Apps Are Taking Over Crypto | 6th Man Ventures

This episode reveals why venture capital is shifting focus from blockchain infrastructure to applications, highlighting the emerging revenue models and strategic plays defining the next wave of crypto adoption, particularly for discerning Crypto AI investors.

1️⃣ The Overcrowded Infrastructure Landscape & The Rise of Applications

• Mike Dudes from 6th Man Ventures initiated the discussion by asserting that the crypto space has an overabundance of "generalizable block space," with estimates suggesting less than 1% of available Layer 1 (L1) capacity is actually utilized. L1s (Layer 1s) are foundational blockchains like Bitcoin or Ethereum.
• He critiqued the common L1 playbook: launching at an inflated valuation, implementing aggressive market-making to sustain token prices, and attempting to cultivate an ecosystem. This strategy, while historically effective under the "Fat Protocol Thesis" (the idea that base-layer protocols will capture most value), is now facing diminishing returns.
• 6th Man Ventures, with its background in consumer applications, has consistently favored investing in applications and ecosystems poised to bring hundreds of millions of users on-chain. This led them to the Solana ecosystem early in 2020 due to its high-performance capabilities.
• Mike highlighted successful applications like OpenSea, STEPN, Magic Eden, and more recently, Hyperliquid and Pump.fun, as evidence that compelling product experiences can generate substantial revenue, making apps increasingly attractive to VCs. "They've demonstrated that by creating a compelling product experience, you can generate hundreds of millions of dollars in revenue," Mike stated.
• Carl Vogel added that infrastructure projects historically attracted larger VCs due to the ability to write bigger checks. In contrast, applications are often less capital-intensive, citing Hyperliquid (reportedly raised no outside capital) and Pump.fun (raised <$3M, generated significant revenue) as prime examples.
• Strategic Implication for Investors: The saturation in general L1s suggests a pivot towards applications with clear user adoption and revenue potential. Investors should scrutinize the utility and actual usage of new L1/L2 solutions.

2️⃣ The Future of L1/L2 Chain Premiums

• Mike Dudes anticipates a "bifurcation" in the L1/L2 market. He predicts that many underutilized L2s (Layer 2 scaling solutions) and general-purpose L1s, particularly some EVM L2s and DA (Data Availability) layers, will "trend towards zero." EVM (Ethereum Virtual Machine) compatibility allows blockchains to run Ethereum-style smart contracts.
• Conversely, chains that successfully cultivate genuine ecosystems and generate significant fee revenue, such as Solana, and potentially application-specific chains like Hyperliquid's or Athena's, are expected to appreciate in value.
• He noted that "OG L1s" like Cardano and Dogecoin often trade more like meme assets due to broad distribution and brand recognition, rather than on venture-investable fundamentals.
• Actionable Insight: Investors should be wary of the "chain premium" for generic L1/L2s without demonstrated ecosystem traction or unique value propositions. Focus on chains with tangible usage and fee generation.

3️⃣ Guiding Startups: Choosing the Right Blockchain

• Mike Dudes explained that 6th Man Ventures advises startups to launch on a select few blockchains that offer stability, capital availability, and a significant user base, such as Solana and Base. They caution against building on chains that introduce excessive "chain risk" due to lack of users or unproven technology.
• The Sui ecosystem, which uses the Move programming language, was mentioned as gaining momentum for specific use cases.
• Carl Vogel added Monad to their list of promising chains, citing its strong community and compelling technology for high-performance applications, particularly within the EVM space. He also noted Sui's emergence as a key destination for Move developers.
• However, Carl highlighted the challenge of underwriting consumer products at high valuations on unlaunched chains like Monad, describing it as "risk compounding on risk."
• Strategic Consideration: For researchers and investors, understanding a project's choice of blockchain is crucial. The chain should align with the application's technical needs and target user base, rather than being solely grant-driven.

