- DeFiance Capital’s Arthur believes the Fat Protocol Thesis has lost relevance in a maturing crypto market.
- Infrastructure projects trade at inflated valuations while applications with real-world utility dominate investor interest.
- Crypto markets now prioritize adoption-driven applications over speculative blockchain protocols.
Is the “Fat Protocol Thesis” – the long-held belief that blockchain infrastructure is more valuable than applications – finally dead? Arthur Cheong, CEO of DeFiance Capital, thinks so.
He argues the once-popular investment principle has led to overvalued infrastructure projects and relatively undervalued applications that has stifled crypto investment beyond Bitcoin.
The Fat Protocol Thesis claimed the primary value of blockchain technology lies in the underlying protocols, not the applications built on top.
Cheong points out that successful applications today are reasonably valued at 5x to 15x price-to-revenue ratios, while blockchain infrastructure projects – many of which have seen minimal growth in recent years – boast massively inflated valuations, anywhere from 150x to 1000x price-to-revenue.
“The speculative premium that once fueled the crypto infrastructure boom, he suggests, has finally collapsed,” he wrote on X. In other words, the market is waking up, and valuations are starting to make sense.
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From Overhyped Infrastructure to Real-World Applications
In 2021, Cheong himself supported the Fat Protocol Thesis, believing it was the dominant investment strategy. However, as the market matures, he now emphasizes real-world adoption. He points to once-hyped Layer 1 tokens like ADA, SOL, DOT, and AVAX. While they once had valuations exceeding $10 billion, many have struggled to sustain long-term growth.
Back then, most of these projects raised funds at valuations below $100 million, making them attractive early bets for investors. But those days are likely gone.
The “Fat Protocol Thesis” may have served its purpose in the early crypto days, but the market is rapidly evolving. Real value, Cheong argues, comes from actual utility, not just infrastructure promises. Applications that actually get used will naturally command higher multiples – that’s just how markets should work. This shift signals a major turning point in how crypto investments are structured.
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Shift in Crypto Investing
Arthur’s comments reflect a growing sentiment in the market: investors are increasingly focused on utility and adoption rather than infrastructure hype. And for investors, this means a potential shift in where the real value lies.
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