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

Source: The Rollup

Translated by: TechFlow by Deepwave

· Guest: Pranav Kanade, Portfolio Manager at VanEck

· Hosts: Andy; Robbie

· Air Date: June 2025

Key Takeaways

Pranav Kanade, a portfolio manager at VanEck, joins this episode of the podcast to address the current state of institutional investors' involvement in cryptocurrency allocations. He will also discuss whether the altcoin season is on the horizon and why the development of tokenized stocks has garnered significant attention.

(VanEck is a U.S.-based global asset management company, founded in 1955. It is renowned for offering innovative investment products, particularly in the ETF and mutual fund space. VanEck is also one of the earliest traditional financial institutions to explore the cryptocurrency sector, offering various investment products related to digital assets like Bitcoin and Ethereum.)

The notion that "institutions are entering the market" has become a buzzword within the industry, but the reality behind it is far more complex than most imagine. For the cryptocurrency sector to achieve legitimacy, it must either establish viable business models or remain stuck in a speculative market phase, struggling to sustain long-term growth.

In today’s episode, we delve into the following topics:

· How institutional capital is truly entering the cryptocurrency market

· The shift from traditional venture capital to liquid token strategies

· Why the focus on revenue models exhibits a polarized trend

· How tokenized stocks compare to traditional IPO models

· What is the real driving force behind the next wave of capital inflow

Highlighted Insights

· Tokenized equities represent a trend of the future.

· 99.9% of tokens on CoinMarketCap are junk.

· The majority of assets that constitute the $700 billion altcoin market today lack long-term value, and their valuations are grossly inflated. Our strategy is to maintain investment discipline and avoid these assets. We need to wait for higher-value assets to migrate on-chain.

· If the revenue model fails to achieve mainstream adoption, cryptocurrencies might only become an appendage to the internet.

· "Institutional investors are entering this space" often has two implications: first, capital is flowing in, purchasing our assets; second, institutions are starting to build "on-chain" products, such as tokenization, for others to use.

· It's worth noting that the institutions engaging in tokenization are not the same group as the allocators who ultimately purchase the assets.

· The market has become more crowded, and the gap between well-performing teams and underperforming teams is widening, while the number of failing teams is increasing. As a result, I feel I don't need to make as many trades unless they are highly selective ones.

· There is a relative lack of top talent entering the blockchain application development space. Many top-tier founders are opting to pivot to AI projects, as AI often offers easier access to funding.

· The industry must focus on the things that truly matter, such as product-market fit and why a given asset holds value. Only when the answers to these questions become clear will capital flow into the space.

· I believe the way returns are generated is important, and every project should understand how to monetize its product. Whether returns are distributed to token holders is just a matter of time.

· Stablecoin-related legislation is nearing approval, which could drive widespread adoption of stablecoins by enterprises looking to optimize their cost structures. If public companies can improve their gross margins from 40% to 60% or 70% by using stablecoins, their profitability will significantly increase, and the market will reward them with higher valuation multiples.

· If you own the customer relationship, you control the user experience, while everything else can be considered commoditized resources.

· Well-designed tokens can act as an incremental capital structure tool for companies, and in some cases, tokens may even outperform stocks and bonds.

Pranav on the Progress of Institutional Adoption

Andy: I find that many people have inconsistent understandings of the term "institution." Generally, the term primarily refers to capital—institutions attempting to allocate capital within this space. I entered this field in 2017, and back then we had a joke: when institutional investors arrive, we’ll sell to them. We were the early participants, while they were the latecomers. However, I think there’s some misunderstanding about how institutions operate in the crypto space.

I’d like to understand how institutions like VanEck are deploying capital in areas such as venture capital, liquidity, and stablecoins. Additionally, what does it really mean when people say "institutional investors are entering this space"? How does this process unfold, and what is the timeline?

