‘Fat apps’ could become a major narrative in a few months: Bitwise exec
News Summary
A new theory suggesting that most crypto value is captured in applications rather than blockchains, known as the “fat app” thesis, is gaining popularity with the rise of platforms like Hyperliquid. This could shift investor behavior over the next few months, according to a crypto executive. Bitwise Chief Information Officer Matt Hougan believes it could become a dominant theme, expecting it to appear in mainstream media in 1-3 months. This “fat app” thesis challenges Joel Monegro’s 2016 “fat protocol” thesis, which argued that most value would accrue to base layers like Ethereum and Solana. Instead, the “fat app” theory posits that value concentrates at the application layer, with apps capturing more revenue and user attention than their underlying blockchains. Adoption of this thesis could fundamentally alter how investors value Layer-1 versus application tokens. Institutional investment firm Starkiller Capital reported that the market is already reflecting this trend, with Layer-1 tokens like Ethereum, Solana, and Avalanche performing flat or bleeding against Bitcoin, while application tokens have shown explosive growth. While Hougan disagrees with an “anti-L1 take,” he acknowledges Hyperliquid (HYPE) as a standout performer, up 1,636% over the past 12 months, attributing its success to pure application-level demand and user engagement.
Background
Two core value capture theories exist within the cryptocurrency space: the “Fat Protocol” thesis and the “Fat App” thesis. The “Fat Protocol” thesis, proposed by Joel Monegro in 2016, suggests that most value will accrue to the base layer protocols, specifically the blockchains themselves (e.g., Layer-1 networks like Bitcoin and Ethereum). The logic is that open, permissionless protocols foster extensive application development, with the protocol layer capturing value through network effects and token economic models. The “Fat App” thesis is a relatively newer perspective that counters the “Fat Protocol” theory. It argues that as users and developers increasingly focus on the functionality and user experience of specific applications, value will concentrate more at the application layer. This implies that decentralized applications (dApps) running on blockchains, and their respective tokens, will capture more revenue, users, and market value than the underlying Layer-1 blockchain protocols. This ongoing debate has profound implications for the long-term valuation and investment strategies in crypto assets.
In-Depth AI Insights
What are the deep strategic implications for Layer-1 blockchain development and investment given the prevailing “Fat App” narrative? The ascendancy of the “Fat App” narrative could fundamentally shift Layer-1 blockchains from primary value capturers to more commoditized infrastructure providers. This implies: - Value Premium Shift: Investors may no longer assign high valuations to L1s solely based on technological innovation or decentralization, but rather on their ability to attract and host successful, revenue-generating applications. - Increased Competition: L1s will face greater pressure to differentiate themselves through superior performance, lower fees, and robust developer tools to attract applications, rather than relying solely on their status as a “base layer.” - Funding Reorientation: Venture capital may pivot from early-stage L1 projects towards application-layer projects with clear user bases and revenue models, thereby redirecting capital flows within the crypto space. How might valuation models and investment strategies for crypto assets evolve if the “Fat App” thesis gains mainstream acceptance? The widespread acceptance of the “Fat App” thesis will compel investors to re-evaluate crypto asset valuation frameworks, shifting focus from underlying protocol generality to specific economic activities at the application layer: - Application Token Valuation Core: Application token valuations will increasingly center on traditional business metrics such as user growth, engagement, transaction volume, fee revenue, and the utility and burning mechanisms of their tokens. - L1 Token Valuation Restructuring: L1 token valuations might become more closely tied to on-chain Total Value Locked (TVL), active addresses, developer activity, and the overall health of the “fat app” ecosystem they host, rather than purely speculative expectations. - Portfolio Adjustment: Investors will need to actively allocate to application tokens with strong user bases, clear revenue models, and solutions to real-world problems, while critically assessing L1 projects that fail to effectively attract an application ecosystem. What key risks and opportunities might this trend encounter within the 2025 regulatory environment under the Trump administration? The Trump administration's regulatory stance in 2025 will introduce specific risks and opportunities for the “Fat App” trend: - Opportunity: Enhanced Regulatory Clarity: If the Trump administration adopts a relatively clear and innovation-supportive crypto regulatory framework (e.g., explicit definitions for securities vs. commodities, operational guidelines for dApps), it would significantly reduce uncertainty for application developers, encouraging the emergence and legitimate operation of more “fat apps.” - Risk: Increased Compliance Costs: Should the government impose stricter Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements on popular “fat app” sectors like DeFi, it could increase compliance costs and user barriers, hindering growth. - Potential Policy Bias: The Trump administration might favor applications that integrate with the existing US financial system or promote dollar digitalization over those entirely