Author: Joel John, Siddharth, Saurabh Deshpande
Compilation: Felix, PANews
Original Title: Valuation Collapse and Revenue Differentiation: Reassessing the True Logic of Crypto Assets
Under the impact of AI, the crypto field is in a period of low sentiment. With VCs leaving and founders considering transitioning to AI, is the crypto industry worth sticking with? Decentralised.co recently analyzed protocol revenue from a data perspective, pointing out that crypto asset valuations are returning to rationality, and the era of high premiums for infrastructure tokens has ended. Founders must abandon empty narratives, establish business models based on real revenue and moats, and endow tokens with actual rights. Details are as follows:
The 'Fear and Greed Index' of the crypto market is at a historical low. At the same time, its profitability has reached unprecedented heights. Since 2018, DeFiLlama has tracked crypto-native protocols generating $74.8 billion in fees, with nearly half ($31.4 billion) generated in the 18 months from January 2024 to June 2025.
After experiencing some of the best performing quarters in the past eight years, why is an industry still mired in fear?
Entropy Protocol, Milkyway Protocol, Nifty Gateway, Rodeo, Forgotten Runiverse, Slingshot, Polynomial, Zerelend, Grix Finance, Parsec Finance, Angle Protocol, Step Finance—these twelve projects have shut down one after another 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 all conducted layoffs.
Fewer people are attending industry conferences, VCs are turning to AI, and developers are flocking to AI in droves. This apocalyptic pessimism is real. "If you're still in crypto, switch to AI" has become the mainstream view.
But should you really do that?
We've been thinking about this question for the past few weeks. When a new technology emerges, the market initially gives it a premium due to its novelty and grand vision. In the 19th century, nearly 6% of the UK's GDP was invested in railway stocks. By 2026, the capital expenditure of major cloud service providers will account for 2% of US GDP. But when reality sets in, technology trends return to more reasonable valuations. The key is whether an industry can prove its value after returning to rationality.
This article will dissect the historical evolution of cryptocurrency revenue, the stickiness of the funds generated, and the nature of moats in the industry.
Studying the Ledger
Since the birth of the crypto industry, crypto-native businesses have been generating revenue. Exchanges like Bitmex, Binance, and Coinbase are all profitable enterprises. They are centralized, owned by a few, and their revenue is not public. DeFi-native infrastructures like decentralized exchanges (Uniswap) and lending platforms (Aave) changed this, allowing users to see the daily earnings of protocols.
It was expected that the trading valuation of tokens would reflect the economic activity facilitated by these infrastructures.
As of 2022, DEXs accounted for a high of 28.4% of revenue, with total revenue reaching $2.27 billion that year. The lending track was similar and highly concentrated. Aave and Compound accounted for 82% of all lending fees. While there were leaders, there was also expectation for protocols that were developing and trying to capture market share.
The technology itself was novel enough, so valuations were high.
Expansion in the consumer sector followed closely. NFTs represented a promising vision: putting cultural value on-chain. Celebrities known to the masses changed their profile pictures (PFPs) on X, and people thought this would translate into mass adoption. OpenSea created $1.55 billion in revenue, accounting for 71.7% of all NFT market revenue. In hindsight, its $13 billion valuation didn't seem so absurd; they themselves had the potential to develop into a long-term monopoly.
However, fate and the market had other plans. By 2025, NFTs accounted for less than 1% of total revenue. We experienced a "Beanie Baby moment" but were left with no physical memento. In contrast, DEXs, while their valuations struggled to grow. Last year, DEXs generated $5.03 billion in fees, and lending platforms generated $1.65 billion in fees. Combined, these two sectors accounted for 22.9% of total fees, down from 33.1% in 2022.
Their share of economic activity in the larger pie shrank, and their valuations plummeted accordingly.
So, which areas actually grew? How have crypto-native business models changed since 2022?
The chart below provides some clues.
