Building the Future of Finance: The Prospects and Opportunities of NoFi

Author: Ben Basche

Compiled by: Block unicorn

While decentralized finance (DeFi), non-fungible tokens (NFTs), and the metaverse form the foundation of an exciting new crypto-native internet, the concept of crypto/Web3 as a persistent idea (not to mention a new technological paradigm) will not endure unless it meets the needs of ordinary people and breaks free from its insular niche. Fortunately, for those who showcase the crypto financial utopia to people on Thanksgiving, after years of being merely labeled as "the future of finance," it seems that crypto is finally beginning to witness a flourishing of consumer-facing, everyday financial applications built on blockchain technology. This rising wave of non-custodial finance (NoFi) applications is guiding crypto toward a clear opportunity for mass adoption in the mainstream market. Without innovations in settlement, scaling, smart contracts, wallet infrastructure, and DeFi protocols, NoFi applications would not be able to build on the foundations laid by previous waves of speculative crypto adoption. Although currently, 5 to 10 million people transact on the blockchain each month, the market for universal financial services encompasses billions of people, indicating a vast potential market waiting for non-custodial finance to develop (NoFi).

Synchronization of Development

In the early stages of adopting a new technological paradigm, we often see synchronized development around similar ideas and problem areas, sometimes with slightly different solutions and assumptions. I previously highlighted this in a blog post about wallet experience stacks, which represent the convergence of the B2B middleware ecosystem for wallet-enabled identity and commerce in Web3, with various players addressing the issue in diverse ways. We also see a similar situation in the consumer finance space of Web3, where wallets, payment applications, emerging banks, and centralized exchanges are converging around some common, obvious use cases enabled by blockchain tracks with practical functionality. Let’s take a look at some examples.

Non-Custodial Payment Applications

One irony of cryptocurrency is that payments—perhaps the most obvious typical use case since the inception of cryptocurrency—are the last use case to be truly developed and gain traction. Using volatile assets like Bitcoin and Ethereum for payments is clearly a niche activity and supports DeFi and NFTs, but it was only after the emergence of stablecoins and cheap block space that blockchain payments truly began to see their spring.

The most basic function of crypto wallets—sending tokens—has finally become user-friendly enough to provide a Web2-level experience. We now see many applications and infrastructures focused on achieving this goal, including stylish consumer "crypto Venmo" applications and global payment apps like Eco's Sling and Beam. There’s even a community crowdfunding for a peer-to-peer payment application supported by AA (account abstraction) for the meme token $SEND.

Unlike crypto wallets, these applications look and function more like streamlined versions of early Cash apps, often focusing on providing peer-to-peer payments for students and young people or specifically offering remittance services for foreigners and senders.

Non-Custodial/Semi-Custodial New Banks

While some emerging non-custodial fintech companies are targeting narrow payment use cases (which is a huge use case in itself), others are taking a more comprehensive approach to their products, combining payments with additional stablecoin yields, crypto multi-currency accounts, investment features, and integrating traditional banking and card systems with crypto fiat mixed accounts. Projects like Decaf and Paie (both Solana applications) and the upcoming link IBAN smart contract wallet from Obvious come to mind. Even the exiled government of Malaysia is creating a non-custodial new bank called Spring Development Bank on Polygon for its citizens. It’s important to clarify that these are centralized entities, which, while representing users in their interactions with traditional KYC financial systems, fundamentally derive their functionality and value proposition from users interacting with their non-custodial wallets (or semi-custodial/MPC) on-chain. Many functions that once required using banks (or challenger banks) are beginning to shift on-chain, and these non-custodial new banks provide users with a streamlined interface to leverage all the functionalities of on-chain lending, borrowing, yield, and trading protocols within an excellent user experience. In some cases, non-custodial new bank functionalities will pair with traditional banking functions, but as users' financial "tasks" increasingly shift on-chain, the traditional financial system (much like how centralized exchanges are now starting to impact crypto users) becomes more and more like a foolish switch.

