IOSG: Observations and Thoughts on Consumer Application Track under Complete Infrastructure

Author | Max Wong @IOSG

TL;DR

• Infrastructure has become saturated; consumer applications are the next frontier. After years of pouring funds into new L1, Roll-ups, and development tools, the marginal returns of technology have become negligible, and users do not automatically flock in just because "the technology is good enough." What creates value now is attention, not architecture.
• Liquidity is stagnant, and retail investors are absent. The total market capitalization of stablecoins is only about 25% higher than the historical peak in 2021, with recent increments mainly coming from institutions purchasing BTC/ETH for their balance sheets, rather than speculative capital circulating within the ecosystem.
• Core Assertion
• Friendly regulatory policies will unlock a "second wave" of development. Clearer U.S. policies (Trump administration, stablecoin legislation) will expand the TAM and attract Web2 users who are only interested in tangible applications rather than the underlying technology architecture.
• Narrative market rewards real usage. Projects with significant revenue and PMF—such as Hyperliquid (approximately $900 million ARR), Pump.fun (approximately $500 million ARR), Polymarket (approximately $12 billion in trading volume)—far outperform infrastructure projects with high funding but lacking users (Berachain, SEI, Story Protocol).
• Web2 is essentially an attention economy (distribution > technology); as Web3 deeply integrates with Web2, the market will follow suit - B2C applications will expand the cake.
• Current consumer track that has reached PMF (crypto-native):
• Trading / Perpetual Contracts (Hyperliquid, Axiom)
• Launchpad / Meme Coin Factory (Pump.fun, BelieveApp)
• InfoFi and prediction markets (Polymarket, Kaito)
• Next wave of rising track (Web2 coding):
• One-stop deposit/withdrawal + DeFi super application——integrating wallet, banking, yield, and trading (Robinhood-like experience but ad-free).
• Entertainment/social platform that replaces advertising with on-chain monetization (redemption, betting, prize pools, creator tokens) to optimize UX and improve creator earnings.
• AI and gaming are still in the pre-PMF stage. Consumer AI requires safer account abstraction and infrastructure; Web3 games are troubled by the "wool party" economy. A breakout will only occur after a blockchain game that focuses on gameplay rather than crypto elements explodes.
• Superchain theory. Activity tends to concentrate on a few consumer-friendly chains (Solana, Hyperliquid, Monad, MegaETH). One should select killer applications from these ecosystems and the infrastructure that directly supports them.
• Perspective on Investing in Consumer Applications:
• Distribution and Execution > Pure Technology (Network Effects, Viral Loop, Brand).
• UX, speed, liquidity, and narrative fit determine victory and defeat.
• Evaluate as "enterprise" rather than "protocol": real revenue, scalable models, clear industry dominance path.
• Bottom line: Pure infrastructure trades are hard to replicate the 2021 style valuation multiples. Over the next 5 years, excess returns will come from converting the underlying crypto into consumer applications that daily engage millions of Web2 users.

Introduction

In the past, the industry focused heavily on technology/infrastructure, concentrating on building "rails"—new Layer-1s, scaling layers, developer tools, and security primitives. The driving force was the industry creed of "technology is king": as long as the technology is good enough and innovative enough, users will naturally come. However, this is not the case. Look at projects like Berachain, SEI, and Story Protocol, which have outrageous funding valuations but are hailed as "the next big thing."

In this cycle, as consumer application projects take the spotlight, discussions have clearly shifted to "what these tracks are actually used for." As core infrastructure reaches a "sufficient" level of maturity and marginal improvements begin to diminish, talent and capital start to pursue consumer-facing applications/products—social, gaming, creator, business scenarios—showing the value of blockchain to retail and everyday users. The consumer application market is essentially an attention economy, which also makes the entire crypto market a battleground for narratives and attention.

This insight report will explore:

1. Overall Market Background

2. Types of Consumer Applications in the Market

a. The track with PMF already established

b. Can leverage encrypted tracks for upgrades, ultimately reaching the PMF track.

