Crypto’s ‘Fat Protocol Thesis’ Is Dead- Arthur Cheong

• 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.

“Fat Protocol Thesis”, one of crypto’s most widely accepted investment belief is back in the limelight. With the evolving crypto market trends, experts weigh in on the theory’s relevancy in today’s world. One of them is Arthur Cheong, CEO of DeFiance Capital, who proclaimed that “we are finally at tail end of the “Fat Protocol Thesis.”

This so-called Fat Protocol Thesis, was first termed by Joel Monegro in 2016. He argued in blockchains ecosystems, the underlying protocols (like Layer-1 blockchains Bitcoin, Ethereum) are “fat” and applications built on top of it are “thin” because the majority value is captured at the protocol level. 

Crypto’s ‘Fat Protocol Thesis’ Is Dead- Arthur Cheong 3

Once an advocate-turned-skeptic, Cheong believes that the theory inflated the valuations of the infrastructure projects while undervaluing application projects. This has created an imbalance, making crypto assets and DeFi apps, less attractive in terms of investment appeal. He pointed out successful applications (eg DeFi, NFT marketplace) are valued reasonably at 5 to 15x Price/Revenue, while infra projects that have not grown much for the past 2 years are still trading at a staggering inflated 150x to 1000x Price/Revenue.

For those new, Price/Revenue is a standard ratio that compares a company’s market capitalization (or price) to its revenue.

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Arthur believes this distorted investment strategy might have been popular in the early days of crypto but now it has lose it relevancy with the changing market currents. He declared, “The speculative premium that once fueled the crypto infrastructure boom, has finally collapsed.” Arthur indicated that the market is correcting, and valuations are becoming more realistic.

Interestingly, it was Arthur who in 2021 shed light on the dominance of the Fat Protocol investment strategy. The infra projects referred here were the Layer 1 tokens like ADA, SOL, DOT, and AVAX, which once had valuations exceeding $10 billion. Most of these projects initially raised funds at valuations below $100 million, making them lucrative early bets, but that era appears to be over.

Crticis now belives that real-world applications will naturally drive market adoption – reflecting a major turning point in how crypto investments are structured. Overall, Arthur’s comments aligns iwith the broader market sentiment where utility and adoption takes precedence over infrastructure hype.