From Vanity to Value: The Next Era of Onchain Revenue | Johannes Säuberlich - 1kx

Hello Denver. Thanks for having me. What I want to do in the next 15 minutes is challenge a narrative that I think is still too common in crypto. It feeds our vanity metrics, a spike in bull and disappear the bear and that the only thing that really matters is token price. However, data tells quite a different story and I think it has a lot of real implications for how we think about protocol value, our undirect investments and where next generation of winners is going to come from.

Um, we have been deep in the data for a couple of months at 1KX uh looking into onchain revenue. onchain revenue of course excluding the bank fees of the big stable guys and couple of things that we found were generally surprising and some of them I'm going to say might be a bit controversial for you guys especially for the EC card and any other day revenue is a feature of a buck so let's dive in let's start the big picture and I want to spend a moment here because I think this chart actually generally shows one of the most important things you can look at to understand how where we're currently at in crypto. Like when you think about back in 21 and I think there are a couple of uh 21 boomers around right now um 9.3 billion in um single in a single quarter felt like a whole whole lot of different world prices were going vertical and narrative was that crypto had finally arrived and then it didn't price crashed but disappeared rece if you think about it. Um, and if you look at the chart, these 9.

3 billion in one single quarter is mainly from one source and that's Eve. Peak NFT mania people spending couple of K to win funny NFT. Then of course the collapse and now again second peak which is much more I would say mature or diversified this peak of the current ball is among 1.2K 2K protocols. When we're speaking about the uh 21 peaks, we're speaking about just shy of a couple of hundred protocols.

And you might think the amount of um protocols that are generating revenue uh maybe cumulative chart, but it isn't. Now, I want to look at the uh concentration story because I think it's actually a bit underappreciated as a data point. I think Because if you think about it in 2020, the top 10 protocols captured around 95% of all revenue again 95%. And then an entire fee economy of crypto is essentially just these 10 protocols, unis swap, compound, e, and so on. And the rest was kind of noise.

And now if you skip ahead to 25, that number has fallen to 45.3 percentage points. So roughly half there's a dramatic start and structural democratization of fees uh is happening in real time. It has enormous implications for how we think about the opportunity set in the market. Now 45% is still high.

I'm not going to pretend the market is perfectly competitive but the direction of travel matters is enormous. went from near total monopoly to a genuinely contested market in the span of five years. While the absolute size of the fee economy grew significantly at the same time, the incumbent didn't get smaller. The market got bigger around them fast enough that the sheare fell. So TLDDR and AVI or unis swap didn't become any smaller in terms of fee generation.

So, so the competitive dynamic here um looks more like a mature fintech if you think about it. There's no real um winner takes at all platform demand like like in web 2. Like if you think about it, Google didn't take over the whole search market. So where does all that maturation actually leave us in absolute terms? If you look at the numbers, total onchain fees hit 19.

6 billion in 25. It's kind of striking figure on its own. Nearly 20 billion paid by real users for real onchain fees, onchain services in a single year. For context, that's more than 10 times what the entire onchain economy generated in 2020. So basically in the span of five years the whole onchain economy in terms of revenue in terms of feed generation um more than uh 5xed.

Um however if you still compare it to the year of 21 we are lacking behind and uh the 20 25 ball has been much less prosperous in term of fee or revenue generation than the ball of 21. And there's one main cause of this and the main cause of this is ETH. So to understand why this mix is so automatical, you need to understand what happened to blockchain fees. And I think it's a very hotly debated uh thing in the community right now. Basically, they collapsed from 7.

3 billion in 21 to 1.3 billion in H25. It's six billion annual revenue decline at the infrastructure layer. And it wasn't like really a demand problem because in the same time transaction count volume on ETH alone 2.7xed.

It's more of a deliberate efficiency story. L2s updates better sequences, alternative L1s with better base fees, better economics, uh, and the infrastructure dramatically and intentionally cheaper. Ethereum now represents just 15% of the blockchain fees down from 86% in H21 and down massively in absolute terms. The remaining fees are spread across Tron Solana MV capture couple L2s and pretty long toll of other chains. And now here's a kind of hot take and now this will get quite some reaction here because Eve as a fee capture asset is probably structurally impaired.

The road map that was supposed to make Eve more valuable scaling real rollups scaling TPS etc is the exact mechanism to destroy the fume's uh fee revenue its economical revenue capture rate. Transaction fees paid to the base layer dropped nearly 95%. And updates made it dramatically cheaper for L2s to post data. Each scaling upgrade is kind of deliberate transfer of value from the base layer to the application layer which I know is in the plans of being a bit in the debate right now. But still it's not really a criticism of the Eve tech or like more like the issue is that the tech is working exactly as it's designed to to work there.

