It’s Not Just Bitcoin: The Pillars of Crypto

With Bitcoin reaching new all-time highs, one might wonder what’s happening to the rest of the market. Bitcoin has been outperforming most of the alts, hence being in the spotlight of online discourse. In this article, written by none other than our exceptional researcher, we look at the rest of what we call crypto and essentially discuss the various sectors of the decentralized space and how they evolved over past months/years.
Is there genuine development that enables new use-cases and adoption, or is it all just an illusion and overblown valuations? Let’s find out.

DeFi

DeFi is arguably the most popular use of crypto so far. During the last cycle’s DeFi summer, many DeFi protocols became household names, and through relentless efforts of competitors, cemented themselves as the main pillars for decentralized finance. Behemoths like Uniswap and Aave dominate the DEX and lending landscape, respectively. There is a plethora of relevant competitors within their sectors, but both clearly dominate in TVL, volume, and sheer availability across chains. Uniswap operates on over 41 chains across instances, with the v3 being deployed on 38 networks and with a TVL of >5.8B, outpacing its closest competitor, Curve, by twofold. 

Within the lending sector, Aave crushes its competitors with a combined TVL of >64B across chains, while its closest competitor, Morpho, secures around 9B in total. The lending space has seen new contenders for the top spots, namely, Kamino and Maple, which gained considerable attention lately. We can expect them to grow in TVL, however, not really eat into Aave’s market share as its growth looks very strong aiming upwards. 

Liquid staking derivatives became one of the hottest things since the last cycle. Catalyzed by the Ethereum 2.0 transition and the inability to withdraw staked Ether prior to the Shanghai upgrade, LSDs were propelled to the forefront of DeFi for some time. Even today, the combined TVL of LSDs outscales lending or DEXes. The sector is mainly dominated by Lido with >62%  and Binance Staked ETH with ~20% market share. Coincidentally, with Ether approaching its ATH, the withdrawal queues in LSD protocols have been filling up as people are realizing profits. While LSDs and LRTs were one of the main narrative drivers and propellers of DeFi in the bear market, with the launch of Ethereum ETFs and potentially staking-enabled ETF, capital might flow towards institutional stakers instead of LSD protocols.

Derivatives as a sector experienced an interesting shift. During the last cycle, GMX was the hottest thing every trader used and shilled across socials. Later, competitors like Perpetual Protocol, Gains Network, and MUX protocol employed similar architectures and managed to bite into GMX’s market share and trading volume. However, the highly anticipated GMX v2 helped it to stay dominant in the sector. Then, Hyperliquid came along, and not only shed a giant shadow on GMX and its v2, it completely took over the derivatives sector in trading volume, reaching 20x the volume of its closest competitor, Jupiter, and 40x the volume of GMX. Hyperliquid has been praised for its strong community, well-executed airdrop, well-designed tokenomics, and ultimately a great product that many consider on par if not better than centralized exchanges. The Lighter is very close to Hyperliquid’s user experience and does very impressive volumes considering it’s an invite-only private beta. It’s important to note, however, that Lighter has private investors while Hyperliquid did not and both have some quirks regarding decentralization. 

However, derivatives are not only futures. Last cycle, we had a lot of option protocols popping up, offering decentralized options contracts, namely Dopex, Opyn, or Lyra. Some of them rebranded and still operate, but options did not gain as much traction as futures. This can, however, change with the onboarding of institutional participants and their desire to hedge risk with options. We see option protocols as an emergent sub-sector of DeFi, which already matured since the last cycle and awaits its demand to materialize. Additionally, there has been some noise about Hyperliquid launching options on their DEX as well, potentially capitalizing on Hyperliquid’s user base and making options more attractive for retail traders. Within the HyperEVM, Ventuals aims to allow private pre-IPO markets. 

