Don't look at L1 with price-to-earnings ratio anymore! Dragonfly partner: Exponential growth covers everything.

Dragonfly partner Haseeb Qureshi recently wrote an article criticizing the market's timid atmosphere, emphasizing that encryption is still in the early stages of exponential expansion, and the long-term value of L1 is severely underestimated. He likens it to the early days of Amazon: “When you are at the front end of an exponential curve, the price-to-earnings ratio and short-term income data are not the focus.” Amazon had almost no net profit in the 22 years before its IPO, and its stock price was sideways for ten years while being scorned by Wall Street, until the exponential curve exploded upward and it was finally recognized.

From Financial Nihilism to Financial Cynicism: Why New L1s are Always Looked Down Upon

Haseeb pointed out that new L1s before 2023 were either unpopular or ignored, but the new chains from 2024 to 2025, including Monad, MegaETH, and Tempo, have faced ridicule even before going live. He believes that the crypto community has shifted from the past's “financial nihilism” to a new “financial cynicism,” no longer believing in the reasonable valuation of projects or their long-term growth, but rather asserting that everything is severely overvalued and will inevitably collapse.

There is a historical context behind this emotional shift. In recent years, the market has witnessed countless L1 projects launched at high valuations, followed by price crashes that led to heavy losses for investors. The collapse of Luna/UST, the FTX explosion, and the demise of many “Ethereum killers” have created a defensive mindset in the market. However, Haseeb believes that this excessive caution is stifling real opportunities for innovation.

Encryption projects do have value, but the market always tends to overprice them, causing the community to abandon the pursuit of subsequent explosive growth opportunities. This sentiment leads investors to overlook the most fundamental aspect, which is that exponential growth can overshadow all short-term uncertainties. He emphasized: “I believe in exponential growth because I have experienced it firsthand, I have witnessed it time and time again.”

The specific manifestations of financial cynicism include: immediately questioning the FDV (Fully Diluted Valuation) of any new L1, believing that all token economics are designed for early investors to cash out, and using short-term price performance to negate long-term technical value. Haseeb believes that while this attitude protects investors from short-term losses, it also causes them to miss out on real long-term opportunities.

Amazon has not made a profit for 22 years yet has become a giant: A paradigm shift in L1 valuation

Haseeb argues that the valuation method for L1 should not use a linear growth framework, including metrics such as price-to-earnings ratio (P/E), trading fee revenue, or on-chain net revenue (REV), because encryption is still in the early stages of an exponential curve, similar to Amazon between 1995 and 2010. He uses this e-commerce and cloud giant as an example, emphasizing that Amazon had almost no net profit in the 22 years before its IPO, its stock price traded sideways for ten years, and it was scorned by Wall Street until the exponential curve finally exploded upwards.

This analogy is very compelling. When Amazon went public in 1997, Wall Street analysts generally believed its valuation was too high because, according to traditional retail price-to-earnings standards, Amazon's loss status was completely unreasonable. However, Bezos insisted on reinvesting all profits into expansion, logistics, and technological infrastructure, ultimately establishing an unshakeable competitive advantage. When the index curve surged upwards, those early investors who sold off due to “not making money” missed out on hundreds of times the returns.

Haseeb believes that ETH and SOL are also at a similar stage

On-chain TVL shows exponential growth: The total value locked in DeFi protocols continues to rise, indicating real usage demand.

Explosive Growth in Trading Volume: The average daily number of transactions and transaction amounts are rapidly increasing.

Stablecoin issuance surges: The issuance of USDC and USDT on these L1s represents real economic activity.

Even if it is not fully reflected in the revenue from fees at present, it does not affect future value capture. Haseeb pointed out: “Criticizing L1 using price-to-earnings ratios or any linear growth framework is like criticizing Amazon for not making a profit in 2005; these metrics do not apply to industries with exponential growth, they will only continue to expand.”

He further stated: “Silicon Valley understands this better than Wall Street; the former grew up in an environment of exponential growth, while the latter grew up in an environment of linear growth. As the focus of encryption shifted from Silicon Valley to Wall Street in recent years, you will also see more changes.” This observation reveals the cultural differences behind valuation methodologies. If you believe in exponential growth, if you can see far enough, then everything is still cheap right now.

Qiao Wang Counterattack: L1 Lack of Moat Will Be Commercialized

In contrast to Haseeb, Alliance DAO founder Qiao Wang takes a more pragmatic approach. He agrees that encryption will grow exponentially, but does not believe that L1 can capture most of the value. The reasons include the increasing ease of cross-chain transactions, low migration costs for developers, the rapid replicability of underlying architectures, and the lack of a data-binding moat like AWS for L1: “All these reasons lead to the long-term commoditization of L1.”

Qiao's argument is based on a deep understanding of the technological moat. He believes that, unlike traditional cloud services, the switching costs for L1 are extremely low. Developers can easily migrate smart contracts from one chain to another, and user assets can be quickly transferred through cross-chain bridges. This low-friction characteristic makes it difficult for L1 to establish lasting network effects.

Qiao believes that the only way to establish a moat for L1 is through vertical integration

Solana: Comes with an app ecosystem and excellent infrastructure, forming a close binding.

Base: Deeply tied to the massive user base of the largest cryptocurrency exchange in the United States, resulting in extremely low customer acquisition costs.

Hyperliquid: A one-stop integration from L1 to exchanges, allowing users to remain within the ecosystem.

Tempo: A corporate-oriented closed ecosystem that serves specific vertical fields.

Qiao emphasized: “It is taken for granted to believe in exponential growth, but the best embodiment of this perspective is investing in application layers with product power and network effects.” He believes that application layers can accumulate real users, establish brand loyalty, and create difficult-to-replicate moats through data and social graphs. In contrast, pure infrastructure layers are prone to price competition.

Optimism vs Pragmatism: The Deep Logic of L1 Valuation Debate

Haseeb and Qiao's discussions represent two opposing viewpoints in the current encryption field, advocating optimism and pragmatism, respectively. One side is optimistic about the long-term value and widespread adoption of L1, while the other argues that the application layer is the biggest beneficiary. The core of this debate lies in the different understandings of the value capture mechanism.

Optimists like Haseeb believe that as the scale of the encryption economy expands, L1 as a settlement layer will capture enormous transaction fees and MEV revenue. Just like internet infrastructure providers (AWS, Google Cloud) ultimately became the biggest winners, L1 will extract value from all on-chain activities. Moreover, L1 tokens are not only tools for fee payments but also governance and security assurances for the entire ecosystem, and this multi-faceted value gives them immense long-term appreciation potential.

The pragmatists like Qiao question this kind of linear extrapolation. He points out that the moat of cloud services comes from the high costs of data migration and the binding of proprietary technology, but L1 lacks these characteristics. When multiple L1s offer nearly the same performance, competition will drive costs close to zero, and value will concentrate at the application layer. Ultimately, users will only remember the applications they use, without caring about which chain is used at the underlying level.

It is not hard to foresee that the debate over the L1 valuation framework will not end, but the investment attitude and time frame will only become more critical in the next decade. For investors who believe in exponential growth, the current L1 valuation is still in its early stages. For investors who value moats and value capture, the application layer may provide a more certain return path.