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| By Marija Matic |
The crypto market may still be volatile as the market digests the aftershocks of the latest tariff volley.
But behind the day-to-day noise, a far more important war is being fought on the blockchain: The application war.
Every project is fighting to attract crypto money makers, liquidity providers and traders … all to receive the crucial the revenue they generate.
This isn’t new. But this latest battleground will impact what opportunities you’ll be able to find.
The Great Divide in Blockchain Revenue
Before the applications, we had the infrastructure war.
This was the battle between alternative Layer-1s and Layer-2s to be the fastest, cheapest chain.
That meant savvy investors were interested in tokens tied blockchains that promised to settle your transaction quickly and cheaply.
With that war almost over, it’s time to take stock who is winning and why.
And the data shows there’s a clear divide.
On one side, dominant or specialized chains are thriving.
Hyperliquid 1 (HYPE, “D”), for example, is a network made specifically for a perpetuals exchange platform. It saw record-high network fees through September and October.
Similarly, BNB Chain (BNB, “C+”) is making a strong comeback. Network fees hit their highest levels since early 2022 and application revenues reached a new record of $70.6 million in October.
However, the majority of other blockchains are trending downward in fee revenue, even as metrics like total value locked (TVL) and transaction volumes grow.
This weakness among blockchains can be attributed to two main factors:
1. The Race to the Bottom
To entice users, chains fought to be the cheapest and fastest to settle transactions.
But if fees fall faster than transaction volume grows, you get lower overall revenue.
And that loss compounds.
Transaction fees are critical because they are, essentially, the security budget for a blockchain. As the fees shrink on a network, its long-term economic security may come under stress.
If a blockchain isn’t seen as secure, even fewer people will use it.
2. Market Efficiency
This market is no longer dominated by retail investors like us.
This group has historically generated high fees and significant Maximum Extractable Value (MEV). That is, the profit gained by controlling the order of transactions on a blockchain, by people who knew how to extract it.
Now, however, markets are dominated by advanced users and bots.
And the impact is a double-edged sword.
The smart money minimizes inefficiencies and transactional costs. But in so doing, they also reduce a key revenue source for validators and the network.
The result: The value is no longer on the base-layer blockchain.
Blockchains that offer additional value or are specialized have found their niche. But many that were just targeting speed and costs?
They’re not likely to generate the growth that will attract stakers.
Instead, the savvy among us now need to look to the applications built on top of those chains to find our next yield or even next crypto win.
Fees and Revenue: The Apps Are Eating the Chains
As infrastructure becomes a low-margin utility, it’s the applications that capture the profits.
The evidence for this shift is overwhelming.
We’re seeing record-breaking metrics for early October:
- Decentralized Finance (DeFi) Peak: On Oct. 7, the total value locked (TVL) in various DeFi apps reached a four-year peak of $172.98 billion.
- Stablecoin Dominance: The stablecoin market cap continues to break records. It currently sits at an unprecedented $306.89 billion.
- Decentralized Exchange (DEX) Volume Surge: Weekly volume on DEXs hit a record $178.23 billion between Oct. 6 and 12.
- Perp DEX Volume Explosion: Weekly volume on perpetual DEXs — the leveraged trading powerhouses — set an even higher record of $336.94 billion in the same week.
But the applications that really caught my eye were the lending protocols.
Because they’ve been absolutely printing money.
Aave (AAVE, “B-”), a lending heavyweight, saw a record $99.15 million in fees in September. Its mid-October numbers suggest it is printing even more this month and will likely to overshadow its September's record.
Fellow lending protocols Morpho and Spark have been riding the same wave since August and delivering robust fee performances.
In short, lending has become DeFi's cash cow: Somewhat boring, but predictable and profitable.
This surge in activity translates directly into fees. Which the apps and their users are feasting on.
See, users in DeFi get a cut of the action by depositing their own crypto to these platforms.
In exchange for their liquidity, users get a large portion of the fees generated by the protocol.
Naturally, though, the shift in value from blockchains to applications means these opportunities are changing, as well.
We can see this clearly in the current yield environment.
The Staking Game Gets Complex
Ethereum (ETH, “A-”) is still king when it comes to staking.
That’s in large part due to the sheer amount of money already locked in the network.
It’s safe, steady and boring. Exactly what billions of dollars want.
But mainnet yields are drying up as the action gets offloaded to Ethereum’s Layer-2s.
Lido (LDO, “C+”) quickly grew from its launch in late 2020 into a liquid staking titan. But now, its fees are down from its March 2024 peak.
EigenLayer (EIGEN, “C”), a popular restaking protocol, is also cooling off.
With a lot of demand to stake ETH and lackluster yield on the mainnet, challengers have begun to circle.
Binance's staked ETH, for example is now pulling $33.07 million per month. That’s triple what it was making a year ago. Ether.Fi (ETHERFI, “C”), another liquid staking protocol, is posting similar numbers.
To put it simply, straightforward, simple staking isn’t going to cut it.
Yield hunters are increasingly using platforms like EtherFi with more complex staking strategies and accepting greater risk to target the high yield opportunities crypto has boasted in the past.
The New Reality
The broader trend is clear: While most chains are earning less, notable DeFi apps are earning more.
Value is shifting upward from successful, low-cost base layers to the applications that turn those networks into vibrant economies.
Welcome to the new reality: Boring infrastructure, exciting applications.
And with this new order brings a new dimension to consider when planning your crypto strategy.
Best,
Marija Matić
