Hello readers,

The “Fat Protocol Thesis” is the view that in web3, the most value will accrue to the infrastructure, rather than the app layer (as we’ve seen in web2). The thesis (coined in 2016) has largely held to date. 17 out of the top 20 crypto assets by market cap are L1s.

However, the crypto tech stack is maturing. With UX improving, we’re seeing the early iterations of apps with slick interfaces that can abstract away the complexity of wallet/key management and bridging — improving UX while seamlessly integrating with the underlying infrastructure. These apps have the potential to “lock in” sticky users.

If sticky UX becomes the real “moat” in web3, the value may shift up the stack, just as we saw in web2.

This week, we explore revenues throughout the Solana tech stack for clues to determine whether the “Fat Protocol Thesis” is still on solid footing.

Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment advice.

Let’s go.

Solana - L1 Infrastructure

30-day annualized protocol fees = $479m. 365-day fees = $986 million. These fees accrue to Solana validators, with half of the base fees burned.

SOL is currently trading at a 212x fully diluted multiple on its annualized 30-day fees. (188.2x based on circulating supply).

It’s trading at a 103x fully diluted multiple on its 365-day fees (91.6x based on circulating supply).

Please note we are excluding Jito fees (MEV) in these figures.

Raydium - Trading Infra

A layer up the stack sits Raydium, the largest DEX on Solana. Raydium has a 30% market share in terms of DEX volumes and appears to have somewhat of a “moat” on the supply side (liquidity providers).

For reference, Meteora is #2 with 18%, Orca #3 with 15%. Meanwhile, private dexes (that do not use decentralized liquidity pools such as Raydium’s) now have a roughly 12% market share (and growing). More on that here for those interested.

Raydium recently launched Launchlab — a pump fun competitor that is providing the launchpad infrastructure for Lets Bonk (the interface for launching tokens that has recently taken market share from pump fun).

With Raydium integrating up into the tech stack and pump fun integrating down, it’s sparked what some are calling the “launchpad wars.”

If you zoom out a bit, here’s what’s transpired:

1. Early ‘24: Pump fun emerges as the leading app on Solana and throughout crypto. It’s onboarding new users to crypto. It’s also sending lots of trading flow to Raydium and the other Solana DEXs. Trading = recurring revenue.

2. March of ‘25: Pump fun launches Pump Swap. All tokens graduating from the bonding curve are now sent to a DEX they own. Now they have the user + the infra (recurring revenues).

3. April ‘25: Raydium responds with Launchlab. It gets off to a modest start before exploding in early July with the launch of Let’s Bonk — a new token issuance platform rivaling pump fun.

That takes us to today. Where pump fun is integrating down into the tech stack. Raydium is integrating up. Bonk has stolen the user.

And almost every Solana DEX has launched a competing launchpad.

Raydium Fees

30-day annualized protocol fees = $215m. This figure includes DEX fees (the 16% kept by Raydium) + Launchlab protocol fees ($120m 30-day annualized).

The RAY token is currently trading at a 7.2x fully diluted multiple on its annualized 30-day fees. (3.5x based on circulating supply).

You can think of this as its “Enterprise Value to Net Revenue.”

The goal of today’s report is to understand which layer of the stack owns the user (if any) and what that means for its business models, moats, and ultimately value accrual.

So, let’s take a look at the revenues on the layers “on top” of Raydium and how they compare to the Raydium at the infra layer.

Pump Fun & Let’s Bonk - Trading & Launchpads

A layer up from Raydium and trading infra sits the launchpads — where users mint tokens onto bonding curves. Tokens that “graduate” from the bonding curve trade on Pump Swap (for Pump tokens) and Raydium (for Let’s Bonk tokens).

Here’s the breakdown in terms of launchpad fees vs Raydium trading fees (protocol only) over the last 30 days:

• Let’s Bonk: $34.3m

• Pump Fun: $12.9m

• Raydium: $7.9m ($17.9 including lauch lab)

And here’s the last 365 days:

• Pump Fun: $695m

• Let’s Bonk: $411.6m (annualized from last 30 days)

• Raydium: $291m (DEX + launchlab)

These three players are making up roughly 80% of the launchpad market right now.

The Takeaway?

1. Users are interacting directly with the Let’s Bonk and Pump Fun interfaces. This is not necessarily the case for Raydium. We think most of the volume on Raydium’s DEX interface is coming from bots and custom contracts, rather than your typical crypto user. The same is true of the launchpad - which is providing infrastructure for Let’s Bonk’s user interface.

2. Minting fees + bonding curve fees (user interface layer) are significantly higher than trading fees at the infra layer and launchpad fees at the infra layer (1% vs .3% and .25%).

3. There is no “supply side” to take 84% of the fees (as we see with trading fees on Raydium) at the user interface level of the stack. However, trading fees = recurring revenue.

4. Raydium’s “moat” primarily resides on the supply side via liquidity pools and liquidity providers. They’ve now added the launchpad for more infra revenue via the partnership with Bonk.

The biggest takeaway here is just how fast Let’s Bonk stole users from pump fun. It highlights just how transient crypto users can be due to incredibly low switching costs and incentive programs.

For example, can you think of any other industry where a company could take 80% market share in a $10 billion + market (growing) one month into launch?

[Or maybe we just haven’t seen a great product that works well in both bull and bear markets just yet]

Finally, Pump fun now owns trading infrastructure (Pump Swap) in addition to the launchpad/user interface. As such, when tokens leave the Pump bonding curve post “graduation,” Pump earns additional (recurring) trading fees on its DEX.