4️⃣ Deep Dive into Monad's Potential

• Carl Vogel outlined that Monad's success will be measured by its ability to "go live this year with a complete ecosystem of high performance teams where a user can come in and engage with a variety of different products."
• From an investor standpoint, Monad's token trading value relative to its significant backing (e.g., by Paradigm) will be a key performance indicator. However, he emphasized that ecosystems require time to mature.
• A critical heuristic for success, according to Carl, is developer sentiment: "If I'm a developer do I see a thriving opportunity to build a business if I do so on Monad?"
• Investor Watchpoint: Monad's progress in attracting developers and launching a functional, engaging ecosystem post-mainnet will be critical. Its performance could signal the viability of high-performance EVM-compatible alternatives.

5️⃣ Evolving Revenue Models for Crypto Applications

• Carl Vogel identified "issuance and trading" as the two most effective business models in crypto currently, exemplified by Pump.fun and Hyperliquid, which can monetize market creation and trading activity.
• He noted a key difference from Web2: crypto applications, being inherently financial, can often generate revenue from day one. Carl stated, "Because crypto is fundamentally built on a financial system, there's almost no reason that revenue shouldn't be available day one."
• Mike Dudes suggested future revenue streams beyond trading, including ad networks and data monetization, where users could earn by sharing data with ecosystem partners.
• He also pointed to more traditional revenue models emerging in areas like DePIN (Decentralized Physical Infrastructure Networks) (fee-for-usage for services like decentralized compute or mapping), stablecoins (fees on money movement), and money markets like Aave or Kamino Finance (lending fees).
• Strategic Implication: Crypto AI investors should look for applications with sustainable and diverse revenue models beyond speculative trading. The ability to capture value through utility and service provision is becoming paramount.

6️⃣ Web2 vs. Web3 Monetization: The Friction Point

• Ryan (Blockworks Research) raised the point that Web2 platforms often add users at no marginal cost to the user, whereas Web3 typically involves user-side costs or friction.
• Carl Vogel countered that if a product doesn't involve money in its core flows, its necessity on a blockchain is questionable, as "crypto fundamentally is a financial ledger."
• He proposed that users engage with products for "fame, fortune, or fun." If an application only offers fun without elements of financial gain or significant social recognition, it might not leverage crypto's unique strengths.
• Researcher Focus: This highlights a core challenge for Web3 adoption: balancing decentralization and on-chain interactions with user experience and cost. Innovations that reduce this friction are key.

7️⃣ The Pump.fun Phenomenon: From Memecoin Launchpad to Creator Platform

• Mike Dudes described Pump.fun's initial success as creating a "magical moment" with extremely simple token creation, an integrated bonding curve (an automated market-making mechanism where token price increases as supply increases), and immediate locked liquidity.
• This simplicity and early mover advantage fostered a large ecosystem, including Telegram bots and integrations with platforms like Dexscreener, creating a significant moat. The "pump" suffix in contract addresses became a signal of perceived legitimacy.
• Mike emphasized Pump.fun's relentless team and their vision beyond memecoins: "They don't think of themselves as a crypto company. They think of themselves as a social company." He cited their accelerating revenue (over $1.5M/day at the time of recording) and their move into features like streaming.
• Carl Vogel reinforced this, stating, "When people talk about it as a memecoin launchpad, we're going to build a better one. It's kind of like they're playing last year's game... they're already on to the next thing." He mentioned their ambition to be a "TikTok cross Robin Hood" social finance layer.
• Investor Insight: Pump.fun's evolution underscores the importance of adaptability and community-building. Successful platforms can transcend their initial use case by understanding and catering to emergent user behaviors.

8️⃣ Pump.fun's Strategic Bet on Streaming

• Responding to Ryan's query about choosing streaming over text-based social, Mike Dudes argued that significant crypto discourse and influence already occur via streaming, citing the "LA vape cabal" and mainstream streamers discussing tickers.
• He pointed out that retail distribution for past crazes like ICOs often happened through video platforms like YouTube, indicating a broader trend towards video for information consumption, especially among younger demographics.
• Trend to Watch: The integration of financial speculation with live, interactive content formats like streaming could be a powerful driver for future crypto applications, particularly in the creator economy.

