Original link collation translation: TechFlow
Guest: Pranav Kanade, Investment Manager at VanEck
Host: Andy; Robbie
Podcast source: The Rollup
Original title: VanEck PM: Tokenized Equities Are The Next Huge Opportunity
Air Date: June 2025
Summary of key points
Pranav Kanade, Portfolio Manager at VanEck, joins this podcast to answer questions about the current state of institutional investors’ allocation to cryptocurrencies. He also discusses whether alt season is coming and why the development of tokenized stocks is attracting so much attention.
(VanEck is a global asset management company headquartered in the United States, founded in 1955. It is known for providing innovative investment products, especially in the field of ETFs and mutual funds . At the same time, VanEck is also one of the traditional financial institutions that entered the field of cryptocurrency earlier, providing a variety of investment products related to digital assets such as 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 complicated than most people imagine. The cryptocurrency industry must either legitimize itself by establishing a real business model, or it can only remain a speculative market and have difficulty in achieving long-term development.
In todays show, well dive into the following topics:
How Institutional Capital Entered the Cryptocurrency Market
The shift from traditional venture capital to liquidity token strategies
Why is there a polarized focus on revenue models?
How tokenized stocks compare to the traditional IPO model
What is really driving the next wave of capital?
Summary of highlights
Tokenized equity will be a future trend.
99.9% of the tokens on CoinMarketCap are garbage.
Most of the assets that currently make up the $700 billion+ altcoin market do not have long-term value and are significantly overvalued. Our strategy is to maintain investment discipline and not touch these assets. We need to wait for more valuable assets to come on-chain.
If the revenue model fails to become mainstream, cryptocurrencies may become just an appendage of the internet.
“Institutional investors are entering this field” usually has two meanings: one is that capital begins to flow in and buy our assets; the other is that institutions begin to build “on-chain” products, such as tokenization, for others to use.
It is worth noting that these institutions that tokenize are not the same group as the allocators who ultimately purchase the assets.
Now the market is more crowded, the gap between the teams that are doing well and the teams that are not doing well is widening, and the number of teams that are not doing well is increasing. Therefore, I dont feel like I need to do as many trades, except very select trades.
There were relatively few talented people entering the field of blockchain application development. Many top founders chose to turn to developing AI projects because it was easier to obtain financing for AI at that time.
The industry must focus on the things that really matter, like product-market fit and why this asset is valuable, and only when the answer to this question becomes clear will the money flow in.
I think the way the returns are made is important and I think every project should know how to monetize their product. It is only a matter of time before the returns are returned to the token holders.
The upcoming legislation for stablecoins could 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 be significantly improved, and the market will also give them higher valuation multiples.
If you own the user relationship, you own the user experience, and everything else can be considered a commoditized resource.
Well-designed tokens can be an incremental capital structure tool for companies, and in some cases tokens can even outperform stocks and bonds.
Pranav on institutional investor adoption
Andy:
I find that a lot of people have different understandings of the word institutional. Generally speaking, the word mainly refers to funds, that is, institutions trying to deploy capital in this space. I entered this space in 2017, and at that time we had a joke that institutional investors came and we sold to them. We were early players and they were latecomers. However, I think people have some misunderstandings about how institutions operate in the crypto space.
Id like to understand, for example, the current state of capital deployment by institutions like VanEck in areas such as venture capital, liquidity, and stablecoins? Also, what does it mean specifically that institutional investors are entering this space? How does this process work and what is the time frame?
Pranav Kanade:
This question can be answered from many angles. We can start with the premise that institutional investors are entering this field. Like you, I have been involved in this field since 2017 and have been managing our liquid token fund since 2022, which is now three years. When I hear institutional investors are entering this field, it usually means two things: one is that capital begins to flow in and buy our assets; the other is that institutions begin to build on-chain products, such as tokenization (converting traditional assets into digital tokens on the blockchain) for others to use. These two types of institutions may belong to completely different types.
