Dialogue with VanEck Investment Manager: The altcoin season will be driven by tokenized equity rather than traditional hype

Original Title: VanEck PM: Tokenized Equities Are The Next Huge Opportunity

Translation: Deep Tide TechFlow

Source: The Rollup

Guest: Pranav Kanade, VanEck Portfolio Manager

Host: Andy; Robbie

Broadcast Date: June 2025

Key Points Summary

Pranav Kanade, VanEck's portfolio manager, joins this episode of the podcast to answer questions about the current state of institutional investors in cryptocurrency allocations. He will also discuss whether an altcoin season is approaching and why the development of tokenized stocks is attracting attention.

(VanEck is a global asset management company headquartered in the United States, founded in 1955. It is known for providing innovative investment products, particularly in the ETF and mutual fund sectors. VanEck is also one of the traditional financial institutions that entered the cryptocurrency space early, offering various investment products related to digital assets like Bitcoin and Ethereum.)

The viewpoint that "institutions are entering the market" has become a hot topic in the industry, but the reality behind it is much more complex than most people imagine. The cryptocurrency industry must either legitimize itself through the establishment of real business models or remain in a speculative market phase, struggling to achieve long-term development.

In today's program, we will delve into the following topics:

• How institutional capital is entering the cryptocurrency market

• The shift from traditional venture capital to liquidity token strategies

• Why there is a polarization trend in the focus on revenue models

• How tokenized stocks contrast with traditional IPO models

• What the real driving force behind the next wave of capital influx is

Highlights of Insights

• Tokenized equity will be a future trend.

• 99.9% of tokens on CoinMarketCap are garbage.

• Most of the assets constituting the over $700 billion altcoin market do not have long-term value and are severely overvalued. Our strategy is to maintain investment discipline and avoid these assets. We need to wait for more valuable assets to be tokenized.

• If revenue models cannot become mainstream, cryptocurrency may only become an appendage of the internet.

• The phrase "institutional investors are entering this space" usually has two meanings: one is that capital is starting to flow in and purchase our assets; the other is that institutions are beginning to build "on-chain" products, such as tokenization for others to use.

• It is worth noting that these institutions engaging in tokenization are not the same group as those who ultimately purchase the assets.

• The market has become more crowded now, and the gap between well-performing teams and underperforming teams is widening, while the number of underperforming teams is increasing. Therefore, I feel I do not need to make so many trades unless they are very selective trades.

• There are relatively few talented individuals entering the blockchain application development field. Many top founders have chosen to pivot to developing AI projects because AI was easier to finance at that time.

• The industry must focus on what truly matters, such as product-market fit and why this asset is valuable; only when the answers to these questions become clear will capital flow in.

• I believe the way returns are generated is important, and I think every project should know how to monetize its product. Whether the returns are passed back to token holders is just a matter of time.

• Legislation related to stablecoins is about to be passed, which may drive a large number of companies to adopt stablecoins to optimize their cost structures. If public companies can increase their gross margins from 40% to 60% or 70% by using stablecoins, their profitability will significantly improve, and the market will also give them higher valuation multiples.

• If you have user relationships, you control the user experience, and everything else can be seen as a commoditized resource.

• A well-designed token can become an incremental capital structure tool for a company, and tokens can, in some cases, even outperform stocks and bonds.

Pranav on the Adoption Process of Institutional Investors

Andy:

I find that many people have inconsistent understandings of the term "institution." Generally speaking, this term mainly refers to capital, meaning institutions are trying to allocate capital in this space. I entered this field in 2017, and at that time, we had a joke that when institutional investors came in, we would sell to them. We were early participants, and they were the latecomers. However, I think there are some misunderstandings about how institutions operate in the crypto space.

I want to understand, for instance, how institutions like VanEck are currently deploying capital in areas like venture capital, liquidity, and stablecoins? Also, what does "institutional investors are entering this space" specifically mean? How is this process taking place, and what is the timeline?

Pranav Kanade:

This question can be answered from many angles. We can start with the premise that "institutional investors are entering this space." Like you, I started getting involved in this field in 2017, and since 2022, I have been managing our liquidity token fund, which has been three years now. When I hear "institutional investors are entering this space," it usually has two meanings: one is that capital is starting to flow in and purchase our assets; the other is that institutions are beginning to build "on-chain" products, such as tokenization for others to use. These two types of institutions may belong to completely different categories.

