Disclaimer: This is not financial advice. Anything stated in this article is for informational purposes only and should not be relied upon as a basis for investment decisions. Triton may maintain positions in any of the assets or projects discussed on this website.
TL;DR
Part VII
Bitcoin and Ethereum and Solana, oh my!
Most people have heard of Bitcoin today. Many have perhaps also heard of Ethereum. Those have been the two most prominent blockchain networks over the past decade and as such, are also the largest in terms of market value of their native coins: Bitcoin is valued at ~$2 trillion, Ether at ~$250 billion.
But there are now millions of different cryptocurrencies, all with different characteristics and functionality. This segment will provide a way to better understand the landscape of cryptocurrencies. As we mentioned in an earlier post, many of these are extremely valuable but the vast, vast majority are not. This framework will allow most readers to quickly understand the differences between these and better navigate the landscape by themselves, but we will save actual valuation for a later time.
Let’s start with the blockchains themselves, the networks. These are often called “Layer 1” networks. Collectively, there are a few hundred of these networks and in aggregate represent the vast majority of the market value of all cryptocurrencies (e.g. 90-95%).
Essentially, there are two types of blockchains currently (this line is starting to blur but is still clear enough to use for now). The first type are blockchains designed primarily to enable financial transactions on the network. Bitcoin is the preeminent example of this. The network code and Bitcoin's script are relatively simple and the entire functionality is centered around being able to securely transfer funds between addresses on the network. Its design means it is not all that useful for much else. When one ‘uses’ Bitcoin, they are using the network to send BTC. Networks like this typically primarily have a single coin - BTC in the case of Bitcoin - that is used both as the payment asset and by the network to generate security by incentivizing consensus activity. Beyond Bitcoin, there are others such as Litecoin, Bitcoin Cash and Monero that are simply payment networks. Most are relatively unused, outside of Bitcoin. And for many, Bitcoin is all that is needed.
Quick aside: This distinction will hopefully make clear why BTC remains somewhat unique. It is very simple compared to networks like Ethereum or Solana, but its simplicity allows it to do what it does best without introducing the same risks that the other networks do by virtue of their more complex code: safely store your BTC and allow you to permissionlessly send it to whoever you want, whenever you want.
The second type of blockchain allows for far more expressivity. That is, you can do much, much more with them. If Bitcoin represents the stodgy gold industry, these represent the high-flying tech industry. Beyond enabling basic payment functionality, their designs enable them to support other assets (‘tokens’) in addition to their own native coins while also allowing for native on-chain applications to be built. Ethereum, the preeminent example of these, was invented by Vitalik Buterin in 2013 in order to leverage blockchain technology for globally decentralized computing capabilities, and an early tagline for Ethereum was just that: “The World Computer”. With these blockchains, developers can build decentralized applications that enable far more complex transactions than simple payment transfers. The vast, vast majority of development has been happening on these types of networks and as such, this is where the truly exciting innovation is happening. Beyond Ethereum, Layer 1 networks like Solana, Hyperliquid, Sui and hundreds of others exist.
This added functionality is typically carried out through what are known as ‘smart contracts’ (sometimes called different things on different networks), and the networks that enable them are often referred to as smart contract platforms. This name is admittedly somewhat confusing but tries to convey the gist of what they enable. Essentially, smart contracts are just self-contained snippets of code that exist on these networks that can be referenced in order to carry out a predetermined set of instructions. At their most basic, if a standard network like Bitcoin allows for “Send A to B”, a smart contract can turn that into, “Send A to B, if and when C happens”. This is a super simple example, but by using these contracts as building blocks, developers can build extremely complex applications, such as decentralized derivatives exchanges or lending and borrowing protocols. Remember, the internet just runs off of us all creatively flipping a bunch of bits between 0 and 1 super quickly; these are just an extension of that.
There are competing ideologies of how these more capable chains should be built. Some try to keep all functions together on a single chain in order to maximize interoperability among all applications while reducing latency as much as possible, such as Solana. These are typically referred to as “monolithic” chains. Others prefer to specialize around a few core strengths and build out a plug-and-play network-of-networks to collectively carry out all the necessary functionalities (“modular”), such as Ethereum. Varying approaches across the spectrum can be found between these two extremes. And because all of these are open and permissionless networks, other networks can build on top of any of these and plug into them to access users, capital pools or key functionality that they do not want to build out themselves.