Pranav Kanade: That’s a great question, and it can be answered from several angles. Let’s start with the premise that "institutional investors are entering this space." Like you, I’ve been involved in this space since 2017, and since 2022, I’ve been managing our liquid tokens fund, which has been operational for three years now. When I hear "institutional investors are entering this space," it generally means two things: first, capital is flowing in to purchase our assets; second, institutions are starting to build "on-chain" products, such as tokenization (i.e., converting traditional assets into digital tokens on the blockchain), for others to use. These two types of institutions could be entirely different groups.

Recently, institutions focusing on building products have primarily been tokenizing treasury-like products, such as bond funds. Over time, you can expect to see more assets being tokenized, including equities. We believe tokenizing equities is an obvious trend, and we can delve deeper into the reasons for that. It’s important to note that institutions engaging in tokenization are not the same as the allocators who eventually purchase these assets. The actual asset purchase stems more from downstream capital allocation effects.

The capital flow typically works like this: there’s a pool of institutions or individuals who control capital, such as family offices, high-net-worth individuals, endowments, foundations, pension funds, sovereign wealth funds, etc. Most of the time, they don’t make direct investment decisions themselves but instead opt to allocate funds into passive strategies (like exchange-traded funds, ETFs) or active strategies (such as entrusting professional investment firms like us). They believe in our expertise in a specific domain, so they delegate capital to us, and we take responsibility for investing it strategically.

Currently, these institutions and individuals—for instance, pension funds, sovereign wealth funds, and family offices—are cautiously dipping their toes into the crypto space but have not yet fully committed to it. I think family offices may be the earliest participants because they recognize the return potential of this asset class, especially in terms of liquidity. However, their participation typically takes two forms: one is through purchasing crypto ETFs, which provide a simple exposure mechanism; the other is via venture capital, allocating funds to reputable, blue-chip managers. That said, many are not yet directly engaging in liquid markets or with liquidity-focused managers like us.

From 2022 to the present, approximately $60 billion in capital has been funneled into seed-stage venture investments, backing a large cohort of founders. Among these founders, some aim to exit via tokens, while others plan for an IPO. However, an IPO generally takes six to eight years, whereas a token exit might only require 18 months. For certain businesses, tokenization makes more sense than public equity.

It's becoming increasingly evident that capital pools are cautiously dipping into the crypto space. However, much of the capital allocation remains overly concentrated in venture capital, and tokens launched via these managers over the past 12 to 24 months have, in many cases, experienced downward price trajectories.

This is because the liquid token market lacks a mature exit market. In traditional markets, when a VC-backed company prepares for an IPO, there exists a deep, public equity market full of participants willing to purchase shares at market price. In the liquid token market, however, no such mechanism currently exists. Consequently, I believe that, although venture capital is beginning to pay attention to liquidity, there are structural challenges to fully entering the liquidity market.

Opportunities in the Venture Capital Space

Andy: My partner Robbie and I manage a fund, utilizing exclusively our own capital. Over the past 18 months to two years, we’ve engaged in around 40 to 50 transactions. From late 2022 through 2023 and into the first half of 2024, we made substantial investments, but this year, we’ve only executed one or two deals. We currently have a few projects in front of us, but every time I look at charts for Bitcoin, Hyperliquid, or Ethereum, I ask Robbie: Why would we lock up $25,000 for four years hoping for outsized returns, when there’s a clearer liquidity opportunity in front of us today? I believe the opportunities this year, and even into early next year, are better.

Our approach has evolved from simply deploying seed investments, especially compared to 2021, when capturing opportunities in L1 (Layer 1—the foundational layer of a blockchain), like Avalanche, Phantom, Near, etc., yielded unparalleled returns. Venture capital still has its big winners. But now, the market is becoming more saturated, and the performance gap between top-tier teams and underperforming ones is widening, with a growing number of underperformers. As a result, going back to my framework, I feel less compelled to make numerous deals unless they’re highly selective opportunities. So, as you mentioned, early capital allocators are observing the same dynamics, though they encounter some friction when attempting to engage. That friction seems to represent an opportunity for those already positioned or equipped to enter the space.

