This House believes that over the next decade value will accrue to applications rather than L1s

In one of the most intellectually charged sessions at Breakpoint 2024, top crypto investors went head-to-head in a formal debate over a fundamental question that could define the next decade of blockchain development: Will value ultimately accrue to applications built on blockchains, or to the Layer 1 protocols themselves? The result? A dead tie—reflecting just how divided the industry remains on this crucial issue.

Summary

The debate featured Brian Rudick (Chief Strategy Officer at Upexi), Mike Dudas (6th Man Ventures), Kyle Samani (Multicoin Capital), and Cosmo Jiang (Pantera Capital) squaring off over the economic future of blockchain ecosystems. The application-favoring side argued that block space is becoming commoditized, apps are closest to users and therefore best positioned to monetize, and current Solana data already shows apps capturing significantly more revenue than the base protocol.

The L1-favoring team countered that Layer 1s function like shopping malls collecting rent from all tenants, that bots—not human users—will drive the majority of blockchain traffic and these bots pay directly to L1s for priority access, and that applications face far more competition and margin compression than infrastructure layers.

What made this debate particularly striking was the unusual consensus that Solana itself is undervalued—both sides agreed on this point despite disagreeing on where future value would accumulate. The discussion drew heavily on analogies from traditional tech, with comparisons to Apple's App Store, Google's evolution, NVIDIA's infrastructure dominance, and the commoditization of internet protocols.

The final vote came down to an exact tie, demonstrating that even among sophisticated crypto investors, there's no consensus on this foundational economic question.

Key Points

Block Space Commoditization and the Race to Zero

Brian Rudick opened with a compelling argument about the abundance of blockchain infrastructure. With hundreds of high-performance blockchains already operational and more being spun up regularly, he argued that block space is becoming increasingly commoditized. All existing chains are simultaneously working to increase throughput, creating an environment where blockchains compete primarily on cost—a dynamic that inevitably drives fees toward zero.

Beyond simple competition, Rudick pointed to structural factors weakening L1 value capture: interoperability protocols that reduce chain-specific lock-in, and the ability of successful applications to launch their own chains if they desire more control. This commoditization thesis suggests that L1s will struggle to extract meaningful economic rent over the long term.

The Proximity-to-User Advantage

One of the strongest arguments for application-layer value capture centered on user relationships. Applications control the interface through which users interact with blockchain technology, giving them natural advantages in monetization. Apps can differentiate through UI/UX design, content creation, community building, intellectual property, and brand development—moats that are difficult for infrastructure to replicate.

The debate also touched on emerging technical architectures that shift power toward applications. Intent-based systems and Application Controlled Execution (ACE) are being developed specifically to give apps more control over how their transactions are processed, potentially redirecting value flows away from generic L1 fee capture and toward application-specific monetization.

The Bot Economy Argument

Kyle Samani introduced perhaps the most provocative framing of the entire debate: the vast majority of blockchain transactions come from bots, not humans. He estimated that in a future with a million transactions per second, 97-99% would originate from automated trading systems, market makers, and arbitrage bots.

This matters enormously for the value capture question. Bots don't interact with applications—they connect directly to on-chain contracts and protocols. They don't pay application fees, but they do compete ferociously for priority block space access through MEV (Maximal Extractable Value) payments that flow directly to validators and stakers on the L1. Samani argued that this priority access market is structurally permanent: as long as asset prices remain volatile (which they always will), traders will pay for speed advantages.

Historical Precedents and Tech Analogies

Both sides drew extensively on technology history to support their positions. The application team cited internet protocols (TCP/IP, HTTP, SMTP) as examples of commoditized, low-margin infrastructure that enabled trillion-dollar application businesses to flourish on top. They also pointed to Linux and open-source software stacks, where the infrastructure captured minimal value while SaaS companies built valuable businesses above it.

The L1 team countered with NVIDIA as a contemporary example—an infrastructure company whose stock has soared precisely because application demand for AI has grown. Cosmo Jiang noted that while apps create value, infrastructure companies are currently capturing disproportionate returns. The Apple App Store debate proved particularly contentious: while Apple takes a 30% fee (infrastructure capture), 70% still flows to app developers, and the aggregate app economy dwarfs Apple's cut.

The Durability Question

Pantera's Cosmo Jiang introduced a crucial temporal dimension: durability. Over a decade, the leading applications will likely change hands multiple times—today's winners may be tomorrow's also-rans. Meanwhile, successful L1s are likely to persist. This makes infrastructure a more reliable long-term bet, even if applications capture more value in any given snapshot.

He also argued that as AI makes application development easier and cheaper, barriers to entry will fall, competition will intensify, and margins will compress at the app layer. This dynamic favors infrastructure, which maintains its position as the essential foundation regardless of which specific apps succeed.