This has led to the rise of what are known as ‘layer 2’ networks. These are usually networks that are laser focused on improving one aspect of what a blockchain does – typically transaction execution – while leaving the rest of what blockchains can do, such as providing security from consensus or ensuring data is always available, to the host ‘layer 1’ chain. For example, while Ethereum allows for highly secure transactions, it is relatively slow (12 seconds) and expensive ($0.50-$5.00), depending on how congested the chain is. Layer 2 networks can improve upon this speed and cost and enable transactions to happen 50x faster (250ms) and for a fraction of the cost ($0.001), all while inheriting the security and network effects of Ethereum itself. There are currently ~150 or so of these networks building on Ethereum alone, with many valued at hundreds of millions or billions of dollars on their own (whether they are worth that is a different question).
This pattern can continue, and now we are seeing ‘layer 3’ networks popping up on these ‘layer 2’ networks that provide even further specialization and customization. Applications can be built on any of these networks – layer 1, layer 2 or layer 3 – depending on what the end use case requires. Blackrock likely wouldn’t put trillions of dollars on a layer 3 network, for example, but a new hyper-casual game would likely prefer the customization, low cost and speed that a layer 3 can provide. Interoperability protocols also have to be built to enable cross-network interactions across all of these (hence our “we are only in 1988” comparison from last post). What you get is a landscape that starts to look like this:
Tokenization and RWAs
What these smart contract platforms enable is where this technology gets incredibly exciting.
One of the biggest unlocks of smart contracts is that they allow representations of other assets to be transacted onchain. So, in addition to the native coin of the network (ETH to Ethereum, SOL to Solana), an infinite number of other assets can be deployed on and sent across these networks as tokens. In industry parlance, we creatively call this ‘tokenization’. Often, these tokens represent value that is held somewhere else offchain, but that is not a requirement.
The flagship example of this is stablecoins. You may recall we briefly highlighted these earlier in our discussions about payment innovation and Starlink satellites. The largest stablecoins, USDC and USDT, use a similar model (issued by companies Circle and Tether, respectively). In the case of USDC, a customer sends Circle $1. In exchange, Circle mints and sends them 1 USDC onchain. That customer is then free to use that USDC in any way they see fit, whether that is sending it to their cousin in South America, using it to buy a picture of a cartoon penguin, or using it as collateral for a perpetuals future trade. In the meantime, Circle deposits that $1 into a money market fund managed by Blackrock, who invests it in US treasuries. At any time, Circle’s customers can redeem that 1 USDC for $1. Currently, there is $60B worth of USDC onchain and an additional $144B of USDT. This model is incredibly valuable. Tether, a company of ~100 employees, made $13 billion profit in 2024 ($6B in Q4 alone), as much as Goldman Sachs, a global bank with 50,000 employees. It is also now one of the largest holders of US treasuries in the world, on par with entire countries like Germany, Mexico and South Korea.
This model can be extended to any asset: stocks, bonds, gold, real estate, watches, wine. Essentially, any asset can be tokenized, and the value of that asset can be sent over these networks and thus benefit from the functionality they provide. The industry refers to assets like this as “Real World Assets” or “RWAs” (an admittedly awful name that ironically seems to discount the onchain-native applications). This tokenization works for more exotic assets as well, such as basis trades. Ethena, one of the top yield instrument projects, allows users to earn 5-15%+ yield by passing through the yield generated from derivatives trading strategies in the form of a holdable token that is pegged to the US dollar, USDe. Other more esoteric examples such as time.fun allow users to tokenize their time, which people are able to freely trade on the market. Holding tokenized time tokens allows one access to those individuals based on the amount of time one owns. In addition to the $230B of stablecoins, there is almost $20B in additional RWAs in the form of private credit, treasury bills and commodities. This amount is skyrocketing, up almost 20% in the last month alone. Tokenized stocks and private equity have yet to occur at scale, largely due to the lack of clarity around securities tokenization in the US, but 2026 will likely be the year when these happen in earnest.
Capabilities like this are why major financial service providers like Blackrock, the $12-trillion-dollar asset manager and largest in the world, Fidelity and Franklin Templeton, are so excited about this technology. They are actively looking at how to put tokenized stocks, bonds and funds onchain – and each of those mentioned offer tokenized funds already. Blackrock expects to tokenize at least $10 trillion of its assets and has already started with a $1.5B tokenized money market fund on Ethereum ($1.7B in total). Anybody can verify the assets held in real time here. For traditional funds, assets held are periodically updated on a website, but we have no way of actually verifying for sure if those funds are there or not. With an onchain fund, we know how much there is and can track every single transaction in and out, down to the cent.
