"We need to wait for more valuable assets to go on-chain."

Compiled & Edited by: Deep Tide TechFlow

Guest: Pranav Kanade, VanEck Portfolio Manager

Hosts: Andy; Robbie

Podcast Source: The Rollup

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

Broadcast Date: June 2025

Key Points Summary

Pranav Kanade, Portfolio Manager at VanEck, joins this episode of the podcast to discuss the current state of institutional investors in cryptocurrency allocation. He will also talk about whether an altcoin season is approaching and why the development of tokenized stocks is receiving significant 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 early traditional financial institutions to enter the cryptocurrency space, offering various investment products related to digital assets like Bitcoin and Ethereum.)

The idea 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 by establishing 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 compare to traditional IPO models

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

Highlights

• Tokenized equity will be a future trend.

• 99.9% of tokens on CoinMarketCap are garbage.

• Most assets constituting the over $700 billion altcoin market do not have long-term value; their valuations are severely overestimated. Our strategy is to maintain investment discipline and avoid these assets. We need to wait for more valuable assets to go on-chain.

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

• The phrase "institutional investors are entering this space" typically 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 the institutions engaging in tokenization are not the same group as those who ultimately purchase the assets.

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

• There are relatively few talented individuals entering the blockchain application development field. Many top founders are choosing to pivot to developing AI projects because AI was easier to fund 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 structured is important, and I think every project should know how to monetize its product. Whether the revenue is returned to token holders is just a matter of time.

• Relevant legislation for stablecoins is about to pass, 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 assign higher valuation multiples.

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

• Well-designed tokens can become a tool for incremental capital structure for companies, and in some cases, tokens may even outperform stocks and bonds.

Pranav Discusses 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 we had a joke back then that when institutional investors came, 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 example, what the current state of capital deployment is for institutions like VanEck in areas like venture capital, liquidity, and stablecoins? Also, what does "institutional investors are entering this space" specifically mean? How is this process happening, 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 I have been managing our liquidity token fund since 2022, 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 the 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 who control 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 entrusting professional investment firms like us). They trust our expertise in a certain area, so they hand over their funds to us for management, 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 brokerage 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. Among these founders, some hope to exit through tokens, while others plan to go public. However, going public usually takes six to eight years, while token exits may only take 18 months. For certain businesses, tokenization makes more sense than public stocks.

Now, people are 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 exit 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 buy these stocks at market prices. However, in the liquidity token market, this mechanism does not exist. Therefore, I believe that although venture capital is starting 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 whenever 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 that the opportunities this year, or even early next year, are better.

Our mindset has shifted from simply allocating seed-stage capital to a more nuanced approach, especially in 2021. If you caught the opportunity in L1 (Layer 1, referring to the foundational layer of blockchain), such as Avalanche, Phantom, Near, etc., those returns were unparalleled, and there are still many big winners in venture capital. But now the market has become more crowded, and the gap between well-performing teams and poorly performing teams is widening, with the number of poorly performing teams increasing. Therefore, returning to my framework, I feel I do not need to make as many trades unless they are very selective. So, as you mentioned, these early capital allocators are seeing the same situation, but they will 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 in the middle of a cycle, or are there better opportunities in venture capital or liquidity investments? Is my view correct that investments that performed well in a *bear market* are still valid?**

Pranav Kanade:

I think many aspects of what you said make sense. It can be said that there is a significant supply-demand imbalance in liquidity, as there is insufficient capital supply while demand is high. Many tokens and projects are searching for potential "gems." In reality, 99.9% of the tokens on CoinMarketCap are garbage, and are not worth their high market capitalization. However, 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 capitalization is $75 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 surpass most opportunities you saw before tokenization.

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

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 attitude towards the cryptocurrency space has been very unfriendly, which 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 fund at that time.** However, since the elections, the situation has changed, and many interesting and talented founders have started to return to the crypto space and invest in new project development.

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 level, I have observed that although there are currently some very interesting and talented founders joining, the valuations of application layer projects are still lower than those of "follow-the-trend" 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 pay attention to 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 not too concerned with these technical issues; they are more focused on how to generate revenue.

I once tweeted asking, "How long will the revenue trend last?" The responses were interesting; some believed it might last less than three months, while others thought it would exceed two years. Many comments suggested that this trend would continue indefinitely. Regarding the impact of the 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 point, 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 a "store 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 the potential returns from colonizing Mars that it might achieve 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; however, the crypto industry seems to have been trying to avoid this. Part of the reason is regulatory considerations, as everyone is trying to avoid being classified as securities, thus having 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.

Forecasting 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 forecasts, 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 development. As long as the team is excellent and can manage the product they are developing well, 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 tokens may lose investment value in the long run. 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 tokens, then this token could grow from being insignificant to becoming a top 30 token, significantly enhancing the overall returns of the fund.

Viewing Protocols as an Exploration of Business Models

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 viewpoint seems different. You mentioned that this should be a product that remains effective in the market, rather than 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 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, as 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 regarding both should be separated. 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 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, and subsequently used the profits from AWS to build Amazon Advertising Services. This indicates 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 there is often a misunderstanding among people regarding 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 in reality, it is not necessarily efficient; using profits for buybacks does incur costs, but token holders still want to see buybacks happen.