9️⃣ Network Effects and Moats in Launchpad Models

• Mike Dudes acknowledged that Pump.fun's initial technical advantages (bonding curve, locked liquidity) are replicable. However, their moat now lies in the ecosystem they've built, rapid integrations, their own AMM (Automated Market Maker), and the ingenuity of the founders. He compared this to Magic Eden's evolution from an NFT marketplace to a multi-chain platform with its own wallet and swap functionalities.
• Carl Vogel added that becoming a "standard" is a powerful moat, similar to how XY=K became a standard for AMMs or HTTPS for secure websites. He suggested Pump.fun is establishing a new standard for token launches. "The Metaplex standard... if you become part of the standard now you're immediately composable with all the wallets."
• He speculated that the Pump.fun standard could evolve, perhaps incorporating features like automated revenue sharing for creators from trading fees on their tokens.
• Strategic Consideration: For investors, identifying platforms that are not just feature-rich but are on a path to becoming de facto standards within their niche can lead to outsized returns due to strong network effects and defensibility.

🔟 Special Guest: Antonio from DYDX on the Future of DeFi

• Antonio, joining from DYDX, shared his vision for the "winning DeFi product": a vertically integrated platform. He described a "super DeFi app" that would consolidate a launchpad, spot/perp DEX, lending, NFTs, and a wallet into a single, user-friendly interface akin to Robin Hood for DeFi. DeFi (Decentralized Finance) refers to financial applications built on blockchain. Perps (Perpetual Swaps) are derivative contracts that allow traders to speculate on asset prices without an expiry date.
• DYDX is exploring two strategic paths: building this super app themselves (on a 6-18 month timeline) or becoming the core perps provider for other entities building such integrated products.
• Antonio advised listeners to use the current market downturn to "evaluate the landscape, evaluate new types of products... and decide for yourself where things are going."
• DYDX's immediate focus is on rapid feature deployment (like TWAP orders - Time-Weighted Average Price orders, and scale orders), reliability, liquidity, and seamless onboarding. He hinted at more integrations to make DYDX accessible in more applications.
• AI Researcher Note: The trend towards "super apps" in DeFi could create opportunities for AI integration in areas like personalized risk management, automated trading strategies, and enhanced user experience within these comprehensive platforms.

1️⃣1️⃣ Defining "Consumer Crypto"

• Carl Vogel stated that 6th Man Ventures doesn't rigidly define "consumer crypto," preferring to focus on the application layer where lines often blur (e.g., Sleepagotchi being both a game and highly social). If pressed, he'd say a social element is key.
• Mike Dudes expanded, noting consumer crypto spans various subsegments:
  • Stablecoins: Enabling self-custody, global money movement, and a base layer for consumer DeFi products (e.g., earning yield).
  • DePIN: Allowing consumers to earn tokens by contributing resources (e.g., Hivemapper for mapping data, or contributing to internet networks).
• The core idea is empowering consumers with new financial tools or earning opportunities.
• Investor Lens: The "consumer crypto" label is broad. Focus should be on applications solving real user problems or offering compelling new forms of engagement or earning, irrespective of strict categorization.