Have you also observed this shift among early capital allocators, similar to the situation I've described? Or better yet, can you validate my line of thinking? Am I approaching this question correctly? Are we at the midpoint of the cycle now, or is it better to be in venture capital or liquid investments? Am I right in my assessment of investments that perform well during a bear market?

Pranav Kanade: I think a lot of what you’ve said makes sense. It’s fair to say that there’s a clear supply-demand imbalance in liquidity, where there’s not enough supply of capital to meet a very large demand. Many tokens and projects are searching for what could be the next hidden “gem.” The reality is, 99.9% of the tokens on CoinMarketCap are garbage and are nowhere near deserving of their current market caps. But there are a select few opportunities worth evaluating—those with clear product-market fit and revenue streams that ultimately accrue value back to the token. Simply put, if we define the altcoin market in some way, where today’s market cap is $75 billion, it could very well grow by several multiples in the future. The projects that will directly benefit from this growth will see significant value accrue to their tokens. This makes it a relatively straightforward investment, and the upside potential may exceed the majority of opportunities you’d see before tokenization occurred.

Liquidity is a critically important factor, as it allows you to achieve venture capital-like return profiles while maintaining liquidity. This means that even if you believe your thesis is wrong, you can easily exit.

However, I have a different perspective on your point, which actually aligns with the direction of my work. I focus on liquid investments. Since 2022, the prior administration’s anti-crypto stance has brought to light a concern that worries me: a relative lack of top-tier talent entering the blockchain application development space. Many top-tier founders shifted to building AI projects during that time, as it was easier to secure funding for AI initiatives.

However, since the election, the landscape has shifted, and many talented, capable founders have started returning to the crypto space, engaging in the development of new projects.

Based on this, I hypothesize that if you were a venture investor who deployed all your capital into crypto between 2022 and 2024, while another investor chose to deploy capital gradually over the next 24 months starting now, the latter might achieve better returns, as they are engaging with more promising talent.

Specifically at the application layer, I’ve noticed that although we’re now seeing some incredibly interesting and talented founders emerge, valuations for application-layer projects remain lower compared to those of “trend-following” projects, such as newer L1 blockchain launches. As a result, I believe that many venture investors are still stuck in the mindset of past successes and are failing to recognize the current potential and future trends.

Analysis of Revenue Model Sustainability

Andy: I recently had a conversation with a GP from VanEck Ventures about some of their deals. This week, a16z hosted a crypto event that attracted professionals from companies like Stripe, Visa, and PayPal, bringing in a wealth of industry experience. Compared to the usual backgrounds of more native developers we encounter, these individuals are more focused on product-market fit, revenue, and actual applications, rather than getting bogged down with the technical specifics of blockchain design, such as the number of validators. It seems the next generation of founders cares less about these technical questions and is more focused on how to generate revenue.

I tweeted recently asking, “How long will this revenue trend last?” The responses were interesting — some believed it would last less than three months, while others thought it could extend beyond two years. Many responses suggested the trend might persist indefinitely. Regarding the impact of elections, I feel this marks a significant turning point, signaling that people can now begin building projects that are profitable and create value for shareholders. The emergence of Hyperliquid is also a testament to this; they chose to operate on their own terms instead of relying on venture capital.

These two factors have driven this mentality forward. So, my question to you is: Is this a temporary phenomenon, or is this the endgame? Is cash flow the most critical factor? What are your thoughts on this revenue trend? Do you think it will be a long-term trend?

Pranav Kanade: I think it’s a binary choice. If revenue models cannot become mainstream, crypto might be relegated to being a mere accessory to the internet. Most large pools of capital want to allocate their investments into tools for “store of value” assets — assets capable of retaining their value over the long term — such as gold and Bitcoin. Bitcoin has already cemented its position in this category, while other assets have struggled to achieve the same. That Bitcoin has become a store of value is, in itself, a kind of miracle.