It's a serious question about uh what the if token model actually looks like in a real world where the chain succeeds at its own road map. So with blockchains losing share there are of course other application layers that are gaining quite some traction. And D5 is a clear winner here. Fees grew from 4.8 billion in H221 uh to 6.

9 billion in H25. And remember average transaction costs fell 86% over the same period. So DeFi is generating more aggregate rever transaction cost basically volume doing its work. Um, and if you think about it, each sub sector that's around in was around in DeFi in 21 is still around in 25 and became bigger in absolute terms. Plus, we managed to add up a couple of other ones.

And if you're zooming out in the monthly data, something kind of interesting happens. It's we we're seeing like two very big spikes in the year 25 where you're having a January 25 peak um Solana hype and the later one this year where it's a bit more uh bit more generalized and not just on soul and if you look at that the um just kind of collapsed fee revenue of um D5 protocols hit around 800 million USD in December, which is kind of interesting because that's just shy about uh the top peaks of the 21 fee generation mechanism. So if you think about it, even though um D5 fees kind of collapsed due to the market changes, we're still well ahead or of 21 and actual actually the 21 peaks are more like the 25 bottom. Now I want to look a bit more on the supply side of this market because I think there's some unappreciated growth in the entire crypto system and it's kind of interesting tracking here um protocols well how to say new protocols that are generating uh fees or revenue in the same year they launched and 25 actually was bigger in this terms with 63 new protocol gener protocols that generating revenue And basically it's fair to say like a vast majority of the protocols they won't survive. However, you can think about it a bit like as a camping explosion meaning that tons of new protocols are entering the market and they are entering the market in a way where they're able to generate real revenue, real fees fairly quickly.

And also a good stand out here is as a sector would be deepen which actually is the biggest um sector of um new protocols still generating fee in last in the last year. Now natural question will follow some like okay couple hundred new protocols entering the market what does it do to incumbent uh market share and that's kind of interesting because 24 25 combined has a good 44% market share right now around revenue and fee generation and what's interesting still though is that the category or like that the protocols that basically incumbents like the OGs, Uni, RV, etc. are still the biggest um what do you say vintage of protocols generating fees which is kind of interesting and now looking a bit on deepen itself because I think it deserves its own moment on this presentation kind of as it's one of the most interesting sectors right now in crypto in terms of feed generation and you might think here and you look at this chart okay looks like a meme but Actually, it's kind of interesting as uh in Q425 um deepen protocols made 75 uh 47 sorry 74 million dollars in revenue kind of double of what they made in the last year which is was 40 million on its own number looks kind of small relatively to D5 figures or other subsectors in the crypto space been we've been discussing but I want to make the case because um that's a pretty good frame here actually. Um so yeah kind of everything we discussed so far maturation feebase D5 structural growth have new wave of protocols emerging deep having a good time I want to lay your eyes on something else the like so-called TVD uh meta so total by distributed basically TLDDR there's a real opportunity now for token holders to actually make money by having a token or not just having it by vanity And actually we having a record right now with uh 3.8 billion in fees distributed to token holders in H225 kind of double of H221 with around two billion.

And um what that means for how you think about token valuation is kind of significant. For most of the crypto's history, tokens or token prices were driven almost entirely by narrative momentum speculation about f future potential. Uh but if you think about a cash flow based valuation frameworks that work in kind of threadfi had no purchase in cryp like purpose in crypto because there were no cash flows to discount for this has just changed and let me close the protocol level view. As I mentioned before, the share of um or like the fee share of protocols in the top 10 are right now record lows. Same goes for the top 20.

However, they're still generating 60% of all onchain fees. Q3 major leads at 1.25 billion Jupiter 1 billion hyper liquid also roughly 1 billion etc. Fifi I guess you can look at the chart as for the sake of time I just want to point out one thing and that's kind of interesting as we were talking also about um transaction cost optimization around Ethereum is if you take a close look at the top 20 protocols that actually making money you won't find too many that are ebased which is kind of foot for but in the end application wars are just beginning and um if you think about it, hyper liquid is actually clear signal of where it's heading. So let me close with that.

Everything I've covered you can find under this QR code. We published a very extensive um revenue report. You also find all sources and whole base code basically for all of these 1.3 billion uh tokens. So yeah, thank you so much