The Fat Wallet Thesis

The "Fat Wallet" thesis argues that as protocols and applications continue to "thin out," individuals who possess the two most valuable resources—distribution and order flow—will gain more space.

The cryptocurrency ecosystem is a complex and ever-evolving landscape. As the industry matures, there is a growing debate about how value will ultimately be distributed among the various layers of the ecosystem.

Historically, the focus has been on protocols versus applications. However, a third layer that has been largely overlooked is wallets. In this article, we will explore the "Fat Wallet Thesis," which argues that wallets will gradually come to dominate the blockchain ecosystem as they control the critical user entry points and transaction flows.

As the roles of underlying protocols and applications diminish, we will examine how wallets can capitalize on their proximity to end users by charging fees for order flow and offering promotional services for application distribution. Finally, we will discuss why two alternative front ends—Jupiter and Infinex—may ultimately outcompete wallets in the race to capture user attention and transaction orders.

Throughout the history of cryptocurrency development, discussions about how value will ultimately accumulate within the blockchain ecosystem have been ongoing. Although historical core debates have primarily focused on protocols versus applications, there is a third layer in this ecosystem that has been overlooked—wallets.

The "Fat Wallet" thesis posits that as protocols and applications continue to "thin out," individuals who possess the two most valuable resources—distribution and order flow—will gain more space. Moreover, as the ultimate front end, I believe no one is better positioned than wallets to monetize this value.

This article aims to achieve three objectives: first, to outline three structural trends that will continue to commoditize the protocol and application layers. Second, we will explore various ways wallets can monetize their proximity to end users, including Payment-for-Order-Flow (PFOF) and selling application distribution as a service (DaaS).

Finally, we will discuss why two alternative front ends—Jupiter and Infinex—may ultimately outperform wallets in the competition for end users.

If a product in this layer increases its commission rate, will users turn to cheaper alternatives?

In other words, if Arbitrum raises its commission rate, will users switch to other protocols like Base, and vice versa? Similarly, at the application layer, if dYdX raises its commission rate, will users turn to the nth undifferentiated perpetual contract decentralized exchange (DEX)?

Based on this logic, we can identify where the switching costs are highest, and thus who possesses asymmetric pricing power. Similarly, we can use this framework to identify which layer will become increasingly commoditized over time.

While historically protocols have had disproportionate pricing power, I believe this phenomenon is changing. Currently, there are three structural trends that are continuously "thinning" the protocol layer:

1. Multi-chain Applications and Chain Abstraction: As multi-chain becomes a fundamental requirement for applications to remain competitive, cross-blockchain user experiences will become increasingly indistinguishable, thereby lowering the switching costs at the protocol layer. Additionally, through abstracted bridging, chain abstraction will further compress switching costs. Thus, applications will no longer rely on the network effects of a single chain but will increasingly depend on front-end distribution.

2. Maturity of the MEV Supply Chain: While MEV will not be completely eliminated, many initiatives at the application layer and closer to the base layer will continuously redistribute the amount of MEV extracted from end users. As the MEV supply chain matures, value will increasingly ascend to the upstream of the MEV supply chain and asymmetrically accumulate in the hands of those with the most unique user order flows. This means protocols will lose bargaining power, thereby "thinning out," while front ends and wallets will gain leverage, thus "thickening."

3. Development Towards an Agency Paradigm: In a world where transactions are primarily executed by agents and "solvers" rather than humans, attracting this agency flow will become key to survival in blockchain. Importantly, given that agents and "solvers" are programmed to primarily optimize for best execution, protocols will no longer compete on intangible factors like "vibe" and "alignment." Instead, transaction fees and liquidity will be the only important factors—this will further "thin" the protocol layer as protocols are forced to compress fees and incentivize liquidity to remain competitive.

Thus, revisiting our initial question—if protocols raise their commission rates, will users switch to cheaper alternatives?—while it may not be obvious today, I believe the answer will increasingly be "yes," as switching costs continue to compress.

Data Source: Dune Analytics @0xKofi

Intuitively, one might assume that if protocols become "thinner," applications must inevitably become "thicker." While this value will certainly be recaptured by certain applications, the "Thick Application Theory" alone is simplistic. Different applications in vertical domains accumulate value in various ways. Therefore, the question should not be—"Will applications become thicker?"—but rather—"Which specific applications?"

As I outlined in “Identifying New Frameworks for Crypto Market Moats”, the unique structural differences of crypto applications—forkability, composability, and token-based acquisition—have a net effect of lowering barriers

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