Recently, institutions that focus on building products are mainly tokenizing some treasury products, such as treasury bond funds. But in the future, as time goes on, you will see more assets being tokenized, such as stocks. We think that the tokenization of stocks is an obvious trend, and we can further discuss the reasons. It is worth noting that these institutions that tokenize are not the same group of allocators who ultimately purchase assets. Because purchasing assets is more of a downstream effect of capital allocation.
The flow of capital is usually like this: there is a group of institutions or individuals who control capital, such as family offices, high net worth individuals, endowment funds, foundations, pension funds, sovereign wealth funds, etc. In most cases, they do not make investment decisions directly, but choose to allocate funds to passive strategies (such as exchange-traded open-end index funds, ETFs) or active strategies (such as professional investment companies like us). They believe in our professional capabilities in a certain field, so they hand over the funds to us for management, and we are responsible for investing these capitals.
At present, these institutions and individuals, such as pension funds, sovereign wealth funds, family offices, etc., are tentatively entering the crypto field, but have not yet fully participated. I think family offices may be the first to enter because they see the return potential of this asset class, especially in terms of liquidity. But their participation mainly comes in two ways: one is through the purchase of cryptocurrency ETFs, which is a simple way of exposure; the other is through venture capital, allocating funds to some well-known blue-chip managers. However, many people do not directly enter the liquidity market or liquidity agents like us.
Since 2022, about $60 billion of capital has flowed into seed-round 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 usually takes six to eight years, while token exits may only take 18 months. For some businesses, tokenization makes more sense than public stocks.
Now everyone is aware that capital pools have begun to tentatively enter the crypto space. However, much of the capital allocation is too concentrated in venture capital, and the tokens invested by managers have generally seen a decline in price trends after being launched in the past 12 to 24 months.
This is because there is a lack of a mature taker market in the liquid token market. In traditional markets, when a venture-backed company is ready to go public, there is a deep public equity market with various investors willing to buy these shares at market prices. However, in the liquid token market, this mechanism does not exist. Therefore, I think that although venture capital capital is beginning to pay attention to liquidity, there are still some structural problems to truly enter the liquid market.
Opportunities in venture capital
Andy:
My partner Robbie and I run a fund with our own capital. We have done about 40 to 50 deals in the last 18 months to two years, with a lot of investments from the end of 2022 to the first half of 2023 and 2024, and we have only done one or two deals this year. Now we have several projects in front of us, but every time I see a chart of Bitcoin, Hyperliquid or Ethereum, I ask Robbie, why should we lock up $25,000 for four years and hope for a significant increase in value? Now we have a more clear opportunity for liquidity income in front of us, and I think the opportunity is better this year or even early next year.
Our mindset has shifted from simply allocating seed capital initially, especially in 2021, if you capture L1 opportunities like Avalanche, Phantom, Near, etc., those returns are unparalleled and there are still a lot of big winners in venture capital. But now the market is more crowded, the gap between the teams that are performing well and the teams that are not performing well is widening, and the number of teams that are not performing well is increasing. So, going back to my framework, I dont feel like I need to do as many deals unless they are very select deals. So, as you said, these early capital allocators are seeing the same situation, but they are facing some friction in actually getting in. It sounds like this friction is an opportunity for those who are already there or have the ability to get in.
Are you also observing this shift among early-stage capital allocators that is similar to what Im describing, or better yet, can you justify my thought process? Am I thinking about this correctly? Are we in the middle of the cycle now, or are you better off in venture or in liquidity investments? Am I correct in my view of investments that do well in bear markets?
Pranav Kanade:
I think a lot of what you say makes sense. There is a clear supply and demand imbalance in liquidity, so to speak, as capital is in short supply and demand is high. A lot of tokens and projects are looking to see which are the potential gems in the rough. In fact, 99.9% of the tokens on CoinMarketCap are garbage and not worth the high market cap. But there are a small number of opportunities that can be evaluated and have clear product market fit and fees that will eventually flow to the token. Simply put, if we define the altcoin market in a certain way, the market cap today is $75 billion and will likely grow several times in the future. This project will directly benefit from this growth and a lot of value will flow to the token. This is a relatively simple investment, and the potential of this investment may be better than most opportunities you see before tokenization.