New Bank 2.5

Although most non-custodial payment applications and new banks so far are emerging crypto-native startups, we are also seeing significant activity in the existing new bank/challenger bank space, including existing new banks setting up non-custodial/semi-custodial wallets for their users and offering crypto services, as well as custodial crypto-focused new banks and investment models providing similar services in a custodial manner. While not entirely a fully Web3 non-custodial new bank, they are leveraging blockchain technology directly or indirectly to provide their services, and we can refer to this category as "New Bank 2.5." Cenoa, located in Turkey, focuses on regions like Turkey and Argentina, providing custodial solutions to serve as an inflation hedge in countries most affected by local currency volatility, allowing access to dollar stablecoins and on-chain yield protocols. Recently (perhaps more importantly) is PayPal, which has expanded its crypto attempts from custodial crypto buying and selling to EVM-based stablecoins and accompanying embedded wallets, similar to Yellow Card in Africa. Besides the typical fintech itself becoming a crypto new bank, Brazil's NuBank, Germany's N26, the UK's Monzo and Revolut, and the US's Cogni are also on a similar path. New banks operate in a competitive environment, seen as challengers to traditional consumer banks, but in the crypto space, they find themselves transitioning from challengers to the challenged. They are becoming hybrid traditional finance and crypto new banks by increasing their investment in crypto services. It’s not surprising to see these larger traditional consumer banks also beginning to think in similar ways.

Centralized Exchanges

Centralized exchanges are among the oldest "applications" in the crypto space, and while they represent "centralization" in the crypto environment, they are doubling down on developing their non-custodial wallets and quasi-super applications, providing services for an increasing number of these "fintech" crypto cases through centralized infrastructure. Binance Pay (often priced in USDT or TRC20 USDT) has significant influence and daily use in cross-border remittance channels and emerging markets, particularly in Latin America. The USDC yields offered in Coinbase's main application and the staking aggregation in its Coinbase Wallet app, along with the semi-payment features launched in Base (e.g., Beam Eco), provide financial services to their existing users. Centralized exchanges are well-positioned to offer financial services to existing users and have invested in growth areas like independent wallets to capture an increasing number of emerging use cases.

While the exact scope and methods may vary, what are all these participants beginning to converge around? What is it? Perhaps it is the actual consumer crypto fintech use cases, the early product-market fit?

Users and Use Cases

There have been many articles about early adopters of the crypto-native economy, but the most important user group for cryptocurrency is clearly the "early majority" (in Geoffrey Moore's words), a group that can genuinely address everyday financial product issues. For a technological paradigm to transition from early adopters to early majority, it needs to "cross the chasm," shifting from early adopters trying to see the value of new things to early majorities who are simply trying to accomplish something in their lives.

Moore also describes the typical process where a set of vertical use cases emerges, like a set of "bowling pins," which gets promoted and can then "fall" together, as adjacent use cases provide ample opportunities for lateral and generalization. This all culminates in a "tornado," where early use cases converge under the massive adoption push of the early majority, creating a massive integrated winning platform and a range of applications that find product-market fit. In our non-custodial finance world, we see the following "bowling pins" emerging, painting a picture of what the tornado might look like.

Payments

As previously mentioned, while sending value from A to B seems very obvious in crypto design, for years, the significance of crypto payments has been merely a novelty or the implementation details of some very localized crypto applications (or criminal activities). Within the crypto space, classic reference use cases have not even had real momentum, becoming an inside joke in the crypto circle. But this is rapidly changing, with TRON and Binance gaining real traction in the everyday payment space in emerging markets, and now more and more crypto application layers are trying to reposition around consumer payments using blockchain infrastructure that "just works." A key catalyst here is the emergence of stablecoins like USDT, BUSD, and others, which play a significant role in other parts of non-custodial fintech. Broadly speaking, we can categorize the payment momentum seen in crypto into two recent areas and one mid-term area—peer-to-peer Venmo-like payments, remittance payments, and B2C payments. Creating a Web3 version of Venmo may be the most obvious decentralized crypto application, but in reality, it is only under the arrival of stablecoins, cheap networks, and second-layer networks, without seed custody and account abstraction, that the full functionality and benefits of crypto can operate in a consumable manner. These same benefits also apply to international remittance payments, as corridors of remittance traffic begin to emerge between Latin America <-> the US and Africa <-> Europe.

