Layer One: Santiago Santos claims L1 tokens are overvalued

Welcome to Layer One: the newsletter and podcast on the intersection of crypto and the real world. Hosted by Steven Gates and Kelvin Sparks, Layer One brings you inside the conversations driving blockchain forward.

This week we were joined by Santiago Santos, founder and CEO of Inversion Capital, to discuss his fundamentals-first investment thesis and how some major blockchains could be significantly overpriced.

In this edition of the Layer One newsletter, we’re investigating whether the largest L1 tokens really are overvalued, or if their growth is just getting started.

Do major L1 blockchains suffer from an overvaluation problem?

Few would dispute the notion that we’re now in the middle of a crypto winter: the Fear and Greed Index hit record lows this month, many major altcoins are down up to 90% from their 2025 highs and some analysts warn that a final flush to $55,000 could be on the cards for BTC.

After a months-long bleed, some major L1 tokens might now appear to be trading at comparatively attractive valuations. However, our guest this week argued the opposite: that the valuations of major L1 networks are in fact greatly overinflated — perhaps by an entire order of magnitude. Santos has been at the epicenter of this debate since publishing a series of controversial Substack posts on the topic last year, going as far as to call certain tokens “uninvestable.”

He believes this represents a much-needed reality check for a market intoxicated on promises of an “institutional supercycle” and parabolic growth across the board. Instead, he asserts that the market has, as a whole, overinvested in basic blockchain infrastructure at the cost of true utility and user growth. As a result, he believes the valuations of these networks have far outstripped their fundamentals.

To illustrate this point, Santos took the fees generated by the Ethereum network as analogous to the earnings of a traditional tech firm. He found that ETH traded at around a 200x multiple on its yearly fees ($400 billion, versus $2 billion). Meanwhile, GPU firm NVIDIA came in closer to a 40x on the company’s yearly earnings.

Likewise, he followed up that if we instead value crypto networks by their user base, in line with models used for social media firms, the results are much the same. Dividing crypto’s overall combined market cap by the number of monthly onchain users, he arrived at a per-user value 50x more expensive than social media giant Meta.

In short, Santos believes that the fundamentals are simply not there to justify L1 token valuations in the hundreds of billions. He even goes as far as to suggest that Ethereum itself may never see its all-time high again — a bold claim, but how likely is it really?

After all, there are other factors to consider beyond fees and users. Critics argue that traditional valuation models — whether derived from tech firms or social media networks — don’t neatly map onto L1 networks, which function like public infrastructure rather than revenue-generating companies. For these networks, TVL and the growth of the validator set (which increases the network’s security and decentralization) are also core fundamentals.

As the push to tokenize traditional finance assets progresses, long-established, reliable chains will stand to benefit the most from capital influxes. Bitwise CIO Matt Hougan this week implied that the markets are in fact not bullish enough regarding this proposition. He cites the combined $285 trillion value of traditional ETFs, stocks and bonds which could find their way onchain.

In the light of this potential future value capture, it could be argued that $250 billion is in fact an undervaluation for Ethereum.

Santos — himself a major proponent of stablecoins and tokenization — agrees that this world will come into being. However, he also warns against investing based on theoreticals: “That world is not here yet — and today’s economics do not reflect it. You're paying a huge multiple for something that doesn't exist yet.”

Podcast Recap: Santiago Santos' framework for surviving cycles

In the Headlines: The stories driving the conversation this week

• Japan’s largest tokenized securities platform is bringing $2 billion in corporate bonds and real estate to the Avalanche network. In a major stride for RWA adoption in Asian markets, Progmat — which holds the equivalent of $2.8 billion in assets under management — is migrating its onchain assets to a dedicated L1 in the Avalanche ecosystem. Japan’s tokenization sector is expected to top $7 billion by the end of 2026.
• Terraform Labs liquidation administrator Todd Snyder is suing investment firm Jane Street for alleged insider trading. The complaint, filed this Monday, alleges that the firm exploited privileged information to frontrun trading prior to the collapse of Terra-Luna. Terraform Labs has been undergoing bankruptcy proceedings since 2024, following the depegging of its stablecoin TerraUSD two years prior. The incident has since seen founder Do Kwon sentenced to 15 years in a US federal prison.
• The UK’s Financial Conduct Authority has selected Revolut for stablecoin trials, in support of upcoming legislation. The initiative gives the neobank, along with three other firms, the opportunity to trial stablecoin integrations under real-world conditions. This comes as the FCA and Bank of England are reportedly working on an equivalent of the US’ GENIUS Act, which would provide a comprehensive framework for stablecoin use and issuance.

Top of the Charts: L1 transaction fees still spike, but overall trends are down

Keep up with the latest in tokenization, DeFi, and institutional adoption by subscribing to Layer One's weekly market insights.

Layer One is brought to you in collaboration with Avalanche.