Liquidity is a very important factor, you can have a return curve similar to venture capital while maintaining liquidity so that you can easily exit even if you think your hypothesis is wrong.
However, I disagree with your point of view, which is actually the opposite of what I work on. I focus on liquidity investments. Since 2022, the previous government has been very unfriendly to the cryptocurrency space, which has led me to notice a problem that worries me: there are relatively few talented people entering the field of blockchain application development. Many top founders chose to turn to developing AI projects because AI was easier to finance at that time. However, since the election, the situation has changed, and many interesting and talented founders have begun to return to the crypto field and invest in new project development.
Based on this, I hypothesize that if you were a venture investor who put all of their capital into crypto between 2022 and 2024, and another investor chose to start investing now and gradually over the next 24 months, the latter investor would likely get a better return because they would be able to attract better talent.
Especially at the application level, I have observed that despite the presence of some very interesting and talented founders, the valuations of application layer projects are still lower than those of “follow-up” projects, such as newly launched L1 blockchain projects, etc. Therefore, I believe that many venture investors are still immersed in past success stories and fail to pay attention to the current potential and future trends.
Sustainability analysis of revenue model
Andy:
I recently talked to the GP of VanEck Ventures about their deals. This week a16z held a crypto event that attracted many professionals from companies such as Stripe, Visa and PayPal, bringing rich industry experience. Compared with the background of more local developers we usually see, these people are more focused on practical applications such as product market fit and revenue, rather than entangled in the technical details of blockchain design, such as the number of validators. It seems that the next generation of founders don’t care too much about these technical issues. They are more concerned about how to achieve revenue.
I sent out a tweet asking How long will this revenue trend last? Its interesting to see comments ranging from less than three months to more than two years. A lot of comments are that this trend will continue. Regarding the impact of the election, I think this is an important turning point, showing that people can start building projects that can be profitable and create value for shareholders. The emergence of Hyperliquid also proves this, they choose to operate on their own terms instead of relying on venture capital.
These two factors have driven the concept forward. So, I want to ask you, is this a temporary phenomenon or is this the ultimate goal? Is cash flow the most important factor? What do you think about this revenue trend? Will it be a long-term trend?
Pranav Kanade:
I think this is a binary choice. If the income model cannot become mainstream, cryptocurrencies may only become an appendage of the Internet . Most large capital pools want to allocate assets that are store of value (an asset that can maintain its value over the long term), such as gold and Bitcoin. Bitcoin has successfully entered this category, while other assets have difficulty doing so. Bitcoins ability to become a store of value tool is a miracle in itself.
Other assets will eventually be viewed as capital return assets. Investors will ask, How much return can I get for my investment of one dollar in 25 years? Just like SpaceX, although no one will ask when it will return capital to shareholders, people believe that the value of SpaceX lies in its potential benefits from colonizing Mars in 20 years. Although some crazy ideas that change the world can attract investment, ultimately these ideas are tied to investor returns. This is the type of asset that most people in the world are willing to invest in or allocate.
In this framework, investors want to see how their funds generate returns, but the crypto industry seems to have been trying to avoid this. This is partly due to regulatory considerations, everyone is trying to avoid being classified as a security, so they have to walk between concepts such as Ultrasound Money.
If we look at this honestly, the industry must focus on the things that really matter, like product-market fit and why this asset is valuable. When I tell people about our funds business, the most common question they ask is Why is this valuable? They are used to the investment framework of stocks and bonds. Therefore, when the answer to this question becomes clear, money will flow in. Only then will this asset class expand further; otherwise, we may just stay in trading some meaningless tokens.
Forecast of future cash flows
Andy:
If we focus on companies that are generating revenue in their current space, this helps us narrow down the potential holdings. However, if we factor in future cash flow projections, this opens up a wider range of investment possibilities.
Pranav Kanade:
I usually tell people that our strategy allows us to invest in both tokens and listed stocks, so we have the flexibility to choose the best investment opportunities. If I dont want to hold certain altcoins, I can choose not to hold them. In the current market, we find that there are very few altcoins that are really attractive. But if we can find a project with a good product, even if the token does not have any clear value accumulation features at present, it doesnt matter, because these features are programmable and can determine how its value accumulates in subsequent development. As long as the team is good and can properly manage the product they are developing, we can accept such an investment.