3. Framework and investment thesis for consumer applications - How can institutions identify winners?

Narrative - Why Now?

This cycle lacks the retail FOMO and NFT/Alt speculation seen in 2021, coupled with the tightening of the macro environment that has restricted capital inflows from VCs and institutions, resulting in new liquidity growth being trapped in a "stagflation" scenario.

▲ Stablecoin Market Capitalization Chart

As shown in the figure above, the total market value of stablecoins grew approximately 5 times from 2021 to 2022, while this round (second half of 2023 to 2025) is expected to grow only 2 times. At first glance, this seems like an organic and healthy steady growth, but it is actually misleading: the current market value is only about 25% higher than the peak in 2021, which is considered low-speed for any industry over a 4-year dimension. This is still in the context of stablecoins experiencing the most explicit regulatory tailwinds and the emergence of a strong pro-coin president.

The growth rate of capital inflow has significantly slowed down, and it mainly started after Trump was elected in January 2025. So far, the new capital is not speculative or truly "fresh funds"; rather, it is more about institutions incorporating BTC/ETH into their balance sheets, as well as governments and enterprises expanding stablecoin payments. Liquidity is not driven by market interest in new products/solutions, but rather by favorable regulations; this capital is non-speculative and will not be directly injected into the secondary market. This is not free capital, nor is it driven by retail investors, so even if prices reach new highs, the industry has not yet replicated the frenzy of 2021.

Overall, it can be compared to the .com bubble in 2001, where the market is searching for the next growth direction—this time, the direction will be consumer applications. Past growth was also driven by consumer applications, but the products were NFTs and altcoins, rather than applications.

Core Assertion

In the next 5 years, the crypto market will experience a second wave of growth driven by Web2/retail investors

• Trump's administration's clearer crypto policy paves the way for founders.
• Stablecoin legislation significantly expands total addressable market (TAM) for all crypto applications.
• In the past, the liquidity bottleneck was due to the lack of a clear framework and the obvious market island effect; now, the clarity of stablecoin regulations has benefited liquidity.
• The strong positive sentiment at the political level has a greater impact on consumer applications than on infrastructure, as consumer applications can attract a large number of Web2 users.
• Web2 users only care about applications they can directly interact with and products that bring them value — they want a Web3 "Robinhood," not "crypto version of AWS."
• Robinhood
• Google/YouTube
• Facebook
• Instagram
• Snapchat
• ChatGPT

Market maturity → Focus on real users + Revenue + PMF > Infrastructure + Technology

• In the narrative market, capital continues to flow into projects with real income and real PMF, and the vast majority are consumer applications, as they have real users.
• Hyperliquid
• Pump.fun
• Polymarket
• Significance: Technology is important, but having good technology alone does not attract users; it is essential to implement good technology → The easiest path is consumer applications.
• Method: Projects with a unified ultimate UX and value capture mechanism will attract users. Users do not care whether the technology is slightly better, unless they can "feel" it.
• Builders are shifting from "Technology is King" to "User First" from 2019 to 2023. Only chains that meet actual needs, rather than those relying solely on subsidized ecosystems or tools, can attract developers.
• In the past, the market encouraged developers to write extensions for Firefox to receive subsidies, rather than acquiring real users on Chrome.
• Typical counterexample: Cardano

Web2 has always been an attention economy (distribution > technology); Web3 will also be like this after deep integration with Web2—B2C applications will expand the overall market

• Virus transmission and attention are the keys to victory → Consumer applications are the easiest to implement
• Because network effects are easily embedded in consumer applications → such as binding to Twitter and receiving protocol rewards for posting (Loudio, Kaito)
• Therefore, consumer applications can easily lead to viral spread and occupy the mind.
• B2C applications can also easily create topics through user behavior, incentives, or community (Pump.fun vs Hyperliquid)
• Virus transmission brings attention, attention brings users → Viral applications will attract new retail investors and expand the market

