Analyst: DeFi Applications 'Criminally Undervalued' vs. L1s
Investor Santiago Santos argued there is a “valuation disconnect” in crypto, with Layer-1 blockchains commanding 90% of the market cap while capturing a shrinking share of revenue. He posited that DeFi applications are “criminally undervalued” relative to infrastructure layers. Santos suggested that protocols generating actual fees may outperform in the next market cycle.
- A study by the venture firm Greenfield, analyzing data from 2021 to 2025, found that DeFi market valuations are increasingly influenced by fundamental metrics like fees, revenue, and total value locked (TVL), outperforming models based on broader market trends over three- and six-month periods. This indicates a maturing market where protocol performance is gaining importance over short-term volatility and social sentiment. - In September 2025, DeFi fee revenue saw a significant rebound, increasing by 76% from a low in March to approximately $600 million. This growth is partly attributed to protocols adopting revenue-sharing tokenomics, such as buyback programs, to create more sustainable models and attract institutional investors. - The top five largest DeFi protocols generated a combined $158 million in revenue in December 2024 alone, with four of the five—Ethena, Sky (formerly Maker), Aerodrome, and Aave—achieving all-time highs in monthly revenue. Ethena led the group with $56.9 million in revenue for the month. - Investor Santiago Santos, whose thesis is highlighted in the card, argues that crypto technology can make traditional businesses significantly more efficient, cutting costs by 60-70% compared to the 10% efficiency gains often seen with AI implementation. His private equity firm, Inversion, focuses on acquiring traditional businesses and integrating blockchain technology to improve their operations. - Despite a decline in revenue per user, the total number of monthly active DeFi users reached 22 million in September 2024, more than double the peak of 7.5 million seen in 2021. However, total DeFi sector revenue for 2024 was $419 million, a significant drop from $6.2 billion in 2021. - Some analysts challenge the high valuations of Layer-1 blockchains, suggesting they are priced for network effects they don't actually possess. While L1s are critical for security and settlement, some argue the true network effects in crypto are found at the application layer, such as in stablecoins and exchanges where liquidity and users congregate. - Institutional interest in DeFi is on the rise, with a global survey showing 81% of institutional investors and wealth managers see a growing appeal in DeFi investment opportunities. However, significant hurdles remain, including concerns about liquidity, regulatory clarity, and compliance with KYC/AML procedures. - The tokenization of real-world assets (RWAs) is a growing sector within DeFi, with Boston Consulting Group forecasting it could become a $16 trillion market by 2030. This involves bringing off-chain assets like real estate, bonds, and commodities onto the blockchain, which can increase liquidity and transparency.