Recently, institutions focused on building products have mainly been tokenizing some treasury products, such as government bond funds. But in the future, as time goes on, you will see more assets being tokenized, such as stocks. We believe that stock tokenization is an obvious trend, and we can discuss the reasons further. It is worth noting that these institutions engaging in tokenization are not the same group as those who ultimately purchase the assets, as purchasing assets is more of a downstream effect of capital allocation.

**The flow of capital typically works like this: there is a group of institutions or individuals with capital, such as family offices, high-net-worth individuals, ** donor-advised funds , foundations, pensions, and sovereign wealth funds.** In most cases, they do not make investment decisions directly but choose to allocate funds to passive strategies (like exchange-traded funds, ETFs) or active strategies (like professional investment firms such as ours). They trust our expertise in a certain area, so they entrust us with managing the funds, and we are responsible for investing that capital.

Currently, these institutions and individuals, such as pensions, sovereign wealth funds, and family offices, are tentatively entering the crypto space but have not fully participated. I believe family offices may be the earliest to enter because they see the return potential of this asset class, especially in terms of liquidity. However, their participation mainly takes two forms: one is through purchasing cryptocurrency ETFs, which is a simple way to gain exposure; the other is through venture capital, allocating funds to some well-known** blue-chip managers. However, many have not directly entered the liquidity market or liquidity intermediary firms like ours.

From 2022 to now, about $60 billion of capital has flowed into seed-stage venture capital, supporting a large number of founders. Some of these founders hope to exit through tokens, while others plan to go public. However, going public typically takes six to eight years, while token exits may only take 18 months. For some businesses, tokenization makes more sense than public equity.

Now everyone is gradually realizing that capital pools have started to tentatively enter the crypto space. However, much of the capital allocation is overly concentrated in venture capital, and the tokens invested through managers have generally seen price declines after being launched in the past 12 to 24 months.

This is because there is a lack of a mature buyer's market in the liquidity token market. In traditional markets, when a venture-backed company is ready to go public, there is a deep public equity market where various investors are willing to purchase these stocks at market prices. However, in the liquidity token market, this mechanism does not exist. Therefore, I believe that although venture capital is beginning to pay attention to liquidity, there are still some structural issues to truly enter the liquidity market.

Opportunities in the Venture Capital Space

Andy:

My partner Robbie and I manage a fund, and the capital is all our own. Over the past 18 months to two years, we have made about 40 to 50 trades, investing heavily from the end of 2022 to the first half of 2023 and only making one or two trades this year. We have several projects in front of us, but every time I look at the charts for Bitcoin, Hyperliquid, or Ethereum, I ask Robbie why we should lock up $25,000 for four years hoping for significant appreciation when we have a clearer liquidity yield opportunity in front of us. I feel the opportunities this year or even early next year are better.

Our mindset has shifted from simply allocating seed-stage capital, especially in 2021, when if you caught opportunities in L1 (Layer 1, referring to the base layer of blockchain) like Avalanche, Phantom, or Near, the returns were unparalleled, and there were still many big winners in venture capital. But now the market has become more crowded, and the gap between well-performing teams and underperforming teams is widening, while the number of underperforming teams is increasing. Therefore, returning to my framework, I feel I do not need to make so many trades unless they are very selective trades. So, as you said, these early capital allocators are seeing the same situation, but they encounter some friction when actually entering. It sounds like this friction presents opportunities for those already in the field or capable of entering.

Have you also observed this shift among early capital allocators, similar to what I described, or better yet, can you validate my thought process? Am I thinking about this correctly? Are we currently in the middle of a cycle, or are there better opportunities in venture capital or liquidity investments? Is my view correct that investments performing well in a bear market are valid?

Pranav Kanade:

I think many aspects of what you said make sense. It can be said that there is a clear supply-demand imbalance in liquidity, as capital supply is insufficient while demand is high. Many tokens and projects are looking for potential "gems." In fact, 99.9% of tokens on CoinMarketCap are garbage and are not worth their high market capitalizations. But there are indeed a small number of opportunities that can be evaluated, with clear product-market fit and fees that will ultimately flow to the tokens. Simply put, if we define the altcoin market in some way, today's market cap is $750 billion, and it could grow several times in the future. This project will directly benefit from that growth, and much of the value will flow to the tokens. This is a relatively straightforward investment, and the potential of this investment may outperform most opportunities you saw before tokenization.

