The network effect of Crypto Assets is it overestimated... The debate over the assessment centered on the L1 structure intensifies.

Santiago Roel Santos, active in the Crypto Assets investment field, recently pointed out: “Crypto Assets do not actually possess network effects, yet have obtained an overly high valuation as a result.” He analyzes that Metcalfe's law not only fails to support the value of Crypto Assets but instead reveals its bubble.

Santos elaborated in his Substack blog column: “Facebook's service quality will not decline even if it gains 10 million users. However, as the number of users on the blockchain increases, transaction fees will rise and speed will decrease, leading to a deterioration in user experience.” He added: “Even if emerging blockchains improve transaction processing speed, it is merely a reduction in the friction coefficient and will not trigger exponential growth in value.”

In this regard, several experts have raised objections, arguing that Santos's analysis contains a misunderstanding of the underlying technology. Market maker Wintermute's strategist Jasper DeMaere emphasized: “Layer 1 blockchains should not be evaluated using the consumer application logic from the user's perspective; the true network effects of L1 are reflected in the levels of validation nodes, security, and liquidity.”

Heartcore investor Thomas Vanta also explained: “In high-level public chains, even with a surge in usage, transaction fees can still be maintained at negligible levels, which in turn will promote liquidity growth and increase yields.” Keyrock researcher Ben Harvey stated: “While acknowledging the overvaluation phenomenon of Layer 1, not all public chains should receive the same valuation; differential assessments should be made based on protocol scalability and artificial intelligence integration capabilities.”

The value analysis method based on fundamentals has also sparked controversy. Santos calculated using an on-chain user benchmark: if the total market capitalization of Crypto Assets excluding Bitcoin (approximately $1.26 trillion / 185.2 trillion KRW) is divided by the number of users ranging from 40 million to 70 million, the per-user value is approximately 18 to 46 million KRW. In contrast, Meta(Facebook), with 3.1 billion monthly active users, has a per-user value of only 750,000 KRW based on a market capitalization of $1.6 trillion (235.2 trillion KRW).

Santos pointed out that the data indicates that the “single user value” of the Crypto Assets market is significantly overestimated. However, there is a view that such direct comparisons are unfair: Facebook profits through diversified platform collaboration, while most Crypto Assets have yet to establish clear profit models or stable sources of income.

The debate on the essential characteristics of the network effects of Crypto Assets and whether traditional consumer internet company valuation models can be directly applied to blockchain infrastructure is expected to continue to evolve.

The article summary is provided by TokenPost.ai

🔎 Market Interpretation

The debate over whether the valuation of Crypto Assets is overheated stems from differences in the fundamental understanding of whether blockchain is an infrastructure or a consumer-grade application. It is worth noting that the core network effects do not arise from the user layer, but rather from the architecture of the protocol layer.

💡 Strategic Highlights

• Need to reinterpret network effects from a structural perspective.

• Protocol scalability and liquidity yield capability constitute core value elements.

• Actual trading volume, security indicators, and liquidity data are more valuable references than simply the number of users.

📘 Terminology Explanation

• Network effect: The phenomenon whereby value increases with the expansion of the user base.

• Metcalfe's Law: The theory that the value of a network is proportional to the square of the number of connected nodes.

• Layer1: Independent operating blockchain infrastructure protocol layer

• Validator Node: A network node responsible for transaction confirmation and block generation.

TP AI Precautions

This article uses the TokenPost.ai language model for article summarization, which may result in omissions of key content or deviations from the facts.