From ETH to SOL: Why L1 Will Ultimately Lose to Bitcoin?

By: blockbeats|2025/12/05 09:00:05

Original Article Title: Can L1s Compete Against BTC as Cryptomoney?

Original Article Author: AvgJoesCrypto, Messari

Original Article Translation: Ding Dang, Odaily Planet Daily

Editor's Note: Recently, Dragonfly Ventures' well-known partner Haseeb Qureshi published an article rejecting cynicism and embracing exponential thinking, unexpectedly bringing the community discussion back to the most core question: the value of L1, how much is left? The following content is excerpted from @MessariCrypto's upcoming "The Crypto Theses 2026," compiled by Odaily Planet Daily.

Cryptocurrency Driving the Entire Industry

Refocusing the discussion on "cryptocurrency" itself is crucial because most of the capital in the crypto industry is ultimately seeking exposure to "monetary assets." Currently, the total market capitalization of the crypto market is $3.26 trillion, with BTC accounting for $1.80 trillion, or 55%. Out of the remaining $1.45 trillion, approximately $0.83 trillion is concentrated in various L1 blockchains. In other words, about $2.63 trillion, approximately 81% of the entire market's funds, have been invested in assets that the market already considers money or believes may receive a future money premium.

From ETH to SOL: Why L1 Will Ultimately Lose to Bitcoin?

In this context, whether you are a trader, investor, fund manager, or developer, understanding how the market bestows or withdraws a money premium is crucial. In the crypto industry, nothing drives valuation changes more than whether the market is willing to view an asset as "money." Therefore, predicting which assets may receive a money premium in the future is arguably the most important variable when constructing a portfolio.

So far, our main focus has been on BTC, but it is also necessary to discuss those L1 assets in the remaining $0.83 trillion that are "potentially money or not." As mentioned earlier, we expect BTC to continue absorbing market share from gold and other non-sovereign store-of-value assets in the coming years. However, this also raises a question: How much space is left for L1? When the tide rises, will all ships (assets) float (benefit)? Or will BTC, in its pursuit of gold, also draw some money premium from L1 blockchains?

To answer these questions, we first need to look at the current valuation landscape of L1. The top four L1s by market capitalization—ETH ($3611.5 billion), XRP ($1301.1 billion), BNB ($1206.4 billion), and SOL ($746.8 billion)—have a combined market capitalization of $6865.8 billion, representing 83% of the entire L1 sector. Beyond these top four, there is a significant market capitalization gap (e.g., TRX at $266.7 billion), but the tail-end volume is still substantial. The total market capitalization of L1s outside the top 15 is still $180.6 billion, accounting for 2% of the total L1 market capitalization.

More importantly, L1's market capitalization is not equivalent to pure "monetary premium." L1's valuation framework mainly consists of three types:

(i) Monetary Premium

(ii) Real Economic Value (REV)

(iii) Economic Security Demand

Therefore, a project's market capitalization is not solely determined by the market viewing it as a currency factor.

What drives L1 valuation is the monetary premium, not revenue

Despite the existence of multiple valuation frameworks, the market is increasingly inclined to evaluate L1 from the perspective of "monetary premium" rather than "revenue-driven." Over the past few years, all L1s with a market capitalization exceeding $1 billion have maintained an overall price-to-earnings ratio of roughly 150 to 200. However, this aggregate data is misleading as it includes TRON and Hyperliquid. In the past 30 days, TRX and HYPE contributed 70% of the revenue of this group but accounted for only 4% of the total market capitalization.

Excluding these two outliers, the true story emerges. While revenue continues to decline, L1's valuation is on the rise. The adjusted price-to-earnings ratio shows a clear upward trend:

· November 30, 2021: 40x

· November 30, 2022: 212x

· November 30, 2023: 137x

· November 30, 2024: 205x

· November 30, 2025: 536x

Interpreting this from the perspective of REV, one might think the market is pricing in future revenue growth. However, this interpretation doesn't hold because within the same group (excluding TRON and Hyperliquid), L1 revenue has been decreasing almost every year:

· 2021: $123.3 billion

· 2022: $48.9 billion (YoY -60%)

· 2023: $27.2 billion (YoY -44%)

· 2024: $35.5 billion (YoY +31%)

· 2025: Annualized $17.0 billion (YoY -52%)

In our view, the simplest and most direct explanation is: these valuations are primarily driven by currency premium rather than current or future revenue.

L1 Has Been Consistently Underperforming Bitcoin

If the valuation of L1 is primarily driven by market expectations of its currency premium, the next question is: what shapes this expectation? A simple way is to compare them with BTC's price performance. If changes in currency premium mainly reflect BTC's trend, the performance of these assets should be similar to BTC's 'β coefficient'; if the currency premium comes from each L1's unique factors, then their correlation with BTC should be weaker, and their performance should be more specific.