Pranav Kanade:

I think we may have different views in some respects. I do not mean to say that revenue generation is wrong. I believe the way returns are structured is important, and I think every project should know how to monetize its product. However, whether the revenue is returned 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 capital like pensions has not yet entered the token market, but is mainly concentrated in Bitcoin and some publicly listed stocks related to crypto businesses. In this context, 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 seen significant growth. Therefore, we live in a scarce environment. In this scarce market, everyone is looking for ways to become an exception. Currently, capital returns (such as buybacks) are the mainstream method. However, I believe that within the next 24 to 36 months, regulators may allow the launch of multi-token ETFs, similar to products based on the S&P 500 index. Through such passive investment products, certain capital pools may enter the market, just as they invest through Bitcoin ETFs, thereby gaining broad exposure to the crypto space. This will create a new channel for capital inflow into the market, 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 the market speculation and the lowering of entry barriers have fundamentally changed the traditional attention allocation and capital allocation methods. In the past, we would conduct thorough due diligence, study undervalued assets, allocate funds, and wait patiently. But now, 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 we are familiar with, where Bitcoin, Ethereum, and other altcoins compete. The focus of the market 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, like the summer to fall of 2017, you would see various token prices 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 will evolve, I believe there are two possible 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" (converting equity into token form through blockchain technology). I am not saying it has to be those assets traded on Nasdaq, but rather putting 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 selling. If OnlyFans issued a token that represents equity in the company, 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 market capitalization could grow through the tokenized exits of more real companies, rather than relying on traditional listing methods like Nasdaq IPOs.

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 accommodative 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 started looking for 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 falling interest rates and a return to ample market liquidity.

Pranav's Macroeconomic Perspective

Andy:

You seem to believe that the current market positions will not perform well, and that the non-Bitcoin market may grow significantly due to more assets being put on-chain, forming a large market. These assets could include companies like OnlyFans, or even actual equity, etc. 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 strategy? Additionally, from an industry perspective, what upward opportunities do you think are 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, reasoning that 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 headlines about economic recession every month, but the reality is that the economy seems to be functioning quite well. My overall view is that most of the assets constituting the $700 billion altcoin market do not have long-term value; their valuations are severely overestimated. If we list all the L1 blockchains and analyze the actual fees generated by each chain, we will find that only three to 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 potential to capture market share from the top three or four in the future, which is based on "optionality." However, from a probabilistic standpoint, this possibility is low because the market does not operate in that way. 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 put on-chain.

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

I believe Bitcoin is a noteworthy opportunity. Additionally, I think the relevant legislation for stablecoins is about to pass, 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 would they implement this? Finally, we also assessed whether the founders, CEOs, and management teams of these companies have the motivation to achieve these changes or are merely content 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 stock market, while traditional stock market investors rarely consider the potential of stablecoins, as it is still somewhat distant from their focus.

I see this as a potential option. If the public companies we are focusing on can increase their gross margins from 40% to 60% or 70% by using stablecoins, their profitability will significantly improve, and the market will also assign 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, as the returns there may be higher.

Views on Overvalued Assets

Andy:

Returning to L1, there has been 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, which are often considered overvalued. Do you think they are truly overvalued? Is it because we assess them based on fees, or do they also have 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 gross cash flow multiples (GCF). From this perspective, some assets may appear undervalued, some overvalued, and some reasonably valued.

Perhaps a better approach is not to evaluate these assets solely based on data from last month or last week. 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 the 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 feel this sounds a bit concerning because if we use these methods to evaluate, these assets do indeed appear overvalued in terms of gross 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 the best of my estimation, 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 might only be between 10 million and 30 million, depending on the statistical method used.

If we assume that the number of on-chain users grows 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, presenting a "hockey stick" growth curve, then the situation would be completely different. If you believe that on-chain wealth and user base can reach such levels, then in three years, we might see 500 million users directly using on-chain applications or at least participating in some form of on-chain operation. In that case, I think certain blockchains are actually undervalued.

The Ownership of User Relationships

Andy:

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

I am curious, from an infrastructure perspective, 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 from infrastructure to applications and the changes in user relationships, how important do you think this is for infrastructure teams? If we want to achieve an explosive growth moment similar to ChatGPT, do you think there is significant room for growth here?

Pranav Kanade:

I would look at this issue from a different angle, and my answer may be somewhat vague. We have not yet 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 stream without affecting user relationships. So far, this situation has not occurred. But if such a situation does arise in the future, we need to observe its impact on user experience: will it lead to user attrition, or will it enhance user experience? If applications no longer leak value, their profitability could 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 own user relationships, you control the user experience, and everything else can be seen as a commoditized resource. This model has appeared in other industries as well. On the other hand, we also see giants in the cloud computing field, 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 among them. However, from the perspective of economies of scale, 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:

That's right; 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:

What I find interesting is 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 decision path for these startups ultimately becomes: 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 were 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 has not yet been a truly killer application outside of Bitcoin and stablecoins. Therefore, we cannot determine whether the currently supported projects 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 for their existence? It requires deep thinking about how to create something that can truly attract users. I think this is very relevant to what you mentioned: if we can develop applications that are almost unrelated to blockchain, such as 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 can 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 serve as a tool for incremental capital structure for companies, and in some cases, tokens can 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 that tokenized equity will be a trend of the future. 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 it is more important to have 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, such as 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 solution.

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