Applications Capture Fees, Blockchains Store Value
There is a common trope in the industry that there are no valuable applications beyond Bitcoin and stablecoins. Last cycle, so it goes, was driven entirely by speculation and there has been little progress since the 2022 crash. The industry is oversaturated with infrastructure that no one uses and the venture capitalists funding all this infrastructure will likely pay for misallocating their capital.
There is truth to the latter portion as the market begins to punish mindless infrastructure investments while secular winners emerge at the foundations of the cryptoeconomy. However, the former, that few applications exist relative to infrastructure and that there’s been little progress since last cycle, falls short once we observe the data.
Contrary to popular belief, the age of the applications is upon us and many applications are already outearning infrastructure. Leading platforms like Ethereum and Solana are home to plenty of applications generating 8-9 figures in revenue and growing at triple-digit percentages annually. However, despite these impressive figures, applications continue to trade at substantial discounts to infrastructure, which on average trade at ~300x higher revenue multiples. While infrastructure assets that sit at the center of smart contract ecosystems like ETH and SOL may retain a store-of-value premium, non-monetary infrastructure assets, such as L2 tokens, will likely see their multiples compress over time. We at Syncracy believe the market has yet to fully recognize this reality, and that leading applications are primed to reprice higher from here as capital flows out of non-monetary infrastructure.
Applications capturing a greater share of the global blockchain fee pool and outearning most infrastructure assets is likely an inflection point for what’s to come. Data on Ethereum and Solana – the two leading application ecosystems – already show applications eating share from their underlying platform in terms of revenue. This trend will likely only accelerate as applications push to capture a greater share of their economics and verticalize in an effort to better control their user experiences. Even Solana applications, which historically prided themselves on Solana’s synchronous composability, are keeping and pushing some operations offchain, employing both second layers and sidechains in an effort to scale.
The Rise of Fat Applications
Might the rollapp thesis be inevitable? As applications grapple with the limitations of a single global state machine to handle all onchain transactions efficiently, modularization across blockchains seems unavoidable. Solana for example, while impressive in its performance, did begin to buckle back in April with just a couple million users trading memecoins every day. And while Firedancer will help, it's unclear if it will deliver the orders of magnitude greater performance necessary for billions of daily active users, and even more including AI agents and enterprises. As mentioned above, the modularization of Solana is already beginning.
The real question is to what extent this shift will occur and how many applications will ultimately move operations offchain. Running the entire global financial system on a single server – the basic thesis for any integrated blockchain – would require full nodes to operate in hyperscale data centers, making it nearly impossible for end users to independently verify the chain’s integrity. This would undermine an essential property of any globally scalable blockchain, which is to ensure firm property rights and remain resistant to manipulation and attacks. Rollups instead enable applications to spread these bandwidth demands across independent sequencer sets that can simultaneously enable hyperscale performance while ensuring end user verification through data availability sampling at the underlying base layer. Furthermore, as applications scale and begin to build sticky relationships with users, it is likely they’ll demand maximum flexibility from their underlying infrastructure in order to best serve users’ needs.
This is already happening on Ethereum, the most mature onchain economy, where leading applications like Uniswap, Aave, and Maker are actively developing their own rollups. These applications are seeking more than just scalability — they are pushing for features such as custom execution environments, alternative economic models (like native yield), enhanced access controls (such as permissioned deployments), and tailored transaction ordering mechanisms. By pursuing these options, applications not only enhance user value and reduce operational costs, but also gain a larger share of economic control relative to their base layer infrastructure. Chain abstraction and smart wallets will only make this application-centric world more seamless and reduce the current friction between disparate blockspace over time.
In the near-term, next generation data availability providers such as Celestia and Eigen will be the key enablers of this trend, providing applications with greater scale, interoperability, and flexibility while ensuring cheap verifiability, today. However, in the long-run it's clear every blockchain aiming to be the foundation of the global financial system will need to scale bandwidth and data availability while ensuring cheap end user verification. Solana for example, while integrated in philosophy, already has teams working on light client verification, zk-compression, and data availability sampling in pursuit of this end goal.
Again, the point here is less about specific scaling technologies or blockchain architectures. It could very well be that token extensions, coprocessors, and ephemeral rollups will be enough for integrated blockchains to scale and provide the necessary customizability for applications without breaking their atomic composability. Nevertheless, and in any case, the future points towards applications continuing their march towards greater economic control and technical flexibility. Applications outearning their underlying infrastructure appears inevitable.
The Future of Value Capture on Blockchains
The big question from here is how value will be distributed among applications and infrastructure as the former gains more economic control over the coming years. Might this shift mark an inflection point that precipitates an application generating an infrastructure-like outcome over the coming years? In Syncracy’s view, while applications will continue to capture a greater share of the global blockchain fee pool over time, underlying infrastructure (L1s) may still generate larger outcomes, albeit for a smaller number of players.