In January 2026, stablecoin issuers Tether and Circle accounted for 34.3% of all fees. In other words, for every $1 the industry earns, $0.34 flows to these two companies. Driven by US Treasury bills (T-bills), their revenue grew from $4.95 billion in January 2023 to $9.89 billion in 2025. For bank-scale financial products, this is purely startup-level growth speed. Tether's revenue is almost three times that of Circle.
Their rise is due to two main factors.
The first is demand. Countries in the Global South consistently need tools to hedge against local inflation and enable free flow of funds. The US dollar, even digital dollars, fills this void, which local currencies cannot. Capital outflow is an inevitable trend.
The second is the cost structure. The blockchain bears all the costs required to operate a stablecoin business. Unlike traditional banks or fintech companies, Tether and Circle do not need to hire employees in proportion to the scale of stablecoins issued on-chain. The marginal cost of issuing the next $1 billion on-chain and transferring the next $100 billion between addresses is almost zero.
These two forces intertwine. On the one hand, demand drives stablecoin issuance, with citizens voting with real money; on the other hand, the cost curve flattens. Together, they make stablecoin issuance one of the most capital-efficient businesses in financial history.
The stablecoin business requires building moats in liquidity, compliance, and the Lindy Effect (PANews Note: For things that do not naturally die out, such as a technology or an idea, their expected lifespan is proportional to the time they have already existed. That is, for every additional period they survive, their remaining expected lifespan increases a bit). Very few issuing institutions can withstand multiple cycles. Tether and Circle account for almost 99% of all stablecoin issuance revenue. Why is this? Both assets benefit from their first-mover advantage. The network effects generated by access to multiple exchanges give them "legitimacy," which technology alone cannot achieve.
Tether was initially launched on the Omni platform as a sidechain. It was slow and clumsy but accessible through channels commonly used by OTC platforms and exchanges. This is a distribution moat, not a technological moat. Crypto-native founders often find it difficult to replicate this moat with code alone.
Stablecoins benefit from the Lindy Effect.
Soon, another cryptocurrency category will also benefit from a distribution moat.
The market now only needs a hint of liquidity
The view that "cryptocurrency is a trading economy" was梳理ed in two previous articles. One was "Fund Flows," and the other was "Everything is a Market" written last year. What wasn't anticipated at the time was the growth rate of trading products built on Telegram trading bots and trading interfaces.
These two areas alone contributed $575 million in fees by January 2025. Given consumer demand, this is not hard to understand. Meme coin trading and perpetual contracts allow users to profit quickly. In pursuit of quick returns, they are willing to pay high fees. This category grew from 1% of total revenue in 2022 to just over 15% in 2025.
Products like TryFomo and Moonshot have created millions of dollars in revenue by focusing on end-users. These products are not technically complex. Instead, their advantage lies in aggregating crypto-native underlying components and bundling them to create a better user experience. Thanks to the maturity of tools like Privy, developers no longer need to incentivize liquidity or bother managing wallets.
Those native functions we were excited about in 2022 are now mature. Applications like BullX and Photon are built on these functions. This field alone generated approximately $1.93 billion in trading fees from January 2024 to February 2026.
Meme assets have a fatal flaw: they are functionally thin and highly cyclical. Does this sound familiar? This is because NFTs and Web3 games have also experienced similar explosive growth and eventual collapse. This cyclicality is both a flaw and a feature of the crypto industry. We will revisit this topic later. For now, let's clarify where the revenue is flowing.
Perpetual futures exchanges (and later prediction markets) represent new pathways with longevity. PumpFun democratized asset issuance through Meme coins, but this game is not fair.
Eventually, the market realized that Meme coins would eventually die. The dream of becoming a millionaire by buying a token named "ShibaInuYouShouldShareThisNewsletter" also faded. People don't want to manage random token portfolios; they want to take risks. Perpetual exchanges恰好满足了他们的需求.
You can trade Bitcoin, Solana, or Ethereum with extremely high leverage. Market makers and traders needing an alternative to centralized trading channels flocked to them. The core product of this category is liquidity. Hyperliquid dominates because its order book depth is comparable to that of centralized exchanges. Without this parity, users have no reason to migrate. Over the past three years, Hyperliquid and Jupiter have captured the majority of fees in this category.
