In the summer of 2016, USV’s Joel Monegro published the so-called Fat Protocols thesis about where value is created in the blockchain / cryptocurrency ecosystem. He argues that investments make the market cap at lower levels always grow faster than the combined value of the applications built on top, since the success of the application layer drives further speculation at the protocol layer. And because of that, the nature of the blockchain tech stack encourages innovation at the protocol and other lower layers. I was curious if that would hold true within different layers of a blockchain protocol’s ecosystem as well.

Since it’s the largest token ecosystem by far, I decided to look into the Ethereum ecosystem to figure this out. Based on data from Coinmarketcap, Ethereum has (by far) the most tokens realized on top with currently >800, the second most are on NEO with only ~25. So I had a look at the top ~250 tokens on Ethereum; down from the top to a market cap of about 5m at the time of writing. The total market cap of these projects was about 10b, so compared to the ~20b of Ethereum, the initial premise of the Fat Protocol thesis seems to hold true. To investigate further, I categorized the projects and mapped the categories that I found into a 4-layered structure (see below).