Liquidity is a very important factor; you can have a return curve similar to venture capital while maintaining liquidity, so even if you think your assumptions are wrong, you can exit easily.

However, I disagree with your viewpoint, which is actually contrary to my work direction. I focus on liquidity investments. Since 2022, the previous government's unfriendly attitude towards the cryptocurrency space has led me to notice a concerning issue: there are relatively few talented individuals entering the blockchain application development field. Many top founders have chosen to pivot to developing AI projects because AI was easier to finance at that time. However, since the elections, the situation has changed, and many interesting and talented founders have started returning to the crypto space and investing in new project developments.

Based on this, I hypothesize that if you are a venture capitalist who invested all your capital in the crypto space between 2022 and 2024, while another investor chooses to gradually invest capital over the next 24 months starting now, the latter may achieve better returns because they can attract better talent.

Especially at the application layer, I observe that although there are currently some very interesting and talented founders joining, the valuations of application layer projects are still lower than those of "me-too" projects, such as newly launched L1 blockchain projects. Therefore, I believe that many venture capitalists are still immersed in past success stories and have failed to focus on current potential and future trends.

Sustainability Analysis of Revenue Models

Andy:

I recently spoke with the GP of VanEck Ventures about their trading situation. This week, a16z held an event in the crypto space that attracted many professionals from companies like Stripe, Visa, and PayPal, bringing rich industry experience. Compared to the more local developer backgrounds we usually see, these individuals are more focused on product-market fit, revenue, and other practical applications, rather than getting bogged down in technical details of blockchain design, such as the number of validators. It seems that the next generation of founders is less concerned with these technical issues and more focused on how to generate revenue.

I once tweeted asking, "How long will the trend of revenue last?" The responses were interesting; some believed it might last less than three months, while others thought it could exceed two years. Many comments suggested that this trend would continue indefinitely. Regarding the impact of elections, I think this is an important turning point indicating that people can start building projects that can be profitable and create value for shareholders. The emergence of Hyperliquid also proves this, as they choose to operate in their own way rather than relying on venture capital.

These two factors have driven the development of this idea. So, I want to ask you, is this a temporary phenomenon, or is it the ultimate goal? Is cash flow the most important factor? What is your view on this revenue trend? Will it be a long-term trend?

Pranav Kanade:

I think this is a binary choice. If revenue models cannot become mainstream, cryptocurrency may only become an appendage of the internet. Most large capital pools want to allocate assets that serve as "stores of value," such as gold and Bitcoin. Bitcoin has successfully entered this category, while other assets find it difficult to do so. The fact that Bitcoin can become a store of value is a miracle in itself.

Beyond these, other assets will ultimately be viewed as capital return assets. Investors will ask, "If I invest one dollar, how much return can I expect in 25 years?" Just like SpaceX, although no one asks when it will return capital to shareholders, people believe that SpaceX's value lies in its potential returns from colonizing Mars in 20 years. While some world-changing crazy ideas can attract investment, ultimately, these ideas must be tied to investor returns. This is the type of asset that most people in the world are willing to invest in or allocate capital to.

In this framework, investors want to see how their funds generate returns, yet the crypto industry seems to have been trying to avoid this. Part of the reason is regulatory concerns; everyone is trying to avoid being classified as securities, so they have to navigate concepts like Ultrasound Money.

If we look at this issue candidly, the industry must focus on what truly matters, such as product-market fit and why this asset is valuable. When I introduce our fund's business to people, the most common question is, "Why is this thing valuable?" They are accustomed to the investment framework of stocks and bonds. Therefore, when the answer to this question becomes clear, capital will flow in. At that point, this asset class will further expand; otherwise, we may only remain trading some meaningless tokens.

Predictions on Future Cash Flows

Andy:

If we focus on companies in the current field that can generate revenue, this will help us narrow down the potential assets to hold. However, if we consider future cash flow predictions, this can open up more investment possibilities for us.

Pranav Kanade:

I usually tell people that our strategy allows us to invest in both tokens and publicly listed stocks, so we can flexibly choose the best investment opportunities. If I am unwilling to hold certain altcoins, I can completely choose not to hold them. In the current market, we find that truly attractive altcoins are very limited. But if we can find a project with an excellent product, even if this token currently lacks any clear value accumulation characteristics, that is acceptable because these characteristics are programmable and can be determined in subsequent developments. As long as the team is excellent and can properly manage the product they are developing, we can accept such an investment.