Beyond this, other assets will eventually be viewed as capital-returning assets. Investors will ask, “If I invest a dollar, how much return will I see in 25 years?” Take SpaceX, for instance. While no one is asking when it will return capital to its shareholders, there’s a collective belief that SpaceX’s worth lies in its potential future payout from, say, colonizing Mars 20 years down the line. While world-changing, audacious ideas can attract investment, these ideas will ultimately have to align with investor returns. This is the type of asset most people globally are willing to invest in or allocate capital toward.

Within this framework, investors want to see how their funds generate returns, yet the crypto industry seems to constantly avoid addressing this. This is partly due to regulatory considerations, as everyone strives to avoid being classified as securities. As a result, the industry often oscillates between concepts like Ultrasound Money.

If we approach this issue honestly, the industry must focus on what truly matters, such as product-market fit, and why these assets hold value. When I introduce our fund's business to people, the most frequently asked question is, "Why is this thing valuable?" They are accustomed to the investment frameworks 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 might simply remain trading meaningless tokens.

Forecasting Future Cash Flows

Andy: If we focus on companies that can currently generate revenue in the space, it will help us narrow down the pool of potential assets to hold. However, incorporating forecasts of future cash flows opens up more investment opportunities for us.

Pranav Kanade:

I often tell people that our strategy allows us to invest in both tokens and publicly listed stocks, giving us the flexibility to choose the best opportunities. If I don’t want to hold certain altcoins, I can simply choose not to. In today’s market, we find very few altcoins that are genuinely compelling. But if we identify a project with a great product, even if the token currently lacks any clear value accrual mechanisms, that’s okay because these mechanisms are programmable and can be defined in later stages of development. As long as the team is strong and can effectively manage the product they’re building, we’re open to making such investments.

Of course, there are cases where teams build excellent products, but the majority of the value might ultimately flow to equity, and the token could lose investment value in the long run. This is obviously something we aim to avoid. However, if a team develops a strong product but the token’s value accrual and monetization mechanisms are currently unclear, yet we can reasonably foresee how these mechanisms might work in the future, that is still a worthwhile opportunity. Because if the product succeeds in monetizing and directs value back to the token, then the token has the potential to grow from something relatively insignificant to a top-30 token, significantly boosting the fund’s overall returns.

Exploring Protocols as a Business Model

Andy: This idea differs from how things have been implemented in the past. Historically, we would often develop an infrastructure product that was better than other products, and only after that would we think about how to deal with the token. But your perspective seems different. You’ve mentioned that it should be a product that remains effective in the market long-term, rather than something that only exists during the initial fundraising stage. And in this case, we can find ways to channel value back to the token.

Circling back to the binary perspective you mentioned—when you analyze these revenue-focused companies, how do you think about when to start charging and how to commercialize a protocol? Clearly, you’re approaching this from the perspective of an investor rather than a founder. But every protocol faces competitive pressure—there will always be others willing to attract users by offering lower prices. So how do you think about the timing of charging fees and the user adoption curve? For instance, when to start generating revenue is obviously a practical concern, since you don’t want to stifle the growth of network effects.

Pranav Kanade: That’s a very thought-provoking question. When investing in projects, we focus on whether the project has a moat (a barrier to competition in the market). For most crypto projects, the answer is likely no. If you ask, "What happens if I start charging for the product?", the most probable outcome is that you’d immediately lose customers because someone else would be willing to provide the service at a lower price. This indicates that your product doesn’t have a moat and is easily replaceable. As a result, we tend to avoid such projects, even though we might use them as consumers. In fact, many excellent products are not necessarily great investment opportunities, and this is especially true in the crypto space.