Inflation Resistance

Particularly in emerging markets, inflation resistance is closely tied to payments and remittances. The main factor here is again stablecoins—especially dollar stablecoins—because in countries with weak or volatile currencies, people are seeking ways to protect their wealth. Latin America is once again at the forefront of this trend, which is predictable given its unstable currency backdrop, but we can see this trend in people's desire to maintain the value of the gold standard—the dollar (no offense to financial fanatics). Non-custodial financial applications can provide basic access to dollars for anyone in the world (often easier/cheaper than traditional forex channels), as long as they can somehow exchange from fiat currency. These dollars can be held, placed in interest-bearing accounts, and sent to anyone around the world with a compatible wallet at increasingly lower costs.

Savings / Yield

Everyone with excess cash needs to store and preserve that value somewhere, and we see non-custodial financial applications leveraging on-chain infrastructure to provide users with easy-to-use, consumer-friendly interfaces to access yields and interest. Although on-chain interest rates were once low, more aggressive interest policies from centralized stablecoin issuers to match the off-chain fixed income environment have pushed on-chain rates closer to off-chain money market rates. Even without the massive fundamental rate advantage that DeFi had during its boom phase, various different permissionless yield products (relatively speaking) still enable people to effectively increase their savings. DEX LP positions targeting stable or blue-chip currency pairs, conservative money market positions, stablecoin risk-free interest rates, and conservative yield aggregation strategies all provide potential on-chain yield sources for non-custodial financial applications representing their users, whether for their stable assets (thus expanding inflation hedge use cases in these cases) or for any volatile/investment assets. We see this experience taking shape in user experience-focused Web3 native applications like Instadapp and Zerion, which make depositing funds into yield positions a matter of just a click or two, as well as consumer applications like Cenoa, which simplify it entirely into a "savings" function.

Borrowing

On-chain borrowing is more challenging to bring to consumers compared to lending, as most credit in the world is low-collateral/unsecured, but we still see interesting progress and innovation. Non-custodial financial applications have not yet fully committed to this area (aside from Binance, which truly offers crypto loans to users), but we can expect this to change soon as progress is made on foundational protocols and can be passed through to interfaces. MakerDAO's Spark protocol allows you to borrow DAI at a fixed rate of 3.19% (and spend using an optional associated debit card), which is very attractive in today's environment, as long as you are willing to provide double the loan collateral. It will be interesting to see if this attracts any retail borrowers who are priced out of personal loans under the current interest rate and credit scoring systems and wish to lock in low-rate loans for purchases without actually spending funds. Alchemix offers "self-repaying loans"—which could be applicable for buying cars or making down payments on homes. DeFi protocols like Goldfinch are delving into unsecured loans, serving off-chain businesses, and the idea could extend to millions of small businesses, with the insights gained informing the next round of attempts to build more accessible credit applications, whether based on oracle-driven unsecured models, post-Sybil reputation models, or innovative new collateralized loan protocols with more attractive characteristics. The "ultimate boss" is opaque, centralized, Orwellian credit agencies and traditional banking credit ecosystems, and once DeFi presents better solutions, non-custodial finance will be able to present them to consumers.

Forex/Multi-Currency Accounts

For certain user groups, such as international students, foreigners, freelancers, and digital nomads, frequently dealing with multiple currencies is part of life. Whether it’s receiving payments in one currency but needing to remit back to their home currency, requiring a SaaS application that charges in another currency, or having multiple clients or side gigs paying them in various currencies, these are all scenarios that necessitate quick exchanges between different currencies. Conducting such exchanges through traditional banking systems can be cumbersome, slow, and expensive, with administrative overheads potentially becoming unbearable for some. With stablecoins and decentralized exchanges (DEX) provided through non-custodial financial applications, people can have a "crypto multi-currency account" containing various stablecoins that they can send, exchange, or save according to their needs. Among these same user groups, multi-currency accounts have become a popular feature of non-crypto fintech/new banking applications, and as more crypto-native banks focus on these use cases and existing fintech companies begin to explore blockchain as an alternative, the two sets of use cases are expected to start converging over time.

