Revolution—Not Evolution: The crypto dilemma

New asset class. Important portfolio diversifier. Same old drama.

Even as stablecoins—the on and off ramp to the crypto ecosystem—gain regulatory clarity and broadening support, there remains deep skepticism about the decentralized networks that stablecoins access and ongoing debate about whether these offerings represent a new source of growth and value. Too many respected financial leaders continue to cling to views established in the earliest years of bitcoin development and maintain a knee-jerk rejection to the entire crypto landscape, ignoring both bitcoin’s maturation and the extensive value being created across a growing set of blockchains and decentralized applications.

Reticence to consider the investment case for crypto holdings, despite the ecosystem now generating trillions of dollars of transactional value, can be partially linked to many professional investors still associating crypto with the anti-establishment ethos of its cypherpunk origins and their outdated view that the ecosystem is lacking controls and thus facilitates illicit activities as was the case in the “Silk Road” years of the early 2010s. Many potential investors are unaware of the institutionalization of crypto that has taken place.

By far the most limiting factor, however, is that too many potential investors do not yet understand the business model driving the crypto ecosystem or how the coins and tokens they issue enable the growth of these businesses or what the financial benefits are of holding these coins and tokens as an investment. There is not yet a broad-based understanding that crypto represents an entirely new asset class with an entirely new economic paradigm and set of exposures.

The economic opportunity of making protocols investible

Leaders in the crypto domain are not companies. They do not have management teams in the traditional sense. There is no central body determining their business strategy or providing guidance. They do not issue equities or bonds. The cryptocurrencies and tokens they mint are not meant to be actual currencies despite the name.

Digitally native crypto businesses are protocols. A protocol is a code-based set of rules or procedures to perform a business function. Our entire modern society is built on protocols.

The file transfer protocol (FTP) was released in the early 1970s and helped to define the computer age by enabling files to be transferred between computers over networks. In the 1980s and early 1990s, multiple protocols were released to enable the development of the internet and email. These include the transmission control protocol/internet protocol (TCP/IP) that allows computers to connect over networks and exchange data, the simple mail transfer protocol (SMTP) that is used to send electronic mail between computers, the domain name system (DNS) that translates internet addresses into website names (e.g. .com, .gov, .edu); and the hypertext transfer protocol (HTTP) and secure hypertext transfer protocol (HTTPS) used to transfer web pages between servers and browsers. In the mid-1990s, we enabled the entire financial system to shift from phone-based to electronic trading with the development of the financial information exchange protocol (FIX).

Each of these protocols were transformational, in part, because they were open source. Anyone, anywhere in the world, could access and use these protocols. No company owned them. No one charged for them. They were the glue that brought together the potential of computing, networks, and encryption. Nearly every business in existence today has been built using these protocols. If they could be assigned financial value, it would be incomprehensibly high. If individuals and institutions could have invested in these protocols, the wealth creation would have been extreme. Yet even the developers that wrote these protocols were never able to monetize their work.

This is the most important innovation at the heart of the crypto ecosystem. Cryptocurrencies issued by blockchains and tokens issued by decentralized apps are the mechanisms that allow those who develop, utilize, and invest in open-source protocols to financially participate in the value that they create. They are vehicles that capture the value of decentralized network effects, much like equities are the instrument that captures the value of a company’s growth. As such, they represent an entirely new class of assets that offer exposure to economic opportunities that have up until this time not been investible.

How coins and tokens drive network effects and value

Game theory lies at the heart of how the crypto ecosystem operates. Coins and tokens are the incentive mechanisms that prompt each actor to behave in a self-interested way that is rational and aims to maximize their own outcomes.

Bitcoin, the first investible protocol, is a peer-to-peer payment network. The bitcoin protocol’s code issues the Bitcoin cryptocurrency (BTC) to incentivize independent entities to verify peer-to-peer transactions. Each time a transaction block is added to the bitcoin blockchain, the miner that verifies the transactions in the block is awarded newly minted bitcoins. Those who want to record a transaction on the bitcoin blockchain (typically for the purchase or sale of bitcoin itself) must pay to record that transaction in bitcoin. Transactors are, in essence, buying block space on the bitcoin ledger.

As the number of transactions on the Bitcoin network increases, demand for bitcoins to pay for transactions goes up. The value of the miners’ bitcoin holdings grows, encouraging them to expend the computing power to verify more transactions. The value of bitcoins held by investors goes up, encouraging them to potentially increase their holdings or take profits, both of which result in more bitcoin transactions. According to YCharts, as of July 14, 2025, the Bitcoin network had recorded 1.2 billion transactions since its launch in 2009.¹

Ethereum was the first open-source protocol for application development. The Ethereum foundation issues the blockchain’s native cryptocurrency ether (ETH) not to incentivize miners to record transactions, but to provide grants and incentivize developers to create applications on top of the Ethereum blockchain. These applications draw users to the network and when such users transact with the various apps, they must purchase ETH to pay for the block space to record their transactions on the Ethereum blockchain. This increases the value of the ETH held by the app developers, prompting them to continue developing on that network. A recent report from Gemini noted that there are more than 600,000 active app users on the Ethereum network² and DappRadar shows more than 5,000 decentralized apps in total on the platform.³

App developers on the Ethereum network can also issue their own token. Investors can purchase such tokens to provide money to developers to help fund them as they build their project, entitling these early investors to share in the appreciation of the tokens if the app becomes successful. As the app launches, the developers can require users to purchase the tokens to utilize their app, creating a revenue stream and helping to drive the value of the token higher for both the developers and the early investors. To incent customers to keep using their app, more tokens can be issued and given out as rewards to active users, thus helping to drive loyalty and repeat business. Top apps on the Ethereum network, including Etherfi, Sky, Ethena, Morpho and Uniswap v3, collectively had over US$18 billion in total value locked in the dApps’ smart contracts as of June 14, 2025.⁴

If apps on a blockchain become more successful, they 1) register a growing number of transactions which in turn 2) drives up the value of their token and the demand to record transactions on the underlying blockchain, which could result in 3) an increase in the value of the blockchain’s native cryptocurrency. This self-reinforcing flywheel can both drive network value and provides a means for developers, investors, and users to benefit financially from such growth. All of today’s leading blockchains operate in this manner. To be clear, not every app is successful, and not every app will see value increases driven this way.

Key takeaways

Collectively, as of July 14^, 2025, the market cap value of the Bitcoin network was US$2.4 trillion and the market cap of the next top five blockchains (ETH, XRP, BNB, SOL & TRON) was US$760 billion.⁵ Excitement about the recent Circle IPO that saw valuations surge 7x in early trading pushing the market cap of that centralized company (CRCL) up to US$43 billion and ongoing enthusiasm for Coinbase stock (COIN) with a US$99 billion market cap as of the same date⁶ shows how much more value could be extracted by investing into the crypto ecosystem directly.

Focusing on the centralized companies that help move money into and out of the crypto ecosystem, either via stablecoins like Circle or centralized exchanges like Coinbase fails to capture the true value being created in the ecosystem itself. It also provides only indirect at best exposure to the new crypto asset class that offers direct ownership in decentralized networks via investible protocols.