Perpetual exchanges and trading platforms have彻底揭开了 the mystery of cryptocurrency. They clearly show: making small fees from high-frequency trading is the real way to profit. These "Meme trading platforms" and perpetual exchanges are like dopamine machines that package and sell risk.
One of them will develop into core financial technology that people around the world will use to trade commodities, stocks, and digital assets, even on weekends. Blockchain-native applications replicate the functions long provided by Robinhood and Binance: channels for venture investment.
The Demise of Protocols
Notice we haven't mentioned protocols yet? That foundational layer that records all internet fund flows? That's because their story is completely different (but equally important). They are victims of the novelty premium, which is gradually fading.
In January 2023, Optimism's PF (Price-to-Fee ratio) was 465x, Solana's was 706x, and Arbitrum and BNB were around 206x. Today, Solana is at 138x, Arbitrum at 62x, and OP at 37x. Polygon is trading closer to a fintech company, at 20x. Tron, which supports the stablecoin ecosystem, has a PF of 10.2x. Since then, Optimism, Solana, Arbitrum, and Polygon have each implemented more complex products. They each have more users, better liquidity, and more sophisticated suites of financial applications built on them.
The discount in their PF reflects the market's view of them.
Historically, L1s and L2s have traded at extremely high premiums compared to independent underlying infrastructures or projects. If this premium had been well invested, it could have created new economic systems. It could have funded developers to build applications that truly matter to ordinary people outside the industry. However, the open-source nature of products and the ease of tokenization led to us having fifty identical product copies on thirty networks, destroying composability.
This is also fine, because we have cross-chain bridges, cross-chain messaging, and countless other fund transfer mechanisms. And the value of all these mechanisms is now declining.
Take the fate of DeFi foundational projects as an example. Too many investor choices and a lack of novelty led to a plunge in valuations, even though these foundational projects did drive more economic activity. These markets are highly fragmented, and investors have numerous choices to bet on. The novelty of "decentralized" or "blockchain-based" has long faded. Projects like Kamino, Euler, Fluid, Meteora, and PumpSwap have emerged, but their price-to-fee ratios are lower than those of 2022 protocols. As shown in the TokenTerminal chart below, the price-to-fee multiples of DEXs fell sharply between 2023 and 2025. Some exchanges now have price-to-fee multiples as low as 1.
In other words, the market values them below the fees they generate in a year. A strange paradox emerges: although the valuations of underlying protocols (whether DeFi or L1 itself) are trending downward, applications built on these protocols are generating higher revenue in a shorter time.
The number of teams with quarterly revenue exceeding $1 million has grown steadily since early 2020, now exceeding one hundred. In 2020, protocols that took 24 months to reach $10 million in annual revenue were considered fast-growing. By 2024, the time for protocols to reach this milestone had shortened to about six months. Pump.Fun launched in early 2024 and took about two months to reach $10 million in revenue, setting the fastest growth record.
This accelerated growth reflects both the maturity of the underlying infrastructure (faster chains, lower transaction costs) and the expanding on-chain capital pool (seeking yield and entertainment). If you are a developer or founder, consider the following facts:
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Today's crypto market has nearly 900 revenue-generating protocols.
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Each protocol is competing for an increasingly smaller median share of revenue, but from a broader trend perspective, more and more teams are generating revenue. For reference, the number of revenue-generating protocols has increased nearly 8-fold, from 116 to 889.
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The median monthly revenue has dropped to $13,000.
Blockchain-native businesses have three forms of moats. Each is evident when studying their revenue models.
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First-mover advantage: The network effects gained by Tether and Circle through early advantage are difficult to replicate. Despite constant new players, they have weathered multiple cycles and established a duopoly. Currently, these enterprises are not tokenized and are highly financialized. Tether is a centralized entity whose revenue primarily comes from US Treasury bonds.
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Liquidity moat: In an industry where capital has historically been utilitarian, Aave has been able to maintain liquidity depth across cycles. Hyperliquid also seems to have achieved this, but it is too early to tell. These protocols have an incentive to return funds to liquidity providers and adjust tokens towards governance functions.
