With election day approaching in the U.S., the regulatory environment for digital assets continues to be shrouded in uncertainty. No matter the outcome, investors should brace for regulatory changes in 2025, says Beth Haddock.
As the U.S. edges closer to election day, its digital asset regulatory landscape remains mired in ambiguity. Regardless of who wins, 2025 will bring regulatory shifts that investors must prepare for.
The recent World Economic Forum (WEF) report on global approaches to crypto regulation highlights the U.S.’s reliance on enforcement rather than clear policy, complicating growth and innovation, especially as compared to the EU’s structured MiCA (Markets in Crypto-Assets) framework which gives investors a regional roadmap for engagement. Regulatory uncertainty is particularly critical for decentralized finance (DeFi), where the U.S.’s aggressive enforcement strategy has resulted in chilling effects on innovation. For example, the SEC’s recent closure of its probe into ConsenSys without filing charges, while a short-term win for Ethereum-based DeFi projects, underscores the lack of regulatory consistency.
This uncertainty is creating opportunity as well as risk, as traditional financial (TradFi) institutions ramp up their entry into digital assets. TradFi firm’s sophisticated regulatory strategies, honed over decades of navigating complex compliance environments, are better positioned than smaller crypto-native companies. As major players launch products like Bitcoin ETFs and tokenized funds, innovators without regulatory expertise may be squeezed out unless they adapt to emerging frameworks such as those proposed by theStablecoin Standard, which offers voluntary requirements for transparency, operational resilience, and reserve-backing. This model could offer a path for other innovators to meet compliance expectations and accelerate growth and adoption.
For institutional investors, a strategic approach is crucial. Using a “regulatory ladder” framework, similar to a fixed-income ladder, can balance risk and opportunity across different asset profiles:
1. New TradFi entrants: Bitcoin ETFs and tokenized funds that have demonstrated regulatory compliance.
2. Payment processing innovations: Consider regulated stablecoins or other payment-related projects with transparent reserves and governance as seen in New York’s regulated stablecoins like Paxos and GMO-Z.com Trust.
3. Innovators: Allocate to high-potential, early-stage blockchain projects that are equipped to navigate shifting compliance requirements.
With potential regulatory shifts on the horizon regardless of election outcomes, investors should prepare diversified crypto portfolios that include both TradFi and nimble innovators backed by thoughtful regulatory strategies. Ultimately, as the WEF highlights, the U.S. must eventually reconcile its enforcement-first approach or risk losing its competitiveness to more progressive regulatory regimes in the EU and Asia.
As the Ethereum network transitions its system through a new upgrade calledthe Merge, many are wondering which startups within its ecosystem will be best positioned to thrive in a post-Merge world.
Overall, it seems like the post-Merge startups that will succeed are ones that provide accessibility to both Web 2.0 and web3 users, whether it be something like a financial product or infrastructure that could try to ease the onboarding to Ethereum. Most notably, many think liquid staking pool providers will take the reins. Given the Merge’s switch to proof-of-stake, this could make sense.
The efforts to lower the network’s carbon footprint by about 99% are also at the forefront of many market players’ minds as it moves away from mining, which would make mining pool-focused startups a thing of the past. Startups that align with ESG objectives will definitely take a big step forward as sustainability efforts continue to grow.
It’ll be interesting to see how this all plays out over the next couple of months (to years) as the Merge is built upon and other upgrades are implemented into the network.
To further our understanding, we asked a range of crypto market players — including the co-founders of layer-2 blockchains Polygon and StarkWare, partners at VC firms, developers, and researchers — their thoughts on the Merge and which Ethereum-based startups may hit the ground running. (Some responses have been edited for clarity and length.)
One big misconception about the Merge is that it’s going to lower gas fees on Ethereum. This isn’t the case — it will lower the network’s carbon footprint by nearly 100% but won’t get rid of the high gas fees that have been a big issue for the ecosystem.
With that, we’re continuing to bet on projects that will make web3 more accessible to everyday users. The Ethereum network’s high gas fees and slow network speeds will continue to create high barriers to entry. At Symbolic, we’re looking for projects that will help onboard the next 1 billion users into web3. These are projects that everyday people accustomed to the frictionless experience of Web 2.0 will be able to easily pick up and engage with. We’re betting on dApps and infrastructure projects that will make web3 more accessible.
Mihailo Bjelic, co-founder of Polygon
To be frank, adoption of web3 startups will mainly be driven and determined by the same factors as in the Web 2.0 world — product-market fit and commitment of the founders. That being said, with the Merge and introduction of fast and efficient development platforms built on top of Ethereum, web3 infrastructure is pretty much ready for mass adoption and will additionally boost the adoption for web3 startups in general.
First and foremost, it will be about embracing the new technologies (e.g., Polygon) that build on top of Ethereum and provide all the features required for mass adoption like fast transactions, low fees, and a great user experience. Then, it will be about educating their users about the actual benefits of web3: transparency, ownership, borderless economy, and communities. I am personally confident that these two things will usher in the new chapter of adoption.
Eli Ben-Sasson, StarkWare co-founder and president
The Merge makes me think of the moment the first solar fields went live. We saw it’s possible to reduce the environmental impact of producing electricity. People didn’t say, “That’s great, problem solved.” They said if we’re generating electricity with less pollution, it’s time to double down on efforts to use the power more sparingly. There was a boom in power-conserving devices.
The same goes for the Merge. The computing power of Ethereum will involve a far smaller carbon footprint. But it will remain a scarce resource. Innovations aimed at using this resource more efficiently will now thrive. That is exactly why [Ethereum co-founder] Vitalik Buterin talks about layer-2 scaling solutions and the Merge almost in the same breath — because they are complementary.