Of course, there are teams that build great products, but ultimately most of the value may flow to equity, and the token may lose investment value in the long run. This situation is obviously something we need to avoid. However, if a team develops a great product, and the value accumulation of the token and the monetization of the product are not yet clear, but we can reasonably foresee how these mechanisms will work in the future, then this is also an opportunity worth paying attention to. Because if this product can be successfully monetized and value flows to the token, then this token has the potential to grow from its current insignificance to a top 30 token, thereby significantly increasing the returns of the entire fund.
Exploring the Protocol as a Business Model
Andy:
This idea is different from how it has been implemented in the past. In the past, we usually developed an infrastructure product that was better than other products, and then thought about how to deal with the token. But your point of view seems different. You mentioned that this should be a product that is continuously effective in the market, rather than just staying in the pre-funding stage, and we can find ways to return value to the token.
Going back to the binary perspective you mentioned, when you analyze these revenue-driven companies, how do you think about when to start charging and how to commercialize the protocol? Obviously, you look at this from an investors perspective, not from a founders perspective. But every protocol faces competitive pressure, and there will always be someone else who can attract customers with a lower price. So how do you think about the timing of charging and the user adoption curve? For example, when to start generating revenue, which is obviously a practical question because you dont want to hinder the development of network effects.
Pranav Kanade:
This is a very worthy question to explore. When investing in a project, we pay attention to whether the project has a moat (Moat refers to the competitive barriers of a company in the market). For most crypto projects, the answer is probably no. If you ask What happens if I start charging for the product? then the most likely result is that you will immediately lose customers because others are willing to provide the service at a lower price. This shows that your product has no moat and is easily replaced. 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 also applies to the crypto field.
So if youre worried that charging fees will cause customer churn, this may not be a project worth investing in. But more importantly, charging fees and returning fees to token holders are two separate things. I think the decisions for the two should be separated. When a product starts charging, if the decision is driven by the foundation or the development team, then ideally the product should have a moat that can accumulate revenue through fees and use part of the revenue to support the team to develop better products or new products. This approach is similar to traditional companies, such as Amazon. They accumulated cash flow through their e-commerce platform, then used these resources to develop AWS, and then used the profits from AWS to build Amazon Advertising Services. This shows that Amazons management team is more effective in capital allocation than simply returning funds to shareholders. If the return on investment in RD is higher than directly returning it to shareholders, then this approach is reasonable. I hope that the best crypto projects will adopt similar strategies. If a founder can develop a great product and earn significant revenue through fees instead of returning that revenue directly to token holders, I would consider this an efficient way to allocate capital. So what kind of products can this founder continue to develop next?
Andy:
I think people often have a misunderstanding about buybacks. They think buybacks are an efficient use of capital. As a token holder of the protocol, you might think this is a good approach, but it is not necessarily efficient. It does cost money to use profits for buybacks, but token holders still want to see buybacks happen.
Pranav Kanade:
I think we may have different views in some aspects. I dont mean that revenue generation is wrong. I think the way the returns are made is important, and I think every project should know how to monetize its product. However, whether the returns are returned to the token holders, it is only a matter of time. Because we currently live in a scarce market.
In the current market, the size of the capital pool is limited. For example, large capital such as pension funds have not yet entered the token market, but are mainly concentrated in Bitcoin and some listed stocks related to crypto businesses. In this case, although the supply of tokens is increasing, the market demand is limited. I often tell people that the total market value of other tokens, excluding Bitcoin, Ethereum and stablecoins, was about $1 trillion at the peak of the last cycle, and now it is about $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 be an exception. At present, capital returns (such as buybacks) are the mainstream way. But I think that in the next 24 to 36 months, regulators may allow the launch of multi-token ETFs, which are similar to products of the SP 500 index. Through such passive investment products, certain capital pools may enter the market, just as they invest through Bitcoin ETFs, thereby obtaining broad exposure to the crypto field. This will create a new channel for capital inflows into the market, thereby changing the current scarcity situation.
