Authors: Joel John, Siddharth, Saurabh Deshpande
Compiled by: Felix, PANews
Under the impact of AI, the crypto space is in a bearish phase, with venture capital pulling out, founders considering AI shifts—so is the industry worth sticking with? Recently, Decentralised.co analyzed protocol revenues from data, noting that crypto asset valuations are returning to rationality, and the era of high premiums for infrastructure tokens has ended. Founders must abandon hollow narratives, build business models based on real income and moats, and give tokens actual rights. Here are the details:
The “Fear and Greed Index” in the crypto market is at its lowest in history. Meanwhile, profitability has reached unprecedented levels. Since 2018, DeFiLlama tracked $74.8 billion in fees generated by native crypto protocols, nearly half ($31.4 billion) of which occurred in the 18 months from January 2024 to June 2025.
After several of the best quarters in the past eight years, why does the industry remain mired in fear?
Projects like Entropy Protocol, Milkyway Protocol, Nifty Gateway, Rodeo, Forgotten Runiverse, Slingshot, Polynomial, Zerelend, Grix Finance, Parsec Finance, Angle Protocol, Step Finance have all shut down in the past two months. These products have been operating for years, built by passionate founders. Additionally, OKX, Mantra, Polygon Labs, Gemini, and Binance have also laid off staff.
Fewer industry conference attendees, venture capital shifting to AI, developers flocking to AI—this doomsday-like pessimism is real. “If you’re still in crypto, switch to AI,” has become the mainstream view.
But should you really do that?
In recent weeks, we’ve been pondering this question. When a new technology emerges, the market initially assigns a premium due to its novelty and grand vision. In the 19th century, nearly 6% of UK GDP was invested in railway stocks. By 2026, cloud giants’ capital expenditure will account for 2% of US GDP. But when reality hits, technological trends tend to revert to more rational valuations. The key is whether an industry can prove its value after returning to rationality.
This article will analyze the historical evolution of crypto revenue, user stickiness of generated funds, and the nature of industry moats.
Ledger Study
Since the birth of crypto, native crypto companies have been generating revenue. Exchanges like Bitmex, Binance, and Coinbase are profitable enterprises—centrally operated, owned by a few, with undisclosed income. DeFi-native infrastructure like Uniswap and Aave changed this, allowing users to see protocol daily earnings.
People once expected token trading valuations to reflect the economic activity these infrastructures facilitate.
By 2022, DEX revenues accounted for 28.4%, with total income reaching $2.27 billion that year. Lending sector was similar, highly concentrated: Aave and Compound captured 82% of all lending fees. While there are leaders, expectations remain for growing protocols vying for market share.
This technology is still new enough to warrant high valuations.
Crypto’s consumer expansion followed closely. NFTs represent a promising vision: bringing cultural value on-chain. Popular celebrities changed their profile pictures (PFP) on X, leading to hopes of mass adoption. OpenSea generated $1.55 billion in revenue, accounting for 71.7% of all NFT market income. In hindsight, a $13 billion valuation for the platform doesn’t seem so absurd; it could develop into a long-term monopoly.
However, fate and markets had other plans. By 2025, NFTs accounted for less than 1% of total revenue. We experienced a “Beanie Baby moment,” but without tangible collectibles. In contrast, DEXs grew rapidly but struggled to increase valuation. Last year, DEXs generated $5.03 billion in fees, lending platforms $1.65 billion—together 22.9% of total fees, down from 33.1% in 2022.
Their share of economic activity shrank, and valuations declined sharply.
So, which sectors actually grew? How have native crypto business models changed since 2022?
The chart below offers clues.
By January 2026, stablecoin issuers Tether and Circle accounted for 34.3% of all fees. In other words, for every dollar earned in this industry, $0.34 flows to these two companies. Driven by US T-bills, their income grew from $4.95 billion in January 2023 to $9.89 billion in 2025. For financial products at a bank scale, this is startup-level growth. Tether’s revenue is nearly three times that of Circle.
Their rise is driven by two main factors:
First, demand. Countries in the Global South have always needed tools to hedge local inflation and enable free capital flow. The dollar, even digital dollars, fill this gap—something local currencies cannot do. Capital outflows are an inevitable trend.
Second, cost structure. Blockchain bears all operational costs for stablecoin businesses. Unlike traditional banks or fintechs, Tether and Circle don’t need to hire staff based on on-chain stablecoin issuance volume. Issuing the next $1 billion on-chain and transferring the next $100 billion between addresses incurs nearly zero marginal cost.
These forces intertwine: demand drives stablecoin issuance, with citizens voting with real money; meanwhile, cost curves flatten. Together, they make stablecoin issuance one of the most capital-efficient businesses in financial history.
