Source: Bankless

整理: Felix, PANews

Blockchain Capital general partners Aleks Larsen and Spencer Bogart recently appeared on the "Bankless" podcast to discuss the inevitable trend of the crypto market transitioning from infrastructure to application layers. Blockchain Capital pointed out that the widespread use of stablecoins has accumulated significant liquidity for on-chain finance, driving revenue growth in lending and trading protocols.

Moreover, by tokenizing stocks and venture capital funds, the capital efficiency of the financial system will see exponential improvement. Although there is a game of compliance between traditional finance and crypto spirit, the reconstruction of the global financial system through tokenization is unstoppable. PANews has summarized the highlights of the dialogue.

Host: Spencer, I remember the first time we exchanged ideas in the industry was in 2018 or 2019 discussing the value capture model of MKR.

Spencer: Yes, at that time we were even considering buying MKR. Now, in 2026, the most modern projects like Hyperliquid, Lighter, and Venice are still adopting the "buyback and burn" model pioneered by MKR. Although there have been countless debates in the past about the inefficiency of this model in capital allocation, it has been "undefeated" in practice.

Aleks: Indeed. I used to be very harsh on this model, believing that at the final stage, when only one token is left, there must be substantial cash flow that can be directly distributed to holders; otherwise, it is difficult to establish a valuation model. But now I think this idea is overly cautious. “Buyback and burn” model is very useful today.

Spencer: That's right. The main reason is that unless the "Clarity Act" is passed, the legal rights of token holders remain very ambiguous. In theory, as investors, if you are a startup, I would certainly hope you reinvest cash flow into new growth opportunities. However, in reality, most crypto protocols have not demonstrated the ability to cross-industry expansion successfully, making many token holders prefer the team to "plant a flag on the beach," clearly stating to the market, "We will buy back and burn forever," which at least eliminates uncertainty.

Additionally, due to the mixed quality of early crypto tokens, serious, high-quality projects must buy back and burn with "real money" from day one to prove their uniqueness to the market. While this may not be a dominant model in 5 years, at this stage, it is the most effective and credible way to bind interests with token holders.

Host: There is now a rhetoric saying that “crypto VC is dead,” that all major funds are expanding their investment scope to cutting-edge technologies like AI and robotics, yet Blockchain Capital chooses to double down during the industry slump. Interestingly, I see two extremes: on one hand, traditional financial institutions are eager to engage with blockchain, while on the other hand, OGs in the crypto circle are very pessimistic. How should we understand this tear?

Aleks: We are used to amplifying the perspective and not overstressing price fluctuations of bull and bear cycles. This "token bear market" is quite special because it coincides with the most positive catalysts ever. We welcomed the “Genius Act” and the gradually clearer “Clarity Act,” rules are being established, and traditional institutions are entering on a large scale.

More importantly, some applications have broken through the information cocoon of the industry, entering mainstream visibility: for instance, prediction markets (projects like Polymarket, where many users don't even care if it's backed by crypto) and stablecoins (which provide extremely cheap dollar cross-border payment and remittance channels). These segments have still achieved strong unidirectional growth even during the bear market. It's just that the attention of the market has been completely drawn away by AI over the past year, especially after the explosion of coding agents and open-source Claude around 7 or 8 months ago, leading many to be distracted when token prices were low.

Host: You often mention the “S-curve.” Can you detail where the crypto industry currently stands on this curve?

Aleks: The trajectory of the crypto industry is highly similar to that of the internet. The internet began commercialization in 1989, and for the first decade, it was exploratory, until 2000 when it had hundreds of millions of users, but it was still extremely hard to use with limited bandwidth. Then, from 2000 to 2005, it experienced a broadband transformation. I believe the crypto industry has just undergone its own "broadband transformation". Block space has become exceedingly cheap and abundant. In 2020, Solana was the first to showcase high performance and a path to scaling, while by 2024, L2 is truly becoming widely adopted, and even Ethereum is gradually achieving scalability, which has become the new norm in the industry.