So, if charging fees would likely cause customer attrition, then that’s probably not a project worth investing in. But more importantly, charging fees and distributing those fees to token holders are two independent issues. I believe the decisions for these two actions should be made separately. When a product starts charging, if the decision is driven by the foundation or the development team, then ideally, that product should have a moat, allowing it to generate revenue while maintaining its competitive advantages. Part of that revenue could then be used to support the team in developing better products or new products. This approach is similar to what traditional businesses do, such as Amazon. They used e-commerce to build cash flow, which they then leveraged to develop AWS, and subsequently used AWS profits to create Amazon Advertising. This demonstrates that Amazon’s management team excels at capital allocation—making better use of resources than simply returning funds to shareholders. If the ROI on R&D is higher than directly returning capital to shareholders, then this approach makes perfect sense. I hope the best crypto projects could adopt similar strategies. If a founder can build excellent products and generate solid revenue through fees rather than immediately distributing that revenue to token holders, I would consider that a highly efficient form of capital allocation. The next question then becomes: What kinds of products can this founder continue to build?

Andy: I think there’s often a misunderstanding about buybacks. People believe buybacks are an efficient way to utilize capital. As a token holder of a protocol, you might think it’s a good approach, but in reality, it’s not always efficient. Using profits for buybacks does come with costs, but token holders still want to see buybacks happen.

Pranav Kanade: I think we might differ in opinion on a few points. My argument isn’t that revenue generation is wrong. I believe the method of delivering returns is important, and every project needs to understand how to monetize its product. However, whether the earnings eventually benefit token holders, that’s merely a matter of time. This is because we currently exist in a scarcity-driven market.

In today’s market environment, the size of the capital pool is limited. For instance, large institutional capital like pension funds has yet to meaningfully enter the token space; instead, they are mainly focused on Bitcoin or publicly listed stocks related to the crypto industry. Given this dynamic, while the supply of tokens is increasing, market demand remains constrained. I often tell people, excluding Bitcoin, Ethereum, and stablecoins, the total market cap of other tokens was about $1 trillion at the last cycle’s peak, compared to roughly $700 billion today. The market hasn’t grown significantly. So, we’re operating in a scarcity-driven environment. In such a market, everyone is strategizing to figure out how to stand out. At the moment, capital return mechanisms like buybacks are the prevailing strategy. But I think that over the next 24 to 36 months, regulatory bodies might greenlight multi-token ETFs—similar to S&P 500-like products. Such passive investment vehicles could facilitate new pools of capital entering the market, much like Bitcoin ETFs did, providing broader exposure to the crypto space. This would create new inflows of funds, ultimately shifting the current scarce market dynamics.

Shifting Focus Away From Bitcoin (BTC) and Short-Term Market Speculation

Andy: People often ask, where is the altcoin season now? Personally, I think the way speculation and reduced entry barriers have reshaped traditional attention allocation and capital deployment is profound. In the past, we’d conduct due diligence, study undervalued assets, allocate funds, and patiently wait. But the current market behavior is more about who can buy the first token faster or capture liquidity quicker. As a result, fundamental research has been replaced by speed. I feel this has caused a major misalignment in how the market operates.

Pranav Kanade: Bitcoin's current market dynamics are very different from what they used to be. This isn’t the classic playbook of Bitcoin, Ethereum, and altcoins anymore. Now, the market’s core attention is still centered around Bitcoin. Still, Ethereum might have opportunities for a rebound, and we may even see some movement among altcoins. So, what factors could trigger a larger-scale altcoin season?

Andy: For example, during the summer to fall of 2017, you could see prices of various tokens on CoinMarketCap rising by 100%. What can prevent such an uptrend from eventually turning into a downturn? Right now, we are almost in a complete collapse. Could this market trend change? Will Bitcoin's dominance continue to rise? And what could truly transform the market structure, beyond just Bitcoin and short-term speculation dominating?

Pranav Kanade: I think it's a matter of time; changes might occur in the future. As for how the market might evolve, I believe there are two potential scenarios. The first scenario is that the total market capitalization of altcoins grows from the current $700 billion to a much higher level, potentially driven by the development of "Tokenized Equity" (converting equity into tokenized forms through blockchain technology). I'm not necessarily referring to the assets traded on the Nasdaq, but to tokenizing these assets and making them accessible to global investors. This could drive market growth.