Trading/Investing

Trading is the first core use case of crypto, so we won’t spend too much time discussing it here, just to point out that the opportunity to invest in or trade risk assets is something that traditional fintech has been pushing in the stock space for some time (consider Robinhood), which is a reasonable user demand that non-custodial financial technology applications will clearly provide. Decentralized exchanges (DEX), bridges, and aggregators enable consumer applications to relatively easily offer non-custodial cryptocurrency trading to their users, allowing them to take on some risk exposure. As more real-world assets (RWA) are tokenized on-chain, the prospect of offering everything from cryptocurrencies, stocks, forex, real estate, to fixed income trading from a single application becomes apparent for non-custodial financial technology applications. If DeFi yield protocols for digital dollars can hedge against current inflation and meet monthly savings goals, why not simply invest the remaining funds into the latest hot cryptocurrency or stock using the same application?

Implementation Models

Of course, the synchronized evolution around the problem space is accompanied by synchronized evolution around the solution space. As we finally begin to see NoFi applications that can reasonably compete in large-scale markets, we can identify some common threads supporting different approaches. Let’s start from the high-level settlement layer down to the application layer, then delve into some key technical themes.

Multi-Party Computation (MPC), Account Abstraction, and Other Seed Phrase Eliminations

It’s clear that the next billion users will not securely store a 24-word phrase, and over the past 12 months, the crypto industry has essentially taken this meme seriously, launching many different implementations, standards, and software development tools to help dApp developers provide a Web2-style login experience with crypto wallets. I detailed this area in my article "Wallet-Centric Experience Stack," but it’s worth reiterating that secure self-custody solutions are crucial for the development of the NoFi application layer, as they can provide Web2-style login and recovery functionalities. Whether the specific implementation is based on MPC, smart accounts, or a hybrid of both, NoFi applications are leveraging the latest and greatest wallet experience stack middleware innovations and bringing them to the masses. Beam's Eco utilizes ERC-4337 compatible smart accounts and account abstraction infrastructure on Optimism (and soon Base) to provide an onboarding process without seed mnemonic phrases and a payment experience below 5 cents, allowing users to access it even if they have never set up a wallet before.

Solana

As a well-known Ethereum enthusiast, I must admit that I have to give Solana its due credit. Sling, Decaf, and Key.app all run on Solana, and they may be three of the smoothest NoFi applications currently in existence. While Solana has consistently performed well in terms of cost (despite the trade-offs of decentralization), its significant presence in the NoFi space lies in the quality of application builders and the positioning of everyday user value. Therefore, while Ethereum's sidechain ecosystem is rapidly catching up to Solana in terms of cost and speed, Solana's application ecosystem may be a step ahead in some aspects regarding innovative NoFi user experiences.

Zaps, Meta Transactions, Intent

Without delving into a lot of details about blockchain intent and the future of MEV, I just want to mention that bundling multiple on-chain operations together to facilitate easy transactions on behalf of users is not just about allowing speculators to get the best limit order prices. Whether it’s on-chain "zaps" or "schemes" for executing multiple transactions together, or off-chain signed messages representing user intent, NoFi applications can leverage the combination of various types of transactions and similar transaction instructions to simply provide users with what they are looking for. In NoFi applications, we will soon see these small frictions eliminated, such as buttons for "swap for USDC and save" or "swap for ETH and stake."

Block unicorn note: Zaps refer to consolidating a series of interactive processes into a single step/one-click operation, abbreviated as Zaps.

Merging Cryptocurrency with Traditional Financial Banking and Payment Systems

Another implementation theme we see in this NoFi (non-custodial finance) wave is the meaningful merging of cryptocurrency and traditional finance. One of these is that the entities operating these applications can often add value for users by establishing relationships with banks or collaborating with some banking infrastructure providers. Non-custodial new banks, which are essentially 95% non-custodial wallets, can add fiat-to-crypto services and bank accounts to deepen the value these applications provide. The ability to automatically deposit a portion of one’s salary into a non-custodial wallet makes other services within the wallet more valuable and necessary, while the ability to swipe a card or tap to pay with cryptocurrency at the grocery store further extends that value. Users need to undergo identity verification when using these services, which means they give up some anonymity, but for most users, real life has already been "identity-verified," making it just a way for cryptocurrency to better integrate into their lives. With Visa and Mastercard already experimenting with payments on EVM-based smart accounts and account abstraction, and the hybrid world connecting on-chain and off-chain in user interfaces becoming increasingly common.