Real-World Assets have been a topic since the inception of DeFi. This sector took a huge step forward and today encompasses all sorts of tokenized assets from real estate and securities all the way to collector items. Robinhood recently announced their efforts in tokenizing even private equity, leveraging the Arbitrum network. xStocks also recently started to offer tokenized US stocks such as AAPL, TSLA, or NVDA. Meaning that you can swap your fartcoin for the SPYx in one simple click on Solana. Future of finance, right? The total value of tokenized assets skyrocketed to over $24B, consisting mostly of private credit, US Treasury debt, commodities, institutional alternative funds, and stocks with $14.8B, $6.7B, $1.9B, $830M, and $370M, respectively. Within the sector, BlackRock’s BUIDL liquidity fund leads with a market cap of over $2.3B. However, apart from traditional finance entering the decentralized space via tokenizing their assets, we saw tokenized collectibles grow as well. A notable mention here is dVIN, an issuer of tokenized wine whose demo is quite impressive and demonstrates how we could tokenize practically anything.

Finally, the most discussed sector of the past months, stablecoins. While centralized issuers like Circle and Tether take up ~24% and ~60%, respectively, decentralized issuers such as Ethena and Sky(ex-MakerDAO) issued ~5B of USDT and 8.2B DAI and USDS combined. Sky, formerly Maker, recently expanded to lending as well with SparkLend, doing somewhat the opposite of what Aave with their GHO stablecoin. While both connect the stablecoin to lending in order to generate yield, Ethena uses the deposit to purchase liquid staked Ether and hedges against the downside, the idea being delta neutrality and yield from Ethereum PoS and funding fees from the hedging instrument. While centralized stablecoins dominate the landscape, they also enable better integrations for retail users; hence, we can anticipate inflow of both users and capital.

DePIN

Decentralized Physical Infrastructure gained considerable attention last cycle. DePIN branches out of the digital realm towards real environments to democratize and provide access to community-owned critical infrastructure including cellular and wireless connectivity, hardware, storage, imagery data, GNSS data-sharing etc. DePIN networks act as a coordination layer among network participants either using or providing and maintaining the infrastructure by employing tokenomic incentives. However, as for physical infrastructure geographical proximity is often integral, many DePIN protocols in their infancy are unable to compete with established, centralized, providers. In DePIN networks, quite intuitively, to improve the coverage and Quality-Of-Service the protocol needs to incentivize and on-board more providers. However, we believe that from the incentive point of view, incentivizing usage (demand) is just as important as incentivizing providers (supply). Providers in DePIN have considerably higher costs than a Liquidity Provider in DeFI, hence they need to purchase the hardware, set it up, maintain it, ensure uptime, pay for electricity etc. One might infer, that to increase revenue, and hence provider payout, one must gain more paying users, and users will come if there is supply. So, let’s incentivize supply. But, if you would do that, the provider would start with some expectation of revenue consisting of the base protocol reward and the incentive. The additional supply might attract users, but if the gained revenue from increased users base does not outscale the initial incentives, post-incentives the providers will not be as profitable and might migrate to some other incentivized protocol. However, if those provider incentives went to users’ demand as discount or rebate, it would stimulate the demand more to actually generate a consistent and more predictable revenue stream. We like to call this incentive dependence fallacy, where often it seems like a chicken and an egg problem in the sense of whether to incentivize with demand or supply, but choosing one can lead to a single-sided optimal strategy when incentives are active (in this providers benefit from incentives regardless of usage) and no optimal strategy afterwards. 

The DePIN sector evolved significantly since the last cycle in both user base, applications, accessibility, and technology as well.  Helium, the decentralized wireless network, migrated their infrastructure to Solana to accommodate the large number of transactions and reduce fees. While the $HNT token is quite volatile trading between $3-$10, deployed mobile hotspots passed 100k and daily users are reaching 1M. Hivemapper has already mapped 578M KM of roads and 34% away from mapping all the roads globally. In the decentralized storage sector Filecoin was the dominant protocol. Although Filecoin still stores a plethora of data, new competitors have arisen during the modular thesis era with data availability providers such as Celestial or Avail, and on other blockchains such as Pipe Network on Solana or Walrus on Sui. Specifically the two latter deviated from the model used by Filecoin where the storing of data is directly integrated into the consensus. On the contrary, both Pipe and Walrus leveraged an established blockchain for token incentives and management, disconnected from the consensus. We think that could also greatly benefit developer experience in interaction with decentralized storage. Making it easier to build user-facing apps on top of decentralized storage and help onboard more users to their respective L1s. 