Stablecoin moats must be built around liquidity, compliance, and Lindy effects* (PANews: the expected lifespan of something like a technology or idea is proportional to its current age—survive longer, and its remaining lifespan increases). Only a few issuers can withstand multiple cycles. Tether and Circle nearly monopolize 99% of stablecoin issuance revenue. Why? They benefit from first-mover advantage. The network effects of multiple exchanges connecting give them “legitimacy,” which pure technology can’t achieve.
Tether initially launched on Omni as a sidechain. It’s slow and clunky but accessible via OTC platforms and common exchange channels. This is a distribution moat, not a technological one. Native crypto founders often find it hard to replicate this moat solely through code.
Stablecoins benefit from Lindy effects.
Soon, another category of crypto assets will also benefit from distribution moats.
The Market Only Needs a Little Liquidity
In previous articles, we discussed the idea that “cryptocurrency is a trading economy.” One was “Fund Flows,” the other was last year’s “Everything is a Market.” What we didn’t anticipate was how fast trading products built around Telegram bots and trading interfaces would grow.
By January 2025, these two sectors alone contributed $575 million in fees. Considering consumer demand, this is understandable. Meme coin trading and perpetual contracts allow quick profits. To chase fast returns, users are willing to pay high fees. Between 2022 and 2025, this category’s share of total revenue grew from 1% to just over 15%.
Products like TryFomo and Moonshot, focusing on end users, generated millions of dollars in revenue. They are not technically complex. Their advantage lies in aggregating underlying crypto-native components and bundling them for better user experience. Thanks to mature tools like Privy, developers no longer need to incentivize liquidity or manage wallets manually.
The native features that excited us in 2022 are now mature. Apps like BullX and Photon are built on these. In just from January 2024 to February 2026, this sector generated about $1.93 billion in trading fees.
Meme assets have a fatal flaw: they are thin-functionality and highly cyclical. Sound familiar? That’s because NFT and Web3 gaming also experienced explosive growth and eventual crashes. This cyclicality is both a flaw and a feature of crypto. We’ll revisit this later, but for now, focus on where the revenue flows.
Perpetual contracts exchanges (and later prediction markets) represent long-term new avenues. PumpFun democratized asset issuance via Meme coins, but this game isn’t fair.
Eventually, the market realized Meme coins will fade. Dreams of becoming millionaires by buying tokens like “ShibaInuYouShouldShareThisNewsletter” shattered. People don’t want to manage random token portfolios—they want to take risks. Perpetual exchanges precisely meet this need.
You can leverage high leverage to trade Bitcoin, Solana, or Ethereum. Market makers and traders seeking centralized trading alternatives flock in. Liquidity is the core product here. Hyperliquid dominates because its order book depth rivals centralized exchanges. Without this parity, users have no reason to migrate. Over the past three years, Hyperliquid and Jupiter have captured most of the fees in this category.
Perpetual exchanges and trading platforms have fully unveiled the mystery of crypto. They show that earning small fees from high-frequency trading is the real profit. These “Meme trading platforms” and perpetual exchanges are like dopamine factories that package and sell risk.
One of them will evolve into a core financial technology, used worldwide even on weekends for trading commodities, stocks, and digital assets. Native blockchain apps replicate functions long provided by Robinhood and Binance: channels for venture capital.
The Disappearance of Protocols
Notice I haven’t mentioned protocols yet? The foundational layer recording all internet fund flows? That’s because their stories are quite different (but equally important). They are victims of the initial hype premium, which is gradually fading.
In January 2023, Optimism’s PF (Price-to-Fee ratio) was 465x, Solana’s 706x, Arbitrum and BNB around 206x. Now, Solana is at 138x, Arbitrum 62x, OP 37x. Polygon’s trading price is closer to a fintech company at 20x. Tron supports the stablecoin ecosystem, with a PF of 10.2x. Since then, Optimism, Solana, Arbitrum, and Polygon have each developed more complex products, with more users, better liquidity, and more sophisticated financial suites built on them.
Their PF discounts reflect market perceptions.
Historically, Layer 1 and Layer 2 protocols traded at high premiums compared to independent infrastructure or projects. If this premium was well invested, it could fund the development of new economic systems. It could finance developers to build applications truly meaningful for ordinary users outside the industry. But open-source nature and tokenization convenience have led to hundreds of similar products across thirty networks, fragmenting the ecosystem.
This is not necessarily bad, as cross-chain bridges, messaging, and other transfer mechanisms exist. But the value of these mechanisms is also declining.