Looking back at the internet, the transformation did not immediately lead to an explosion, but awaited the mobile explosion from 2006-2010 for the S-curve to turn upward. If the birth of Ethereum in 2015 represents the starting point of the “clock,” we have only developed for 10 to 11 years. Among 700 million crypto holders, possibly only 10% are on-chain active users, as it’s not until the last 2 or 3 years that truly consumer-grade technology stacks (such as embedded wallets, social recovery, spending limits, and passwordless logins) matured and became widespread, without requiring users to be cryptographers.

Therefore, we are currently at the 2003-2004 phase of the internet, which is the “flattened bottom of the S-curve” after broadband adoption and before the mobile explosion. Once stablecoins and prediction markets, among other fringe applications, fully penetrate the center, the S-curve will see an upward inflection point.

Host: Perhaps our generation was too young and impatient in 2021, thinking the world could change overnight, while, in fact, both technology and infrastructure require time to settle. However, this still doesn't completely explain why OGs are so frustrated.

Spencer: This represents a psychological “growth pain.” When a startup reaches the IPO stage, early core employees often reminisce about the rebellious “pirate” moments of startup life and cannot bear to see the company transform into a compliant and huge entity to achieve success. It’s like having a friend who discovered a niche band, but once the band skyrockets to fame and mainstream acceptance, he feels regretful, claiming, “I only liked their early albums.”

Aleks: Yes, now the industry conferences are filled with people in suits discussing permissioned channels, compliance, and access rather than cypherpunk ideals. However, finance is inherently a highly regulated sector; without conforming to regulations, it cannot grow.

However, the decentralization and neutrality of Ethereum and Bitcoin still possess an exceptionally strong underlying appeal for institutions, providing better trust assumptions. The dream of cypherpunks has not perished; it is simply operating in a low-key, more scalable fashion as the underlying network of the financial system. We are genuinely upgrading the pipelines of the global financial system; while this may not sound as “sexy” as in the past, the efficiency improvements will tangibly benefit everyone.

Host: Indeed. Moreover, you previously mentioned a detail: for the first time in history, traditional institutions are actively engaging and laying out crypto assets amidst price declines and without market frenzy narratives. At the same time, in 2025 and 2026, the industry seems to have completely said goodbye to the vicious cycle of “investing in infrastructure for the sake of infrastructure.” What does this represent in terms of industry evolution?

Spencer: In 2019, using Uniswap could cost several dollars or even tens of dollars in friction fees, as the severe shortage of block space was the industry’s biggest bottleneck. This led to excessive investment in infrastructure driven by market frenzy, resulting in today’s severe oversupply of block space, with many blocks left empty. But adequate, cheap block space is an absolute prerequisite for application developers to succeed.

Data shows clearly. In 2021, over 70% of the fees paid by users went to the infrastructure layer. And in 2025, for the first time in history, the total fees of the application layer surpassed the infrastructure layer. This means that as transaction costs plummet, value is finally starting to shift to the upper layers of the protocol stack (application layer). A healthy ecosystem should not allow the underlying communication infrastructure to extract most of the monopoly rents; this is exactly what we are trying to break away from with crypto technology.

Host: So, this is what is referred to as the “fat application theory” replacing the earlier “fat protocol theory”?

Aleks: Exactly, the underlying protocol layer should not capture huge profits because the essence of blockchain is to reduce intermediary cuts and improve efficiency. But its higher-level logic is “thin protocols, big markets”: even if your cut percentage is extremely low, once you expand the underlying market size of global finance by an order of magnitude, the total absolute value captured will still be enormous.

Host: This is very intriguing. If we apply this evolution from “fat protocols to fat applications” to the AI field, does investment and evolution in AI also show similar patterns?

Aleks: The similarities are extremely obvious. In the crypto space, teams can raise valuations in the billions of dollars solely based on a whitepaper, which is parallel to how many startup AI Labs are currently easily securing sky-high valuations with their research visions and impressive teams. In the crypto industry, we look at testnet TPS and benchmarks, while in AI, we look at various model benchmarks. In the crypto domain, exchanges provide liquidity for listing tokens, while in AI, it’s about acquiring distribution channels through huge-scale cloud service providers (hyperscalers).