Tokenization of Real-World Assets

As previously mentioned, an increasing number of high-quality real-world assets are being tokenized, enabling new types of consumer financial products that would otherwise be impossible. The most obvious and direct way is through stablecoins themselves. Issuers like Circle and Tether are issuing tokens by investing billions in short-term notes and increasingly passing on yields from government bonds and other short-term off-chain securities to on-chain stablecoin holders. Another example is the recent wave of on-chain US Treasury bonds that cryptocurrency investors can access through platforms like Ondo Finance. While you need to undergo identity verification (and there are geographic restrictions depending on the product you want to use), once completed, you can access substantial yields in a user-friendly on-chain wallet without navigating through confusing brokerage applications. As more valuable real-world assets are tokenized and brought on-chain, they create more potential financial products for regular users.

Why Now?

To understand why we are seeing this explosive growth in use cases now (whether you like it or not, the TRX chain has 2 million DAUs), and why even serious players like PayPal are getting involved, we need to look at some factors that are collectively driving things forward.

Stablecoins

The first and most obvious reason for the rapid rise of NoFi now is the maturity of the stablecoin ecosystem. Digital dollars (and an increasing number of other fiat currencies) can arguably be considered the killer application of blockchain to date. As we’ve discussed in most examples, stablecoins are the lifeline of actual everyday commerce, which volatile cryptocurrencies cannot achieve. Digital, frictionless fiat currency is permeating various applications, regions, and domains. This momentum is accelerating rather than slowing down, with Circle alone generating over $700 million in revenue from its $26 billion USDC issuance in the first half of 2023, surpassing their total revenue for 2022.

Tether is making substantial profits, and if things continue, they may become a systemically important holder of US Treasuries. However, more important than the massive issuance totals or revenue statistics is the adoption by ordinary users and businesses to do the mundane and necessary things mentioned above, especially for those who previously had little or no banking services in developing countries. In developed markets, we have yet to see explosive usage in the mainstream, but there is reason to believe this may change (more on that later).

Maturity of Scaling Solutions

In the blockchain scaling wars, I don’t want to prematurely declare victory over the trilemma in practical applications, although there is still a lot of architecture, engineering, and decentralization to be built in the blockchain scaling ecosystem, we are nearing the endpoint where decentralized blockchains become too expensive and cumbersome for everyday use. Solana's transaction costs have dropped to nearly negligible levels, and Ethereum's "Manhattan Project"-style focus on rollup-centric roadmaps is finally beginning to yield real results. We will not only see a significant reduction in rollup costs from EIP 4844, but we will also see all the scaling advantages in the zk space that have yet to be realized, in addition to the creation of a thriving L2 infrastructure ecosystem, allowing applications to easily launch dedicated "Rollapps" for maximum control, performance, and profitability. Overall, cryptocurrencies, particularly Ethereum, have gone through a "rough patch" in scaling, and these efforts are producing excellent "good enough" L2 solutions that can apply to virtually any use case with just a hard fork. Thus, NoFi applications are entering the loosest block space environment in crypto history, with multiple good and continually improving network options available.

Innovation in Wallet Technology

As mentioned above, innovations like MPC, smart accounts with account abstraction, and gasless transactions, along with products like Privy and Web3Auth, tightly connect the entire "wallet stack," providing developers looking to build applications with deep native wallet functionality a more convenient way to do so. The next wave of crypto new banks and non-custodial fintech applications will not have to worry about users' seed phrases or the need for installed wallets. Not only are these blockchains finally becoming cheap enough, but applications can also add seamless interactions with cutting-edge smart accounts through just a few lines of JavaScript code.

Macro Tailwinds

Stepping back from cryptocurrency itself to look at the backdrop in which it operates, we can see that the world surrounding cryptocurrency is evolving in ways that make this NoFi innovation more attractive and necessary. Inflation volatility has made a strong comeback, especially in developing countries with weak currencies, and the desire to avoid exposure to international and local inflation volatility is growing. E-commerce is trying to penetrate every corner of the globe, but in areas where local banking and payment infrastructure is weak or where there is a lack of internet access, the enthusiasm for traditional fintech innovation has been stifled. The long and tedious path of market efficiency is being driven by cutting out centralized (i.e., expensive) intermediaries.