Take DeFi foundational projects as an example. Excessive choices and lack of innovation caused valuations to plummet, even though these base projects indeed drove more economic activity. The markets are highly fragmented, with many options for investors. The “decentralized” or “blockchain-based” hype has faded. Projects like Kamino, Euler, Fluid, Meteora, PumpSwap have emerged, but their fee-to-value ratios are below 2022 levels. As shown in the TokenTerminal chart below, DEX fee multiples dropped sharply from 2023 to 2025. Some exchanges now have fee multiples as low as 1.
In other words, the market values these protocols below the fees they are expected to generate in the next year. A strange paradox: while the valuation of underlying protocols (DeFi or Layer 1) declines, applications built on them are generating higher revenues in shorter timeframes.
Since early 2020, the number of teams earning over $1 million quarterly revenue has steadily increased, now exceeding 100. In 2020, protocols taking 24 months to reach $10 million annual revenue were considered fast-growing. By 2024, reaching this milestone takes about six months. Pump.Fun launched in early 2024, reaching $10 million in revenue in just two months—the fastest growth record.
This acceleration reflects both the maturity of underlying infrastructure (faster chains, lower costs) and the expanding on-chain liquidity pools (seeking yield and entertainment). If you’re a developer or founder, consider:
- Today’s crypto market has nearly 900 revenue-generating protocols.
- Each is competing for a shrinking median share of revenue, but overall, more teams are generating income. The number of revenue-generating protocols has increased nearly 8-fold—from 116 to 889.
- Median monthly revenue has fallen to $13,000.
Crypto-native companies have three types of moats. When examining their revenue models, each is obvious.
- First-mover advantage: Tether and Circle benefit from early network effects that are hard to replicate. Despite new entrants, they’ve gone through multiple cycles and established duopolies. Currently, these companies are not tokenized and are highly financialized. Tether is a centralized entity, earning mainly from US T-bills.
- Liquidity moat: In a capital industry historically driven by utility, Aave has maintained deep liquidity across cycles. Hyperliquid seems to have achieved this too, but it’s too early to tell. These protocols are motivated to return funds to liquidity providers and adjust tokens toward governance.
- Distribution moat: Cyclical apps like Meme coin platforms depend on capital flow speed and consumer demand. Web3 gaming and NFTs are prime examples. AI-powered productivity means lean teams can now launch consumer-facing products faster. The advantage lies in attracting and retaining the most users during market booms.
Products built on distribution moats can be highly valuable, but they are exceptions, not the rule. Traditionally, a startup’s value comes from replicable experience. Y Combinator’s success partly relies on the “Lindy effect” of past successful ideas. Crypto’s rapid development makes it hard to replicate this experience based on Lindy. This partly explains why founders rarely transfer their success from consumer goods to other sectors. The cyclical factors that initially helped companies scale may not be replicable.
This doesn’t mean founders shouldn’t seize these opportunities. Niche areas like prediction markets or data providers for agent economies may generate significant short-term cash flow. But it’s crucial to understand these are high-volatility, short-term games unlikely to be sustainable. The trap is blindly raising risk capital or issuing tokens long after the core narrative that gave the product life has faded.
So, what makes tokenized companies valuable? Are their valuations justified?
Data may offer some clues.
Questioning Governance
In 1999, many tech companies had P/S ratios of 10x to 20x. Content delivery network Akamai’s P/S was as high as 7,434x. By 2004, Akamai’s P/S fell to 8x. Many companies’ ratios dropped from 30–50x to below 10x. The dot-com bubble burst wiped out trillions in speculative value. Yet many survived because their underlying businesses were real. Amazon’s stock fell 94% from its bubble peak but became one of the most valuable companies in history.
Crypto is experiencing a similar valuation contraction—faster. In 2020, during DeFi’s experimental phase, total protocol revenue was about $21 million annually. The average P/S of tracked protocols then was 40,400x. The market was all about the future: “What could crypto become?” By 2021, with the “DeFi Summer,” revenues turned into actual earnings, and P/S plummeted to 338x. Today, annualized revenue hits $18 billion, with a P/S of about 170x. From 40,400x to 170x in five years.
But here’s the issue: when Visa’s P/S is 18x, shareholders get dividends and buybacks, with legal ownership of earnings and governance rights under securities law. When Aave’s P/S is 4x, token holders have governance rights but have only recently gained direct economic rights. Hyperliquid’s buyback program makes HYPE holders closest to equity owners in DeFi. In 2025, Aave approved a $50 million annual buyback plan.
Would you consider these poor charts as art?