All sorts of companies building on layer-2, whether ours or others, are going to thrive. I’m bullish on projects that bring crypto into daily usage for simple things like buying coffee and important things like owning and controlling our own data. The Merge, and successive changes on Ethereum, will also change the face of gaming, and companies that enable people to play games peer-to-peer and reduce reliance on big servers are likely to enjoy success.
Lauren Stephanian, partner at Pantera Capital
The Merge creates an environment where infrastructure for both staking and accounting is more essential than ever. Businesses like Staked, Blockdaemon and Figment abstract away the complexity of staking by enabling users to delegate their ETH and other proof-of-stake (PoS) tokens to [help] them to stake. Staking is also considered income, which creates a need for software that can help investors track and report rewards over time.
Beth Haddock, adviser to automated market maker DeFi protocol Balancer
A reduction of energy consumption by 99% will arguably align with sustainable development goals (SDG) and ESG investment objectives. With the Merge, projects can combat the critics of crypto’s so-called dirty secret.
Startups that are purpose-driven, either by community interests or commitment to SDGs, have a tremendous opportunity to tell a compelling story and gain more momentum. This is an opportunity to promote that alignment and attract more capital from those looking to support ESG-focused efforts and avoid greenwashing.
Vance Spencer, co-founder of Framework Ventures
I think the most direct beneficiaries of Ethereum’s Merge will be at the application layer. Once ETH becomes a yield-bearing asset, it’s entirely possible that it supercharges the DeFi platforms in which it is deposited. Additionally, I think several of the decentralized staking platforms, which provide users with liquidity after they lock up their assets, could see increased attention and usage after it becomes more clear that the Merge has gone through without any significant hiccups.
Jagdeep Sidhu, president and lead developer of Syscoin
There are a bunch of opportunities in the modular blockchain tech stack in the post-Merge world. For example, anything that helps rollups, anything related to zero-knowledge proofs, or anything that helps the infrastructure related to data availability. Very soon, Ethereum will integrateproto-danksharding (EIP-4844) along with danksharding subsequently. This will transition the Ethereum blockchain to be a unified data availability layer (for censorship resistance) in a rollup-focused road map.
With that in mind, there is a pressing need for services to index both optimistic and zero-knowledge rollup-based data availability for users to be able to have censorship resistance mechanisms to exit back to the main chain, assuming sequencers of the rollups fail to sequence or update with the user’s exit request. I haven’t seen anyone take that one on and it can be a service that can take tokens for payments for each request.
There also needs to be a unification of experiences related to having multiple rollups and segregated financial systems running on the differing rollups. Think of a rollup as a separate chain; we need better views on liquidity and state across these systems. Perhaps some astute developers can create liquidity sharing across rollups in secure ways, have ways to move across these rollups quickly or just have wallet experiences that can show what rollups you are involved in to let you switch easily.
Finally, as we scale the blockchain industry up through modular design, we will open up tons of untapped opportunities that we never would have thought possible (NFT, DeFi, and metaverse are examples of such market segments). We need better wallet experiences that allow users to differentiate their experiences compared to how they will be interacting with dApps.
Jupiter Zheng, head of research at HashKey Capital
A few sectors may benefit immediately after the Merge, namely scalability solutions and liquidity staking services. In regard to liquidity staking, we predict that staking yield will rise (meaning validators will see increased transaction fees and maximal extractable value). This in turn may increase user participation and broaden the market potential for liquid staking services.
Scalability solutions may also go through an upheaval. Companies and startups building with the data availability layer in mind may perform better and essentially enjoy the next layer-2-like opportunities. These early adopters may attract plenty of capital and projects to build around it.
Baek Kim, partner at Hashed
Ethereum’s move to a PoS mechanism fundamentally changes the power dynamics in the crypto industry. Liquid staking pool providers will play bigger roles and on-chain governance will become the most intense category to see new experiments to carry on the innovation.
Feras Al Sadek, managing partner at Ghaf Capital Partners
A post-Merge world will better equip mass adoption to take place for the back-end developers and the front-end users of the Ethereum ecosystem. With the Merge provoking enhancement in security, scalability, and overall functionality, all segments of this industry shall be given a platform to reinvent themselves.
Not to mention the reduction in energy consumption that a PoS model will bring by slashing down Ethererum’s electricity usage by 99%, allowing crypto to finally be in alignment with a greener future that the world is trying to build.
However, blockchain gaming and infrastructure services shall be at the start of the line claiming their spot as the initial benefactors of this massive upgrade.
Alex Ye, head of research and economics at Republic Crypto
One non-trivial consideration for the post-Merge era is how long it will actually take to sort and settle the existing developers and users to the new chain. Once that eventually subsides, I’m confident we’ll see roll-up projects, particularly in the zero-knowledge category, compete at a breakneck pace, where we’ll be keen to track and back the best teams. This will be the Ethereum ecosystem’s opportunity to answer the app-chain craze as applications evaluate running their own chains via subnets, Cosmos, supernets, etc.
That said, we have to remember that the Merge is just the beginning of potentially much more to come, with the Surge, Verge, etc., though we should certainly keep our expectations tamed given the amount of delay we’ve seen leading up to the Merge.
James Key, CEO, and founder of Autonomy Network
Most people don’t realize that the Merge won’t actually increase the scalability (cheaper transaction fees) of Ethereum immediately — this is the first stage of many and the scalability will come in later upgrades.
One thing that will actually change with the Merge and its switch to PoS is ESG. Since PoS no longer uses massive amounts of electricity, and therefore carbon emissions, like proof-of-work (PoW) mining, Ethereum now becomes an ESG-friendly platform and asset. The dApps building on Ethereum will now also be ESG-friendly; therefore, ESG-focused startups will be the largest benefactors from the Merge.