I would like to see more traditional businesses, especially those backed by venture capital firms, opt for tokenized exits rather than equity-based exits. By tokenizing equity, it can retain all the functionalities of equity while adding programmable features. For example, there was news a few weeks ago about OnlyFans potentially being sold. If OnlyFans issued a token that represented equity in the company, that would be incredibly interesting. This token could also be used to incentivize creators who bring in larger audiences. In this way, these tokens would hold value while allowing the company to allocate resources more flexibly. As a result, the total market cap could grow through the tokenized exits of more real businesses rather than relying on traditional public offerings like Nasdaq IPOs.

The second scenario is a return to the so-called altcoin season, with prices of existing assets rising across the board. If we return to an environment similar to the times of stimulus checks during the pandemic, people may lean towards risk-taking and speculation. In such a case, even assets that haven’t yet appreciated could gain value due to an increase in risk appetite.

This is quite similar to the post-pandemic market. At that time, the government issued stimulus checks, market liquidity increased, and central banks adopted loose monetary policies. Initially, funds flowed into credit assets like investment-grade debt and high-yield debt. Next, large-cap tech stocks began to rise, followed by unprofitable tech stocks, like those included in the ARK ETF. After that, people started seeking even riskier opportunities, 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, even the assets that have not yet appreciated might see price surges. But I believe all of this depends on lower interest rates and a revival of ample market liquidity.

Pranav's Macroeconomic Perspective

Andy: You seem to believe that current market positions might not perform well, while the non-Bitcoin market could grow significantly due to more assets being onboarded, forming a vast market. These assets might include companies like OnlyFans or even real-world equity. This expansion is achieved through new mechanisms and user adoption. How does this market shift support your current liquidity positions and investment strategy? Furthermore, from an industry perspective, what are the potential upside opportunities to look out for in Q3 and Q4?

A few weeks ago, we invited Jordi from Selini, who argued that markets might remain relatively flat this summer. His reasoning is that there isn’t enough economic pressure for the Fed to stimulate, and markets have already rebounded from recent tariff issues. Do you share this view? If so, how will you adjust your investment strategy to prepare for these two possible market outcomes?

Pranav Kanade:

I refrain from making macroeconomic predictions. Every month, there are headline warnings about a recession, but the reality is that the economy appears to be functioning quite well. My overarching view is that the majority of assets comprising the $700 billion+ altcoin market don’t really hold long-term value, and their valuations are significantly overstated. If we were to list all the L1 blockchains and analyze the actual fees generated by each chain, we’d find that only three to four chains produce meaningful revenue, while another six to ten chains generate negligible income yet have very high market capitalizations. These valuations are often based on the "optionality" (potential future value) of capturing market share from the top three or four chains. However, the probability of this happening is relatively low because markets don’t function that way. Therefore, I believe most assets in the altcoin market lack value, and our strategy is to maintain investment discipline by avoiding these assets. We need to wait for more valuable assets to come on-chain.

So, while we wait for better assets, what can we invest in aside from holding cash? Where can we find the best return opportunities?

I think Bitcoin is a compelling opportunity. Additionally, I believe stablecoin-related legislation is on the horizon, which could drive significant adoption among businesses seeking to optimize their cost structures. Early this year, particularly after the elections, we looked into some public companies—such as internet stocks, e-commerce firms, gig economy companies, and sports betting platforms—to analyze how much of their cost structures are allocated to payments processed through the banking system. We asked ourselves, can these companies lower costs using stablecoins? If so, how much could they save, and how would they implement this? Finally, we evaluated whether these companies’ founders, CEOs, and management teams were incentivized to innovate or simply content with maintaining the status quo. After filtering down, we identified a handful of companies worth monitoring and made related investments. While I can’t disclose specifics, I believe this is a largely underexplored area. Crypto investors tend to focus on obvious opportunities within public markets, whereas traditional equity investors rarely consider the potential of stablecoins because it’s still outside their radar.

