In the world of finance, startups have long tried to position themselves as “tech firms” in order to attract investors and receive higher valuations. This strategy has proven successful for some time, but traditional institutions have learned the hard way that this approach does not always lead to sustainable growth.
Throughout the 2010s, many corporations attempted to rebrand themselves as technology companies, with banks, payment processors, and retailers calling themselves fintechs or data businesses. However, these companies often failed to achieve the same valuation multiples as true tech firms, as their fundamentals did not align with their narrative.
One notable example of this is WeWork, a real estate company that marketed itself as a tech platform but ultimately collapsed due to its unsustainable business model. In the financial services industry, Goldman Sachs launched its digital platform Marcus in 2016 to compete with consumer fintechs, but it was scaled back in 2023 due to profitability issues.
Other major players in the industry, such as JPMorgan, BBVA, and Wells Fargo, also invested heavily in digital transformation, but few were able to achieve the same level of success as true technology companies. This serves as a reminder that no amount of branding can overcome the limitations of capital-intensive or regulated business models.
Now, the world of cryptocurrency is facing a similar identity crisis. DeFi protocols and real-world asset dApps are both vying for the same “Layer 1 technology premium,” hoping to achieve the same high valuations as Layer 1 networks like Ethereum, Solana, and BNB. This premium is based on a broader market narrative that values infrastructure over applications and platforms over products.
Even when controlling for fundamentals, Layer 1 networks consistently command higher valuations than dApps. This is due to their ability to attract early users through incentives and native token economics, and then expand into developer ecosystems and composable applications. This creates a layered flywheel effect, where infrastructure adoption leads to ecosystem growth, resulting in higher valuations.
This is similar to how equity markets differentiate between platforms and products. Infrastructure companies like AWS, Microsoft Azure, Apple’s App Store, and Meta are valued higher than individual products, as they have the potential for broad native token utility, ecosystem coordination, and long-term extensibility. As fee volume grows, these networks often see even greater increases in market capitalization, as investors price in future potential and network effects.
In conclusion, the “Layer 1 technology premium” is a real phenomenon in the world of cryptocurrency, and it reflects the unique capabilities and potential of these networks. This premium is not just based on current usage, but also on future growth and network effects, making it a valuable metric for investors to consider.
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