Of course, there are also some teams that have built excellent products, but ultimately most of the value may flow to equity, while the token may lose investment value in the long term. This situation is clearly something we need to avoid. However, if a team has developed an excellent product, and the value accumulation of the token and the monetization method of the product are currently unclear, but we can reasonably foresee how these mechanisms will operate in the future, then this is also an opportunity worth paying attention to. Because if this product can successfully monetize and let value flow to the token, then this token could grow from being insignificant to becoming a top 30 token, significantly enhancing the overall returns of the fund.

Exploring Protocols as a Business Model

Andy:

This idea differs from past implementations. In the past, we would typically develop an infrastructure product that was better than others and then consider how to handle the token issue. But your perspective seems different. You mentioned that this should be a product that remains effective in the market, not just staying in the early financing stage, and we can find ways to return value to the tokens.

Returning to your binary perspective, when you analyze these revenue-oriented companies, how do you consider when to start charging and how to commercialize the protocol? Clearly, you are looking at this issue from the investor's perspective rather than from the founder's perspective. But every protocol faces competitive pressure, and there will always be others attracting customers with lower prices. So how do you view the timing of charging and the user adoption curve? For example, when to start generating revenue is clearly a practical issue because you do not want to hinder the development of network effects.

Pranav Kanade:

This is a very worthwhile question to explore. When investing in projects, we focus on whether the project has a moat. For most crypto projects, the answer may be negative. If you ask, "What will happen if I start charging for the product?" the likely outcome is that you will immediately lose customers because others are willing to provide services at a lower price. This indicates that your product lacks a moat and is easily replaceable. Therefore, we usually avoid these projects, even though we may use them as consumers. In fact, many excellent products are not necessarily good investment targets, and this applies in the crypto space as well.

So, if you are worried that charging will lead to customer loss, that may not be a project worth investing in. But more importantly, charging and returning fees to token holders are two independent matters. I believe the decisions for both should be separate. When a product starts charging, if this decision is driven by the foundation or development team, then ideally, the product should have a moat, be able to accumulate revenue through charging, and use part of that revenue to support the team in developing better products or new products. This approach is similar to traditional businesses, like Amazon. They accumulated cash flow through their e-commerce platform and then used those resources to develop AWS, which in turn allowed them to build Amazon Advertising Services. This shows that Amazon's management team is more effective in capital allocation than simply returning funds to shareholders. If the return on investment in R&D is higher than directly returning to shareholders, then this approach is justified. I hope the best crypto projects can adopt similar strategies. If a founder can develop an excellent product and generate substantial revenue through charging, rather than directly returning that revenue to token holders, I would consider that an efficient capital allocation strategy. So what kind of products can this founder continue to develop next?

Andy:

I think people often misunderstand buybacks. They believe buybacks are an efficient use of capital. As a token holder of the protocol, you might think this is a good method, but it is not necessarily efficient; using profits for buybacks does come at a cost, yet token holders still want to see buybacks occur.

Pranav Kanade:

I think we may have different views on some aspects. I do not mean to say that revenue generation is wrong. I believe the way returns are generated is important, and I think every project should know how to monetize its product. However, whether the returns are passed back to token holders is just a matter of time. Because we currently live in a scarce market.

In the current market, the size of capital pools is limited. For example, large capitals like pensions have not entered the token market but are mainly focused on Bitcoin and some publicly listed stocks related to crypto businesses. In this case, although the supply of tokens is increasing, market demand is limited. I often tell people that if you remove Bitcoin, Ethereum, and stablecoins, the total market value of other tokens was about $1 trillion at the peak of the last cycle, and now it is around $700 billion. The market has not grown significantly. Therefore, we live in a scarce environment. In this scarce market, everyone is looking for ways to become the exception. Currently, capital returns (like buybacks) are the mainstream method. But I believe that in the next 24 to 36 months, regulators may allow the launch of multi-token ETFs, similar to S&P 500 index products. Through such passive investment products, certain capital pools may enter the market, just like they invest through Bitcoin ETFs, thus gaining broad exposure to the crypto space. This will create a new channel for capital inflow into the market, thereby changing the current scarcity situation.