I see this as a kind of potential option. If the public companies we are monitoring can use stablecoins to boost their gross margin from 40% to 60% or 70%, their profitability will increase significantly, and the market will likely assign them higher valuation multiples. This is precisely the area we are focusing on right now. We view this as an asymmetric investment opportunity. However, if tokens with real value emerge in the future and align with the investment logic we've discussed before, we can quickly pivot our investment strategy, as the potential returns in that space could be higher.

Perspectives on Highly Valued Assets

Andy: Back to L1, there’s been a lot of discussion around metrics like Rev and SOV (Store of Value). When we look at markets outside of Bitcoin, is there a way to determine which top-tier assets might survive in the long term? For instance, Ethereum, Solana, Chainlink, or BNB are often said to be overvalued. Do you think they are actually overvalued? Is it because we are evaluating them based on fees, or do they also have the potential for a “Monetary Premium” (extra valuation due to being seen as a currency), similar to Bitcoin?

Pranav Kanade: Regarding the question of monetary premium, I find it difficult to give a definitive answer. I might be wrong, but there are certainly people who hold top-ten assets that have little to no practical use simply because they view these assets as stores of value. I think the market has some rational factors, but more often than not, many people treat these L1 tokens as proxies for gross cash flow (GCF)—i.e., the ratio of an asset's valuation to its cash flow. From this perspective, some assets might appear undervalued, some overvalued, and others reasonably valued.

It might be better not to assess these assets solely based on last month’s or last week’s data. Of course, many investors like to annualize the 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 two, three, or five years from now? Each chain commands a specific block space for its users. For example, Ethereum’s L2 solutions or consumer-facing applications on Solana. The question then becomes, for projects building on these chains today, how much block space demand will they generate if they scale in the future? Meanwhile, these chains are also expanding their supply capacity. So, if both demand and supply are growing, what will the revenue look like in the future? And how will these assets be valued at that time?

Andy: I feel like this sounds a bit concerning because if we use these methods to assess, these assets indeed look overvalued on a gross cash flow (GCF) multiple basis.

Pranav Kanade: I think it's a nuanced issue—how are you looking at these assets? I believe we should focus on their potential performance three years down the road. To the best of my estimation, there are currently about 50 million crypto holders in the U.S., and globally, that number could be around 400 million. If we look at on-chain active users, that figure might only range between 10 to 30 million, depending on how it's measured.

If we assume on-chain users grow at a rate of 5% per year, then the overall industry could indeed be overvalued. But if the on-chain user base starts to grow explosively, similar to how ChatGPT's user base grew from zero to hundreds of millions—following a "hockey stick" growth curve—then it's a completely different story. If you believe that on-chain wealth and the user base can reach this level, then three years from now, we could potentially see 500 million users directly using on-chain applications or at least engaging in some form of on-chain activity. In that case, I’d argue some blockchains are actually undervalued.

Ownership of User Relationships

Andy: When we discuss top-tier blockchains, we often focus on infrastructure, but polls tend to center more on applications. The shift from no revenue to having revenue, and from infrastructure to applications, happens very quickly. People have started advocating the "Fat Application Thesis" (the idea that more value lies in the application layer rather than the protocol layer) and have even extended it into the "Fat Wallet Thesis."

I’m curious—how critical is owning the user relationship from an infrastructure perspective? For example, look at Solana and Ethereum. They’ve attracted numerous developers building applications on top of them, such as Solana’s Phantom wallet and Ethereum’s MetaMask. However, these applications aren’t part of the infrastructure layer itself; they’re developed by third-party companies. In this transition from infrastructure to applications and the evolution of user relationships, how important do you think this is for infrastructure teams? If we aim for ChatGPT-like explosive growth moments, do you think there’s significant room for growth here?

