The number of crypto apps that can attract investors is starting to dwindle as the industry matures, but identifying long-term industry winners could be positive, says crypto services firm NYDIG.
NYDIG Research Manager Greg Cipolaro he said on Friday in a note that the “investable universe” of cryptocurrencies is narrowed to applications or services that “extend traditional financial products onto blockchain infrastructure.”
He specifically cited Bitcoin (BTC), tokenized assets, stablecoins, some decentralized financial infrastructure, and a restricted number of “general-purpose” blockchains such as Ethereum, adding that beyond such exploit cases, “the likelihood of large-scale blockchain applications appears lower than previously assumed.”
Some cryptocurrency executives have embraced blockchain to provide an alternative to almost any offering, but many once-trendy cryptocurrency exploit cases, such as gaming, social networking and the metaverse, have fizzled out compared to their centralized competition.
Cipolaro argued that this is because centralized systems “will always be faster, cheaper and operationally more efficient for the vast majority of enterprise and consumer applications.”
Economically viable applications will be thinner than expected
Cipolaro said that “the space for economically viable applications of blockchain is narrower than early narratives expected,” arguing that only those exploit cases where the benefits of blockchains outweigh its costs will survive.
“The core characteristics of open blockchains of trustlessness, permissionlessness and censorship resistance are uniquely suited to money and money-like (financial) applications,” he added. “Most real-world applications do not require global, permissionless state machines with immutable ledgers.”
Cipolaro said the current market reflects this, as Bitcoin’s dominance has grown as little money has been bet on altcoins due to “limited emergence of new, sustainable narratives.”
“The failure of many non-financial industries to gain momentum suggests capital consolidation towards a smaller set of use cases,” he added. “Instead of an explosion of applications, we are seeing a concentration of capital in a few key categories.”
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Cipolaro said this narrowing of exploit cases could “improve durability and transparency for long-term winners,” particularly in Bitcoin and some financial infrastructure projects.
But it could also reduce the “speculative breadth” of the cryptocurrency market and compress money that would typically flow into alternative assets, he added.
“A more sober market, anchored in monetary and financial utility rather than broad ‘web3’ ambitions, may ultimately strengthen the underlying assets,” Cipolaro said, “but it also means that the total addressable range of cryptocurrencies may be much smaller than originally anticipated.”
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