The industry has fundamentally misjudged which applications are truly worth building, and this misjudgment is at the heart of the crypto space’s current predicament and hints at the direction in which real value may surface.
The Application Layer Mirage
The cryptocurrency industry’s narrative has gone through multiple phases, but has always been informed by a single vision — to build revolutionary applications that transcend finance. Smart contract platforms touted themselves as the infrastructure of a new digital economy, envisioning value feeding back from the application layer to the underlying protocols. This narrative has accelerated with the spread of “fat protocol theory”, which suggests that, unlike the TCP/IP protocols of the Internet era, which were worth a pittance while Facebook and Google captured hundreds of billions in value, blockchain protocols will sink most of the value.
This creates a certain mindset: the Layre 1 public chain will add value by fostering a diverse ecosystem of applications, just as Apple’s App Store or Microsoft Windows create value through third-party software. However, there is a fundamental misunderstanding – the cryptocurrency industry is attempting to impose financialization on scenarios where it is not applicable and where it is difficult to create real value.
Unlike the Internet, which can digitize pre-existing human needs (commerce, socialization, entertainment), cryptocurrencies attempt to inject financial mechanisms into scenarios that do not require or exclude financialization. The premise behind this direction of development is that all sectors, from social media to gaming to identity management, can benefit from uplinking and financialization.
The reality is quite different:
Tokenized social apps have generally failed to gain mainstream adoption, with user engagement relying on token incentives rather than product value;
Gaming apps continue to face resistance from traditional gaming communities, with players believing that financialization mechanisms harm rather than enhance the gaming experience;
Identity and reputation systems involving token economics have not been able to demonstrate significant advantages over traditional solutions.These issues cannot be explained by “we’re in the early days” alone. It reveals a deeper logic – that finance is a resource allocation tool, not an end in itself. Financializing social interaction or entertainment actually misunderstands the core function of finance in society.
Essential difference with game props market
In particular, it should be explained that while the skin market of CS:GO or the in-game purchase system of popular games may seem to refute the previous point, they are in fact fundamentally different.
These markets are essentially just ecologies for trading optional decorative items or collectibles on the periphery of the game, rather than a financialization of the core gameplay. They are closer to peripheral merchandise or souvenir markets, and do not alter the basic operational logic of the game.
When crypto games attempt to financialize core gameplay mechanics — to make playing the game directly equivalent to making money — it radically alters the player experience, often destroying the most fundamental fun of the game instead. The key question is not whether it is possible to build a market around the game, but whether transforming the act of playing itself into a financial activity distorts its essence.
The Essential Difference Between Blockchain Technology and “De-trust”
One of the core concepts that is often confused in the cryptocurrency discussion is the difference between blockchain technology and the attribute of de-trust, which are by no means synonymous.
Blockchain technology: is a set of technical tools used to create a distributed, irreversible consensus ledger;
De-trusted attributes: refers specifically to the property of being able to execute transactions without relying on a third-party intermediary.There is a clear cost associated with de-trusting – including loss of efficiency, system complexity and resource consumption. Such costs must be justified, and this is only the case in specific areas.
Take, for example, Dubai’s use of distributed ledger technology to manage property registrations: they have primarily leveraged the technology’s efficiency benefits and transparency advantages rather than de-trusting it. The Bureau of Land Management remains the center of authority, and the blockchain simply serves as a more efficient database. This distinction is crucial because it reveals where the true value of such systems lies.
The core conclusion is that de-trusting has real value only in a few areas. From property registration to identity verification to supply chain management, the vast majority of scenarios still inherently rely on real-world authorities for final adjudication or verification. Migrating the ledger to the blockchain doesn’t change this – it simply replaces the technological tool for managing records.
Cost-benefit analysis
This makes a simple cost-benefit analysis necessary for every platform.
Will the platform actually benefit from de-trusting?
Will that benefit outweigh the cost loss of achieving de-trusting?For most non-financial applications, the answer to at least one of these questions is no – either they don’t really need to be de-trusted (because external authority guarantees are still needed), or the benefits won’t cover the costs.
This explains why institutional adoption of blockchain technology has focused primarily on efficiency gains rather than de-trusting. When traditional financial institutions tokenize assets on Ether (a trend that is growing), they are leveraging the operational benefits of blockchain networks and new market entrances, while maintaining the traditional trust model. Blockchain is here as an improved infrastructure, not a trust replacement mechanism.
From an investment perspective, this creates a paradox. The most valuable part of the blockchain (the technology itself) can be widely adopted without necessarily creating value for a specific public chain or token. Traditional institutions can build private chains, or use public chains as infrastructure, while keeping a firm grip on the most central layer of value – asset issuance rights and monetary policy.
Industry Adaptive Evolution
As this reality becomes clearer, we are witnessing a natural process of adaptation unfold:
Technology Adoption Skips the Token Economy: Traditional institutions are adopting blockchain technology exclusively, eschewing speculative token systems as an upgraded “conduit” for existing financial activities;
Efficiency over revolution: the focus shifts from disrupting existing systems to incremental efficiency gains;
Value migration: value flows mainly to specific applications with a clear utility, rather than to underlying infrastructure tokens;
Narrative evolution: the industry realigns its value creation narrative to match technological advances.This is actually good. Why should activity enablers be allowed to suck all the value out of value creators? The Internet would look very different (and almost certainly worse) if, as predicted by Fat Protocol Theory, the main value was captured by TCP/IP rather than by the applications on it. The industry hasn’t failed — it’s just finally facing reality. The technology itself is valuable and will likely continue to evolve and integrate with existing systems, but the distribution of value within the ecosystem may be very different from what the early narrative suggests.
The Root of the Mistake: The Forgotten Beginnings
To understand how we got here, it is important to go back to the origins of cryptocurrencies. Bitcoin did not originally emerge as a general-purpose computing platform or the basis for tokenizing everything; it was born with a clear mission – as the monetary system’s response to the 2008 financial crisis and the failure of centralized monetary policy.
Bitcoin’s core philosophy was never “everything on the chain,” but rather “money should not be dependent on trusted intermediaries.
As the industry evolved, this original mission was diluted and eventually abandoned by most projects. Projects such as Ether have expanded the technical capabilities of the blockchain, but at the same time blurred its core positioning. This led to a bizarre split in the ecosystem.
Bitcoin remains focused on a cryptocurrency niche, but lacks the programmability to enable anything other than basic money transfers;
Smart contract platforms offer programmability, but have abandoned cryptocurrency innovation in favor of the “everything on the chain” route;This divergence is perhaps the cryptocurrency industry’s most serious misstep. Instead of building on Bitcoin’s cryptocurrency innovations to create more complex functionality, the industry has turned to the financialization of everything – putting the cart before the horse and misjudging both the problem and the solution.
The Way Forward: Returning to the Nature of Money
