The Rails Are Free, The Trains Make Money

By Leigh Drogen and Dennis Qian of Starkiller Capital

Last year we argued that blockspace was crypto’s heaviest bag in this piece. It was abundant, undifferentiated, and already on its way to being priced like a commodity. A year later, the bag has gotten heavier. Blockspace isn’t just abundant anymore, it’s worthless. And the smartest players in the room have stopped pretending otherwise.

The original pitch for Ethereum and its L2s was simple: rent our blockspace, pay the toll, and join a global decentralized network. That worked when spinning up your own chain required a specialized engineering team most companies didn’t have. It worked when the narrative of shared security was enough to justify dependency on someone else’s rails. It doesn’t work anymore.

Today, the default move for serious companies isn’t “deploy on Ethereum.” It’s “spin up our own chain.” The infrastructure has matured, the bottleneck of talent has eased, and turnkey providers like Conduit make it trivial. Paradigm demonstrated the obvious truth: when the talent barrier goes away, the optimal strategy is full control. Why would any profit-seeking enterprise onboard onto an eight-year-old public chain, pay rent, and leak value to token holders when they can launch a custom chain where they control the rules, the token, and the economics? The answer is simple, they won’t.

The incentives line up perfectly. Customization allows throughput, permissions, compliance features, and execution environments to be tailored to actual business needs, not crypto Twitter debates. Control means no dependence on Ethereum governance or roadmap bottlenecks. Value capture means either creating a proprietary token or simply keeping transaction margins in-house instead of bleeding them to validators on a public chain. Customer alignment means bringing existing users onto your own network, not someone else’s.

Stripe is the canonical case study. Stripe doesn’t need Ethereum’s “global computer” gimmick. It already has a customer base, global integrations, and the engineering muscle to run infra. It also knows something obvious that crypto still hand-waves away: the revenue from simple blockspace provisioning is trivial. By definition, if the cost of transacting is low enough to make a decentralized blockchain work at scale, then the revenue attached to it will never be that significant. Stripe isn’t building a chain to skim pennies in blockspace fees. It’s building a chain to service merchants, the real source of its revenue, and potentially to kneecap the rent collectors it and its customers pay today: Visa, Mastercard, and Amex. That’s the game. And of course it will build a chain that maximizes its own capture and aligns directly with its merchants.

We’ve seen this movie before. In the early days Amazon relied on UPS, USPS, and FedEx to deliver packages. That was fine for getting off the ground, but those providers controlled the pricing, the speed, and the customer experience. It capped Amazon’s margins and constrained its growth. So Amazon built its own fulfillment network, warehouses, and eventually last-mile delivery. Not because “delivery fees” were a juicy revenue line, but because controlling the rails meant controlling the customer, and it kneecapped competitors who couldn’t do the same. Stripe and others are making the exact same calculation. Relying on Ethereum for blockspace is like Amazon outsourcing delivery forever. If you can afford to build the rails yourself, you do it. That’s where the leverage is.

We’ve now arrived at a clean split between two models of blockchain adoption. On one side sits the Ethereum and L2 world: forks on forks of DeFi primitives, recursive financial games, NFT grants, endless airdrops. The loudest advocates here care about solving a hypothetical decentralization problem that doesn’t exist at scale yet. They chase purity while struggling to point to non-speculative users. On the other side are enterprises with real customers putting their existing motions on their own chains. Permissioned first because compliance demands it, maybe permissionless later if it makes sense, but always under their control. One camp is optimizing for ideology. The other is optimizing for utility. If history is any guide, utility wins.

We don’t have to speak in hypotheticals about this shift. The market has already started voting. Over the past year, the relative price action of core blockchain tokens versus application tokens tells the story clearly. Ethereum, Solana, Avalanche, pick your chain, have gone sideways or bled against BTC. The fat protocol thesis crowd told us all the value would accrue to these base layers. And that's not even to mention the panoply of other alt-L1s with somewhat interesting and novel tech which have seen their tokens get obliterated because their chains are complete ghost towns. Instead, the most explosive token performance has come from applications, not protocols. The standout is Hyperliquid. HYPE has been one of the best performing tokens in all of crypto. And it’s not an accident. HYPE is a pure expression of application-level demand, actual users, actual flows, actual token velocity tied to usage, not just a generalized blockspace toll. Investors rewarded that because the value accrues directly where the customers are, not diffused across a protocol whose economics are constantly under attack from commoditization. This divergence is the empirical evidence that the fat app thesis is real. Investors are beginning to see that owning the rails doesn’t matter when the rails are free and infinite. Owning the train company does. The numbers back it up, core protocol tokens have underperformed while application tokens with real adoption, revenue and quality tokenomics have ripped. That’s not noise, it’s a repricing of the entire stack. So when we said last year that blockspace was a heavy bag, we weren’t just calling the narrative. We were front-running the repricing. The fat protocol thesis is dying in real time, and the market is already rewarding fat apps.

This is the part crypto investors need to internalize: the next wave of capital and users won’t come from ETH foundations dumping $500M of ETH a quarter, or OP handing out $10M grants to artists. It will come from companies like Stripe dragging enormous customer bases onchain because it improves their economics. Or Plasma tailoring chains for specific verticals. Or Franklin Templeton shifting trillions in assets into tokenized products they control. Protocols are not the investment play in this paradigm. Applications are.

Even Ripple, a $300B piece of absolute vaporware of a chain realizes what's going on here and has started using their treasury to buy up applications in an attempt to form some kind of actual business. Even they know, hilariously, that their core protocol is worth nothing long term (don't tell their legion of mouth breathing retail investors though).

The infra layer has been commoditized into worthlessness. Owning ETH or an L2 token no longer gives you exposure to the next magnitude of onchain adoption, because the adoption isn’t happening there. It’s happening in walled-off, application-driven chains purpose-built for existing enterprises. That doesn’t mean blockchains don’t matter. It means that blockchains, like servers and bandwidth before them, fade into the background. The value moves up the stack. The profit pools will accrue to those who control customers and business flows, not to generalized execution environments. Investors who stay overweight protocols are voting for ideology. Investors who rotate into applications are voting for utilization.

Crypto is at a fork. One path leads to more recursive DeFi forks and endless talk about decentralization purity. The other leads to real businesses with real customers dragging entire industries onchain through purpose-built systems they control. The question for investors is simple, where do you think the next $100B of utility comes from? The Ethereum Foundation’s balance sheet, or Stripe’s merchant base? From OP’s NFT grants, or from Plasma's tailored enterprise deployments?

Blockspace was already the heaviest bag. Now it’s a commodity. And commodities don’t capture value. Applications do. The sooner investors recognize that and reallocate, the sooner they’ll stop carrying the dead weight.