Shifting Attention from Bitcoin (BTC) and Short-term Market Speculation

Andy:

People often ask where the altcoin season is now. Personally, I believe that market speculation and the lowering of entry barriers have fundamentally changed the traditional allocation of attention and capital. In the past, we would conduct thorough due diligence, study undervalued assets, allocate funds, and wait patiently. But now the market dynamics have shifted more towards who can buy the first token faster or quickly capture liquidity. Therefore, fundamental research has been replaced by speed. I feel this has led to a significant misalignment in how the market operates.

Pranav Kanade:

The current market landscape for Bitcoin is completely different from the past; it is no longer the classic model of Bitcoin, Ethereum, and other altcoins. The market's focus is still on Bitcoin. However, despite this, Ethereum may have a chance for a rebound, and we may also see some movements in altcoins. So what factors could trigger a larger-scale altcoin season?

Andy:

For example, during the summer to fall of 2017, you would see various tokens on CoinMarketCap rising by 100%. What could prevent this rise from eventually turning into a decline? The current situation is almost a complete collapse; will this market trend change? Will Bitcoin's dominance continue to rise? What will truly change the market structure, rather than just the dominance of Bitcoin and short-term speculation?

Pranav Kanade:

I think it is a matter of time, and changes may occur in the future. As for how the market evolves, I think there may be two scenarios. The first scenario is that the total market value of altcoins grows from the current $700 billion to a higher level, possibly due to the development of "tokenized equity" (Tokenized Equity, converting equity into token form through blockchain technology). I am not saying it must be those assets traded on NASDAQ, but rather bringing these assets on-chain so that global investors can access them. This could drive market growth.

I hope to see more traditional companies, especially those backed by venture capital, choose to exit in token form rather than equity form. Achieving all the functions of equity through tokens while adding programmable features. For example, a few weeks ago, there was news that OnlyFans is for sale. If OnlyFans issued a token representing the company's equity, that would be very interesting. This token could also be used to reward creators who attract more viewers. In this way, these tokens would have value and allow companies to allocate resources more flexibly. Thus, the total market value could grow through the tokenized exits of more real companies, rather than relying on traditional IPO methods like NASDAQ.

The second scenario is a return to the altcoin season you mentioned, where the prices of existing assets begin to rise broadly. If we return to an environment similar to when cash checks were distributed during the pandemic, people would tend to take risks and speculate. In this case, assets that have not yet risen would also be pushed up due to increased risk appetite.

This is very similar to the post-pandemic market. At that time, the government distributed cash checks, market liquidity increased, and central banks adopted loose policies. Initially, funds flowed into credit assets, such as investment-grade debt and high-yield debt. Then, large tech stocks began to rise, followed by unprofitable tech stocks, such as those in the ARK ETF. After that, people began to seek more risks, such as focusing on SPACs (Special Purpose Acquisition Companies). When SPACs performed well and market sentiment peaked, Bitcoin and altcoins also entered a bull market. Therefore, when risk appetite is high enough, those assets that have not yet risen will also be pushed up. But I believe that all of this is predicated on interest rates decreasing and market liquidity becoming abundant again.

Pranav's Macroeconomic Perspective

Andy:

You seem to believe that the current market positions will not perform well, while the non-Bitcoin market may significantly grow due to more assets being tokenized, forming a large market. These assets may include companies like OnlyFans or even actual equity. This expansion is achieved through new mechanisms and the introduction of users. So how does this market change support your current liquidity positions and investment strategies? Additionally, from an industry perspective, what upward opportunities do you see worth paying attention to in the third and fourth quarters?

A few weeks ago, we invited Jordi from Selini, who believes that the market will be relatively flat this summer because there is currently not enough economic pressure for the Federal Reserve to take stimulative measures, and the market has rebounded from recent tariff issues. Do you agree with this view? If so, how would you adjust your investment strategy to respond to these two possible market outcomes?

Pranav Kanade:

I do not make any macroeconomic predictions; there are monthly headlines about economic recession, but the reality is that the economy seems to be functioning quite well. My overall view is that most of the assets constituting the over $700 billion altcoin market do not have long-term value and are severely overvalued. If we list all L1 blockchains and analyze the actual fees generated by each chain, we find that only three or four chains generate significant revenue, while the other six to ten chains have almost no revenue, yet their market capitalizations are high. The valuations of these chains are typically based on their future potential to capture market share from the top three or four. However, from a probabilistic standpoint, this possibility is low because the market does not operate in that manner. Therefore, I believe that most assets in the altcoin market lack value. Our strategy is to maintain investment discipline and avoid these assets. We need to wait for more valuable assets to be tokenized.