1️⃣2️⃣ The State and Challenges of DePIN

• Carl Vogel offered a candid assessment of DePIN, noting a "tough year" following an investor-driven price run in late 2023/early 2024 that lacked fundamental backing. He argued, "DePIN has been hijacked in terms of investors and... teams that are looking to create value for themselves not for the community."
• Key issues identified:
  • Low actual revenue flowing to tokens (often <$10M ARR - Annual Recurring Revenue).
  • A significant portion of generated revenue not accruing to the token (e.g., only 30% in one major DePIN project), with centralized entities capturing value.
  • An overemphasis on building supply rather than securing real-world demand.
• Carl stressed the need for DePIN projects to productize their offerings for enterprise adoption and build capable sales teams.
• Mike Dudes added that paying contributors in USDC/USDT might become more common due to the poor value accrual and lack of buy-side demand for many native DePIN tokens.
• He mentioned IO.NET, DataHive, and Grass as part of a potential "second wave" of DePIN, with a focus on counseling these teams to ensure revenue flows to token holders.
• Ryan (Blockworks Research) noted DePIN's "negative path dependency," where declining token prices and regulatory uncertainty hampered efforts to secure enterprise deals, despite longer sales cycles.
• Actionable Insight for DePIN Investors: Scrutinize tokenomics for clear value accrual mechanisms from actual network usage. Projects must demonstrate a viable path to enterprise adoption and sustainable demand, not just speculative token interest.

1️⃣3️⃣ DePIN Focus: Compute vs. Data Networks

• Addressing whether data networks (like Grass) are outperforming compute networks, Carl Vogel reiterated the challenge of verifying off-chain revenues for any DePIN project. "If that revenue is not flowing on chain, is it really a DePIN project?"
• However, he affirmed that there are real buyers for data (citing their portfolio company DataHive) and that distributed compute (like IO.NET, which he stated is doing millions in revenue) remains a compelling thesis due to its wide applicability, especially for AI.
• Mike Dudes confirmed IO.NET's significant network earnings, indicating real demand for decentralized compute.
• AI Investor Focus: Decentralized compute and data networks are foundational for many Crypto AI applications. Investors should prioritize projects with transparent on-chain revenue, verifiable demand, and strong technical capabilities to serve the AI industry's needs.

1️⃣4️⃣ VCs and the Bitcoin Benchmark Dilemma

• Mike Dudes firmly stated that VCs should not benchmark against Bitcoin. He views Bitcoin as a distinct asset ("global store of value, digital gold") from the "internet capital markets" (Web3, stablecoins, DeFi) where 6th Man Ventures invests. A more appropriate benchmark might be a tech index like the NASDAQ.
• Carl Vogel added that their fund has outperformed Bitcoin, emphasizing that venture offers a different product with potentially lower volatility and access to early-stage growth. "It's kind of like saying if you're a Web 2 SaaS VC, should you benchmark against like Bitcoin? It's like, well, no."
• Strategic Implication: LPs and investors should understand that crypto venture investing targets a different risk/reward profile and growth trajectory than direct Bitcoin investment. Performance should be assessed against relevant early-stage tech and crypto-native benchmarks.

1️⃣5️⃣ The Rise of Liquid Bets in Venture Portfolios

• Carl Vogel explained that 6th Man Ventures has increasingly incorporated liquid token investments (like Solana and Bitcoin, bought at lower prices) into their strategy. This evolution stemmed from applying their venture theses to publicly traded assets that align with their long-term market views.
• Investor Trend: The line between private and public markets in crypto is blurring. VCs are leveraging their research and market insights to actively manage liquid positions, offering a more dynamic approach to fund management.

1️⃣6️⃣ The Future Landscape of Liquid Crypto Funds

• Carl Vogel expressed skepticism about a surge in pure liquid funds if they continue to experience high volatility (e.g., 15-20% monthly losses). He sees the market oscillating in demand between venture and liquid strategies, with hybrid models (VCs holding liquids, liquid funds doing venture deals) being the optimal structure.
• Mike Dudes concurred, doubting a massive increase in pure liquid funds due to current market irrationality, which makes underwriting difficult. He pointed to price dislocations, like Solayer trading at a much higher FDV (Fully Diluted Valuation) than Jito despite Jito having significantly more Total Value Locked (TVL) and revenue, as examples of market inefficiencies driven by non-organic activities. (Disclosure: 6th Man Ventures are investors in Jito).
• Carl warned that manipulative market practices (like those alleged with Movement Labs) are not isolated incidents and that investors should focus on fundamentals.
• Actionable Insight: While more capital will flow into liquid crypto assets, pure liquid funds face challenges in an often irrational market. Hybrid funds with strong fundamental analysis capabilities may be better positioned during the market's maturation over the next few years.

