While Bitcoin and other crypto assets have started to recover gradually, sentiment across the market remains cautious. Despite positive fundamental signals, activity in the crypto sector, measured by Total Value Locked (TVL), continues to decline, while most major assets remain stuck in sideways trading ranges. Against this bearish backdrop, a question is being raised more often — one many still avoid saying out loud: do Layer-1 tokens such as Ethereum (ETH) and Solana (SOL) really have a bullish future, or are these network tokens already fundamentally overvalued?
The latest wave of debate was triggered by an essay from Dragonfly partner Haseeb Qureshi, who compared Layer-1 blockchains to Amazon in its early years. In opposition, crypto entrepreneur Santiago Santos challenged that analogy in a series of Substack posts. The two perspectives later collided in a live discussion hosted by podcaster threadguy. At the core of the debate is a key question: what realistic returns can investors still expect from ETH, SOL, and other Layer-1 tokens today, and are there now more attractive investment setups elsewhere in the crypto ecosystem?
High multiples as a warning sign
Despite being broadly optimistic about crypto infrastructure, Santos is skeptical about current Layer-1 valuations. He has invested in crypto infrastructure since 2012 and was an early backer of both Ethereum and Solana, yet he argues that fee revenues no longer justify the market capitalizations of these networks.
In his view, there has been a structural shift in how value is distributed across the ecosystem. While Layer-1 networks still account for a large share of overall market capitalization, their share of actual fee generation has declined materially. A growing portion of fees is now being captured by DeFi applications, even though those protocols still represent a much smaller share of the market’s aggregate valuation.
Santos notes that growth in assets held on Ethereum does not automatically translate into higher network revenues. In many cases, only liquidation-related MEV (Maximum Extractable Value) increases alongside Total Value Locked, but that value is increasingly captured by lending protocols, oracles, and other applications rather than by validators.
His conclusion is clear: Ethereum, Solana, and other Layer-1 blockchains remain highly relevant from a technological standpoint, but from an investment perspective they look less compelling at current valuations. He sees greater potential in application-layer protocols that monetize users more directly and can return value more efficiently through mechanisms such as buybacks.
Why infrastructure does not always capture the upside
To support his argument, Santos points to the development of the internet. Core infrastructure enabled a technological revolution, but the greatest economic value was ultimately captured at the application layer — by search engines, social networks, and advertising platforms.
Applied to crypto, this means that even if blockchains succeed as the “internet of value,” it does not automatically follow that Layer-1 tokens will be the best investments. A similar pattern can be seen in traditional finance, where settlement and clearing infrastructure is essential, but the greatest profits tend to accrue to brokers, exchanges, and platforms closer to the end user.
From this perspective, Layer-1 blockchains function primarily as base infrastructure, while applications such as Hyperliquid or Ethena have direct access to users, fees, and lock-in effects, making them potentially more profitable vehicles for investors.
Crypto as an exponential technology
Haseeb Qureshi offers the opposing view. In his opinion, crypto is an exponential technology, comparable to the internet, e-commerce, social media, and artificial intelligence. Technologies like these often appear overvalued for long periods before rapidly reshaping very large markets.
Qureshi also argues that the debate is increasingly shifting away from venture-style thinking toward a more traditional financial lens. While technology investors focus on network effects, scale, and long-term growth trajectories, traditional finance tends to rely on linear valuation metrics such as price-to-sales ratios.
He compares Layer-1 blockchains not to companies, but to cities or even states. Singapore, for example, is not valued solely by its annual tax revenues, but by the total capital, businesses, and assets concentrated there. In the same way, Layer-1 networks may accumulate enormous economic activity that can be monetized more effectively in the future.
The question of the “economic moat”
At the center of the debate is the issue of sustainable competitive advantage. Santos acknowledges that major Layer-1s do benefit from network effects, but points to Linux as an example: open-source technology can dominate without necessarily generating meaningful value for investors.
Qureshi counters with the example of Tron, which supports a significant share of circulating USDT and has deliberately increased fees, becoming one of the most profitable blockchains in the market. In his view, this proves that Layer-1s can convert network power into monetization.
Ethereum, by contrast, is deliberately keeping fees lower in order to prioritize growth. Proposals such as EIP-7918, he argues, may represent early steps toward stronger monetization in the future.
Two narratives, one unresolved outcome
In the end, two competing interpretations have emerged. Skeptics assess Layer-1s mainly through current cash flows and conclude that they are overvalued. Optimists see them as the infrastructure of a future digital economy that can be monetized later and on a much larger scale.
There is agreement on at least one point: the market is still young, and the economic model of Layer-1 networks remains unfinished. As Syncracy Capital co-founder Ryan Watkins put it, debates around L1 valuations are premature because the market still lacks a shared understanding of what Layer-1s actually are from an economic standpoint.
The future valuation of Layer-1 projects will largely depend on whether blockchains can attract durable capital and real-world usage. If they fail to do so, current market capitalizations may prove difficult to justify. Additional pressure is also coming from competition with corporate blockchains such as Stripe-backed Tempo, which are gradually entering the market.
