Why Crypto Investment Logic is Pivoting Toward Application-Layer Opportunities

Arca’s Chief Investment Officer Jeff Dorman recently outlined a fundamental shift in crypto investment strategy, arguing that the real opportunities now lie in application-layer projects rather than foundational infrastructure. This reorientation challenges conventional wisdom and reshapes how investors should approach crypto investment decisions in the coming years.

The Obsolescence of Infrastructure Betting

For years, the “fat protocol” theory dominated investment thinking—the idea that value would accumulate at the base layer of blockchain networks. However, this premise has proven flawed in practice. Major base layer blockchains including Solana and Ethereum, along with Layer 2 networks, currently lack compelling investment cases. Meanwhile, stablecoins and real-world asset tokenization projects, despite attracting intense market focus and development resources, have failed to direct the value they generate back into underlying infrastructure platforms.

The fundamental problem: every new market entrant wants to build its own complete technology stack rather than leverage existing solutions. This means nascent ecosystems like stablecoins and RWA protocols are creating value in isolation, leaving base layer assets stranded. For crypto investment purposes, betting on infrastructure that market participants are actively abandoning or that generates minimal usage-based value represents a flawed strategy.

Where the Real Value is Accumulating: The Application Layer

Rather than fighting declining infrastructure assets, sophisticated investors are redirecting their focus to productive application-layer protocols. These projects have already demonstrated real product-market fit and are successfully converting that traction into economic value.

The emerging opportunity set includes:

• Perpetual and spot decentralized exchanges: Hyperliquid and Aero exemplify successful DEX implementations capturing meaningful trading volume and generating sustainable fee economics
• Prediction markets: Operating with genuine user engagement and real financial incentives
• Token issuance platforms: Projects like PUMP enabling creators to launch assets directly
• Lending infrastructure: Established protocols such as AAVE and newer entrants like SYRUP building durable value through interest generation
• Decentralized physical infrastructure networks: Showing longer-term potential despite current skepticism

The critical differentiator: these application-layer projects have transitioned from theoretical potential to demonstrated performance, with token economic models showing genuine utility and value generation.

The Competitive Restructuring Ahead

The broader crypto market isn’t declining—it’s undergoing a fundamental realignment. Existing infrastructure providers face diminished competitive advantages, while barriers to entry for new participants have eroded substantially. This creates an intense competitive environment where only applications demonstrating genuine use cases and sustainable value capture will survive.

For anyone making crypto investment decisions, this represents both a warning and an opportunity. The conventional wisdom promoted by exchanges, indices, and industry analysts—emphasizing infrastructure accumulation—has actively misled investors. The future belongs to applications that solve real problems and generate authentic economic value, not to foundational platforms hoping to extract value from activity occurring elsewhere.