Types of Consumer Applications in the Market

has reached the PMF vertical track - Crypto Coded

Trading

• Hyperliquid: Approximately $900 million ARR; Financing 0
• Axiom: Approximately $120 million ARR; funding of $21 million

Launchpad

• Pump.fun: Approximately $500 million ARR; Financing 0
• BelieveApp: Annual fees are approximately 60 million USD; financing 0

InfoFi + Prediction Market

• Polymarket: Annual trading volume of approximately 12 billion dollars (0% fee rate); financing 0
• Kaito: Approximately $33 million ARR; financing $10.8 million

Such track projects should be given priority attention.

Comparison:

• Berachain: Since its launch, fees have only been $165,000; raised $142 million; down 85% from ATH.
• SEI: Annual fee of only $68,000; financing of $95 million; decline of over 75%+
• Story Protocol: Since its launch, the fees have only been $24,000; raised $134 million; a decline of 60%.

Pure technology/infrastructure lacking practical use cases is no longer a way out. Institutions can no longer rely on such assets to replicate the excess returns of 2021.

From these platforms, it is evident that most are more inclined towards being Web3 native, aligning with their crypto functionality positioning. However, there are also traditional consumer sectors (as mentioned below) that have been disrupted by the crypto track and are moving towards the mainstream.

can leverage "cryptography technology" to upgrade and ultimately reach the PMF vertical track – Web2 Coded

Web2⇄Web3 Deposit/Withdrawal + DeFi Frontend

As Web2 users continue to flood into Web3, it is time for one or two mainstream solutions that everyone can use to facilitate deposits/withdrawals and access DeFi. Currently, the market is highly fragmented, and user processes are clumsy.

The Pain of the Current Situation

• Hopscotch-style on-chain: 75-80% of first-time coin buyers still buy coins first on centralized exchanges (Binance, Coinbase) before transferring to self-custody wallets or DeFi protocols, resulting in 2 KYC processes, 2 sets of fees, and at least 1 cross-chain bridge.
• Withdrawal difficulties: US licensed CEX can freeze fiat for 24-72 hours; EU banks increasingly mark outbound SEPA transfers as "high risk."
• High fees: Deposit spread ~0.8% (ACH) to 4-5% (credit card); stablecoin withdrawal fees vary between 0.1-7% depending on the region and amount.
• Lack of aggregated yield solutions: There is currently no one-stop DeFi module for users to centrally obtain yield stacks.

Payment giants are making inroads

• PayPal now allows US users to withdraw PYUSD directly to Ethereum and Solana and refund to any debit card within <30 seconds (fee rate 0.4-1%).
• Stripe will open the "Crypto Withdrawal" API to all platforms in April 2025, allowing instant withdrawal of USDC to local channels in 45 countries.
• MoonPay processed $18.6 billion in transaction volume for 14 million users last year, achieving a 123% year-on-year growth due to the introduction of instant withdrawal services covering over 160 countries.

PMF's Image

A global super app that allows users to seamlessly deposit/withdraw, has a simple interface, and provides access to all DeFi functions on the same platform.

• Funds held in a single platform account can be seamlessly connected to bank accounts and crypto wallets.
• Only large amounts require KYC
• No high fees or withdrawal delays
• Similar to a savings account but priced in cryptocurrency
• Yield aggregator, integrated with mainstream lending protocols (Aave, Kamino, Morpho) and staking.
• Covers mainstream spot/perpetual trading interfaces

Currently, the closest to this North Star is Robinhood: a minimalist UI/UX, along with bank and wallet integration; it could be the leader in this field.

Entertainment / Media / Social

Current content platforms (YouTube, Twitch, Facebook) primarily profit by capturing user attention and selling it to advertisers through display ads. However, this conversion chain is inherently inefficient, losing potential customers at multiple stages of the funnel. More critically, display ads "forcefully insert" content, inherently damaging the UX.