As a representative of L1, we selected the top ten market cap L1 tokens (excluding HYPE) and analyzed their performance relative to BTC since December 1, 2022. These ten assets account for approximately 94% of the L1 market cap, making them highly representative. During this period, eight assets have underperformed BTC in absolute return, with six lagging by over 40%. Only two assets outperformed BTC: XRP and SOL. However, XRP's excess return is only 3%, given its historically retail-dominated flows, which we won't read too much into. The asset that has truly significant excess returns is SOL, outperforming BTC by 87%.

However, a deeper analysis reveals that SOL's "outperformance" may not be as strong as it seems on the surface. During the same period where SOL outperformed BTC by 87%, the fundamental aspects of the Solana ecosystem saw an exponential growth: DeFi TVL increased by 2,988%, transaction fees grew by 1,983%, and DEX trading volume surged by 3,301%. By any reasonable measure, Solana's ecosystem has expanded by 20 to 30 times since the end of 2022, yet the corresponding SOL price only outpaced BTC by 87%.

Please read that sentence again.

In order to truly achieve significant outperformance against BTC in the game, an L1 network not only needs its ecosystem to grow by 200% or 300%—it needs to grow by 2,000%-3,000% just to barely attain a few tens of percentage points of excess performance.

Considering the above, our assessment is: While the market is still pricing L1 networks based on the expectation of "future potential currency premium," confidence in these expectations is quietly waning. At the same time, the market's premium on BTC as the "cryptocurrency" has not been shaken, and it can even be said that BTC's leading advantage over various L1 networks continues to expand.

Although cryptocurrencies themselves do not need transaction fees or revenue to support their valuation, these indicators are crucial for L1 networks. Unlike BTC, an L1 network's narrative depends on building an ecosystem (applications, users, throughput, economic activity, etc.) to support the value of its token. However, if an L1 network's ecosystem is showing annual decline (partially reflected in declining revenue and fees), then it loses its sole competitive advantage relative to BTC. Without real economic growth, its "cryptocurrency" story will become increasingly difficult for the market to accept.

Looking Ahead

Looking ahead, we do not believe this trend will reverse course in 2026 or beyond. With a few possible exceptions, we anticipate that the L1 sector will continue to lose market share, further squeezed by BTC. As its valuation primarily relies on the expectation of future currency premium, as the market gradually recognizes BTC's strongest claim to the narrative of "cryptocurrency," the valuation of L1 networks will continue to shrink. While BTC will also face challenges in the coming years, these issues are still too distant from reality and have too many variables to provide effective support for the currency premium of competing L1 networks.

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Over the past 24 hours, the crypto market has shown strong momentum across multiple dimensions. The mainstream discussion has focused on Coinbase's official entry into the prediction market through the acquisition of The Clearing Company, as well as the intense controversy within the AAVE community regarding token incentives and governance rights.

In terms of ecosystem development, Solana has introduced the innovative Kora fee layer aimed at reducing user transaction costs; meanwhile, the Perp DEX competition has intensified, with the showdown between Hyperliquid and Lighter sparking widespread community discussion on the future of decentralized derivatives.

I. Mainstream Topics

1. Coinbase Acquires The Clearing Company, Officially Entering Prediction Market

This week, Coinbase announced the acquisition of The Clearing Company, marking another significant move to deepen its presence in this field after last week's announcement of launching a prediction market on its platform.

The Clearing Company's founder, Toni Gemayel, and the team will join Coinbase to jointly drive the development of the prediction market business.

Coinbase's Product Lead, Shan Aggarwal, stated that the growth of the prediction market is still in its early stages and predicts that 2026 will be the breakout year for this field.

The community has reacted positively to this, generally believing that Coinbase's entry will bring significant traffic and compliance advantages to the prediction market. However, this has also sparked discussions about the industry's competitive landscape.

Jai Bhavnani, Founder of Rivalry, commented that for startups, if their product model proves to be successful, industry giants like Coinbase have ample reason to replicate it.

This serves as a reminder to all entrepreneurs in the crypto space that they must build significant moats to withstand competition pressure from these giants.

2. Kalshi Launches Kalshi Research and Integrates BSC Network

Regulated prediction market platform Kalshi launched its research arm, Kalshi Research, this week, aimed at opening its internal data to the academic community and researchers to facilitate exploration of prediction market-related topics.

Its inaugural research report highlights Kalshi's outperformance in predicting inflation compared to Wall Street's traditional models. Kalshi co-founder Luana Lopes Lara commented that the power of prediction markets lies in the valuable data they generate, and it is now time to better utilize this data.

Meanwhile, Kalshi announced its support for the BNB Chain (BSC), allowing users to deposit and withdraw BNB and USDT via the BSC network.

This move is seen as a significant step for Kalshi to open its platform to a broader crypto user base, aiming to unlock access to the world's largest prediction market. Furthermore, Kalshi also revealed plans to host the first Prediction Market Summit in 2026 to further drive industry engagement and development.

3. AAVE Token Incentive Controversy Persists as Founders and Whales Increase Holdings Against the Market Trend

The AAVE community recently engaged in heated debates around an Aave Improvement Proposal (AIP) titled "AAVE Tokenomics Alignment Phase One - Ownership Governance," aiming to transfer ownership and control of the Aave brand from Aave Labs to Aave DAO.