Decentralized Compute

Decentralized compute is a branch of DePIN as it also often necessitates operating and maintaining hardware. Due to the craze around Artificial Intelligence this subset of protocols deviated from the others within DePIN as people wanted to gain exposure to the AI narrative within crypto. Protocols like Akash, Bittensor, ASI, Prime Intellect, Morpheus all focus on different kinds of AI-related compute from training, fine-tuning, inference or simply renting a GPU. The demand for decentralized compute in general will keep rising with all the AI developments and NVIDIA working super hard to meet the demand. Compute networks are poised to become a crucial building block for creating  decentralized artificial intelligence on par with or even better than centralized, closed-source, biased, and surveilled services. Thanks to both academic and industry efforts towards homomorphic encryption, distributed training or federated learning, decentralized AI models should be able to learn on more realistic user data without compromising privacy and even distributing revenue.

AI Agents were the hottest thing for a few months earlier this year. While protocols like Virtuals or ElizaOS are paving the way for agentic applications, many AI agent personalities lost their precious X mindshare and are sitting at -90% of their peaks. The possibilities of AI agents however are expanding. Notable launches include HeyAnon and Wayfinder which showcase a glimpse at DeFAI, a term referring to AI agentic DeFi. Instead of going to Uniswap, copy the contract address, and manually swapping, just tell your AI Agent what to do, and it figures out the rest. 

Gaming

 Gaming has been quite silent since the last cycle. Projects like Immutable X or Beam remain as the dominant ecosystems, while within games, we cannot really point to widely popular or outstanding games. Gaming in general has a high user base in terms of active unique wallets; however, NFT trading of in-game assets dropped significantly. Similarly to NFTs in general, besides CryptoPunks and Pudgy Penguins collection, that exceptionally catch a bid from time to time. An important milestone for the gaming industry will be the CLARITY Act which is supposed to define a clear framework for gaming tokens so even AAA game studios will be able to integrate blockchain into their games. We could already see efforts from studios like Ubisoft to integrate NFTs into their games, however, the gaming community reception was not the greatest. Although, that might change with crypto native games like Crystalfall reaching AAA level, in contrast to AAA games integrating crypto as the latter is facing considerable pushback from the players. 

Infrastructure

Here we refer to all the blockchain and Layer 1 / Layer 2 solution improvements which went a huge mile since the last cycle. Back then we were forced to pay hundreds of dollars in gas fees to mint some NFT or swap tokens and seeking a low gas fee refuge on the so-called ETH killers like Avalanche, Polkadot, Cosmos, Fantom, Near, or Solana. Ethereum successfully transitioned to Proof-of-Stake, implemented numerous EIPs, and constantly works on scaling the network. The rollup architecture became the most prevalent among new networks, where Layer-2 rollups would have their own environment and state which is cryptographically anchored to the Layer 1’s state via a smart contract, inheriting its security. Based on the L2 state proving mechanism we primarily differentiate between Optimistic and Zero-Knowledge rollups, where in the prior we assume validity and prove fraud, whilst in the latter we only prove correctness via Zero-Knowledge Proofs. We covered more about different L1 and L2 in our previous article.

Layer-2 solutions on Ethereum like Base, Arbitrum, Optimism benefited heavily from the EIP-4844 which introduced blobs, a new ephemeral data structure, which lowered L2 gas fees significantly. Moreover, Ethereum celebrated its 10-year anniversary recently, and hands down one of the main achievements is its 100% uptime. Something unthinkable for legacy systems or even other blockchains. 