There are two very important disclaimers to make with assets like this. First, there are often conditions around specifically who is allowed to mint/redeem these tokens directly, often limited to just institutional customers, who then themselves act as distribution partners to the general public. Second, these tokens very rarely confer any legal rights whatsoever to the end user; typically, those rights end with that institutional distribution partner. USDC has extensive terms of service that the vast majority of users have likely never read or even know exist, including a strict adherence to Treasury and OFAC sanctions. As such, they have embedded ‘freeze’ functions in their contracts that allow them to stop any address from sending USDC onchain. It is used exceedingly rarely and only when law enforcement or a government agency requires them to, but the functionality exists nonetheless. This is akin to an individual that holds cash – they can benefit from the use of the $10 bill but cannot go knocking on the Fed’s door to make a deposit directly.
What that means is that by using these tokens, you are often taking on some degree of counterparty risk, even if minimal. Whereas the native coins of these chains are entirely decentralized, permissionless and peer-to-peer, some tokens on top re-introduce a small amount of the ‘old’ world. More concretely, transacting in USDC is still available to anybody in the world, 24/7, for free, and payments are still instant and peer-to-peer, but the average general consumer cannot acquire or redeem USDC directly from Circle, they would need to go through a distribution partner like the major US exchange Coinbase. But terrorists on the OFAC sanction list can’t use it either.
We will spend more time looking specifically at stablecoins in a future post given their prominence and proven product-market-fit. As a teaser, here is a direct quote from the current US Treasury Secretary, Scott Bessent: “…we are going to keep the U.S. the dominant reserve currency in the world, and we will use stablecoins to do that.”
Makes one think that stablecoins may be on to something.
Crypto-native Tokens
There is also an entire class of tokens that do not directly tie themselves to offchain assets, and this makes up the vast majority of the tokens that exist today (95%+) in terms of count. These adhere much more closely to the decentralized and permissionless ethos of blockchains and exist entirely onchain with no anchors to extrinsic offchain value. There are millions of these, and the vast majority are completely worthless. But there are also many that are highly valuable because they represent value created by onchain applications and protocols and have real users and adoption. This is no different from websites on the internet. The vast, vast majority of webpages are random blogs, forums, advertisements, or even phishing sites, and are barely worth the cost to host them in the first place. But there are also Googles and Facebooks worth trillions.
We’ll start with the more controversial of the bunch.
Many readers have perhaps heard of ‘memecoins’. These can be thought of as ‘tokenized internet culture’. That is admittedly a very hazy explanation but is fundamentally what they are: blockchains allow communities on the internet to assign actual value to fads, trends or culture. Some of these, the most famous of which is Dogecoin, popularized by Elon Musk and what the current US Government’s Department of Government Efficiency (DOGE) is literally named after, is the 8th most valuable cryptocurrency worth $25 billion (and an all-time high of $90 billion) and sees daily trade volume well over $1 billion. Billion, with a B. You can send DOGE around onchain and trade it, but it does not really allow for much else. Despite that, millions of people around the world have collectively agreed it is worth buying with real money and are happy to make that investment to reflect their interest and support of the DOGE internet meme. There is also a large degree of speculation involved, naturally. An SEC-approved Dogecoin spot ETF in the US is expected this year.
Examples like this are most often what people who are skeptical of crypto point at to justify their position (“isn’t it all worthless?”). And for those of us actively pushing to move this technology forward, we are truthfully often annoyed or frustrated by how much attention things like memecoins generate because it is frequently used as a way to dismiss the industry altogether. If this was all we ever heard about, we would be skeptical too.
But this is thankfully a double-edged sword.
Although as investors it may be frustrating to see a meme of a dog worth $25B rise 15% in a day because of a tweet, it is also ironically a strong validation of the technology. That is, these networks are completely open and permissionless ways for people around the world to create and transfer value. People are free to use it however they wish, and the very fact that people in the US, India, Korea, Argentina, Abu Dhabi, Germany and Kenya are all able to buy and own the exact same asset on the exact same network and send it amongst themselves, 24/7, for free, is simply incredible. As is the case with the internet, permissionless systems allow anyone to act as they please, regardless of whether you or I approve, and the very fact these systems are permissionless is what makes them so powerful.
On the other end of the spectrum from memecoins sit governance and utility tokens. These are tokens created and launched by teams that are expressly tied to the use and functionality of their application or protocol. As investors, this is where we spend our time. Tokens in this category can be used as payment tokens to pay for services, provide governance rights for holders, or even allow holders to share in the economics of the project. There is a nearly infinite range of models here.