1️⃣7️⃣ The Debate on Buyback and Burn Mechanisms

• Carl Vogel voiced his dislike for token buyback and burn programs for early-stage companies, viewing them as "financial engineering" that diverts capital from genuine growth initiatives like marketing or operational expansion. "It's ludicrous to me that companies are doing large buyback and burns... instead of actually trying to grow their core business at these stages," he argued.
• While acknowledging Ryan's pushback that crypto businesses could be seen as small/medium enterprises returning capital, Carl maintained that projects with grand ambitions (e.g., "replatforming America's infrastructure with DePIN") should prioritize growth. He conceded it might be acceptable for mature, "ossified" protocols not in a primary growth phase.
• The consensus leaned towards needing better market structures for returning value to token holders beyond simple burns, especially for growth-stage projects.
• Investor Consideration: Evaluate if a project's capital allocation (buybacks vs. reinvestment) aligns with its stated maturity and growth ambitions. For early-stage projects, a heavy focus on buybacks over growth could be a red flag.

1️⃣8️⃣ Navigating the Lack of DPI in the VC Space

• Mike Dudes addressed how the pressure for DPI (Distributions to Paid-In Capital) has influenced VC behavior. Some funds have shifted towards later-stage investments closer to TGE (Token Generation Event), focusing on exchange listings and market maker support to facilitate quicker exits and OTC sales of tokens. This can lead to capital misallocation towards projects with short-term liquidity prospects over long-term fundamentals.
• Carl Vogel noted that 6th Man Ventures' 2021 vintage fund has already returned capital, alleviating this pressure. He questioned the "DPI at what cost?" mentality, expressing concern about firms repeatedly selling SAFs (Simple Agreements for Future Tokens) at discounts just to show distributions, potentially harming long-term value. Given their optimism for the market in 6-12 months, holding assets for better prices is often a better fiduciary duty to LPs.
• Strategic Insight: The pressure for DPI can distort investment strategies. Investors should seek VCs with a long-term vision and a track record of value creation, not just quick flips, especially in a market poised for potential growth.

1️⃣9️⃣ Shifts in the VC Landscape and Valuation Dynamics

• Carl Vogel described a "reordering of firms" in the VC space. Some older VCs involved in "market manipulation type games" have seen their brand equity decline, while a newer generation of firms, including 6th Man Ventures, Dragonfly, and Multicoin, have risen to "tier one" status by acting as good stewards in the ecosystem.
• He observed that founders are becoming more pragmatic, often preferring reasonable valuations with top-tier funds over inflated valuations from less reputable ones. Valuation is rarely the primary reason 6th Man Ventures passes on a deal, except in consumer crypto where the higher risk necessitates more conservative entry points.
• Mike Dudes highlighted an increasing investability of equity-based businesses in crypto (e.g., in stablecoins, payments, Crypto AI) that leverage blockchain rails but may not require their own proprietary token, focusing instead on real fee generation.
• Final Takeaway from Mike: Despite a more "sober" market conversation, 6th Man Ventures remains highly optimistic, seeing a growing ability to distinguish genuine builders from "grifters." He affirmed, "6th Man is open for business," actively investing in the next generation of companies.
• Crypto AI Investor Outlook: The VC landscape is maturing, with a greater emphasis on fundamentals, sustainable business models, and ethical practices. This shift benefits serious builders and investors in the Crypto AI space looking for long-term value.

Reflective and Strategic Conclusion

This discussion underscores a critical pivot in crypto investing: from infrastructure speculation to application-layer value driven by real usage and revenue. Crypto AI investors and researchers should prioritize projects with clear product-market fit, sustainable tokenomics, and strong, adaptable teams capable of navigating an evolving market.