URGENT UPDATE: A fierce debate is erupting among crypto experts over the true value of layer-1 (L1) blockchains as investors question the viability of network effects in the cryptocurrency space. This discussion comes at a critical time, with the total crypto market cap excluding Bitcoin estimated at over $2.5 trillion, impacting millions of users worldwide.
Just announced, Santiago Roel Santos, founder and CEO of Inversion Capital, asserts that cryptocurrencies are significantly overpriced due to their lack of genuine network effects. Santos highlights that many effects attributed to crypto are actually negative, causing congestion, higher fees, and a deteriorating user experience. “Facebook didn’t get worse when it added 10 million users,” he stated, emphasizing that unlike traditional networks, crypto struggles with scalability.
However, not all analysts agree. Jasper De Maere, desk strategist at Wintermute, argues that Santos’ view misapplies consumer app logic to crypto infrastructure. De Maere claims that the true network effects for L1s manifest at the validator and liquidity layers, rather than at the end-user level. “Users are not supposed to interact with L1s directly,” he explained, indicating that traditional metrics like monthly active users may misrepresent the sector’s growth.
Others, including Tomas Fanta from Heartcore, counter that fees on high-performance blockchains evolve positively with increased usage, promoting deeper liquidity and better yields as adoption rises. Meanwhile, Ben Harvey, a digital asset researcher at Keyrock, acknowledges Santos’ perspective but emphasizes that not all L1s are overvalued equally, suggesting that scalability and AI integration play crucial roles.
Interestingly, Santos provided rough estimates of blockchain user value, suggesting that with 716 million crypto owners, the per-user value could be as high as $1,760. However, due to overlaps with Bitcoin users, he revised that figure to $3,150 based on his estimate of 400 million active users.
The conversation highlights a shift in perception around crypto, with many now likening the current valuation challenges to those faced by early Web2 platforms. De Maere notes that the modular nature of Web3 makes network effects more visible, allowing for clearer observation of where value compounding actually occurs.
With the future of crypto at stake, investors and analysts are urged to closely monitor developments in this debate. As the cryptocurrency landscape continues to evolve, the implications for value capture, user experience, and overall market sustainability remain critical areas of focus.
WHAT TO WATCH FOR NEXT: Analysts will be closely observing upcoming market trends and user engagement metrics, as well as the ongoing discussions among key stakeholders in the crypto space. The outcomes of these debates could significantly affect investment strategies and the broader perception of cryptocurrencies as viable financial instruments.
Stay tuned for more updates as this story develops.