These initiatives are significant but exceptional. Most protocols lack mechanisms to return value to token holders. Their low P/S multiples seem attractive, but their equity-like rights are weaker than traditional markets. These multiples are possible because crypto creates revenue at a scale and efficiency unmatched by traditional business.
The protocols dragging down crypto’s P/S aren’t large organizations with thousands of employees. They are small teams operating global financial infrastructure, with near-zero marginal costs and no physical offices. How thin are these costs? And how much trust can holders place in these teams’ reasonable use of protocol income?
Segmented by sector, the market picture becomes clearer. For example, Aave’s P/S is about 4x; Hyperliquid controls roughly 80% of the decentralized perpetual futures market, with a P/S around 7x. These aren’t bubble multiples—they’re even below the closest traditional financial counterparts. The only large publicly listed crypto exchange, Coinbase, has a P/S of about 9x. CME Group, the world’s largest derivatives exchange, trades at about 16x. Visa, as a payments infrastructure, has a P/S of around 15x.
Crypto analyst Will Clemente mentioned on a podcast that crypto is the purest form of capitalism. No successful industry can reach Tether’s estimated $1 million per employee profit. For comparison, Nvidia’s per-employee revenue is $5.2 million; Apple’s is $2.4 million; Google’s is $2 million. Tether, with 125 employees and about $12.5 billion in annual revenue, has the highest employee profit in corporate history.
Though the overall 170x P/S looks crazy, the market’s valuation of revenue-generating protocols isn’t irrational. It’s equal to or below traditional financial infrastructure.
This raises the next question: what’s the point of tokens? In many areas, tokens are powerful tools to pool capital toward shared visions. Crypto is at this stage: entrenched duopolies have become the norm. Traditionally, founders had to borrow (pledging equity) or raise funds to inject capital into financial products. Hyperliquid, Uniswap, Jupiter, and Blur prove that with token incentives, people will invest in new products. If tokens carry governance rights, contributors can make bigger impacts. In this context, tokens may evolve into two functions:
- Coordinating capital and resources from the right groups;
- Empowering them with governance over protocols.
Tokens themselves are losing value, even stocks are now tokenized. These tools must have rights to economic activity and governance authority. Many Layer 1 and Layer 2 tokens struggle with both. Teams and VCs often hold most tokens, leaving retail holders in confusion. This discourages ordinary investors from paying attention to new digital assets.
Today, these efforts are diverging. MetaDAO allows holders to get full refunds if the team makes false statements. No large protocols have adopted this model yet. The core issue in crypto is that traditional tokens grant limited rights. Now, various protocols are trying to answer a long-standing question: why do people hold these assets? Future articles will explore the link between holder rights and valuation.
Crossroads
Over the past two decades, capital markets have become increasingly intertwined—thanks largely to technological advances. We can trade commodities, overseas indices, digital assets, and soon, computing resources (GPUs). Blockchain makes global, anytime-anywhere trading possible. Nasdaq and NYSE are moving toward 24/7 trading, exemplifying how technology is transforming the era.
We live in a highly financialized world, and ironically, war news prompts us to seek the best prediction markets for betting.
For founders, this means rethinking their products and how they build them. If this article’s data explains anything, it’s that all blockchain products will ultimately profit through two core principles:
- Extracting small fees from high-frequency trading, or
- Charging large fees in verifiable, trust-based transactions.
The advantage lies either in trading speed or in transparent, verifiable trust.
Profit motive is the purest driver for capital market participants. It’s widely believed that markets will tend toward maximum efficiency. We see this in industry leaders: charts show 70% of market share in multiple segments is held by just two key players. This harsh reality reflects how markets operate. For founders, it means the funds once flowing into their tokens are now being redistributed to assets with higher volatility or higher capital returns.
Long-term capital does exist and may even pay premiums, provided it recognizes the value of underlying businesses. Investors in Google and Amazon don’t rush to exit because their core businesses are valuable.
In an era where even the value of software is questioned, blockchain-native applications will need new ways to demonstrate value. We might reorganize tokens or even enable on-chain trading of startup equity. But it’s not just about tokens—it’s a business model issue. Most long-tail blockchain apps—like Web3 social, identity, and gaming—struggle to scale or differentiate meaningfully from traditional competitors. These experiments aren’t valueless; we just find it hard to monetize them effectively.
The era of building crypto infrastructure is over. It will merge with the internet. Soon, “online” businesses will cease to exist as a separate concept—you are already part of the internet. No one calls themselves a “mobile app developer” anymore; you are a developer.
Long live the era of blockchain enthusiasts! We are merely advocates of ledger maximization, pondering how best to utilize these ledgers.
Related: 36 years, 4 wars, 1 script: How capital prices the world amid conflict?
