‘Fat App’ Thesis Gains Traction as Crypto Investment Narrative Shifts

Emerging ‘Fat App’ Thesis Challenges Traditional Crypto Value Models

A new investment narrative in the cryptocurrency space is gaining momentum, suggesting that the bulk of value in digital assets will reside within applications rather than the underlying blockchain protocols. Matt Hougan, Chief Information Officer at Bitwise Asset Management, has publicly endorsed this ‘fat app’ thesis, forecasting it could become a leading theme in crypto markets over the coming months.

In a recent post on X (formerly Twitter), Hougan stated, “All the cool kids are talking about the ‘fat app’ thesis. Feels like that could be a dominant theme in the coming months.” He further noted that this perspective might soon enter mainstream media discussions, emphasizing its potential to influence how investors interpret crypto developments.

Contrasting the ‘Fat Protocol’ and ‘Fat App’ Perspectives

The ‘fat app’ thesis stands in contrast to the well-known ‘fat protocol’ theory introduced by Joel Monegro in 2016. The original thesis argued that the majority of value in crypto ecosystems accrues to base layer blockchains like Ethereum, Solana, or Avalanche. In contrast, the ‘fat app’ thesis asserts that applications built atop these blockchains will increasingly dominate value capture, drawing more revenue and user engagement than the protocols themselves.

This shift in value concentration could significantly affect how investors assess the relative worth of layer-1 tokens compared to application-level tokens.

Industry Voices Debate the Thesis’ Validity and Implications

The fat protocol thesis has faced criticism over the years. Jeff Dorman, Chief Investment Officer at digital asset investment firm, argued in a 2021 report that the thesis lacks conclusive proof and may be influenced by factors unrelated to intrinsic value, such as retail investor behaviors and venture capital preferences. He remarked in February that the fat protocol thesis has “done major damage to crypto,” suggesting it incentivizes unnecessary competition among blockchains and inflates valuations of underperforming layer-1 projects.

Conversely, institutional investment firm Starkiller Capital recently identified early market signals supporting the fat app narrative. Their analysis points to the relative underperformance of major blockchain tokens against Bitcoin over the past year, while application tokens have delivered more robust returns. For example, the SOL/BTC trading pair has declined over 16% in the last 12 months, illustrating this trend.

Bitwise’s Balanced View on Layer-1 and Application Value

Despite acknowledging the fat app thesis, Matt Hougan cautions against dismissing the role of leading layer-1 blockchains. He believes that major blockchains remain well-positioned for growth in the next year. Hougan highlights Hyperliquid (HYPE) as a prime example of an application-level token thriving due to genuine user engagement and transactional activity rather than mere blockchain space consumption.

Hyperliquid’s price has surged approximately 1,636% over the past twelve months, reflecting strong application-driven demand. Hougan’s nuanced stance suggests a coexistence where both layer-1 protocols and applications capture value, albeit with shifting dynamics favoring the latter.

Looking Ahead

The evolving fat app thesis could reshape investor strategies and valuation frameworks within the crypto sector. As this narrative gains traction, market participants will closely monitor token performance across layer-1 blockchains and their associated applications to gauge where value ultimately consolidates.