Outside of Ethereum most attention is focused on Solana which crushes other blockchains in daily transactions due to low gas fees and high throughput. It’s important to note here though, that because of the low gas prices and the memecoin craze that happened on Solana, a big part of transactions on Solana are bots. A study by Zheng et al. found that in high congestion scenarios up to 75% of all Solana transactions are failing, 67% of which fail with slippage not met error code. Signifying the high presence of bots on Solana. However, Solana is about to undergo the Alpenglow upgrade, which is supposed to lower the requirements for running validator nodes and making Solana more decentralized. 

Memecoins

It is difficult not to mention memecoins and memetokens as their impact has been quite considerable. The memecoin infrastructure on Solana spawned thousands of memecoins daily, and pump.fun became one of the most used dApps of the year. Of course, there have been scams as always with memecoins; remember LIBRA? We also had the dog wif a hat or the popping cat that reached multi-billion-dollar valuations. However, gaining some altitude on the “financial nihilism” argument for memecoins, memecoins became more like the social tokens within society. Representing the communities and their collective opinion, expectation, or belief. We have also seen the emergence of the so-called Internet Capital Markets, which is essentially an ICO made via memecoins, i.e. fundraising. But what we expect for memecoins and platforms like pump.fun is shifting from a Cat/Dog-themed casino towards more consumer-oriented applications. Pump.fun as a trading interface has a limited user base, while pump.fun as a platform for sharing and consuming memes has by magnitudes larger potential user base. Think of it more as 9gag or reddit, where one can buy shares of the meme, and the meme feed can be curated based on the market cap of the meme’s shares or even its 7-day volume, creating an economically incentivized metric for popularity. 

NFTs

After the wild run of NFTs during the last cycle when celebrities shilled their Bored Apes on live TV after dropping 7-8 figures on them, there really is no competition when it comes to a more anticipated, yet more hated meta. It’s not a surprise that the vast majority of NFT collections are down horrendously if not fully rug pulled or abandoned. There is only a handful of collections that held their value and still have a strong community. Namely, Pudgy Penguins are seen as the only brand/collection that successfully branched out to the real world and became a household name even outside of crypto. Besides Penguins. We anticipate OG Ethereum L1 collections to catch a bid as Ethereum becomes even more dominant and decorated. CryptopunksV2 are actually getting swept from the floor, and even Mooncats started to catch the attention of crypto X. At the current state of the market, looking at the historical significance instead of the artwork, artist, or even technology, can likely be a viable strategy to gain exposure to NFTs without leaving people depressed as they see their JPEG investment evaporate.

Prediction Markets

Prediction markets achieved their highest attention point during the US elections, where Polymarket correctly predicted all electoral states. While Polymarket is the go-to prediction market venue, new contenders in the space include XO Market with its Conviction Markets, while MetaDAO and Buttery Finance incorporate prediction into fundraising and governance votes, respectively. A very interesting approach of Multiverse Finance has been proposed by Paradigm, where shares of a certain prediction could be used in DeFi, e.g. lending. Prediction markets already generate accurate predictions, so much that traditional media references Polymarket when discussing odds of politics or economic events, but unlocking the value of predictions before resolution within DeFi is a promising primitive with a lot of potential. 

Conclusion

The evolution of crypto beyond Bitcoin shows that the ecosystem has matured into a diverse landscape of financial, social, and infrastructural innovations. DeFi protocols became institutional-grade, derivatives rival centralized exchanges, real-world assets bridge traditional and decentralized finance, and DePIN/DeCompute connect blockchain to tangible infrastructure and AI. At the same time, memecoins highlight the cultural layer of crypto, while prediction markets hint at the untapped utility of collective intelligence. The big picture is clearer than ever. Crypto is no longer just speculation. It is building parallel systems for finance, technology, and community. The next challenge is presenting these breakthroughs in an intuitive and simplistic manner to bring them to billions of users and match their potential.