Source: Bankless
Summary: Felix, PANews
From Infrastructure to Innovation: How Crypto’s Evolution is Reshaping Global Finance
In a recent appearance on the Bankless Podcast, Aleks Larsen and Spencer Bogart, General Partners at Blockchain Capital, offered a compelling vision for the crypto market’s inevitable shift from foundational infrastructure to a robust application layer. They highlighted how the widespread adoption of stablecoins has already injected immense liquidity into on-chain finance, fueling significant revenue growth for lending and trading protocols.
Furthermore, the tokenization of traditional assets like stocks and venture capital funds is poised to revolutionize the financial system, leading to an exponential increase in capital efficiency. While the interplay between traditional finance and the core tenets of crypto—especially concerning regulatory compliance—presents ongoing challenges, the transformative power of tokenization in restructuring global finance is undeniable. PANews has synthesized the key insights from their insightful discussion.
The Enduring Power of “Buyback and Burn”
The conversation kicked off with a reflection on the “buyback and burn” model, pioneered by projects like Maker (MKR). Spencer Bogart noted its continued relevance, even in 2026, with modern projects like Hyperliquid, Lighter, and Venice still employing it. Despite past debates questioning its capital efficiency, Bogart asserts its practical success remains “undefeated.”
Aleks Larsen, initially critical, admitted to “overthinking” the model’s long-term viability, acknowledging its effectiveness in today’s market. Bogart attributed its success to the current regulatory ambiguity surrounding token holder rights, particularly in the absence of clear legislation like the “Clarity Act.” In this environment, where most crypto protocols haven’t demonstrated successful cross-domain expansion, token holders often prefer the certainty of a team committing to perpetual buybacks and burns. This mechanism also serves as a crucial signal for quality projects to differentiate themselves in a market historically plagued by inconsistent token quality, effectively aligning team and investor interests.
Navigating Crypto’s Dichotomy: Institutional Embrace Amidst OG Pessimism
The hosts then addressed a prevalent narrative: “Crypto VC is dead,” with major funds seemingly diversifying into AI and robotics. Yet, Blockchain Capital has chosen to double down on crypto during a market downturn. This contrasts sharply with the observed dichotomy where traditional financial institutions are increasingly eager to engage with blockchain, while many crypto OGs express profound pessimism.
Larsen explained Blockchain Capital’s perspective, emphasizing a broader, long-term view that transcends market cycles. He described the recent “token bear market” as uniquely characterized by an abundance of positive catalysts, including clearer regulatory frameworks like the “Genius Act” and the evolving “Clarity Act,” paving the way for massive institutional entry. Crucially, certain applications—such as prediction markets (e.g., Polymarket, where many users are oblivious to the underlying crypto tech) and stablecoins (offering incredibly cheap cross-border payments)—have already broken through the industry’s echo chamber into mainstream adoption, showing robust, unilateral growth even during the bear market. Larsen attributed much of the prevailing distraction and pessimism to the overwhelming attention garnered by AI over the past year, particularly the explosion of coding agents and open-source models.
Crypto’s S-Curve: A Broadband Moment for Digital Assets
Drawing parallels to the internet’s evolution, Larsen elaborated on crypto’s “S-curve” of adoption. He likened crypto’s current phase to the internet’s 2003-2004 era, following its “broadband transition.” Just as the internet spent its first decade exploring before widespread broadband adoption (2000-2005) enabled new possibilities, crypto has recently undergone its own “broadband transition” with blockspace becoming incredibly cheap and abundant. Solana’s emergence in 2020 showcased high-performance scaling, and by 2024, Layer 2 solutions have become widely adopted, with Ethereum itself making strides in scalability—a new industry norm.
The internet didn’t immediately explode after broadband; it required the mobile revolution (2006-2010) to truly bend the S-curve upwards. With Ethereum’s birth in 2015 as a “starting point,” crypto is only 10-11 years into its journey. Out of 700 million crypto holders, perhaps only 10% are active on-chain, primarily because truly user-friendly, consumer-grade tech stacks (like embedded wallets, social recovery, spending limits, and passwordless logins) have only matured and gained widespread adoption in the last 2-3 years. Larsen concluded that crypto is currently in the “flat bottom of the S-curve” – post-broadband but pre-mobile explosion. The inflection point will arrive once edge applications like stablecoins and prediction markets achieve deeper market penetration.
The Psychological “Growing Pains” of Crypto’s Mainstream Ascent
The host probed further into the OGs’ pessimism, suggesting it might stem from youthful impatience in 2021. Spencer Bogart framed this as psychological “growing pains.” He drew an analogy to early startup employees who, having enjoyed the “rebellious pirate” phase, struggle to accept the company’s transformation into a compliant, large entity for success. It’s akin to an indie music fan disliking a band once it gains mainstream popularity.
Larsen concurred, noting the shift in industry conferences from “Cypherpunk” discussions to conversations dominated by “suits” discussing permissioned rails, compliance, and access. He emphasized that finance is inherently a highly regulated sector, and significant growth is impossible without adhering to established rules. However, he reassured that the core appeal of Ethereum and Bitcoin’s decentralization and neutrality remains incredibly powerful for institutions, offering superior trust assumptions. The Cypherpunk dream, he argued, is not dead but merely operating in a more subtle, scaled form as the underlying network for the global financial system. The industry is upgrading the pipes of global finance, and while it might not sound as “sexy” as early visions, the resulting efficiency gains will ultimately benefit everyone.
The Shifting Landscape: From “Fat Protocols” to “Fat Applications”
A significant observation highlighted by Spencer Bogart was the unprecedented entry of traditional institutions into crypto during a price downturn, devoid of speculative market narratives. This, coupled with the industry’s apparent move in 2025-2026 beyond the “investing in infrastructure for infrastructure’s sake” cycle, signals a profound industry evolution.