Blockchain as a Vehicle for Competition

All of the above factors and more converge to give blockchain various "vehicles" to compete in fintech applications. Rather than relying on speculative future value or ideology, cryptocurrencies are beginning to integrate calm and tangible realities into their value propositions in this emerging NoFi space.

Transaction Costs

Centralized intermediaries have a profit demand, and the more centralized intermediaries are stacked together to transfer value from one place to another, the more profits they extract from consumers and businesses. Blockchain can consolidate intermediaries into smart contracts, fundamentally doing more with fewer resources. There is no other area where we can see crypto beginning to win as clearly as in reducing transaction costs for international payments. Sending payments between two countries using the international wire transfer system costs nearly $100, while sending via USDC costs less than a dollar. As fuel costs and scalability become less of a prospect issue, the clear advantage of cryptocurrency payment systems in transaction costs will permeate every possible consumer and business-facing service offering, with every profit that can be recouped through this method being reclaimed. Autonomous DeFi protocols may design more "profit space" out of finance, and NoFi applications can return these profits to consumers through better financial products.

Composability

Composability is greater than simple interoperability; it refers to how different parts of the ecosystem connect with each other to create higher-order and more complex value. From the most basic perspective, EVM-based NoFi products immediately gain the ability to pay with any other on-chain EVM wallet, interact with DeFi protocols, read identity NFTs from other applications, and create EVM application logic using wallets. While this is a somewhat abstract property, it is inextricably linked to general interoperability and network effects, but the unique composability of cryptocurrencies allows for the combination of various services to achieve greater end-user value. When combined with the next attribute—permissionlessness—NoFi builders immediately gain a huge sandbox when enabling their users to connect to the blockchain, easily facilitating trading, lending, borrowing, payments, or anything that combines them or builds on top of them.

Permissionlessness

When building fintech applications, integrating with other complementary providers or value-added services can be a cumbersome, expensive, and time-consuming process. Integrating with crypto protocols is entirely different, as while there may still be some user experience issues when using some of these protocols, the fact remains that anyone globally can add a basic "savings" function to their application when their application is a wallet and they plug into Compound or Aave. This permissionless integration leads to faster innovation cycles and a broader range of potential building blocks for creating compelling financial products and experiences.

Reduced Business Footprint and Liability Exposure

One of the more interesting aspects of non-custodial finance, making it an attractive approach for fintech players, is the different division of responsibilities created by the non-custodial nature itself, involving users, developers, and other services. Alongside the aforementioned permissionlessness, non-custodiality not only reduces initial friction when integrating things like DEX trading into your application but also (in many jurisdictions) gives you the ability to do so from a legal and regulatory perspective compared to integrating traditional stock trading. The same applies to activities like lending, which are typically reserved for traditional banks, but through DeFi protocols, anyone with a wallet (including your customers) can access. NoFi applications can offer a suite of financial services, BD licenses, MTL licenses, and even banking licenses if you can consider what can be transferred on-chain (and your exact jurisdiction) and regulated third-party providers, such as regulated switches. There are even experiments underway regarding more decentralized wealth management on-chain in a real advisory manner (though again, this is not legal advice). This completely disrupts the way fintech applications are developed, as it means that the financial services space can have a broader range of potential participants. By minimizing the business's off-chain footprint and earning money through transaction interfaces' taxes, NoFi applications can effectively enter markets they could not access in a non-crypto manner.

User Experience (UX)

Is user experience (UX) a potential selling point for crypto financial services? I thought it was precisely because of user experience that we couldn't achieve mass adoption? While I do not wish to downplay the work still needed to improve crypto user experiences, over time, we can actually expect crypto technology to bring significant advantages in user experience compared to non-crypto technology. Take login and payment as examples. To fully realize this requires a certain number of applications supported by crypto technology and users who already have wallets, but the ability for people to simply connect to a wallet and pay without entering any additional information because they control their private keys will bring a better experience over time than Web2. Compared to the annoying wire transfer screens when sending international payments from a bank, instant crypto payments may inherently require fewer clicks than their fastest Web2 counterparts. Currently, the support for user experience in crypto technology is as much against as it is for it, but this will soon change (for some of the reasons mentioned above), providing an opportunity for a fundamentally reversed sovereign user experience, which the simplicity of wallet user experience implies, will attract users in pure usability terms.