Taking the focus off Bitcoin (BTC) and short-term market hype
Andy:
People often say where is the alt season now? I personally think that the market hype and lower barriers to entry have completely changed the traditional way people allocate attention and capital. In the past, we would do due diligence, research undervalued assets, allocate funds and wait patiently. But now the market dynamics have become more about who can buy the first token faster, or capture liquidity quickly. Therefore, fundamental research has been replaced by speed. I feel that this has led to a huge misalignment in the way the market works.
Pranav Kanade:
The current market structure of Bitcoin is completely different from the past. This is no longer the classic pattern between Bitcoin, Ethereum and other altcoins that we are familiar with. The focus of the market is still Bitcoin. However, despite this, Ethereum may have a chance to rebound, and we may also see some altcoins move. So, what factors will trigger a larger-scale altcoin season?
Andy:
For example, you would see 100% price increases on CoinMarketCap for various tokens like in the summer to fall of 2017. What would stop that from turning into a fall? What is happening now is almost a complete collapse, will the tide of the market change? Will Bitcoin dominance continue to rise? What will actually change the market structure, not just the dominance of Bitcoin and short-term hype?
Pranav Kanade:
I think its a matter of time and it could change in the future. As for how the market evolves, I think 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, which may be due to the development of tokenized equity (equity converted into token form through blockchain technology). I dont mean necessarily those assets traded on Nasdaq, but putting these assets on the chain so that global investors can access them. This may drive the growth of the market.
I would like to see more traditional companies, especially those backed by venture capital, choose to exit in the form of tokens instead of equity. Tokens can achieve all the functions of equity while adding programmable features. For example, a few weeks ago, there was news that OnlyFans was for sale. It would be very interesting if OnlyFans issued a token and this token represented equity in the company. This token could also be used to reward creators who attract more audiences. In this way, these tokens have value and allow companies to allocate resources more flexibly. In this way, the total market value can grow through more tokenized exits of real companies, rather than relying on traditional listing methods such as Nasdaq IPOs.
The second scenario is a return to the alt season you mentioned, where the prices of existing assets begin to rise generally. If we return to some kind of environment similar to the cash checks issued during the pandemic, people will tend to take risks and speculate. In this case, assets that have not yet risen will also be pushed up due to the increase in risk appetite.
This is very similar to the post-pandemic market. At that time, the government issued cash checks, market liquidity increased, and central banks also adopted loose policies. Initially, funds flowed to credit assets, such as investment-grade debt and high-yield debt. Then, large technology stocks began to rise, followed by unprofitable technology stocks, such as those in the ARK ETF. After that, people began to look for more risks, such as focusing on SPACs (special purpose acquisition companies). When SPACs performed well and market sentiment reached its peak, Bitcoin and altcoins also began to enter a bull market. Therefore, when risk appetite is high enough, assets that have not yet risen will also be pushed up. But I think the premise of all this is that interest rates fall and market liquidity is abundant again.
Pranavs Macroeconomic Perspective
Andy:
You dont seem to think that the current market position will perform well, but that the non-Bitcoin market may grow significantly as more assets are put on the chain, forming a large market. These assets may include businesses like OnlyFans and even actual equity. This expansion is achieved through the introduction of new mechanisms and users. So, how does this market change support your current liquidity position and investment strategy? In addition, from an industry perspective, what upside opportunities do you think are worth paying attention to in Q3 and Q4?
A few weeks ago we had Jordi from Selini, who argued that this summer would be a quiet market , citing the lack of economic pressure to stimulate the Fed and the fact that the market has rebounded from the recent tariff issues. Do you agree with this view? If so, how would you adjust your investment strategy to deal with these two possible market outcomes?