So in the meantime, while waiting for better assets, what else can we invest in? Where can we find the best return opportunities?

I believe Bitcoin is an opportunity worth paying attention to. Additionally, I think legislation related to stablecoins is about to be passed, which may drive a large number of companies to adopt stablecoins to optimize their cost structures. Earlier this year, especially after the elections, we studied some public companies, such as internet stocks, e-commerce companies, gig economy companies, and sports betting companies, analyzing how much of their cost structure is paid to the banking system. We asked ourselves, can these companies reduce costs by using stablecoins? If so, how much can they save? How should they implement it? Finally, we also assessed whether the founders, CEOs, and management teams of these companies have the motivation to achieve these changes or are merely satisfied with maintaining the status quo. After filtering, we selected a few companies worth paying attention to and made relevant investments. While I cannot disclose specific details, I believe this is an area that has not been fully explored. Cryptocurrency investors typically focus on obvious opportunities in the public markets, while traditional stock market investors rarely consider the potential of stablecoins because it is still somewhat distant from their focus.

I see this as a potential option. If the public companies we focus on can use stablecoins to increase their gross margins from 40% to 60% or 70%, their profitability will significantly improve, and the market will also give them higher valuation multiples. This is precisely the area we are currently focusing on. We believe this is an asymmetric investment opportunity. However, if truly valuable token assets emerge in the future that align with the investment logic we mentioned earlier, we can also quickly adjust our investment strategy because the returns there may be higher.

Views on Overvalued Assets

Andy:

Returning to L1, there is a lot of discussion about metrics like Rev and SOV (Store of Value). When we look at the market outside of Bitcoin, is there a way to judge which top assets might survive long-term in the future? For example, Ethereum, Solana, Chainlink, or BNB are often considered overvalued. Do you think they are truly overvalued? Is it because we are using fees to evaluate them, or do they also possess the potential for a "monetary premium" similar to Bitcoin?

Pranav Kanade:

Regarding the monetary premium, I find it difficult to have a clear answer. I could be wrong, but there are indeed some people holding the top ten assets that have almost no other practical use, simply because they believe these assets are stores of value. I think there are some rational factors in the market, but more people may view these L1 tokens as representatives of cash flow multiples (GCF, Gross Cash Flow, the ratio of asset valuation to cash flow). From this perspective, some assets may appear undervalued, some may be overvalued, and some may be reasonably valued.

Perhaps a better approach is not to evaluate these assets solely based on last month's or last week's data. Of course, many people like to annualize data from the past month to infer whether an asset is expensive or cheap. But the more important question is: What will these chains look like in two, three, or five years? Each chain has its specific user block space. For example, Ethereum's L2 solutions or some consumer-facing applications on Solana. So the question is, how much impact will projects built on these chains today have on the demand for block space if they scale in the future? At the same time, these chains are also expanding their supply capabilities. Therefore, if both demand and supply are growing, what will future revenues be? What will the valuations of these assets be at that time?

Andy:

I find this a bit concerning because if we use these methods to evaluate, these assets do indeed seem overvalued in terms of cash flow multiples (GCF).

Pranav Kanade:

I think this is a complex issue; how do you view these assets? I believe we should focus on their potential performance three years from now. To my best estimate, there are currently about 50 million cryptocurrency holders in the U.S., and globally there may be around 400 million. If we look at on-chain active users, that number may only be between 10 million and 30 million, depending on the statistical method.

If we assume that on-chain users grow at a rate of 5% per year, then the entire industry may indeed be overvalued. But if the on-chain user base can experience explosive growth like ChatGPT, going from zero users to hundreds of millions of users, showing a "hockey stick" growth curve, then the situation would be completely different. If you believe that on-chain wealth and user base can reach that level, then in three years, we might see 500 million users directly using on-chain applications or at least participating in some on-chain operations. In that case, I believe certain blockchains are actually undervalued.

Ownership of User Relationships

Andy:

In discussions about top blockchains, we often focus on infrastructure, but the polling seems to concentrate more on applications. The transition from no revenue to revenue, from infrastructure to applications, is happening very quickly. People are starting to raise the "Fat Application Thesis," which argues that value is more concentrated at the application layer rather than the protocol layer, and it has even evolved into the "Fat Wallet Thesis."

