Blockchain Capital Partners Discuss: The Next Bull Market May Be Just Around the Corner

Source: Bankless

Compiled by: Felix, PANews

Aleks Larsen and Spencer Bogart, general partners at Blockchain Capital, recently appeared on the "Bankless" podcast to discuss the inevitable trend of the crypto market transitioning from infrastructure to application layers. Blockchain Capital pointed out that the widespread use of stablecoins has accumulated significant liquidity for on-chain finance, driving revenue growth for lending and trading protocols.

Moreover, by tokenizing stocks and venture capital funds, the capital efficiency of the financial system will increase exponentially. Although there is a tug-of-war between traditional finance and the spirit of crypto regarding compliance, the restructuring of the global financial system through tokenization is unstoppable. PANews has compiled highlights from the conversation.

Host: Spencer, I remember our first industry exchange was back in 2018 or 2019 discussing the value capture model of MKR.

Spencer: Yes, at that time we were even considering buying MKR. Now, in 2026, the most modern projects like Hyperliquid, Lighter, and Venice are still adopting the "buyback and burn" model pioneered by MKR. Despite countless debates in the past about the inefficiency of this model in terms of capital efficiency, it can be said that it has "never failed" in practice.

Aleks: Indeed. I was very critical of this model in the past, believing that at the end stage, when only the last token remains, there must be substantial cash flow that can be directly distributed to holders; otherwise, it would be difficult to establish a valuation model. But now I think that idea is a bit overthought. The "buyback and burn" model is very effective today.

Spencer: Exactly, the main reason is that unless the "Clarity Act" is passed, the legal rights of token holders remain very ambiguous. In theory, as an investor, if you are a startup, I certainly hope you reinvest cash flow into new growth opportunities. But in reality, most crypto protocols have not demonstrated the ability to expand across sectors and succeed, so many token holders prefer the team to "plant a flag on the beach" to clearly signal to the market that "we will always buy back and burn," which at least eliminates uncertainty.

Additionally, due to the varying quality of early crypto tokens, serious and high-quality projects must buy back and burn with "real money" from day one to prove their uniqueness to the market. Although this may not be the dominant model five years from now, at this stage, it is the most effective and credible way to align interests with token holders.

Host: There is a narrative now saying that "crypto VC is dead," with all major funds expanding their investment scope to cutting-edge technologies like AI and robotics, yet Blockchain Capital has chosen to double down during the industry's downturn. Interestingly, I see two extremes: on one hand, traditional financial institutions are eager to explore blockchain, while on the other hand, OGs in the crypto space are very pessimistic. How should we understand this divide?

Aleks: We are used to broadening our perspective and not overly focusing on the price fluctuations of bull and bear cycles. This "token bear market" is actually very special because it is accompanied by the most positive catalysts in history. We have welcomed the "Genius Act" and the gradually clarifying "Clarity Act," rules are being established, and traditional institutions are entering on a large scale.

More importantly, some applications have broken through the industry's information cocoon and entered mainstream visibility: for example, prediction markets (projects like Polymarket, where many users don't even care whether it is backed by crypto technology) and stablecoins (which provide extremely cheap cross-border payment and remittance channels). These sectors have still achieved strong unilateral growth during the bear market. It’s just that over the past year, AI has captured all the market's attention, especially with the explosion of coding agents and open-source Claude about 7 or 8 months ago, causing many to be distracted during the downturn in token prices.

Host: You often mention the "S-curve." Can you elaborate on where the crypto industry currently stands on this curve?

Aleks: The development trajectory of the crypto industry is highly similar to that of the internet. The internet began commercializing in 1989, spending the first ten years exploring until 2000 when there were billions of users, but it was still extremely difficult to use and bandwidth was limited. Then from 2000 to 2005, we experienced a broadband transformation. I believe the crypto industry has just undergone its own "broadband transformation." The block space has become extremely cheap and abundant. In 2020, Solana was the first to showcase a high-performance and scalable single chain, and by 2024, L2 will truly become widely adopted, with Ethereum gradually achieving scalability, which has become the new norm in the industry.

Looking back at the internet, the completion of the broadband transformation did not lead to an immediate explosion; it was only after the mobile explosion from 2006 to 2010 that the S-curve began to turn upwards. If the birth of Ethereum in 2015 represents the starting point of the "clock," we have only developed for 10 to 11 years now. Among 700 million crypto holders, perhaps only 10% are on-chain active users, because it is only in the last 2 to 3 years that truly user-friendly consumer-grade technology stacks (like embedded wallets, social recovery, spending limits, and passwordless logins) have matured and become widespread without requiring users to become cryptographers.

Thus, we are currently at the stage of the internet in 2003-2004, which is the "flat bottom of the S-curve" after broadband adoption and before the mobile explosion. Once stablecoins and prediction markets and other marginal applications thoroughly penetrate the center, the S-curve will reach its upward inflection point.

Host: Perhaps our generation was too young and impatient in 2021, thinking we could change the world overnight, but in reality, technology and infrastructure need time to settle. However, this still doesn't fully explain why OGs are so frustrated.

Spencer: This is a psychological "growing pain." When a startup reaches the IPO stage, early core employees often reminisce about the rebellious pirate-like moments of starting up and cannot bear to see the company become a large compliant entity for success. It’s like having a friend who discovers a very niche band, but when that band becomes popular and accepted by the mainstream, he feels regret and claims, "I only liked their early albums."

Aleks: Yes, now industry conferences are filled with people in suits discussing permission channels, compliance, and access, rather than cypherpunks. But finance is inherently a highly regulated sector, and it is impossible to grow without adhering to the rules.