Pranav Kanade:
I won’t make any macroeconomic predictions, there are headlines about a recession every month, but the reality is that the economy seems to be doing just fine. My general view is that most of the assets that currently make up the $700 billion+ altcoin market do not have long-term value and are grossly overvalued. If we list all L1 blockchains and analyze the actual fees generated by each chain, we will find that only three or four chains generate significant revenue, while the other six to ten chains have almost no revenue, but their market capitalization is very high. The valuation of these chains is usually based on their optionality (potential future value) that they may grab market share from the top three or four in the future. However, from a probabilistic point of view, this possibility is low because the market does not work that way. Therefore, I believe that most of the assets in the altcoin market lack value. Our strategy is to maintain investment discipline and not get involved in these assets. We need to wait for more valuable assets to be listed on the chain.
So what else can we invest in, besides holding cash, while we wait for better assets? Where can we find the best return opportunities?
I think Bitcoin is an opportunity worth watching. In addition, I think that stablecoin legislation is about to be passed, which may drive a large number of companies to adopt stablecoins to optimize their cost structure. Earlier this year, especially after the election, we looked at a number of public companies, such as Internet stocks, e-commerce companies, gig economy companies, and sports betting companies, to analyze 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 can they implement it? Finally, we also evaluated whether the founders, CEOs, and management teams of these companies are motivated to make these changes or are they just satisfied with maintaining the status quo. After screening, we selected a few companies that are worth watching and made relevant investments. Although I cant reveal the specifics, I think this is an area that has not been fully paid attention to. Cryptocurrency investors usually focus on the obvious opportunities in the public stock market, while traditional stock market investors rarely consider the potential of stablecoins because it is still far from their focus.
I see this as a potential option. If the public companies we focus on can increase their gross margins from 40% to 60% or 70% by using stablecoins, their profitability will be significantly improved, and the market will also give them higher valuation multiples. This is exactly the area we are currently focusing on. We think this is an asymmetric investment opportunity. However, if truly valuable token assets emerge in the future and meet the investment logic we mentioned earlier, we can also quickly adjust our investment strategy because the returns there may be higher.
Views on highly valued assets
Andy:
Back to L1, there is a lot of discussion about metrics like Rev and SOV (store of value). When we look at markets outside of Bitcoin, is there a way to tell which top assets are likely to survive in the long term in the future? Assets like Ethereum, Solana, Chainlink, or BNB are often considered overvalued. Do you think they are really overvalued? Is it because we value them using fees, or do they also have the potential for a monetary premium similar to Bitcoin?
Pranav Kanade:
Regarding the question of monetary premium, I find it difficult to have a clear answer. I may be wrong, but there are indeed some people who hold the top ten assets that have little other practical use simply because they think these assets are value stores. I think there are some rational factors in the market, but more people may view these L1 tokens as a proxy for cash flow multiples (GCF, Gross Cash Flow, the ratio of asset valuation to cash flow). From this perspective, some assets will appear undervalued, some overvalued, and some fairly valued.
Perhaps a better approach is to not value these assets based solely on last month’s or last week’s data. Of course, many people like to annualize the past month’s data 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 solution, or some consumer-facing applications on Solana. Then the question is, how much will the projects built on these chains today affect the demand for block space if they scale in the future? At the same time, these chains are also expanding their supply capacity. So if both demand and supply are growing, what will the future revenue be? What will the valuation of these assets be at that time?
Andy:
I think this sounds a bit concerning because if we value using these methods, these assets do look overvalued on a GCF multiple.
Pranav Kanade:
I think its a complicated question, how do you think about these assets? I think we should focus on how they might perform three years from now. My best estimate is that there are about 50 million cryptocurrency holders in the United States right now, and there are probably around 400 million worldwide. If we look at on-chain active users, that number is probably only 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 explode like ChatGPT, from zero users to hundreds of millions of users, showing a hockey stick growth curve, then the situation is completely different. If you believe that on-chain wealth and user base can reach this level, then in three years we may see 500 million users directly using on-chain applications, or at least participating in some kind of on-chain operations. In this case, I think some blockchains are actually undervalued.
Ownership issues of user relationships
Andy:
In discussions about top blockchains, we often focus on infrastructure, but the focus of the poll seems to be more on applications. The transition from no revenue to revenue, from infrastructure to applications, happened very quickly. People began to put forward the Fat Application Thesis (the view that value is more concentrated in the application layer rather than the protocol layer), and even further evolved into the Fat Wallet Thesis.
