2Mar 2021

Three Pillars of Blockchain Value

by Matthew Harcourt

We are 12 years into the crypto revolution that was kicked off by Bitcoin in 2009. It is clear that the technology driving this revolution has found market fit in mainly three different categories; as a censorship resistant store-of-value, in Non-Fungible Tokens and in Decentralised Finance. The main value proposition for ‘store-of-value’ and non- fungible tokens is verifiable digital scarcity while DeFi is the clear market-fit for smart contracts.


The first pillar of blockchain value is the store of value properties of Bitcoin. Bitcoin has become increasingly known as digital gold throughout it’s relatively short history, this narrative has become the key investment thesis of Bitcoin for distinguished and retail investors alike. Whilst we agree that the established comparison to gold is favourable, we view Bitcoin as an asset that’s potential stretches far beyond that of just a digital version of gold.

While the digital gold narrative was there from the very start of Bitcoin (its predecessor Bit Gold even had it in its name), it is a narrative that has grown in importance. Early on, Bitcoin was mainly known as a digital currency or digital cash that’s main value proposition came out of its usefulness as a non- sovereign and instant payment mechanism. After Bitcoin adoption reached a level where the demand for transactions resulted in relatively expensive transaction fees, this narrative became unfeasible and the investment thesis began to evolve into what it is today.

We believe that we are in the infant stages of the next evolution of Bitcoin’s widely accepted narrative. Bitcoin characteristics such as divisibility, transportability, flexibility and verifiability give the asset the potential to become more like a global reserve asset than digital gold. Key Drivers of this narrative are:

  1. Continued corporate adoption by companies such as Tesla, Square and MicroStrategy.

  2. Increased usefulness of Bitcoin as a payment mechanism made possible by the likes of PayPal, Visa & Mastercard.

  3. Continued value destruction of fiat currencies caused by quantitative easing and low/negative interest rates.

Non-fungible tokens (NFT’s)

Non-fungible tokens have the potential to bring blockchain technology to the financially agnostic masses. Non-fungible tokens are digital assets that represent a wide range of unique intangible items such as collectible sports cards, virtual land and works of art. While NFT’s are obviously intangible, NFT’s can also be used to digitally verify ownership of tangible goods. The code contained within each NFT makes them distinct, easily verifiable and digitally scarce. The NFT market is mostly built on the Ethereum blockchain with the main competitor being the NFT focused blockchain called Flow.

Non fungible tokens have mainstream appeal due to their usability, beauty and familiarity. NFT’s feel familiar because most of us have opened up a pack of sporting cards, made an in game purchase (or seen kids make them) or appreciated an amazing work of art. NFT’s bring these experiences into our digitally native society by making them verifiably scarce, unique and owned by you.

We can see this mainstream appeal in action when we look at NBA Top Shots, a digital version of collectible trading cards where each card is a video of a specific moment in a game. An impressive block by rookie phenom Zion Williamson of the New Orleans Pelicans will set you back US$210,000 if you want to buy it today. While this two handed dunk by LeBron James was last sold for US$125,000 on the 25th February, although one lucky punter bought it for $1,999 on Christmas Eve. When it comes to digital art, Beeple is the artist making the most noise. This NFT of a Donald Trump looking character recently sold for US$6.6 million on the secondary market after originally selling for $66,666.6 on November 1st.

While it can be argued that NFT’s offer attractive investment opportunities when it comes to art and unique items. It is both speculative and hard to define where the value will be captured when it comes to specific artists, games and items. However, we are keeping a close eye on infrastructure opportunities in the NFT marketplace should they become attractive in our eyes.

‘Bull Run’ by Beeple

‘Bull Run’ by Beeple

Decentralised Finance
Decentralised Finance (DeFi) is our final pillar of blockchain value. DeFi has been one of the driving forces of the bull market we are in today.

Decentralised finance represents the first time in human history that we have permissionless innovation in finance on a global scale. By using smart contracts and blockchain technology, developers are creating a more efficient, fair and trustless financial system that is gaining traction at an incredible rate. According to, one year ago the total value locked (TVL) in decentralised finance protocols was only US$1 Billion, today TVL sits at US$38.4 billion.

We see this rapid increase in total value locked as a paradigm shift rather than a speculative bubble. Smart contracts enable the creation of genuine economic value, the liquidity locked in these smart contracts are providing a service and thus earn a yield. Of course, not all of DeFi is sustainable economic value creation and many projects will not last, but there are many crypto assets that have the potential to become widely acknowledged as high quality crypto assets.

Recently, The Federal Reserve Bank of St. Louis released a research report on “Decentralized Finance: On Blockchain- and Smart Contract Based Financial Markets”. The article is aimed at providing policymakers, researchers and financial institutions with an introduction to the topic of DeFi. We view this level of research from key entities in the traditional financial system as extremely promising to the longer term value creation of DeFi.

The DeFi Stack

The DeFi Stack

Figure 2 in this research report outlines the ‘DeFi stack’, at Apollo Capital we aim to capture value across this DeFi stack. On the settlement layer we invest in Ethereum and have smaller positions in competing smart contract platforms that have potential. We invest in many fungible tokens (ERC-20) that we think have real value within their respective ecosystems. Our main focus of investment is at the protocol layer, this is where we see the most value being created.

Our focus on the application layer is smaller as we view the crypto assets at this layer as being of a lower quality. For example, a common token model at this level is to have a governance token (that isn’t used for any governance at the time) plus liquidity mining with rewards being paid out in that governance token, therefore rapidly reducing the value of the token through inflation.

The aggregator layer is similar to the application layer in the way that it is hard to find token models that are of a high quality. However, aggregator protocols such as Yearn Finance and APY Finance are innovative and lead to positive user experiences and great overall returns.

Our views on the crypto markets are constantly changing in order to stay ahead of this incredibly fast moving space. As blockchain technology progresses into unexplored territories and industries, the current three pillars of blockchain value may one day become four or five.

Matthew Harcourt

Matthew has been actively investing in the crypto markets for 7 years and holds a Bachelor of Business from Monash University, majoring in Accounting. Matthew focuses on portfolio construction through thorough research and analysis of crypto protocols as well as execution of investments and strategies. Matthew’s passion lies in supporting portfolio companies through advisory on tokenomics and strategy, adding significant value to Apollo’s early-stage investments.