However, the decentralization and neutrality of Ethereum and Bitcoin still have an extremely strong underlying appeal to institutions because they offer better trust assumptions. The dream of cypherpunks has not died; it is just operating in a more low-key and scalable form as the underlying network of the financial system. We are genuinely upgrading the channels of the global financial system, and while it may not sound as "sexy" as it once did, the efficiency gains will genuinely benefit everyone.

Host: Indeed. And you previously mentioned a detail: for the first time in history, traditional institutions are actively delving into and laying out crypto assets in a situation where prices are falling and there is no market frenzy narrative. Meanwhile, in 2025 and 2026, the industry seems to have completely bid farewell to the dead cycle of "investing in infrastructure for the sake of infrastructure." What does this represent in terms of industry evolution?

Spencer: In 2019, interacting with Uniswap could cost several dollars or even tens of dollars in friction costs, and at that time, the severe shortage of block space was the biggest bottleneck in the industry. This led to excessive funding being driven into infrastructure under the market's frenzy, resulting in the current situation where block space is severely oversupplied and many blocks are vacant. However, sufficient and cheap block space is an absolute prerequisite for application developers to thrive.

The data is very intuitive. In 2021, over 70% of the fees paid by users went to the infrastructure layer. And in 2025, for the first time in history, the total fees of the application layer surpassed those of the infrastructure layer. This means that with the sharp drop in transaction costs, value has finally begun to shift to the upper layers of the protocol stack (application layer). A healthy ecosystem should not allow the underlying communication infrastructure to extract the vast majority of monopoly rents, which is precisely what we are trying to break with crypto technology against the traditional banking rent-seeking model.

Host: So, this is the so-called "fat application theory" replacing the early "fat protocol theory"?

Aleks: Exactly, the underlying protocol layer should not capture huge profits because the essence of blockchain is to reduce intermediary fees and improve efficiency. But its more advanced logic is "thin protocol, large market": even if your fee percentage is extremely low, once you expand the underlying market size of global finance by an order of magnitude, the total absolute value captured will still be enormous.

Host: This is interesting. If we apply this "fat protocol to fat application" reasoning to the AI field, do investments and advancements in AI also follow similar patterns?

Aleks: The similarities are very evident. In the crypto industry, teams can raise billions of dollars in valuation based solely on a white paper, which is akin to how many new AI labs easily achieve sky-high valuations based on research visions and luxurious teams. We look at TPS and benchmarks in the crypto industry, while in AI, we look at various model benchmarks. In the crypto space, exchanges provide liquidity for tokens, while in AI, it is through hyperscalers that we obtain distribution channels.

But there is a huge difference: the prices of tokens in the crypto space are completely public and transparent emotional barometers. Once the narrative breaks, tokens can plummet by 90% in a month. In contrast, the bubble and downward pressure in the AI field are currently hidden in the private capital market; it may not crash directly like crypto but manifest as down rounds, talent loss, etc.

Host: Will the application layer of AI also explode like crypto?

Spencer: Absolutely. As emphasized by Palantir Technologies CEO Alexander, merely having models and intelligence cannot directly produce the results enterprises want; someone must go deep into the front lines to translate intelligence into actual workflows and outputs.

Interestingly, recent AI venture capitalists have suddenly fallen into a panic over "software having no moat." We, as crypto VCs, find this quite amusing because the crypto industry has been dealing with a brutally "completely open-source, anyone can fork the code at any time, with no software moat" environment for the past decade.

Aleks: The weights of general models will gradually become commoditized, while how to harness them to solve real problems will not. In those complex hardcore fields where "no mistakes are allowed" (like semiconductor manufacturing, complex tax audits, etc.), applications that leverage cutting-edge models with fine-tuning techniques, combined with proprietary datasets and closed-loop feedback, will establish deep moats that general models cannot breach.

Host: Returning to the tokenization of RWA. As the first generation of the most successful RWA, what insights has the development of stablecoins given us?

Spencer: Few people know that Blockchain Capital is the only venture capital firm that invested in the three major stablecoin issuers (Tether, Circle, Paxos) ten years ago. Today, the total market cap of stablecoins is about $300 billion, and I am almost 90% confident that by 2030 this number will soar to several trillion dollars (even $2 trillion). Previously, stablecoins were driven by retail investors, but now every new turning flywheel is accompanied by institutional momentum, pulling traditional stocks, money market funds, and government bonds onto the chain, because the global 24/7, programmable underlying network capital efficiency is simply too high.

The core of stablecoins is definitely not just a "payment product"; its stickiness is extremely high. Once dollars enter the chain, the vast majority of funds will settle down as operational capital injected into lending, exchanges, and other on-chain ecosystems, generating massive economic activity. We have conducted precise quantitative calculations: every $1 billion of net new stablecoin issuance will create about $122 billion of economic activity on-chain within a year. This $1 billion will directly deliver about $19 million of recurring protocol revenue to downstream on-chain protocols within a year.

Host: So, besides stablecoins, how will the highly anticipated "stock tokenization" evolve?

Spencer: Stock tokenization has two waves. The first wave is access. Global investors (especially non-U.S. domestic users) have a very strong demand for convenient, frictionless one-click trading of U.S. stocks. The second wave is composability. Once my Apple stock token is on the chain, there can be countless lending service providers and securities lending protocols competing in the open market to offer me the best collateral rates and yields, which is the ultimate manifestation of capital efficiency.

Currently, there are two main competitive routes in the market. One is the X-Stocks model represented by Backed (which has been acquired by Kraken). It issues debt instruments through a Cayman SPV to anchor stocks. Its advantage is that it requires no permission, no KYC, and can freely circulate in DeFi. But the fatal flaw is that what you own is a debt owed to you by the SPV, not a real share of Apple Inc. For large institutions with hundreds of billions in capital, this kind of credit and legal risk is unacceptable. The other is a compliant channel that directly owns stock ownership, which requires us to make compromises on permissionlessness.