The paradigm of encryption can completely rewrite and optimize the structure of traditional Web2 entertainment platforms.

Platform Layer Unlock:

• Introduce and generate new revenue streams
• DEX Integration - Exchange Fee
• Creator-linked Token
• Live event betting
• Prize Pool
• Airdrop to users
• Remove ads, improve user retention
• No longer rely on external stakeholders
• New revenue sharing model with creators
• Exchange fee sharing
• Event fee sharing

Under this new paradigm, the platform itself is a distribution channel rather than a monetization product. Web2 has precedents: Twitch → Amazon, Kick → Stake, Twitter → membership subscriptions + GrokAI; Web3 also shows early forms, such as Parti and Pump.fun live streaming.

User Layer Unlock

• Ad removal brings better UX
• Benefit from the prize pool and airdrops by supporting/watching your favorite creators
• Token Dividend

Creator Layer Unlock

• Contribution-based revenue model; more transparent and fair
• Exchange fee sharing
• Event Fee Distribution
• Creator tokens enable direct value flow from fans to creators.
• Ad removal enhances user retention
• The platform model comes with user growth, benefiting creators.

Why not AI or games?

Currently, AI consumer applications are still in their early stages. A breakthrough will occur only when applications that can truly achieve "one-click DeFi/account management" emerge; currently, there is still insufficient infrastructure in terms of security and feasibility.

In terms of gaming, blockchain games struggle to break into the mainstream, as the core users are often "Farmers" who chase money rather than the enjoyment of the game, resulting in low retention rates. However, in the future, there may be games that use crypto paradigms (such as economic and item systems) at their core, while the focus for players/developers remains on playability—if CSGO had used on-chain economics, it might have been very successful.

In this regard, there have been some successful cases of mini-games utilizing encryption mechanisms (Freysa, DFK, Axie).

Argument and Framework

Overall view: Market maturation → Reduction of inter-chain fragmentation → A few "super chains" emerge victorious → Institutions should bet on the next generation of consumer applications and their supporting infrastructure on these super chains.

This trend is already occurring, with activity concentrating on a few chains rather than being dispersed across more than 100 L2s.

Here, "super chain" refers to consumer-centric chains that optimize speed and experience, such as Solana, Hyperliquid, Monad, and MegaETH.

Analogy:

• Super Chain: iOS, Android
• Applications: Instagram, Cash App, Robinhood
• Support Stack: AWS, Azure, Google Cloud

As mentioned earlier, consumer applications can be divided into two key categories:

• Web2 Native: Applications that primarily attract Web2 users, utilizing cryptographic paradigms to unlock new behaviors—should focus on backend seamless integration of crypto, yet do not boast as "crypto applications" (e.g., Polymarket).
• Web3 Native: Verified determining factors are better UX + fast interface + ample liquidity + one-stop solutions (breaking fragmentation). The new generation of Web3 users values UX > returns or technology, only caring about the latter two after surpassing a certain threshold. Teams and applications that understand this should be valued at a premium.

The following elements are generally required:

Conclusion

Consumers do not have to rely entirely on differentiated value propositions when investing in targets (although they can). Snapchat is not a technological revolution, but rather a reconfiguration of existing technologies (chat modules, camera AIO) to create a new unlocking. Therefore, assessing consumer targets from the perspective of traditional infrastructure is biased; institutions should consider whether the project can become a good business and ultimately generate returns for the fund.

To this end, an assessment should be made:

• The ability to distribute is more important than the product itself - can they reach the users?
• Is it possible to effectively reorganize existing modules to create a brand new experience?

Funds can no longer rely solely on pure infrastructure to drive returns. This is not to say that infrastructure is unimportant, but rather that in a market where narrative reigns supreme, they must possess genuine appeal and use cases, rather than value propositions that no one cares about. Overall, for consumer-targeted assets, most investors are overly "right-leaning"—taking the "first principles" approach too literally—while the real winners often succeed with better branding and UX—qualities that are subtle yet crucial.