Fading Faith in the Monetary Premium

Key Insights

• The Monetary Asset Thesis Is Losing Steam: Markets appear to be abandoning the idea that most L1 tokens will accrue a lasting monetary premium. Aside from Bitcoin, few chains are still being valued as sovereign money tied to their own economic zones.
• Bitcoin Stands Alone as a Monetary Exception: BTC remains the only L1 consistently priced as money. Its valuation reflects credibility and simplicity, not economic capture, underscoring how unique its role is relative to smart contract platforms.
• Markets Are Repricing Based on Value Capture Quality: Investors are becoming more selective, rewarding chains with recurring, defensible revenue over those with cyclical or narrowly concentrated activity.

In 2022, Haseeb Qureshi of Dragonfly introduced a now-famous metaphor in his piece Blockchains Are Cities. He compared different Layer-1 (L1) blockchains to distinct cities, shaped by unique architecture, governance philosophies, and cultural identities. While he initially focused on the inevitability of a multichain world, valuation theorists quickly extended his analogy.

They reasoned that if L1s were like cities, then their native tokens served as the local currencies. And just like sovereign currencies, these tokens derive value from economic activity. As a blockchain’s onchain “GDP” grew, so did demand for its token. In this view, markets priced native tokens as monetary assets anchored to their digital jurisdictions.

But markets don’t stand still. Token valuations increasingly suggest that this analogy is breaking down. A bustling digital city is no longer enough. Now, it needs to generate profit. Investors seem to care less about the scale or vibrancy of a blockchain’s economy and more about whether the network can extract and retain value. As a result, valuation frameworks are shifting. Markets appear to be moving away from treating L1s as cities with civic currencies and instead are beginning to assess them more like corporations, platforms with customers, margins, and monetization strategies.