Fat apps and fat protocols. Where is the value going?

Crypto’s value stack is shifting. Fat apps are capturing more users, revenue, and attention — challenging the dominance of fat protocols. The next cycle will be shaped by how apps and infrastructure converge, compete, and evolve.

For much of crypto’s early years, the prevailing wisdom was simple: build the base, and the value will follow. Protocols were the gravitational center of the ecosystem.

Ethereum wasn’t just the substrate — it was the main event. The same was true for Bitcoin, Solana, and the flurry of new L1s that promised scale, sovereignty, or speed.

This was the fat protocol thesis. Apps, by contrast, were assumed to be thin — easily forkable, dependent on user interface or UX gimmicks, interchangeable atop the protocol stack.

But the center is shifting.

The L1 versus app layer debate is rising to the surface because of the flurry of new L1 building.

What we’re seeing now is a resurgence of the fat app thesis. Capital, attention, and real usage are consolidating at the application layer. Uniswap. Friend.tech. Fantasy sports protocols. NFT marketplaces like Blur. Prediction markets like Polymarket. Even Base, though technically a Layer 2, is positioning itself as an app layer ecosystem with infrastructure that serves the apps, not the other way around.

This movement isn’t just rhetorical. It matters because where developers build, where investors deploy capital, and where users spend time sets the direction for the next cycle.

And more importantly, it challenges some of the foundational assumptions that have shaped crypto’s mental models for nearly a decade.

While the app versus protocol layer debate can feel old school, it informs the current shifts in the crypto landscape.

The fat protocol thesis: history and its limits

Joel Monegro’s 2016 essay, Fat Protocols, was the spark. It argued that unlike the Web2 era—where protocols like HTTP or TCP/IP created little value capture while apps like Facebook and Google absorbed most of it — crypto flipped the script. Because protocols had native tokens, they could monetize usage directly, accruing value as more apps and users onboarded.

This thesis held strong through several cycles. Ethereum’s meteoric rise was fueled not by a single killer app, but by the sum of all activity atop it. ETH became both the gas that powered the machine and the collateral that bootstrapped a thousand financial experiments. Solana echoed the same pattern with faster throughput and an aggressive ecosystem push. Investors treated L1 tokens like index bets on entire economic layers.

But cracks have started to appear.

Rollups and modular architectures are fragmenting the value that once consolidated at the base. As execution migrates off-chain, fee capture declines. Optimistic and ZK rollups route around the L1, paying minimal rent. Meanwhile, scalability improvements reduce the economic pressure that once enforced scarcity — and with it, value.

Even narratives are shifting. Infrastructure is no longer viewed as a growth engine, but as a utility. Investors increasingly treat L1s like roads or power grids — necessary, but commodified. The gravitational pull is no longer centered purely at the base.

A throwback to an OG post that I wrote about the Fat Protocol Thesis in 2017.

The rise of fat apps

So where is the value flowing now?

It’s flowing into applications that behave like businesses.

Uniswap collects hundreds of millions in annual fees. Polymarket has grown into one of the most active prediction markets in the world, routinely processing daily volumes that rival L1 fee revenues. Blur, Magic Eden, and others have carved out niche marketplaces with active users and defensible network effects.

Even Friend.tech, despite its volatility, showed the market how much engagement and revenue a well-designed app can generate independent of protocol fees.

This shift isn’t just anecdotal — it’s visible in venture flows and token design. More capital is chasing app-layer tokens with sustainable fee models. The value proposition is no longer “buy this token because it secures a chain,” but “buy this token because it participates in a real business.”

The metaphor is changing too. ETH is no longer “the internet” — apps are the internet companies. They monetize user behavior. They build brands. They compete like businesses. And increasingly, they own their own infra.

A more recent take on the L1 versus L2 value layers.

Don’t count out the layer 1s

Still, protocols aren’t going quietly.

The recent wave of L1 launches and relaunches tells a different story. Aptos and Sui are pushing new performance ceilings. Monad promises EVM compatibility with Solana-like throughput. Berachain brings native MEV design into the consensus layer. And Avalanche just raised close to $1 billion to expand its ecosystem and fund new growth.

Why? Because infrastructure is still the easiest place to raise capital. New L1s can mint tokens, sell them directly, and bootstrap an ecosystem with war chests that apps rarely have access to.

But there’s more to it. Institutional interest in tokenized assets — coming from Nasdaq, BlackRock, and others — often demands performance, compliance, and control. These clients don’t want to deploy on a fragmented L2 landscape with questionable security assumptions. They want purpose-built chains with guarantees.

There’s also the question of developer gravity. New L1s offer clean slates, financial incentives, and narrative leverage. For ambitious teams, building at the base still offers unparalleled architectural freedom.

So while fat apps are thriving, the L1 resurgence is real.

Where the lines blur

This brings us to the real battleground: the space between.

Apps are launching their own rollups. Protocols are positioning themselves as app platforms. Base is both a rollup and an ecosystem. Avalanche enables app-chains via subnets. Cosmos has been doing this for years with the SDK.

In this hybrid world, the boundaries between app and protocol are no longer clean. They merge, fork, loop back. Value can accrue at either layer—or both.

The core question becomes: where are the sustainable moats?

The fat app thesis argues it's user engagement and monetization. If you own the interface, the audience, and the behavior — you can control the margins. The fat protocol thesis argues that scale, settlement, and compliance are the real bottlenecks. If you own the rails, apps are just passengers.

Alt season as signal

The market itself is expressing this tension.

This cycle’s alt season hasn’t been purely app-driven or infra-driven. It’s been both. Memecoins, arguably the purest form of fat apps, have seen explosive runs. But so have new L1 tokens, sometimes even before their ecosystems have launched. Speculation is flowing in both directions.

Meanwhile, capital has poured into narratives at both ends of the stack. This suggests a market grappling with multiple models of value creation — not one consensus framework.

Memecoins, in particular, are worth watching. They are fat apps with no pretensions. They have no infra play, no platform thesis, instead they just rely on raw user engagement and token velocity. In a way, they’re test cases for the ultimate fat app: attention converted into value with no intermediaries.

Open Money and the dual-track future

So what does this mean in the context of Open Money?

We’ve long argued that crypto is not just a new asset class or a novel technology stack — it’s a reorganization of how value, trust, and capital formation occur on the internet.

In that light, the fat app vs. fat protocol debate is more than a cycle narrative. It’s a deeper question about how open systems evolve. Do we build base layers that commoditize trust and let the market sort the rest? Or do we build applications that become markets—owning the distribution, the incentives, and the interfaces?

Open Money isn’t a bet on one or the other. It’s a recognition that both models are converging. Infrastructure is becoming more application-aware. Applications are becoming more infrastructure-native. The separation between protocol and app is collapsing, just as the separation between product and market collapsed in Web2.

The crypto stack is growing sideways, not just vertically.

New L1s are still needed. They give us performance, experimentation, and capital coordination. Fat apps are needed too. They give us users, behavior, and revenue. And increasingly, each builds on top of (or inside) the other.

This is the dual-track future. Protocols evolve into platforms. Apps evolve into economies. The pendulum doesn’t stop swinging. It just traces a wider arc each time.

As builders and investors, the task isn’t to pick one side. It’s to see the interplay. The richest opportunities will come from navigating the overlap: where app-chain meets protocol, where engagement meets infrastructure, where business models meet consensus.

Crypto has always been about composability. That includes ideas.

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