URGENT UPDATE: A fierce debate is exploding among experts over the real value of layer-1 (L1) blockchains in the cryptocurrency space. Just announced opinions are diverging sharply as analysts question whether these networks truly exhibit positive network effects or if they are significantly overvalued.
Leading the charge, Santiago Roel Santos, founder and CEO of Inversion Capital, argues that cryptocurrencies are not benefiting from positive network effects, making them overpriced. He cites congestion issues like rising fees and slower transactions as detrimental to user experience. “Facebook didn’t get worse when it added 10 million users,” he asserts, emphasizing that crypto’s growth is accompanied by adverse effects.
In stark contrast, other market experts defend the notion that L1 blockchains do indeed have network effects. Jasper De Maere, a desk strategist at Wintermute, challenges Santos’ views, stating that applying consumer-app logic to infrastructure is misguided. He explains that early congestion issues in platforms like Facebook were internalized, arguing, “Users are not supposed to interact with L1s directly.”
The stakes are high as analysts continue to evaluate the implications of these conflicting viewpoints. Tomas Fanta, principal at Heartcore, disputes Santos’ claim that increased usage leads to higher fees, stating that on high-performance blockchains, fees become negligible as liquidity improves with adoption. Meanwhile, Ben Harvey, a digital asset researcher at Keyrock, aligns with Santos regarding the overvaluation of L1 blockchains but notes that this varies widely among different protocols, particularly considering scalability and AI integration.
As the conversation unfolds, Santos highlights a concerning metric: the estimated value an on-chain user holds for a blockchain. With current data indicating that 716 million people own crypto, excluding Bitcoin, the per-user value might appear inflated at nearly $1,760. However, when focusing on Santos’ estimate of 400 million users, the value rises to approximately $3,150 per user.
The debate is further fueled by Martin Kupka, a former investor at RockawayX, who suggests that true network effects currently lie in stablecoins and centralized exchanges. He argues that liquidity and execution quality improve as these platforms gain traction.
Looking ahead, experts urge stakeholders to monitor how these discussions shape investment strategies and market perceptions. With the current valuation landscape resembling the early stages of Web2 platforms, clarity on the actual value of L1 blockchains remains elusive.
As this story develops, the cryptocurrency community is left to ponder: Are layer-1 blockchains truly valuable assets, or are they riding a speculative wave that may soon crash? Stay tuned for more immediate updates as this critical debate continues to unfold.
