A new thesis that argues that most crypto value today is captured in apps, rather than blockchains, is gaining popularity with the rise of Hyperliquid and could shift investor behavior over the next few months, a crypto executive says.
“All the cool kids are talking about the ‘fat app’ thesis. Feels like that could be a dominant theme in the coming months,” Bitwise chief information officer Matt Hougan said in an X post on Wednesday. The fat-app theory suggests crypto applications will absorb more value than the underlying blockchain protocols in the future.
Source: Matt Hougan
“It’s the kind of thesis that I suspect will appear in the mainstream media in 1-3 months. As such, I think it’s a valuable mental model to keep in mind as folks watch crypto unfold,” Hougan explained.
A few layer-1s could stand out, but apps will dominate
The Fat App thesis, which is a relatively new idea, challenges Joel Monegro’s 2016 Fat Protocol thesis, arguing that most value will accrue to the base layer — chains like Ethereum, Solana or Avalanche — rather than applications.
Instead, the Fat App thesis suggests that value concentrates at the application layer, with applications capturing more revenue and user attention than the blockchains they run on.
Should more people adopt the thesis, it could change how investors value layer-1 tokens compared to application tokens.
Source: David Phelps
The Fat Protocol thesis has also garnered plenty of controversy over the years.
Digital asset Investment firm chief investment officer Jeff Dorman explained in a report back in 2021 that the Fat Protocol Thesis has not been proven correct yet, as it could be due to reasons that “have nothing to do with value being captured.”
He said it may be due to retail investors treating layer-1s as an easy index bet and venture capital funds favoring the more significant plays in the market.
“Digital asset investing is still dominated by early stage venture capital funds, who focus on total addressable market (TAM) over financial valuation, and tend to seek out what “could be” over “what currently is,” he explained.
Dorman said on Feb. 9 that “Fat protocol thesis has done major damage to crypto.”
“It’s nonsense, it causes every app to try to become an L1, it drives all VC dollars to L1s, and it makes dead L1s worth $1 bn+.”
Crypto industry has “already started voting,” says investment firm
“A few L1s will win, but none will be worth more than the sum of the apps,” he added.
Meanwhile, institutional investment firm Starkiller Capital said in a report on Tuesday that there are signs that the Fat App narrative is already taking hold.
“Over the past year, the relative price action of core blockchain tokens versus application tokens tells the story clearly. Ethereum, Solana, Avalanche, pick your chain, have gone sideways or bled against BTC,” the firm said.
The SOL/BTC ratio, which measures Solana’s relative strength against Bitcoin, is down 16.11% over the past 12 months, according to TradingView.
“The market has already started voting,” the firm said. “The most explosive token performance has come from applications, not protocols.”
Bitwise exec disagrees with “anti-L1 take”
However, Hougan disagrees with the firm’s “anti-L1 take.”
Related: Crypto traders’ current fear won’t last long, analysts say
“I think major L1s are actually well-positioned for the next year. But it’s well-argued and certainly worth considering,” Hougan said, claiming that Hyperliquid (HYPE) has been the standout crypto token in the market in recent times.
“It’s not an accident. HYPE is a pure expression of application-level demand, actual users, actual flows, actual token velocity tied to usage, not just a generalized blockspace toll,” Hougan said.
Hyperliquid is trading at $55.56, up 1,636% over the past 12 months, according to CoinMarketCap.
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