Where Might Value Accrue in the Crypto Market?

Cryptocurrencies such as bitcoin and ether have gone mainstream with the launch of spot exchange-traded products (ETPs). Given this accessibility, it is important for investors to understand how to fundamentally evaluate different cryptocurrency protocols. In the following report we define three crypto sectors and present a framework for evaluating crypto protocols. We also quantify where value has historically accrued in the crypto market. Understanding these dynamics can help investors make informed decisions around investing in cryptocurrency protocols but note that nothing mentioned in this article is intended as a recommendation about any particular cryptocurrency or company.

Understanding the different sectors of the crypto market is an important first step before quantifying where value may accrue. While there is no uniform definition for crypto sectors, we define them as foundational networks, infrastructure and products. These sectors capture nearly 99% of the crypto market capitalization and include layer-1 blockchains, scaling solutions, exchanges, asset management products, oracles, bridges, interoperability protocols, prediction markets, lending, liquid staking, stablecoins and general infrastructure, which we discuss at greater length below.

Before we get started, just a reminder that Bitcoin, Ethereum and all other cryptocurrencies are relatively new and due to their novel and unproven nature, reliable methods for estimating performance may not be available. The regulatory landscape for crypto is still evolving. Cryptocurrencies may be subject to potential encryption breaking, illiquidity and increased risk of loss. Theft, scams and fraud have been a factor to deal with, and if you decide to invest in crypto directly remember that there may not be an effective way to recover assets if they're stolen or lost.

Investing in cryptocurrencies involves risk, including the risk of total loss of principal invested.
Cryptocurrencies [such as bitcoin and ethereum] are highly volatile, are not backed or guaranteed by any central bank or government; are not deposits; are not FDIC insured; are not SIPC protected; and lack many of the regulations and consumer protections that legal-tender currencies and regulated securities have. Due to the high level of risk, investors should view digital currencies as a purely speculative instrument. Cryptocurrency-related products carry a substantial level of risk and are not suitable for all investors. Investments in cryptocurrencies are relatively new, highly speculative, and may be subject to extreme price volatility, illiquidity, and increased risk of loss, including your entire investment in the fund.   Spot markets on which cryptocurrencies trade are relatively new and largely unregulated, and therefore, may be more exposed to fraud and security breaches than established, regulated exchanges for other financial assets or instruments. Some cryptocurrency-related products use futures contracts to attempt to duplicate the performance of an investment in cryptocurrency, which may result in unpredictable pricing, higher transaction costs, and performance that fails to track the price of the reference cryptocurrency as intended. Additional risks apply.

That said, let's discuss the three major sectors of the crypto market:

Foundational networks: Layer-1 blockchains—distributed ledgers that record encrypted transactions—represent the largest part of the crypto market. This area of the market includes blockchain protocols (standardized rules that determine how data can be transmitted or processed between different users and devices on a network). The crypto market has a $3.169 trillion market cap as of December 31st, 2025, and the largest layer-1 blockchains's native cryptocurrencies make up 78% of the total crypto market cap. This sector can be further broken down into two industries: store-of-value ecosystems, reflecting assets whose value is expected to be stable or increase over time; and smart-contract platforms, which enable programmable contracts that run on a blockchain network. From a risk perspective, store of value networks risk that users stop seeing value in their underlying cryptocurrencies, in addition to broad crypto risks relating to encryption, hacking and theft. Smart contract platforms have competition risk. As the digital asset ecosystem matures and clear winners emerge, this could have large impacts to "losing" smart contract platforms. Beyond simply falling cryptocurrency prices, if validators were to abandon a smart-contract protocol, funds could be permanently stuck.

Infrastructure: This area of the crypto market serves as the middleware between products and foundational networks. Middleware software allows different types of applications to communicate with each other. We can further break this sector down into three industries: general infrastructure, cross-chain solutions and scaling protocols. Within these industries are critically important tools that provide features such as oracles, bridges, interoperability and scaling solutions. The biggest risk with infrastructure protocols is due to low switching costs, new competitors can continuously be launched, reducing the value of the incumbents.

