On chain revenue could surge to $32 billion next year, and this is regulatory tailwinds and cost efficient infrastructure drive mass adoption.1KX's study tracked user paid fees across more than 1000 protocols and reveals that on chain fees hit $9.7 billion in the first half of.
This year joining me live here at the New York Stock Exchange is Lassa Clausen, founding partner at 1KX.
Great to have you here.
Thank you so much for joining me.
Great to be here.
Thank you.
Well, this is the time of year that we start looking ahead to the new year.
So give us an idea of what areas of the on-chain ecosystem are poised for growth.
Yeah, so we've had historically a big part of the on-chain fees were generated by blockchains themselves.
They in terms of massively scaled the infrastructure, reduced the cost by almost a factor of 10 X.
So now that is really, you know, providing the infrastructure for applications themselves, so real use cases to actually start monetizing.
And then we have the big winner with DFI, which is over 60% of all fees generated, is actually from DFI applications, so financial applications that are on the blockchain.
Yeah, and for you it may be obvious, but for our viewers out there who are wondering why are user paid fees important at the metric, can you walk us through this?
Yes, I think this we think that digital assets are primarily.
Misunderstood as sort of a speculative asset class for retail investors and what we're surfacing with this report is that there really is, you know, fundamental value here.
There are protocol businesses which are, you know, a big innovation and sort of a new concept, and we are centering the conversation around the utility and the real world use cases and we think that, you know, fees that are consistent.
Paid overtime by users but also by companies for value provided for service provided are really clear indicator of the value and the real use cases that are actually happening on blockchain.
And for the lay person out there who's wondering, tell us a little bit about the real world use cases, what's working, what's not, and where do you expect to see more expansion.
So we're seeing again financial applications are a massive fee generator over 60% and there you have classic use financial use cases of lending and borrowing, trading, etc. which you know, where you have protocol businesses, which is essentially just a smart contract on the blockchain replace an entire company with massive efficiency gains while at the same.
Time you have zero counterparty risk, you have provenly zero operator fraud, and you know the great thing is also the on-chain disclosures, meaning that you don't have to rely on a third party and delay disclosures with the risk that someone is maybe not telling the truth.
You have, you know, immutable, irrefutable blockchain data.
So financial applications is a big one, and then we have fast growing sectors, and the fastest growing sectors are actually.
Deepen that decentralized physical infrastructure and this is where you take in real world assets such as computation power and storage, for example, cloud computing, and you are running this marketplace of cloud computing.
You're running that through a protocol that runs on a blockchain instead of a company that takes these and when we're talking about.
Data they give us further insights, so it may be surprising to some that the top 20 protocols out there are bringing 70% of the revenue.
So how difficult would it be for innovators to actually disrupt the space?
Yes, so we're seeing this winner takes most concentration but then extremely quick disruption.
And so this, you know, speaks to the very, very competitive, it's an open competition, if not one of the most level playing fields of any industry.
And so we are consistently seeing that you have, you know, protocols that weren't even in the top 10, top 20, top 100 last year are now part of the top 20.
So when it takes most dynamics, but also very, very fast disruption.
Yeah, and what about on chain fees?
I understand some of the projections are high here, so what should investors institutions be looking out for?
I think first of all, you know what we're able to surface with this report is that there is a substantial, you know, part of the market cap.
It's over 30% of the market cap of crypto assets are actually fee generating.
I think that's the first big distinction that we can see.
OK, there is, you know, there are sustainable business models here.
They're fee generating and consistently over time and so the big takeaway is that there is, you know, fundamental value here.
It's not just sort of meme coins.
The speculation that's the first big takeaway and then a big part of the work that we did with this report is that you net out the effective fees.
So some protocols might incentivize, you know, usage, etc. and top line revenue, and we have netted out the fees.
So I think that's, you know, if you go one level deeper, it's very, very important to analyze these protocols and look at the net fees.
Yeah, and before I let you go, what were some surprising takeaways from the study?
A very big one is that layer one blockchains, you know, which their their fee shares massively dropped, right, less than 20% now, still command massive price to fee ratios.
So the median is around 4,000X, multiples on the market cap versus the fees, and then the big surprise surprise is is, you know, that DI applications there, the median fee to market cap ratio is 17.
So we are seeing a big, big disconnect on these legacy sort of layer on blockchains that are essentially now commoditized infrastructure still commanding very, very hefty premiums.
Some call them monetary premiums.
Well, it was great to have you here.
Thank you so much for joining us on Market movers live at the New York Stock Exchange.
Thank you for having me.
Thank you.
