Abstract. We show that, for functors with suitable mild restrictions, the initial algebra in the category of sets and functions gives rise to the final coalgebra in the (Kleisli) category of sets and relations. The finality principle thus obtained leads to the finite trace semantics of nondeterministic systems, which extends the trace semantics for coalgebras previously introduced by the second author. We demonstrate the use of our technical result by giving the first coalgebraic account on contextfree grammars, where we obtain generated context-free languages via the finite trace semantics. Additionally, the constructions of both finite and possibly infinite parse trees are shown to be monads. Hence our extension of the application domain of coalgebras identifies several new mathematical constructions and structures. 1

This paper illustrates the relevance of distributive laws for the solution of recursive equations, and shows that one approach for obtaining coinductive solutions of equations via infinite terms is in fact a special case of a more general approach using an extended form of coinduction via distributive laws. 1