transformed into production practice. This is one of the real needs where we can test the economic prosperity of the BTC chain. We are confident in BTC’s evolution from a store of value to an ecosystem of trustless staking, DeFi and cross-chain interoperability.

3. AI track: Theoriq, Phala, Hyperbolic

Theoriq is an AI DePIN project and they are redefining the future of AI collaboration. In Theoriq's framework, AI agents can not only work independently, but also collaborate as a dynamic collective. This forward-looking framework enables AI agents to work together to solve complex problems that cannot be solved by a single agent system. Theoriq drives compound growth in value by introducing memory-enabled agents, advanced evaluators, user-friendly tools, and ensuring human feedback remains at the core of agent development. This forms a virtuous cycle: agents continuously learn, adapt, and self-organize while collaborating effectively, creating an ecosystem of continuous improvement.

Theoriq operates in a self-regulating environment by integrating cryptoeconomic incentives. Specifically, the Agent is rewarded for good behavior and punished for mistakes, which ensures the reliability and accountability of the framework to the greatest extent. We led Theoriq’s seed round in 2022. At that time, Crypto x AI was still a non-consensus idea. Two years on, we are very excited to see Theoriq entering production.

Phala has been a long-term investment for us. We have recently increased our investment in Phala as we recognize its significant potential in shaping the future of Cryptox AI. As a pioneer in TEE technology, Phala has a unique advantage in meeting the security infrastructure needs of AI agents.

AI agents rely on TEE technology to securely manage key assets (such as wallets and social accounts) to ensure privacy, trust, and efficiency without sacrificing performance. In today's environment where almost all Infra projects are exploring how to integrate TEE technology, Phala's superior solution is preferred by a large number of developers because of its reliability and scalability.

Hyperbolic is revolutionizing the AI ​​infrastructure space. As a GPU network at the head, Hyperbolic focuses on inference and provides verifiable inference tools. In addition, they created a GPU layer that allows AI agents to rent GPUs through the SDK. This innovation enables GPU-rich AI agents to easily access the computing resources they need, driving more complex and efficient workflows.

Hyperbolic Inference Cloud is a platform where anyone can contribute GPU resources; it completely abstracts the inconsistency of GPU hardware, making GPUs truly interchangeable. Hyperbolic has performed well and has become the first project to offer some of the most advanced open source AI models on its platform.

4. Gelato

Five years ago, we recognized the huge potential of Gelato early on. We led Gelato’s seed round and have continued to follow up on subsequent investment rounds. Over the years, Gelato has quietly evolved into the AWS of Web 3.0. Today, if you think of three crypto projects, at least one will use Gelato’s technology stack on the backend. Gelato has already achieved success on the product side with its powerful and versatile technology stack including RaaS, Functions, Relay, VRF, Account Abstraction, RPCs, Bridges and Oracles. Its solutions cover multiple fields from payment, DeFi, infrastructure, consumer applications to AI agents.

2025 will be the year Gelato moves from quietly supporting the ecosystem to telling its story, marketing itself effectively, and building compelling token utility. Not only is it expected to be recognized as a critical infrastructure layer, it will also become a mainstay of reliability and innovation in the Web 3.0 space.

5. Pledge and re-pledge

We have been actively investing in the two major themes of the ETH ecosystem -the staking and re-staking ecology of "The Merge" and "Shanghai Upgrade". The related projects we have laid out, EigenLayer, ether.fi, Kiln, Renzo, Babylon and AltLayer, four of them have been listed on Binance. EigenLayer and ether.fi rank third and fourth among all DeFi protocols with TVL of $15.7 billion and $8.4 billion respectively. In addition, ether.fi and Kiln are the fourth and fifth largest staking service providers for ETH respectively, with Kiln managing $13 billion in assets.

Looking back at the development of the ETH staking and re-staking ecosystem, we can clearly see that the value of ETH as a multi-functional asset continues to be strengthened and expanded.

As the ETH roadmap advances and the staking ecosystem matures, its importance in the blockchain industry continues to grow. Through staking and re-staking, ETH not only provides a solid foundation for network security and decentralization, but also demonstrates its unique attributes as a capital, consumer product, and store of value asset by extending economic security and ecological richness.

write at the end

The fate of the crypto industry in 2025 will be like Schrödinger’s cat. Its success is not determined by its own characteristics, but by how it is perceived by the outside world. On many levels, value is a construct shaped by collective consensus. BTC may be “digital gold,” ETH may be the backbone of decentralized innovation, and Solana may be a flexible disruptor, but their ultimate destination depends on the narrative we choose to accept and the meaning we give to their existence.

In a world like Crypto, which is full of infinite possibilities but limited attention, market opinion has become the ultimate currency. Crypto markets are not just driven by technology or utility; they also rely on belief, trust, and stories that capture our imagination. What we focus on determines what survives and thrives, just as the act of observation collapses Schrödinger's paradoxical cat into a single state. The collective gaze of markets, institutions, and individuals will determine which ones win in the crypto space in the future and which ones disappear. Ultimately, it will be our perceptions—and the stories we tell ourselves—that will determine the bedrock of the future digital economy.