Is the “Fat Protocol Thesis” – the long-held belief that blockchain infrastructure is more valuable than applications – finally dead?

Arthur Cheong, CEO of DeFiance Capital, thinks so. He argues the once-popular investment principle has led to overvalued infrastructure projects and relatively undervalued applications

Is the “Fat Protocol Thesis” – the long-held belief that blockchain infrastructure is more valuable than applications – finally dead? Arthur Cheong, CEO of DeFiance Capital, thinks so.

The DeFiance Capital CEO says the once-popular investment principle has led to overvalued infrastructure projects and relatively undervalued applications that has stifiled crypto investment beyond Bitcoin.

The Fat Protocol Thesis claimed the primary value of blockchain technology lies in the underlying protocols, not the applications built on top.

Cheong points out that successful applications today are reasonably valued at 5x to 15x price-to-revenue ratios, while blockchain infrastructure projects – many of which have seen minimal growth in recent years – boast massively inflated valuations, anywhere from 150x to 1000x price-to-revenue.

“The speculative premium that once fueled the crypto infrastructure boom has finally collapsed,” he suggests. In other words, the market is waking up, and valuations are starting to make sense.

From Overhyped Infrastructure to Real-World Applications

In 2021, Cheong himself supported the Fat Protocol Thesis, believing it to be the dominant investment strategy. But as the market matures, he now emphasizes real-world adoption. He notes that once-hyped Layer 1 tokens like ADA, SOL, DOT, and AVAX, while boasting valuations over $10 billion, have struggled to maintain long-term growth.

Back then, most of these projects secured funds at valuations below $100 million, making them appealing early bets for investors. However, those days are likely gone.

The “Fat Protocol Thesis” may have served its purpose in the early days of crypto, but the market is rapidly evolving. Real value, Cheong argues, comes from actual utility, not just the promise of infrastructure. Applications that get used will naturally command higher multiples – that’s how markets should function. This shift marks a major turning point in how crypto investments are structured.

Shift in Crypto Investing

Arthur’s comments highlight a growing focus among investors on utility and adoption over hyped infrastructure. And for investors, this could mean a shift in where the real value lies.

The information presented in this article is for educational purposes only and should not be interpreted as financial advice. The statements, views, and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Coin Edition. Every attempt has been made to cite relevant sources and present information accurately. However, Coin Edition is not responsible for any errors or omissions in the content. The article does not constitute an endorsement or recommendation for the products or services mentioned.

Investors are advised to perform their own due diligence and consult with qualified professionals before making any investment decisions. Coin Edition will not be liable for any losses or damages incurred as a result of using the information or products mentioned in the article.