Facts + Figures

• Over the last 30 days prior to the debate, Solana application revenue was $115 million, significantly exceeding the network's direct value capture

• Kyle Samani estimates that only 20-25 trading firms currently trade directly on Solana mainnet, but expects this to grow to 1,000+ in coming years

• Approximately $3-4 billion has been paid to Solana stakers this year, primarily from traders paying for priority access

• Current application fees range from 85-150 basis points (Axiom charges around 85 bps, Pump charges approximately 150 bps)

• Apple's App Store takes a 30% fee while Android's take rate is sub-10%

• In a future scenario with one million transactions per second, Samani estimates 97-99% would come from bots rather than humans

• Upexi completed one of the first SPATs (Special Purpose Acquisition Trusts) backed by Solana, choosing the chain specifically because they believe it will be the "end-game winning high-performance blockchain"

• The final debate vote ended in an exact tie, demonstrating the industry's split on this fundamental question

Top Quotes

"He who owns the user owns the market." - Brian Rudick

"Applications monetize users, they monetize activity, but layer ones monetize all that activity plus the monetary capture on the base layer." - Cosmo Jiang

"If JP Morgan charged 80, 150 bips to trade US equities, Elizabeth Warren would be on TV demanding that he go to jail. But in crypto, I guess it's cool." - Kyle Samani

"The bots are ultimately gonna be the ones who drive the vast majority of traffic and pay for priority access." - Kyle Samani

"Over the next decade, the leading apps will have changed hands multiple times, but the L1s will not." - Cosmo Jiang

"Solana is undervalued—all of us on stage believe very strongly that Solana is undervalued." - Brian Rudick

"The competition there is much more fierce than it is at the L1 layer. And eventually, I'd expect that margins compress over time at the application layer." - Cosmo Jiang

"No amount of AGI or ASI even is gonna change that [asset price volatility], and so there will always be money to be made competing for priority access." - Kyle Samani

Questions Answered

Why does it matter whether value accrues to apps or L1s?

This question has enormous implications for how investors allocate capital in the crypto ecosystem. If value flows primarily to applications, then finding and investing in winning apps becomes the critical challenge—a difficult proposition given how quickly the competitive landscape shifts. If value flows to L1s, then backing successful base layer protocols becomes the priority, offering potentially more durable returns but requiring conviction on which chains will achieve lasting dominance. For builders, this determines whether to focus on protocol development or application creation. For Solana specifically, it affects whether SOL tokens or tokens from applications built on Solana will prove to be better investments.

What exactly does it mean when people say L1s "collect rent" from applications?

In the context of this debate, "rent" primarily refers to transaction fees that applications and their users must pay to process transactions on the base layer. Every swap, NFT trade, or DeFi interaction requires payment to the network. However, the more sophisticated argument from the L1 side centers on priority fees and MEV—payments made by traders and bots to have their transactions processed first, which can be crucial for capturing arbitrage opportunities or avoiding adverse execution. These priority payments flow directly to validators and stakers, representing a form of infrastructure rent that doesn't require any specific application to succeed, only that trading activity continues.

Will bots really dominate blockchain usage more than human users?

Kyle Samani's argument that 97-99% of future transactions will come from bots reflects the reality of modern financial markets. In traditional finance, high-frequency trading and algorithmic systems already generate the overwhelming majority of trading volume. Blockchain finance follows the same pattern—market makers providing liquidity, arbitrage bots maintaining price consistency across venues, and liquidation bots managing DeFi protocol health all operate continuously and at speeds humans cannot match. While humans initiate economic activity through investment decisions and trades, the actual transaction volume comes from automated systems responding to those decisions and maintaining market infrastructure.

How does the commoditization of block space affect L1 value capture?

When multiple blockchains offer similar functionality, they compete on cost, pushing fees toward zero. This is analogous to how bandwidth costs have collapsed as internet infrastructure expanded. If any blockchain can process transactions cheaply and efficiently, then users and applications have less reason to pay premium prices to any particular chain. Interoperability protocols exacerbate this by allowing assets and activity to flow between chains, reducing lock-in. The counter-argument is that network effects, developer ecosystems, and liquidity concentration create powerful advantages that prevent true commoditization—Solana's vibrant application ecosystem represents exactly this kind of network effect.

What emerging technologies could shift the app vs L1 value debate?

Intent-based architectures and Application Controlled Execution (ACE) represent significant developments that could redirect value capture toward applications. These systems give applications more control over how their transactions are processed and routed, potentially allowing them to capture priority fees and MEV that currently flow to L1 infrastructure. If apps can internalize these revenue streams while still using L1 infrastructure for settlement, the economic balance shifts substantially. Conversely, improvements in L1 technology like Solana's continued performance upgrades could strengthen infrastructure's competitive position by offering capabilities that applications cannot replicate independently.

How do traditional tech analogies apply to blockchain economics?

The debate featured extensive discussion of analogies, with both sides finding support in tech history. The internet itself—open protocols that captured no value while Google and Facebook built trillion-dollar businesses—supports the application thesis. NVIDIA's infrastructure dominance during the AI boom supports the L1 thesis. Apple's App Store presents a mixed picture: Apple extracts significant rent (30%), but app developers collectively capture far more. The key insight is that crypto combines elements of all these precedents: it has open protocol characteristics like the internet, infrastructure scarcity like chip manufacturing, and platform dynamics like app stores. No single analogy perfectly predicts crypto's economic future.