I am curious, from the perspective of infrastructure, how important is it to own user relationships? For example, Solana and Ethereum have attracted many developers to build applications on them, such as Solana's Phantom wallet and Ethereum's MetaMask, but these applications do not belong to the infrastructure layer itself; they are developed by third-party companies. In this transition between infrastructure and applications and the changes in user relationships, how do you view the importance of this for infrastructure teams? If we want to achieve a growth moment similar to ChatGPT, do you think there is significant growth potential here?

Pranav Kanade:

I would look at this issue from another angle, and my answer may be somewhat vague. So far, we have not seen any truly killer applications choose to leave the blockchain they rely on to create their own chain and fully control the tech stack. Because if they do that, they are essentially saying, "I own the user relationships," then the underlying infrastructure becomes a commoditized resource that can be replaced at any time, while they can fully control the profit flow without affecting user relationships. So far, this situation has not occurred. But if such a situation arises in the future, we need to observe its impact on user experience: will it lead to user loss or enhance user experience? If applications no longer leak value, their profitability may significantly increase.

When we can answer these questions, we can more clearly judge the future direction of the industry. Currently, my intuition is that if you have user relationships, you control the user experience, and everything else can be seen as a commoditized resource. This model has appeared in other industries. But on the other hand, we also see giants in the cloud computing space, such as Amazon, Google, and Microsoft, which occupy the vast majority of the market share. The infrastructure layer of blockchain (L1) may also develop in a similar way, forming a market dominated by three companies, with switching occurring between them. However, from an economic scale perspective, building everything in-house may not be cost-effective. This possibility needs further validation. This is also part of the liquidity value proposition: we will continue to observe these issues and quickly adjust our investment strategies based on the answers. If it ultimately proves that killer applications can completely replace the underlying infrastructure and operate independently, then holding L1 may not be the best choice.

Andy:

Exactly, I think liquidity is indeed a key factor. I also agree on the importance of user relationships, data, and brand recognition, but in this field, infrastructure seems to dominate all brands. Ethereum is a brand, but users do not actually use Ethereum directly; they use it indirectly through other tools and applications, and this model has always existed.

Pranav Kanade:

I find it interesting that there may be another question involved here: Is the mainstreaming of cryptocurrency due to existing Web2 companies deciding to build on these chains and utilize blockchain technology, or is it because certain venture-backed startups have created killer applications? If it is the latter, then the ultimate decision path for these startups is: which chain should I choose to showcase attractiveness early on to raise the next round of funding to continue building? Two years ago, most people would have chosen to build on Ethereum or its L2 solutions because those platforms made it easier to showcase attractiveness and secure funding. Now, that situation has changed.

Today, it has become easier to showcase attractiveness on Solana. But even so, there have not yet been any truly killer applications outside of Bitcoin and stablecoins. Therefore, we cannot determine whether the projects currently supported are the right choices. If in the future, an application like WhatsApp adds stablecoin functionality and becomes the next blockbuster application, will they choose to utilize these blockchain technologies?

How to Build Attractive Projects

Andy:

Are you able to develop applications yourselves? For example, you have already developed an L2 network, but the next question is, what kind of applications should be built? What is the rationale? It requires deep thought on how to create something that can truly attract users. I think this relates closely to what you mentioned: if we can develop some applications that are almost unrelated to blockchain, like typical app store applications or web applications, and then connect these applications to the blockchain or find some way to reintegrate… However, I am not sure how we transition from the current user experience and application developer ecosystem to the next killer application without taking a few steps back in product design thinking. Therefore, I think many L2 developers are currently experiencing this reality dilemma. For example, if you look at the TPS (Transactions Per Second) of some L2s on Ethereum, it is indeed disappointing.

Pranav Kanade:

Everyone enters the cryptocurrency space for different reasons. I entered this field because I believe that well-designed tokens can become an incremental capital structure tool for companies, and tokens can, in some cases, even outperform stocks and bonds. This is my core argument. For example, if Amazon's stock were tokenized, Amazon might be able to grow its core business, such as Prime membership services, more quickly without taking 14 years because they could use tokens as rewards to drive business growth. Therefore, I entered this field because I believe tokenized equity will be a future trend. So the question arises: what conditions are needed to achieve this goal? Does it require a completely decentralized blockchain? I am not sure; I think what is more important is having technology and tools that can provide a good user experience.

In the example of tokenized equity I mentioned, the customers are actually the issuers of the tokens, like Amazon in my hypothetical example. So the question is, what do these issuers really need? We need to start from their needs and work backward to design the most suitable solutions.