Aave founder Stani Kulechov publicly stated his intention to vote against the proposal, believing it oversimplifies the complex legal and operational structure, potentially slowing down the development process of core products like Aave V4.

The community's reaction was polarized. Some criticized Stani for adopting a "double standard" in governance and questioned whether his team had siphoned off protocol revenue, while others supported his cautious stance, arguing that significant governance changes require more thorough discussion.

This controversy highlights the tension between the ideal of DAO governance in DeFi projects and the actual power held by core development teams.

Despite governance disputes putting pressure on the AAVE token price, on-chain data shows that Stani Kulechov himself has purchased millions of dollars' worth of AAVE in the past few hours.

Simultaneously, a whale address, 0xDDC4, which had been quiet for 6 months, once again spent 500 ETH (approximately $1.53 million) to purchase 9,629 AAVE tokens. Data indicates that this whale has accumulated nearly 40,000 AAVE over the past year but is currently in an unrealized loss position.

The founder and whale's increased holdings during market volatility were interpreted by some investors as a confidence signal in AAVE's long-term value.

4. Top Articles: DeFi Curators and Ethereum Annual Summary

In this week's top article, Morpho Labs' "Curator Explained" detailed the role of "curators" in DeFi.

The article likened curators to asset managers in traditional finance, who design, deploy, and manage on-chain vaults, providing users with a one-click diversified investment portfolio.

Unlike traditional fund managers, DeFi curators execute strategies automatically through non-custodial smart contracts, allowing users to maintain full control of their assets. The article offered a new perspective on the specialization and risk management in the DeFi space.

Another widely circulated article, "Ethereum 2025: From Experiment to Global Infrastructure," provided a comprehensive summary of Ethereum's development over the past year. The article noted that 2025 is a crucial year for Ethereum's transition from an experimental project to global financial infrastructure. Through the Pectra and Fusaka hard forks, Ethereum achieved significant reductions in account abstraction and transaction costs.

Furthermore, the SEC's clarification of Ethereum's "non-securities" nature and the launch of tokenized funds on the Ethereum mainnet by traditional financial giants like JPMorgan marked Ethereum's gaining recognition from mainstream institutions. The article suggested that whether it is the continued growth of DeFi, the thriving L2 ecosystem, or the integration with the AI field, Ethereum's vision as the "world computer" is gradually becoming a reality.

II. Mainstream Ecosystem Updates

1. Solana: Launches Kora Fee Layer and propAMM Data Research

The Solana Foundation engineering team released a fee layer solution called Kora this week.

Kora is a fee relayer and signatory node designed to provide the Solana ecosystem with a more flexible transaction fee payment method. Through Kora, users will be able to achieve gas-free transactions or choose to pay network fees using any stablecoin or SPL token. This innovation is seen as an important step in lowering the barrier of entry for new users and improving Solana network's availability.

Additionally, a deep research report on propAMM (proactive market maker) sparked community interest. The report's data analysis of propAMMs on Solana like HumidiFi indicated that Solana has achieved, or even surpassed, the level of transaction execution quality in traditional finance (TradFi) markets.

For example, on the SOL-USDC trading pair, HumidiFi is able to provide a highly competitive spread for large trades (0.4-1.6 bps), which is already better than the trading slippage of some mid-cap stocks in traditional markets.

Research suggests that propAMM is making the vision of the "Internet Capital Market" a reality, with Solana emerging as the prime venue for all of this to happen.

2. Perp DEX: Hyperliquid vs. Lighter Competition Intensifies

The competition in the perpetual contract DEX (Perp DEX) space is becoming increasingly heated.

In its latest official article, Hyperliquid has positioned its emerging competitor, Lighter, alongside centralized exchanges like Binance, referring to it as a platform utilizing a centralized sequencer. Hyperliquid emphasizes its transparency advantage of being "fully on-chain, operated by a validator network, and with no hidden state."

The community widely interprets this as Hyperliquid declaring "war" on Lighter. The technical differences between the two platforms have also become a focal point of discussion: Hyperliquid focuses on ultimate on-chain transparency, while Lighter emphasizes achieving "verifiable execution" through zero-knowledge proofs to provide users with a Central Limit Order Book (CLOB)-like trading experience.

This battle over the future direction of decentralized derivatives exchanges is expected to peak in 2026.

Meanwhile, discussions about Lighter's trading fees have surfaced. Some users have pointed out that Lighter charged as much as 81 basis points (0.81%) for a $2 million USD/JPY forex trade, far exceeding the near-zero spreads of traditional forex brokers.

Some argue that Lighter does not follow a B-book model that bets against market makers, instead anchoring its prices to the TradFi market, and the high fees may be related to the current liquidity or market maker balance incentives. Providing a more competitive spread for real-world assets (RWA) in the highly volatile crypto market is a key issue Lighter will need to address in the future.

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