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Home»Blockchain»Debate erupts over crypto’s network effects as investors question L1 value
Blockchain

Debate erupts over crypto’s network effects as investors question L1 value

November 28, 2025No Comments4 Mins Read
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Santiago Roel Santos, founder and CEO of crypto investment company Inversion Capital, said cryptocurrencies are not subject to positive network effects, but other experts disagree.

In a recent Substack post, Santos wrote that “crypto is priced for network effects it doesn’t have.” He also pointed to the network effect valuation system, Metcalfe’s Law, saying that it “doesn’t justify crypto’s valuation” and instead “exposes it.”

Santos claimed that many of crypto’s network effects are adverse, due to congestion, such as higher fees, a worse user experience, and slower transactions. “Facebook didn’t get worse when it added 10 million users,“ he said.

Other experts push back

Some analysts agree that crypto may be overvalued, but others say Santos is applying the wrong framework.

Santos admitted that new blockchains improved transaction throughput, but he claimed that this leads to lower friction, not compounding value. Still, he said that liquidity, developers and users can move while code can be forked, and value capture is weak.

Related: DeFi is already 30% of the way to mass adoption: Chainlink founder

Jasper De Maere, desk strategist at leading crypto market maker Wintermute, told Cointelegraph that deeming layer 1 blockchains overvalued due to negative network effects is “applying consumer-app logic to infrastructure,” expanding on the Facebook example.

“Facebook’s back-end also had congestion and outages early on; those negative effects were simply internalized and abstracted.“

De Maere said that “users are not supposed to interact with L1s directly,” making monthly active users and user stickiness irrelevant. According to him, “the real network effects for an L1 exist at the validator, security and liquidity layer, not the end-user layer, and that’s where compounding actually happens.”

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Tomas Fanta, principal at the crypto investment firm Heartcore, said he disagrees with Santiago that fees worsen as usage grows. He said that on high-performance blockchains, “the fees change from meaningless to meaningless,” and that liquidity improves and yields increase as adoption increases.

Ben Harvey, digital asset researcher at crypto trading company Keyrock, told Cointelegraph that he largely agrees with Santos’ claim that L1 blockchains are overvalued. Still, he does not think this applies to all L1s equally, with protocol scalability and artificial intelligence integration being key factors.

Related: Blockchain is struggling to hold on to its original purpose: Aztec co-founder

Analysts debate crypto valuation logic

Santos pointed to some rough mathematical estimates of the value an onchain user holds for a blockchain. Considering the current total crypto market cap excluding Bitcoin (BTC), of $1.26 trillion, this would price the 40–70 million monthly active users estimated by venture capital company Andreessen Horowitz last month at $18,000 to $31,500 each.

The same report estimates that 716 million people own crypto. This would result in a per-user value estimate of nearly $1,760, but it is an overcount because Bitcoin is not excluded. With Santos’ estimated 400 million users, the value would be $3,150 per user.

With Facebook’s 3.1 billion monthly active users and Meta’s market cap of $1.6 trillion, we get a per-user valuation of $516. Furthermore, Meta also runs other platforms and services in addition to Facebook that are priced in.

Market cap per user comparison. Source: Santiago Roel Santos

Martin Kupka, a former investor at Web3 investment firm RockawayX, told Cointelegraph that crypto “network effects today are in stablecoins, centralized exchanges and perpetual future decentralized exchanges.” He explained that “the more useful it is as a medium of exchange and collateral, the more traders a CEX or perpetual venue has, the deeper the liquidity and better the execution.”

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Wintermute’s De Maere said that “Web3 is modular and that makes the underlying network effects far easier to see” compared to Web2. He explained that those effects generally emerge across L1 as security and validator concentration, in stablecoins as liquidity, and in decentralized and centralized exchanges, as well as in the application layer where users aggregate.

“Because these layers are separable rather than bundled, you can clearly observe where compounding happens,” De Maere said. “That’s why, based on traditional metrics like ARPU […] they can look overvalued,” he added. The current state of crypto valuation resembles when “we were struggling to value Web2 platforms […] and created specific models to do so,” he said.

Magazine: Bitcoin whale Metaplanet ‘underwater’ but eyeing more BTC: Asia Express

Cryptos debate effects erupts Investors Network question
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