Products: These are protocols that users directly interact with. Within this sector there are three industries, which include exchanges, liquidity solutions and investing tools. Different types of products that fall under these industries include lending (cryptocurrency protocols that allow users to pledge their assets for crypto-native loans), liquid staking (a method of staking, or pledging, cryptocurrency to earn staking rewards, while retaining the liquidity of non-staked assets), asset management tools (products that invest assets according to predefined investment strategies based on underlying smart contracts), prediction markets, stablecoins (a type of digital asset designed to maintain a stable value) and exchanges. Products face competition risk. As new entrants emerge, existing products could be deemed obsolete. If the teams that manage these protocols move on or stop running the products, users could lose access to funds deposited in these products.

Before evaluating individual cryptocurrencies, it is important to understand how they interact with each other within the broader ecosystem. This stage of the research process in fundamental investing is referred to as industry analysis.

For a fundamental framework, we can look at the software industry as an example. Value has accrued in companies that provide cloud computing networks, such as Microsoft Azure, Amazon Web Services and Google Cloud Partners. On the other end of the spectrum, value has also accrued in Software-as-a-Service (SaaS) companies, which have direct interactions with the end users. Direct interaction with end users creates sticky relationships. SaaS products are often vertically integrated, allowing new features to be launched in existing interfaces.

The infrastructure software companies that operate between the cloud platforms and SaaS companies are vital, but do not own the customer relationships and have lower switching costs. As a result, these companies get squeezed on both ends. They have less pricing power and low switching costs.

To quantify these industry dynamics, we looked at more than 300 of the top cryptocurrencies with monthly active users and a market cap greater than $1 million as of December 31st, 2025. Within this sample, there were a similar number of protocols that fell within the product and infrastructure sectors. Compared to infrastructure protocols, nearly twice as many products had market caps greater than $100 million. Foundational networks are where most value has accrued. The majority of these protocols have market caps over $100 million, although they do represent a smaller population of protocols.

Next, we apply a framework that is popular with growth-oriented equities investors. The four pillars of this framework are identifying companies with: network effects, leading market shares, economies of scale and recurring revenue. Network effects measure the value of a network based on usage. As more users join a network, the network becomes more valuable to each new user. This creates a positive feedback loop. We make two adjustments when applying this to cryptocurrencies: Instead of economies of scale we look at scalability of a protocol, and in place of recurring revenue we look for networks with attractive tokenomics (short for token economics). Tokenomics measure metrics such as a cryptocurrency's maximum supply, concentration of ownership, governance rights and ability to earn yield.

Network effects. There are different types of network effects. Most cryptocurrencies have network effects, as this is a common feature of distributed digital networks. For this analysis, we are primarily focused on industry-standard network effects. In addition to the software examples we discussed above, these types of network effects have been common in communications networks. When technology or products become the industry standard, it is very difficult to disrupt them because an ecosystem has been built around them. Examples of this include ethernet cables, social media, streaming services, ridesharing applications and luxury brands.

Leading market share. Leading market share can be measured several ways. For a store-of-value cryptocurrency such as bitcoin, it is best measured by its market capitalization compared to other store-of-value protocols. For smart-contract platforms, the standard measure of market share is total-value locked (TVL). Total value locked is a metric that measures the U.S. dollar value of all crypto assets locked within a protocol's smart contracts. This is a measure of actual use of a platform, as opposed to token holders or market cap. Depending on the core use of a cryptocurrency protocol, the metric for market share leadership may change, so being aware of the different ways to measure this is important. Other metrics may include notional trading value (the total value of a position in a financial security),for exchanges  fees for infrastructure protocols, or monthly active users.

Scalability. The most common measure of scalability for a blockchain is its transactions per second (TPS). The underlying consensus mechanism determines how fast transactions can be processed. A blockchain protocol has three variables and can optimize two at the expense of a third. These three variables include decentralization (how much of a network's control and decision-making are distributed across users instead of a single authority), security and scalability. Some products and infrastructure protocols have their own consensus mechanisms; others rely on the underlying blockchain protocols they are built upon. As a result, scalability for these sectors can be measured using different metrics.