What’s Next?

Non-custodial finance (NoFi) is beginning to enter an optimal environment, and I believe the number of participants vying for this opportunity will grow by an order of magnitude in the coming years. This space will not only become highly competitive but will also merge with the existing competitive dynamics of fintech and new banking, creating a dynamic whole. It’s difficult to predict exactly who will emerge as winners, but there are some future directions worth watching.

Social and Social Finance

Almost parallel to all this non-custodial finance (NoFi) content is a thriving ecosystem of decentralized social networks, much of which revolves around cryptocurrency. Protocols like Lens, Farcaster, and BlueSky will open up entirely new design spaces for social applications, and as this explosive growth in social network design occurs, innovations in business models for creators and others are likely to merge with the emerging NoFi meta space. Recently, we saw a very interesting experiment regarding social tokens in Friend.tech deep within crypto Twitter, which, while still in a very early and niche stage, will see mutual influence as more innovations occur in the so-called "decentralized social (De-So)" space. Perhaps the most influential example is what would happen if Twitter/X entered cryptocurrency payments. Additionally, there are ongoing on-chain experiments regarding community finance, microloans, social insurance, and basic income programs, which have finally become relatively simple from a technical standpoint, and we should expect the development of multi-party finance aimed at solving people's actual real-world problems.

B2C Messaging and Conversational Blockchain Commerce

Messaging protocols like XMTP are finally beginning to be adopted in consumer wallets, not only in consumer wallets like Coinbase Wallet but also in the b2b experience stack provider Dynamic.xyz. This begins to hint at a set of very powerful business use cases that may involve conversations between consumers and dapps or even merchants. Conversational support, sales, and marketing will enter wallet-based commerce and bring additional layers of consideration for NoFi applications. Will they become b2c platforms themselves (as Decaf is doing with its consumer wallet and merchant crypto PoS solution), or will they attempt to become a universal client for blockchain commerce, enabling transactional messaging on behalf of users? This will open up an entirely new realm of trusted business communication, becoming even more pressing as AI clogs all our digital communication channels and spammers become more effective.

Experience Stack Providers Will Focus More on NoFi as an Application Space

I expect that wallet experience stack providers mentioned in this article and my other writings will increasingly focus on NoFi as a vertical. Beyond gaming, NFTs, and traditional DeFi, these consumer-facing financial applications are the perfect embodiment of middleware product value propositions, providing Web2-like experiences on Web3 tracks. There are over 40 well-funded companies and projects in this space, and their focus will bring better NoFi development solutions and the emergence of more killer applications.

Finally Emerging Momentum in Developed Markets

Early NoFi progress has largely concentrated in emerging markets or involved people related to these emerging markets. This is intuitively reasonable, as these regions typically have underserved markets, while wealthy countries often over-serve consumers. However, as the various forces mentioned above play out in the system, we will see more and more innovation occurring in markets where consumers are over-served in some obvious dimensions but underserved in some less obvious dimensions. This is likely to manifest as innovations gradually returning from developing countries to more developed ones.

Non-Custodial Super Applications

Finally, while this article has assumed many different approaches to NoFi applications, it is entirely possible that a few dominant players could aggregate these financial "unrefined functionalities" together to create a "non-custodial super application" similar to WeChat or GoTo. These applications could not only perform all the aforementioned tasks but also connect the entire decentralized internet through some dApp browser (or more likely, a "mini-program" style framework for small applications). Some general-purpose Web3 wallets certainly hope for this, and many are fundraising with this as an investment theme. While I believe that one of the current batch of integrated Web3 wallets may achieve super application scale and scope, I think it is more likely that existing large tech companies and smartphone manufacturers, or NoFi applications starting from a more mass-market and limited initial scope, will emerge.

Conclusion

While I am excited about use cases that come directly from on-chain culture and are fully avant-garde, a fully decentralized internet and metaverse will take time, and NoFi currently exists as a bridge for crypto to cross over to the early majority of users.