The number of crypto applications that can attract investors is starting to shrink as the industry matures, but that could be a positive to show the sector’s long-term winners, says NYDIG.
NYDIG research lead Greg Cipolaro said in a note on Friday that the “investable universe” of crypto is narrowing to applications or services that “extend traditional finance products onto blockchain infrastructure.”
He specifically named Bitcoin (BTC), tokenized assets, stablecoins, some decentralized finance infrastructure, and a limited number of “general-purpose” blockchains like Ethereum, adding that beyond such use cases, “the probability of large-scale blockchain applications appears lower than previously assumed.”
Some crypto executives had backed blockchain to serve up an alternative to nearly any offering, but many once-hyped crypto use cases, such as gaming, social networking, and the metaverse, have fizzled out compared with their centralized competition.
Cipolaro argued that’s because centralized systems “will always be faster, cheaper, and operationally more efficient for the vast majority of enterprise and consumer applications.”
Economically viable apps will be slimmer than expected
Cipolaro said that the “space for economically viable blockchain applications is narrower than early narratives hoped,” as he argued only the use cases where the benefit of blockchains outweigh its costs will survive.
“The core attributes of open blockchains, trustlessness, permissionlessness, and censorship resistance, are uniquely suited to money and money-like (financial) applications,” he added. “Most real-world applications do not require global, permissionless state machines with immutable ledgers.”
Cipolaro said that the current market is reflecting this, as Bitcoin has grown in dominance since there has been little money bet on altcoins due to a “limited emergence of durable new narratives.”
“The failure of many non-financial verticals to gain traction suggests a consolidation of capital toward a smaller set of use cases,” he added. “Rather than an explosion of applications, we are observing capital concentrate in a few core categories.”
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Cipolaro said that this narrowing of use cases could “improve durability and clarity around long-term winners,” especially for Bitcoin and some projects tied to financial infrastructure.
However, it could also reduce the “speculative breadth” of the crypto market and compress the money that typically flowed into alternative assets, he added.
“A more sober market, anchored in monetary and financial utility rather than broad ‘web3’ ambition, may ultimately strengthen core assets,” Cipolaro said, “but it also implies that crypto’s total addressable scope could be materially smaller than once projected.”
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