Im curious, from an infrastructure perspective, how important is it to have a user relationship? For example, Solana and Ethereum have attracted many developers to build applications on them, such as Solanas Phantom wallet and Ethereums MetaMask, but these applications are not part of the infrastructure layer itself, but are developed by third-party companies. In this shift between infrastructure and applications and the change in user relationships, how important do you think this is for infrastructure teams? If we want to reach a moment of explosive growth like ChatGPT, do you think there is a lot of room for growth here?
Pranav Kanade:
I will look at this from another angle, and my answer may be a little vague. We have not yet seen any real killer applications choose to leave the blockchain it relies on, create their own chain and fully control the technology stack. Because if they do this, they are actually saying I own the user relationship, then the underlying infrastructure becomes a commoditized resource that can be replaced at any time, and they can fully control the profit stream without affecting the user relationship. So far, this has not happened. But if this situation does happen in the future, we need to observe its impact on the user experience: will it cause user churn, or will it improve the user experience? If applications no longer leak value, their profitability may be significantly enhanced.
When we can answer these questions, we can more clearly judge the future direction of the industry. At present, my intuition is that if you own the user relationship, you control the user experience, and everything else can be regarded as a commoditized resource. This model has also appeared in other industries. But 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. The blockchain of the infrastructure layer (L1) may also develop in a similar way, forming a market dominated by three companies and switching between them. However, from the perspective of economic scale, it may not be cost-effective to build it completely by yourself. This possibility needs further verification. This is also part of the value proposition of liquidity: we will continue to observe these questions and quickly adjust our investment strategy based on the answers. If it is ultimately proven that the killer application can completely replace the underlying infrastructure and operate independently, then holding L1 may not be the best choice.
Andy:
Yes, I think liquidity is indeed a key factor. I also agree with the importance of user relationships, data and brand awareness, but in this space, infrastructure seems to dominate all brands. Ethereum is a brand, but users dont actually use Ethereum directly, but indirectly through other tools and applications, and this pattern has always existed.
Pranav Kanade:
I find it interesting that there may be another question involved here: Is the mainstreaming of cryptocurrencies because existing Web2 companies decide to build and utilize blockchain technology on these chains, or because some venture-backed startups create killer applications? If it is the latter, then the ultimate decision path for these startups is: which chain should I choose to show traction as early as possible, so as to raise the next round of funds to continue building? Two years ago, most people would choose to build on Ethereum or its L2 solutions because these platforms are easier to show traction and get financing. Now, this situation has changed.
Today, it’s easier to show traction on Solana. But even so, there are no real killer apps outside of Bitcoin and stablecoins. Therefore, we can’t be sure whether the projects we support currently are the right choice. If an app like WhatsApp adds stablecoin functionality in the future and becomes the next blockbuster app, will they choose to use these blockchain technologies?
How to build an attractive project
Andy:
Are you able to develop applications yourself? For example, you have developed an L2 network, but the next question is, what kind of applications should be built? What is the reason for existence? You need to think deeply about how to create something that can really attract users. I think this is very related to what you mentioned: if you can develop some applications that have almost nothing to do with blockchain, such as typical app store applications or web applications, and then connect these applications to the blockchain, or find some way to reintegrate them... However, I am not sure how we can go 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 such a real dilemma. For example, if you look at some L2 TPS (Transactions Per Second) on Ethereum, it is indeed disappointing.
Pranav Kanade:
Everyone gets into crypto for different reasons. I got into it because I believe that well-designed tokens can be an incremental capital structure tool for companies, and that tokens can even outperform stocks and bonds in some cases. That’s my core thesis. For example, if Amazon’s stock was tokenized, Amazon might be able to grow its core business, like Prime, faster, instead of taking 14 years, because they can use tokens as rewards to drive business growth. So I got into it because I think tokenized equity is the future. So the question is: what does it take to make that happen? Does it require a fully decentralized blockchain? I’m not sure, I think it’s more important to have the technology and tools that provide a good user experience.
In the example of tokenized equity I mentioned, the customer is actually the issuer of the token, 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 backwards to design the most appropriate solution.