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Distribution moat: Cyclical applications (like Meme coin trading platforms) rely on capital turnover speed and consumer demand. Web3 games and NFTs are good examples. AI-powered productivity will mean that lean, small teams can now launch consumer-facing products faster. Where does the advantage come from? Ultimately, it comes down to引导ing and retaining the most users when the market is hot.
Products built on a distribution moat can be extremely valuable, but they are exceptions, not the norm. Traditionally, a startup is valuable because its experience can be replicated. Y Combinator succeeds partly due to the "Lindy Effect" of past successful ideas. Cryptocurrency develops too fast to replicate this Lindy-based experience, which partly explains why we rarely see founders replicating their success in consumer goods across other areas. The cyclical factors that initially helped the business scale may not be replicable.
This doesn't mean founders shouldn't seize these opportunities. Niche areas like prediction markets or data providers for the agent economy may generate significant cash flow in the short term. But it's important to understand that these are high-volatility, short-term games that may not last. The trap for such products is: blindly raising venture capital, or being trapped by a token issued long after the "Meta (core narrative)" that gave the product life has died.
So, what makes a tokenized enterprise valuable? Are their valuations reasonable?
Data may provide some clues.
Questioning Governance
In 1999, many tech companies had price-to-sales (P/S) ratios as high as 10x to 20x. Content delivery network company Akamai had a P/S ratio of 7434x. By 2004, Akamai's P/S ratio had fallen to 8x. Many companies saw their P/S ratios plummet from 30x-50x to below 10x. The bursting of the dot-com bubble evaporated trillions of dollars in speculative value. However, many companies ultimately survived because their underlying businesses were real. Amazon's stock fell 94% from the peak of the dot-com bubble but eventually became one of the most valuable companies in history.
The crypto industry is experiencing the same market cap contraction, and faster. In 2020, when DeFi was still experimental, the total annual revenue generated by the crypto industry was only about $21 million. The average P/S ratio of all tracked protocols was as high as 40,400x. The market hype was all about the future: "What could cryptocurrency be?" By 2021, with the arrival of "DeFi Summer," protocol revenue turned into actual profits, and the P/S ratio plummeted to 338x. Today, with annualized revenue reaching $18 billion, the P/S ratio is about 170x. The P/S ratio compressed from 40,400x to 170x in just five years.
However, there is a problem here. When Visa has a P/S ratio of 18x, shareholders receive dividends and buybacks. They have legal ownership of the company's earnings and governance seats under securities laws. When Aave has a P/S ratio of 4x, token holders have governance rights, but until recently, they had no direct economic rights. Hyperliquid uses its aid fund for buybacks, making HYPE holders the closest thing to equity holders in DeFi. Aave approved a $50 million annual buyback plan in 2025.
Do you think I can pass these糟糕的 charts off as art?
These initiatives are significant, but they are exceptions. In the broader market, most protocols lack mechanisms to return value to token holders. These P/S multiples look low, and the holder rights are weaker than those in traditional markets. These multiples are possible because the crypto industry creates revenue on a scale and efficiency unmatched by traditional businesses.
The protocols that pull down the crypto P/S ratio are not large organizations with thousands of employees. They are small teams running global financial infrastructure with marginal costs close to zero and no physical offices. How thin can these costs be? And how much trust can holders have in the reasonable use of protocol revenue by these teams?
Segmenting the market by track provides a clearer picture of the market conditions. Aave, the largest lending protocol in DeFi, has a P/S ratio of about 4x. Hyperliquid controls about 80% of the decentralized perpetual futures market, with a P/S ratio of about 7x. These are not bubble multiples. Arguably, they are even lower than the closest traditional financial counterparts. Coinbase, the only major crypto exchange that is publicly listed, has a P/S ratio of about 9x. CME Group, the world's largest derivatives exchange, has a P/S ratio of about 16x. Visa, as payment infrastructure, has a P/S ratio of about 15x.