However, there is a massive difference: the prices of tokens in the crypto realm are completely open and transparent emotional thermometers; once the narrative breaks down, tokens can crash 90% in a month. In the AI field, the bubbles and downward pressures are currently hidden within private capital markets, and they may not experience direct crashes like Crypto; instead, they present as discounted financing (down rounds), talent loss, etc.

Host: Will the application layer of AI also explode like Crypto?

Spencer: Absolutely. Just like Alexander, CEO of software company Palantir Technologies, emphasized, having only models and intellect does not directly yield the results an enterprise desires; someone must delve into the front lines, transforming intellect into actual workflows and outputs.

Interestingly, recently AI VCs suddenly fell into a panic over “software having no moat.” We, as crypto VCs, find this highly amusing because the crypto industry has faced a “completely open-sourced, anyone can fork the code at any time, with no software moat” environment every day for the past decade.

Aleks: General model weights will gradually become commoditized, while the “harnessing” of how to use them to solve practical problems won’t. In those “no mistakes allowed” complex hardcore fields (such as semiconductor manufacturing or complex tax audits), applying cutting-edge models with fine-tuning techniques, alongside enterprise proprietary datasets and closed-loop feedback applications, will establish an incredibly deep moat that general models cannot breach.

Host: Returning to RWA tokenization. As the first-generation most successful RWA, what insights has the development of stablecoins given us?

Spencer: Few people know that Blockchain Capital is the only VC that invested in the three major stablecoin issuers (Tether, Circle, Paxos) a decade ago. Today, the total market cap of stablecoins is about 300 billion USD, and I am almost 90% confident that by 2030 this number will soar to several trillion USD (or even 2 trillion USD). Previously, stablecoins were driven by retail investors as a flywheel, but now each new revolving flywheel is accompanied by institutional momentum, pulling all traditional stocks, money market funds, and government bonds “onto” the chain, as the global 24/7 operating, programmable underlying network has an incredibly high capital efficiency.

The core of stablecoins is certainly not just a “payment product”; it has extremely high stickiness. Once dollars enter the chain, the vast majority of funds will settle down, injecting operational capital into lending, exchanges, and other on-chain ecosystems, generating massive economic activity. We conducted precise quantitative assessments: every 1 billion USD of net new stablecoin issuance will create approximately 122 billion USD of economic activity on-chain within a year. This 1 billion USD will directly provide approximately 19 million USD of recurring protocol revenue to downstream on-chain protocols within a year.

Host: In addition to stablecoins, how will the highly anticipated "stock tokenization" evolve?

Spencer: Stock tokenization has two waves. The first wave is access. There is an extremely strong demand from global investors (especially non-US domestic users) for convenient, frictionless one-click trading of US stocks. The second wave is composability. Once my tokenized Apple stock is on-chain, countless lending providers and securities lending protocols can compete in the open market to offer me the best collateral rates and yields, which is the ultimate manifestation of capital efficiency.

Currently, the market has two main competitive routes. One is represented by Backed (acquired by Kraken) with its X-Stocks model. It issues debt instruments through Cayman SPV to anchor stocks. Its advantage is that it requires no permission, no KYC, and can freely circulate within DeFi. But the fatal flaw is that what you own is the SPV's debt owed to you, not an actual share of Apple Inc. For large institutions with billions in capital, this kind of credit and legal risk is unacceptable. The other is a compliant channel that directly owns stock rights. This requires us to compromise on permissionlessness.

Host: So does this mean that the “suit-wearing big shots” of traditional finance and the “pirates” of the crypto circle will have to compromise one way or another?

Spencer: No need. We don't necessarily have to forcibly merge them. Those trillions of traditional stocks can operate on mainnet public chains in a “sidecar model.” Although they have regulatory fences, they exist alongside purely permissionless DeFi liquidity pools. This will actually greatly accelerate the liquidity of purely cypherpunk systems, because the enormous funds trapped in stock tokens can be converted to ETH with one click and operate in a completely decentralized, permissionless manner.

Related reading: Dialogue with the "King of Liquidity": Global liquidity has peaked and receded, and this cycle will bottom out in the second half of next year

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