The core thesis underpinning this view is that long-term, all base layer assets like BTC, ETH, and SOL will compete as non-sovereign digital stores of value – the largest TAM in the cryptoeconomy. While popular belief often positions Bitcoin as analogous to gold and other L1 assets as akin to equity, this distinction is largely narrative-driven. Fundamentally, all native blockchain assets share common traits: they are non-sovereign, resistant to seizure, and can be transferred digitally across borders. In fact these attributes are essential for any blockchain aspiring to host an independent digital economy free from nation-state control.
The key differences are in their strategies for achieving global adoption. Bitcoin directly challenges central banks by attempting to displace fiat currencies as the dominant global store of value. In contrast, L1s like Ethereum and Solana aim to build a parallel economy in cyberspace, creating organic demand for ETH and SOL as they grow. Indeed this is already happening. Beyond being used as mediums of exchange (gas payments) and units of account (NFT pricing), ETH and SOL are the premier stores of value within their respective economies. As Proof-of-Stake assets, they directly capture fees and MEV generated by onchain activity, and both assets offer the lowest counterparty risk in their respective ecosystems, making them the most pristine collateral available onchain. Meanwhile, as a Proof-of-Work asset, BTC offers no staking or fees to holders, and instead operates purely as a commodity-money.
While this strategy of building a parallel economy appears extremely ambitious, with few if any likely to make it to the promised land, it may ultimately prove easier to compete alongside national economies rather than with them directly like Bitcoin. In fact, Ethereum and Solana’s approach mirrors how countries have historically competed for reserve currency status; build economic influence, then encourage others to adopt your currency for trade and investment.
Although it's tempting to dismiss this immeasurable process of monetization in favor of measurable processes of value accrual through fee generation, the latter is likely to lead to disappointing results. Beyond the obvious circular complication of blockchains generating fees in an unbacked, self-issued currency, potential fee capture may not be as large as people think for the foreseeable future.
Take MEV for example. Not only is MEV unlikely to be a large enough industry to support current valuations, but it's likely to decrease as a share of onchain activity over time and increasingly accrue to applications. The closest analog to the MEV industry in traditional finance, High-Frequency Trading (HFT), generates an estimated $10B - $20B in revenue globally. Furthermore blockchains are likely overearning on MEV today with MEV likely to go down over time as wallet infrastructure and order routing improves, while applications work to internalize and minimize MEV. Do we really expect MEV revenue on a given blockchain to be worth more than the entire global HFT industry and accrue 100% to validators?
On a similar note, while execution and data availability fees may be attractive revenue sources, they may still not be enough to justify valuations in the centi-billions if not trillions anytime soon (there are only so many organizations on Earth worth this much). Transaction volumes would need to grow exponentially while fees stay low enough for mainstream adoption to even get within striking distance – a process that could easily take a decade.
Note: Visa features capacity for 65,000 tps, but averages around 2,000 tps on a sustained basis
So then what could provide enough value necessary to pay validators for continuing their essential service? As they’ve done throughout their entire history, blockchains could sustain themselves using monetary inflation as a perpetual subsidy akin to a tax. In essence asset holders lose a small portion of their wealth over time to subsidize validators who provide abundant blockspace for applications which drive monetary value to a blockchain’s base asset.
All said it's worth considering the more pessimistic view here that blockchains should be valued on fees and that those fees may fail to justify lofty valuations over time as applications gain greater economic control. This wouldn’t be unprecedented – during the internet boom of the 1990s, telecommunications companies attracted substantial overinvestment in infrastructure, only for many to eventually become commoditized. While some telecoms, like AT&T and Verizon, adapted and survived, the majority of value shifted to applications built on top of the infrastructure, such as Google, Amazon, and Facebook. There's a non-zero chance this pattern could repeat in the cryptoeconomy, where blockchains provide essential infrastructure but are outshined by the value captured at the application layer. However, for now, in the speculative early era of the cryptoeconomy, it’s all one big relative value trade – BTC chasing gold, ETH chasing BTC, and SOL chasing ETH.
The Age of Applications, The Age of Cryptomoney
Zooming out, the cryptoeconomy is experiencing a tectonic shift from speculative experiments to revenue-generating business and active onchain economies that drive real monetary value to blockchain native assets. While current activity may appear modest, it's growing exponentially as these systems scale and deliver more compelling user experiences. At Syncracy, we believe that years from now we’ll look back on this era with humor, wondering how anyone could have doubted the value of this space as so many megatrends were so clearly emerging.
The age of applications is upon us, and with it, blockchains will produce even stronger non-sovereign digital stores of value than ever.
Special thanks to Chris Burniske, Logan Jastremski, Mason Nystrom, Jonathan Moore, Rui Shang, and Kel Eleje for their feedback and discussions
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