Tokenomics. Tokenomics measures several metrics such as a cryptocurrencies' maximum supply, how new tokens are minted or removed from circulation, distribution among different stakeholders, incentives and governance. Generally, a stable or disinflationary supply, attractive fee structures, ability to earn rewards, nonconcentrated supply, liquid supply and governance rights are seen as positives. A protocol can score well on some measures of tokenomics while also not scoring as well on others, so we use a qualitative approach to rank tokenomics and ultimately assign a rating of "above average," "average" or "below average."

Risks. An important final step of the framework is to understand the risks that are associated to that specific cryptocurrency. Beyond general risks such as the risk of encryption breaking, hacking, fraud or theft, each cryptocurrency has its own risks. Examples could be if the core development team that manages a protocol were to quit, which happened recently to the Z-Cash cryptocurrency. Another example of a risk would be if the market were to doubt the viability of the cryptocurrency due to competitive threats or government pressures. There are lots of risks specific to an individual cryptocurrency, and investors should make sure to be aware of them.

Now that we have established each step of this framework, we can provide an example using the Ethereum blockchain. We reiterate that nothing in this article is a recommendation, and the below is only an example of how to use this framework to evaluate a cryptocurrency.

Leading market share. Ether, the native currency of the Ethereum blockchain, is a utility token.  Ethereum is a smart-contract protocol within the foundational networks sector. Data from Token Terminal (as of 12/31/2025) shows that at nearly $340 billion dollars TVL across its entire ecosystem (including on scaling solutions and applications), Ethereum more than ten times (10x) more market share than the next largest smart-contract platform.

Network effects. Ethereum is the industry-standard smart-contract platform. It was the first smart-contract platform launched, dating back to 2015. When developers want to build a new decentralized application, they want to be on the platform that has the most users. Developers are also more likely to build on platforms they are familiar with. This ultimately creates a positive feedback loop. Given Ethereum's position as the industry standard smart-contract platform, it is fair to say that Ethereum has strong network effects.

Scalability. Ethereum uses proof-of-stake consensus mechanism,a way of ensuring historical accuracy of the blockchain where validators place ether in escrow, and can process 15-30 TPS, which is slow compared to other smart-contract blockchains. This results in a secure and decentralized network at the expense of slower transactions. Lower TPS can result in higher congestion on the network. In these periods, users can pay higher fees to get their transactions recorded in the next block.

Tokenomics. Circulating supply is managed by burning as new ether is minted. Cryptocurrencies cannot be permanently destroyed. To "burn" a cryptocurrency means to send it to an account that can no longer be accessed, which permanently takes the cryptocurrency out of circulation. Holders can stake their positions to earn yield, with roughly 30% of circulating ether staked. Ether ownership is highly concentrated across a small number of addresses. According to data from Glassnode as of Dec. 31, 2025, there are approximately 18,000 addresses that hold at least 1,000 ether out of approximately 163,000,000 active addresses. That means that roughly 75% of circulating supply is held by a small number of addresses. That said, the largest of these are institutional entities such as exchanges and investment firms, which represent many owners.

Ultimately, Ethereum scores well related to its fee structure, staking rewards, and managed circulating supply. Areas where it does not score as well are governance, concentration and liquidity. We would consider this "in line" as the negatives balance out with the positives. Recently Ethereum completed a software update that reduces costs and computation resources for validators and layer-2 scaling networks in an attempt to address the scalability issue.

Risks. Ethereum faces risk from competitors. Over the past few years, other smart-contract platforms have emerged that offer faster transaction speeds. If users were to move to one of these competitor networks, it could have a material impact on both the price of ether and the long-term viability of the Ethereum network. It also could be perceived to have "key-man" risk, as it is a founder led protocol. If the founder, Vitalik Buterin, were to move on, investors could lose confidence in the network.