The True Distribution of Value in the Crypto Market: Where Do the Outer Layers Concentrate?

Schwab’s new financial research report provides an in-depth analysis of the crypto ecosystem, including the outer layers, highlighting structural differences that investors often overlook. The report shows how value is distributed in the $3.2 trillion market in a map and shows that where it is invested has a driving effect on success.

Schwab’s Three-Layer Structure Analysis

To understand the crypto market, one must view it not as a single asset class but rather as an ecosystem with profound structural differences. Schwab categorizes this ecosystem into three key structures, each with distinct economic dynamics and risk profiles. This stratification explains why a simple “buy crypto” approach is insufficient.

The framework presented by the report establishes a parallel between the traditional software industry and the crypto ecosystem, helping to see where the true value of the layers is formed. This perspective is critical in shaping long-term investment decisions.

Base Networks: Where 80% of Value Is Concentrated

The strongest layer of the crypto market consists of underlying blockchains such as Bitcoin and Ethereum. These networks represent approximately 80% of the total market value of $3.2 trillion by the end of 2025. This enormous concentration shows how critical the underlying networks are to the ecosystem.

These layer networks are the systems that process and record transactions and form the backbone of almost every other crypto application. Ethereum is particularly worth considering. It leads the smart contract industry with over 10 times the market share of its closest competitor, maintaining its dominance based on total value locked (TGL).

Ethereum’s early start and wide adoption have made it the default choice for the developer ecosystem, creating strong network effects. However, slower transaction speeds and concentrated ownership structure continue to raise concerns about its long-term potential.

Outer Layers: Infrastructure Software and User Products

The outer layers of the crypto ecosystem include two important but often overlooked levels:

Second Layer - Infrastructure Software: These software products, which connect blockchains and applications, form the most technical part of the outer layer. This includes oracles that provide data, bridges that move assets between chains, and scaling tools that speed up transactions. While these protocols are critical, they face a challenging business model. Users do not interact directly with these tools, and transitioning to new competitors is usually quite easy.

Layer Three - Product Protocols: This layer, consisting of exchanges, lending platforms, staking services, and other tools where users come into direct contact, has the potential for stronger engagement. User transition costs are high and these products have the capacity to guide the industry.

For instance, Aave is in the crypto lending space, while Lido is a strong representative of the outer layer in staking services. Current data shows that Aave is trading at $147.37, while Lido is valued at $0.48.

Comparing Web2 and Web3: Structural Parallels

To understand the value dynamics of the crypto ecosystem, it’s helpful to see similarities with the traditional software industry. The underlying networks function similarly to the cloud computing platforms AWS or Microsoft Azure. Everything is built on top of this structure and therefore they create enormous value.

The product tier shows functionality like Salesforce or Netflix. Due to direct user interaction, these products are capable of creating stronger customer loyalty and potential value.

However, infrastructure software, despite being basic, has difficulty building loyalty due to their distance from the customer. These tools are becoming easily interchangeable to demand pricing power.

Crypto Investors’ Guide to Valuation

Using a framework borrowed from growth equity investments, Schwab recommends using four criteria for evaluating crypto protocols:

• Network Effects: How many people are using the protocol and how fast this usage rate is growing
• Market Share: The position of the protocol in the competitive environment in the category
• Scalability: The protocol’s capacity to meet the increased demand
• Tokenomics: Factors such as token distribution, reward mechanisms, and supply management

These metrics help in assessing the investment potential at each tier, including the outer tiers, more objectively.

The Truth of Market Structure: Where Does Value Accumulate?

Among projects with a market capitalization of over $100 million, product protocols are seen almost twice as often as infrastructure protocols. However, the underlying networks — although fewer in number — hold the majority of the market’s overall value.

This structure clearly shows where long-term value is built in the crypto market. The basic networks still form the backbone of the structure. The outer layers, however important, have more difficulty preserving value.

Current Market Dynamics and Investment Implications

The crypto market has been experiencing volatility recently. Bitcoin ($84.89K, -5.32% 24 hours) shows leadership during market downturns. Ethereum trades with a cyclical market cap of $340.17 billion, representing 11.27% of the overall market capitalization.

Schwab emphasizes that cryptocurrencies remain speculative and high-risk, but he offers a significant warning for those dipping their toes into the market: the simple “buy crypto” strategy is no longer sufficient.

Investors must understand where the value truly lies, including the difference between the outer layers and the underlying networks. Understanding the ecosystem structure, focusing on the networks on which everything is built and the tools people use every day helps in making more informed investment decisions. As the outer layers continue to evolve, the underlying networks are likely to continue to maintain their dominant position.