Bogart recalled the high friction costs (dollars, sometimes tens of dollars) of interacting with Uniswap in 2019, when blockspace scarcity was the biggest bottleneck. This led to a market frenzy over-investing in infrastructure, resulting in today’s oversupply and underutilized blockspace. However, abundant and cheap blockspace is an absolute prerequisite for application developers. Data vividly illustrates this shift: in 2021, over 70% of user fees accrued to the infrastructure layer. By 2025, for the first time, the application layer’s total fees surpassed the infrastructure layer. This signifies a crucial value transfer to the upper echelons of the protocol stack as transaction costs plummet. A healthy ecosystem, Bogart asserted, should not allow the underlying communication infrastructure to extract monopolistic rents, a traditional banking model that crypto aims to disrupt.
Aleks Larsen affirmed this as the “fat application theory” replacing the earlier “fat protocol theory.” He argued that underlying protocols should not capture excessive profits, as blockchain’s essence lies in reducing intermediary fees and enhancing efficiency. The more advanced logic, he suggested, is “thin protocols, big market”: even with extremely low fees, expanding the underlying global financial market by an order of magnitude will still capture an enormous absolute total value.
Crypto and AI: Parallel Journeys, Divergent Market Dynamics
The discussion then pivoted to drawing parallels between the investment and evolution patterns of AI and crypto. Larsen pointed out striking similarities: both industries have seen teams raise billions on whitepapers (crypto) or research visions and star teams (AI labs). Crypto uses TPS and benchmarks, while AI relies on various model benchmarks. Crypto achieves distribution through exchange listings and liquidity, while AI leverages hyperscale cloud providers.
However, a critical difference exists. Crypto token prices offer a fully public and transparent “sentiment thermometer”; a narrative collapse can lead to a 90% price crash in a month. In contrast, AI’s bubbles and downside pressures are currently masked within private capital markets. While AI might not experience crypto-like direct crashes, it could manifest as down rounds and talent drain.
AI’s Application Layer: Harnessing Intelligence and Building Moats
Spencer Bogart unequivocally predicted an explosion in AI’s application layer, echoing Palantir Technologies CEO Alexander Karp’s assertion that models and intelligence alone don’t yield desired enterprise outcomes; human intervention is needed to translate intelligence into practical workflows and outputs. He found it amusing that AI VCs are suddenly grappling with the fear of “software having no moat,” a reality crypto VCs have navigated daily for a decade in a world of fully open-source, forkable code.
Aleks Larsen elaborated, stating that general model weights will increasingly commoditize, but the “harness” – how intelligence is applied to solve specific problems – will not. He foresees deep moats being built in complex, high-stakes domains (e.g., semiconductor manufacturing, intricate tax audits) by leveraging advanced models, fine-tuning techniques, proprietary datasets, and closed-loop feedback. These specialized applications will create barriers that general models cannot breach.
Stablecoins: The Blueprint for Real-World Asset Tokenization
Returning to Real-World Asset (RWA) tokenization, the conversation highlighted stablecoins as the first and most successful RWA. Spencer Bogart revealed that Blockchain Capital was the only VC firm to invest in all three major stablecoin issuers (Tether, Circle, Paxos) a decade ago. With the current stablecoin market capitalization around $300 billion, Bogart expressed high confidence (over 90%) that this figure will skyrocket to trillions (potentially two trillion) by 2030. While initially retail-driven, stablecoins are now propelled by institutional adoption, drawing traditional stocks, money market funds, and treasuries onto the blockchain. The inherent capital efficiency of a 24/7, programmable underlying network is simply too compelling.
Bogart emphasized that stablecoins are far more than just “payment products”; they are incredibly sticky. Once U.S. dollars enter the chain, the vast majority of funds remain, serving as operational capital for on-chain ecosystems like lending and exchanges, thereby fostering immense economic activity. Blockchain Capital’s precise calculations indicate that every $1 billion in net new stablecoin issuance generates approximately $122 billion in on-chain economic activity within a year, directly delivering about $19 million in recurring protocol revenue to downstream protocols.
The Future of Finance: Tokenized Equities and Seamless Composability
Beyond stablecoins, the highly anticipated “stock tokenization” is expected to unfold in two waves. The first is “access,” driven by a strong global demand (especially from non-U.S. investors) for convenient, frictionless, one-click trading of U.S. equities. The second wave is “composability.” Once tokenized Apple stock is on-chain, countless lending services and securities lending protocols can openly compete to offer the best collateral rates and yields, representing the ultimate realization of capital efficiency.
Currently, two main competitive approaches exist. One is the X-Stocks model, exemplified by Backed (acquired by Kraken), which issues debt instruments through a Cayman SPV anchored to stocks. While permissionless, KYC-free, and freely transferable within DeFi, its critical drawback is that investors own SPV debt, not actual shares of companies like Apple. This credit and legal risk is unacceptable for large institutions managing tens of billions. The alternative involves compliant channels for direct stock ownership, which necessitates compromises on permissionless access.
Coexistence, Not Compromise: Bridging TradFi and Decentralized Finance
Addressing the potential clash between traditional finance’s “suits” and crypto’s “pirates,” Spencer Bogart argued against forced fusion. Instead, he proposed a “sidecar model” where trillions in traditional stocks can operate on public mainnet blockchains. These assets, though subject to regulatory fences, would exist alongside pure, permissionless DeFi liquidity pools. This approach would significantly accelerate liquidity for pure Cypherpunk systems, as vast sums held in tokenized stocks could be instantly converted into ETH and deployed in fully decentralized, permissionless scenarios.
(The above content is an authorized excerpt and reprint from our partner PANews. Original Link )
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