For example, Metaplex, the open protocol through which tokens on Solana are created (very loosely akin to what Squarespace or Wix do for webpages), allows holders of its token to make decisions about the direction of the protocol, much like shareholders do in a normal company. Metaplex also uses 50% of all of the revenue the protocol generates from users to buy back its token from the open market, thus essentially replicating what a share buyback is for normal companies. Financially, this is akin to a tax-friendly dividend being paid out. Metaplex is currently on track to earn nearly $50 million in revenue this year and trades at a $170M market capitalization. Many chains have dozens of protocols and applications like this building on top of them that provide real services to real users in return for real revenue, and tokens allow you to participate in creating and sharing that value.
Another example is Hyperliquid, a decentralized perpetuals futures exchange that recently rolled out its own layer 1 chain to compete against Ethereum. Hyperliquid is built by former high-frequency traders from top shops such as Hudson River Trading and ex-Google engineers, and as the top onchain exchange to trade these financial instruments, it has been able to generate incredible revenue – to the tune of $150 million since December 2024, and $266 million all time, off of over $1 .1 trillion (trillion, with a T) in trade volume. The protocol buys back tokens from the open market with these revenues as a means to share value with the community. If any reader would like to argue that a protocol generating $1T in volume and hundreds of millions in revenue is ‘worthless’, please reach out.
As with everything, there is a spectrum, and tokens can take a nearly infinite number of forms spanning everything from simple memecoins to only payment tokens to straight revenue share participation. And because it is the internet, many serious projects adopt internet-native memetics which begin to blur the line. For example, there is a trading application that has facilitated $10B in transactions, shares 40% of the $75M fees it has earned directly with token holders and is currently valued at $80M market cap. The application is called BananaGun and the project leans heavily into the meme branding.
NFTs are another class of token that many readers may recognize. They were all the rage in 2021 and 2022 and brands like Coca Cola, Nike, Starbucks, Disney, Louis Vuitton, Adidas and Lamborghini have all tested them out in some form. In fact, most of the biggest fashion brands have their own. NFT stands for “non-fungible token”. Whereas most tokens are fungible, meaning all tokens of the same set are the same and completely interchangeable (like a $10 bill is fungible with every other $10 bill), NFTs are unique tokens (like a $10 bill signed by Michael Jackson and Lionel Messi is not interchangeable with the $10 bill in my wallet). More concretely, NFTs allow for verifiably unique ownership of a specific digital asset. Again, simple on the surface, but incredibly powerful if you think about what that actually means.
Tickets are an easy example. Many people buy and sell tickets to concerts through online marketplaces. But there is always concern that your ticket was also sold to 15 other concert goers. There is no way to know that did not happen until you actually have it scanned at the door (and even then, maybe you are just the first of the 16 to show up). NFTs solve this easily. An NFT-based ticketing mechanism would mean there is only 1 unique ticket online for that seat in that stadium on that specific night. You can transfer that ticket around to whomever you like around the world, but you can never duplicate it because it is trivially easy to verify the original, valid NFT onchain.
As another example, singer Justin Bieber created an NFT collection for his song ‘Company’ in 2023, which digitally represented 1% of the royalties he earned from the song. Any fan who purchased one of the NFTs in the set was able to participate in a share of those royalties. While essentially just a proof-of-concept example, you can see how unique ownership of digital assets can unlock new ways of sharing and transferring value. Perhaps in the future, a photographer can turn their picture into an NFT and anytime OpenAI uses it to train their new AI model, the photographer can receive a royalty payment programmatically.
To date, however, widespread use of NFTs is still limited and most are used to create sets of art collections around themes like Apes, Punks or Penguins, and from those foundations attempt to build extensive communities and intellectual property. Pudgy Penguins, for example, sells NFT-themed collectibles in stores such as Walmart and Target. But as all art goes, beauty is in the eye of the beholder:
So, when people make broad statements about cryptocurrencies having no value, they miss the mark. It is undeniably true that many do not, or conversely, are extraordinarily overvalued compared to what they are actually worth in a traditional sense. But sweeping statements like that also completely ignore 1) the reality of the global internet, and 2) the projects that do truly have (often immense) value. When viewing different networks and assets, these distinctions are important, and one needs to be careful not to make the mistake of throwing the baby out with the bathwater.
Unpacking the myth of crypto anonymity.
Revisiting crypto’s core security, systemic risks, and the evolving landscape of threats and resilience.
Revisiting blockchain fundamentals: layers, tokenization, native assets.