Pump Swap Fees

When we add in Pump Fun DEX protocol fees, the 30-day revenues improve to $15.5 million.

Again. Pump fun is integrating down into the tech stack. Raydium is integrating up.

Now. This might be a good time to investigate the path dependence involved.

Why?

Raydium has the same infrastructure as Pump now. But they partnered with Let’s Bonk to get the users.

If Raydium had the users, they wouldn’t need Let’s Bonk. So Raydium sort of finds itself in the same spot it was previously (primarily playing the role of infra). With that said, it has added significant revenue through its partnership with Bonk, leveraging the new launchpad infrastructure.

Takeaway:

Raydium is chasing the user. Pump is chasing recurring revenues (and lost the user in the process). Let’s Bonk has the users for now. As you would expect, the most value is in following the (transient) user.

Jupiter - Trading Aggregation Layer

Jupter is a DEX aggregator. It sits on top of the trading infrastructure and routes user trading activity to the various DEXs for trade execution.

Roughly 40% of all Solana DEX volume originates from the Jupiter interface.

Fees

Jupiter itself charges 0% platform fees for its spot trading aggregation service (user swap fees accrue to the underlying DEXs + SOL validators/stakers).

With that said, Jupiter does charge a .06% base fee for perp trades and .1% fee for premium user features such as its “DCA” “Value Averaging,” and limit orders.

50% of the fees go to JUP token buybacks, with the remaining 50% accruing to the protocol.

30-day annualized revenues = $121m.

365-day revenues = $204m (annualized to $408 since they turned on fees in January).

JUP is currently trading at a 26.7x fully diluted multiple in terms of annualized 30-day protocol revenue (11.6x circulating supply multiple).

In Summary

30-day Annualized Protocol Revenue:

Annualized Protocol Revenue Multiple (Fully Diluted):

Takeaways:

1. The user interface layer is the fastest-growing layer of the tech stack. With that said, Raydium has done a great job of providing the infrastructure supporting both DEX trading and launchpad interfaces. The user interface layer commands higher user fees. The infrastructure layer commands fees, but benefits from recurring revenues.

2. Outside of the L1, the market is applying a larger premium to the user interface layer, with Jupiter seeing the highest EV to Net Revenue multiple.

3. The exception is Bonk. Bonk is still being priced as a “blue chip” memecoin, rather than the fastest-growing app on Solana in terms of revenue. The key question here is whether Bonk truly has a “moat” with its users/community and/or product. The game is far from over in our opinion. Bonk will need to continue to execute, improve its product, incentivize users to stay, and attract new ones to join.

4. Pump Fun has generated roughly 70% of Solana’s revenue YTD. A significant share was lost to Bonk over the last few months. However, it’s clear that value is moving up the tech stack — to the apps that can deliver the best user experience.

This takes us to the “top layer” of the tech stack: Axiom.

Axiom - App/Aggregation/Financial Layer

Axiom is an aggregation app that sits on top of the DEXs, launchpads, and hyperliquid. You can think of it as a competitor to Jupiter, with the exception that Axiom is attracting more of the “degen” crowd via fantastic trading bot UX (faster, more efficient, with customization) that allows the “trenches” to access early-stage tokens emerging from the various launchpad bonding curves. It’s also branching outside of Solana to offer perps trading via hyperliquid.

It recently became the largest “trading bot,” displacing Photon and Bullx.

They initially launched in ‘24 after emerging out of Y-Combinator and have seen significant growth this year.

Axiom Fees

30-day protocol fees = $27.1 million. This annualizes to $325 million and would make Axiom one of the most profitable crypto projects on Solana today. Axiom does not have a token just yet, but has hinted at one.

The growth can be attributed to a few interesting factors:

1. Monetary incentives. Axiom rewards active traders with what is essentially a cashback on your trading fees. Sort of like credit card rewards. The more you trade, the more rewards you get. It’s paid out over $17m of the $41m of fees its generated.

2. Referral system tied to rewards. Based on your “trading level,” Axiom pays 30%, 3%, and 2% commissions from anyone you refer. 

3. Product. It’s an all-in-one approach, supporting perp trading, memecoin trenches, and yield farming. Furthermore, users are reporting better responsiveness, faster fills, smoother performance, and a responsive team.

Sources of Trading Flow

% of all-time volume:

• Pump Fun: 29%

• Pump Swap: 28%

• Raydium DEX: 24%

• Raydium Launchlab: 12%

• Others: 7%

% of 30-day volume:

• Raydium DEX: 46%

• Raydium Launchlab: 39%

• Pump Swap: 9%

• Pump Fun: 6%

Closing Thoughts

Moats come from sticky users. This is particularly challenging for crypto apps due to the extremely low switching costs.

These dynamics create an incredibly competitive environment where market share can shift dramatically within sectors and subsectors within a few weeks’ time — presenting challenges for entrepreneurs and investors alike.

There are zero moats today as a result (outside of the largest L1s).

We believe this is why the L1s continue to capture massive monetary premiums. They get to benefit from the “wars” taking place “on top” of their infrastructure.

With that said, we continue to see value moving up the tech stack.

Our view has been that the “Fat Protocol Thesis” will likely hold in the long term (the L1s will have the largest market caps).

However, more value will continue to accrue to the apps as the infrastructure matures, more talented devs enter the space, and crypto goes “mainstream.”

The winning teams will simply execute the fastest while producing the best products. They will then seek to strategically integrate within the stack for “protection” and new lines of revenue as we’re seeing today.

Take a Report.

And Stay Curious.

Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.