Crypto analyst Will Clemente mentioned on a podcast that cryptocurrency is the purest form of capitalism. No industry's successful enterprises achieve the estimated $100 million in profit per employee that Tether does. For context, Nvidia's revenue per employee is $5.2 million, Apple's is $2.4 million, and Google's is $2 million. Tether has 125 employees and annual revenue of about $12.5 billion, its scale suggests the company has the highest profit per employee in corporate history.
Although the overall 170x P/S number looks crazy, the market is not irrational towards protocols that actually generate revenue. It prices them equal to or below traditional financial infrastructure.
This leads to the next question: What is the token actually for? In many areas, tokens are powerful tools for concentrating capital and working towards a common vision. Cryptocurrency is at a stage where entrenched duopolies have become the norm. Traditionally, founders had to borrow (using equity as collateral) or raise funds to inject capital into financial products. Hyperliquid, Uniswap, Jupiter, and Blur have all proven that with token incentives, people will put capital into new products. If tokens come with governance rights, these people can contribute more. In this regard, tokens may evolve two functions:
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Coordinate capital and resources from the right people;
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Empower them to govern the protocol.
The tokens themselves are no longer valuable; even stocks are being tokenized now. These tools must have claims on economic activity and the ability to guide governance. Many Layer1 and Layer2 tokens struggle to achieve both. Teams and VCs typically hold most of the tokens, leaving retail holders in chaos. This gives ordinary investors no reason to pay attention to newly listed digital assets.
Today, these attempts are showing divergence. MetaDAO allows holders to get a full refund if the team makes false statements. No large protocol has adopted this model yet. The core problem with cryptocurrency is that traditional tokens赋予 holders very few rights. Today, various protocols are trying to answer a long-standing question: Why should people hold these assets at all? In future articles, we will explore the correlation between holder rights and valuation.
The Fork in the Road
Over the past two decades, capital markets have become increasingly intertwined. This is largely due to technological advancement. We can trade commodities, foreign indices, digital assets, and even computing resources (GPUs) in the near future. Blockchain makes trading in these markets possible globally, anytime, anywhere. Nasdaq and the New York Stock Exchange are now moving towards 24/7 trading models, an example of technology changing the times.
We live in a highly financialized world, ironically, where news of war makes us scramble to find the best prediction markets to bet on.
For founders, this means rethinking the products they build and how they build them. If the data in this article explains anything, it is that all blockchain products will ultimately become profitable through two core principles.
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By taking small commissions from high-frequency trading, or
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By taking large commissions from transactions that focus on verifiability and trust assumptions.
The advantage lies either in transaction speed or in verifiable transparency.
The profit motive is the purest driver for capital market participants. It is widely believed that markets ultimately tend towards extreme efficiency. We see this trend reflected in industry leaders. For example, the charts we see show that 70% of the share in multiple细分 markets is held by two key enterprises. This is the brutal reality we all face, and it's the brutal side of how markets operate. For founders, this means that the funds that once flowed into their tokens are now being reallocated to assets with higher volatility or higher returns on capital.
Long-term capital does exist and may even pay a premium, but only if it recognizes the value of the underlying business. Investors in Google and Amazon don't need to rush to exit because their underlying businesses are valuable in themselves.
In an era where even the value of software itself is being questioned, blockchain-native applications will have to find new ways to demonstrate value. We can restructure tokens. Maybe even let startup equity trade on-chain. But this is not just about tokens; it's also about business models. The vast majority of long-tail blockchain applications: such as Web3 social, identity, and gaming products, struggle to scale and achieve meaningful differentiation from traditional competitors. These experiments are not without value; it's that we have difficulty monetizing them effectively.
The era of building cryptocurrency infrastructure is over. In the future, it will be integrated into the internet. Then, people will no longer talk about "online" businesses; you本身就是存在于互联网中. No one calls themselves a "mobile app developer" anymore; you are simply a developer.
Long live the era of blockchain enthusiasts! We are just advocates of ledger maximization, thinking about how best to utilize these ledgers.
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