Pranav Kanade: I would look at the issue from another angle, and my response might be a bit ambiguous. So far, we haven’t seen any truly killer applications abandon the blockchain they rely on to create their own chain and fully control the tech stack. Because if they did that, they would essentially be saying, "I own the customer relationship," which would render the underlying infrastructure a commoditized resource that can be swapped out at will. At the same time, they could capture the full profit stream without impacting the customer relationship. To date, this hasn’t happened. But if it does in the future, we’ll need to assess its impact on user experience: will it lead to user attrition, or will it enhance the experience? If applications cease to leak value, their profitability could significantly improve.

Once we can answer these questions, we’ll have a clearer perspective on the future direction of the industry. As of now, my gut feeling is that if you own the customer relationship, you essentially control the user experience, while everything else becomes a commoditized resource. This pattern has been observed in other industries as well. On the other hand, we also see tech giants in the cloud computing space, like Amazon, Google, and Microsoft, capturing the bulk of the market share. The blockchain infrastructure layer (L1) might follow a similar trajectory, evolving into a market dominated by three major players with switching dynamics between them. From an economic scale perspective, building everything in-house might not be viable. This possibility requires further validation. It’s also part of the liquidity value proposition: we’ll continue to monitor these issues and adjust our investment strategies accordingly. If it’s ultimately proven that killer applications can entirely replace the underlying infrastructure and operate independently, then perhaps holding L1 won’t be the best strategy anymore.

Andy: Exactly, I think liquidity is indeed a critical factor. I also agree on the importance of customer relationships, data, and brand recognition, but in this space, it seems like infrastructure dominates all the brands. Ethereum is a brand, but users don’t actually interact with Ethereum directly; instead, they access it through other tools and applications. This model has always been the case.

Pranav Kanade: I find it interesting that this might bring up another question: Is the mainstream adoption of cryptocurrencies driven by existing Web2 companies deciding to build on these chains and leverage blockchain technology, or is it due to venture-backed startups creating killer applications? If it’s the latter, then these startups’ ultimate decision-making path becomes: Which chain should I choose to demonstrate traction early on and raise the next funding round to keep building? Two years ago, most people would choose to build on Ethereum or its L2 solutions because those platforms made it easier to demonstrate traction and secure financing. Nowadays, that situation has changed.

Today, showcasing appeal on Solana has become much easier. However, aside from Bitcoin and stablecoins, no truly killer application has emerged yet. Therefore, we cannot be sure if the projects currently being supported are the right choices. If in the future an application, such as WhatsApp, adds a stablecoin feature and becomes the next breakout hit, will they choose to utilize these blockchain technologies?

How to Build Compelling Projects

Andy: Are you able to develop applications yourself? For instance, you’ve already built an L2 network, but the next question is, what kind of applications should you create? What is the justification for their existence? It requires deep thought to craft something that can truly appeal to users. I think this is closely related to what you've mentioned: if we can develop applications that are almost independent of blockchain—for example, typical app store apps or web applications—and then connect them to blockchain, or find some way to reintegrate them… However, I am unsure how we can move from the current user experience and application developer ecosystem to the next killer application without taking a few steps back in product design thinking. So, I believe many L2 developers are currently facing this reality. For example, when you look at the TPS (Transactions Per Second) on some L2s on Ethereum, it really is disappointing.

Pranav Kanade

Everyone enters the crypto space for different reasons. For me, I joined this field because I believe that a well-designed token can act as an incremental corporate capital structure tool, and in some cases, tokens can be superior to stocks and bonds. That’s my core thesis. For example, if Amazon’s shares were tokenized, Amazon might be able to grow its core business, such as Prime membership services, faster than the 14 years it currently took because they could use tokens as a reward mechanism to drive business growth. So, I entered this space because I believe tokenized equity will become a future trend. The question then becomes: what conditions are needed to realize this goal? Does it require a fully decentralized blockchain? I am unsure about that. I think what’s more important is having the technology and tooling that can provide a great user experience.

In the tokenized equity example I mentioned, the customer is essentially the token issuer—for instance, Amazon in my hypothetical example. The question then is, what do these issuers truly need? We need to start from their needs and work backward to design the most suitable solutions.

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