Not every cryptocurrency holds the same value: Schwab reveals the true distribution of funds within digital assets

Schwab Report: Where Value Lies in the Crypto Market

A recent analysis by Schwab’s Center for Financial Research divides the cryptocurrency landscape into three main categories, revealing that the majority of market value is concentrated in foundational blockchains such as Bitcoin and Ethereum.

With the introduction of spot crypto ETFs, access for mainstream investors has expanded. Schwab highlights that the crypto space is not a single asset class, but a complex ecosystem with significant internal differences, making it crucial for investors to carefully consider where they allocate their funds.

Three Layers of the Crypto Ecosystem

The report organizes the crypto market into three distinct layers:

• Foundational Blockchains: At the base are networks like Bitcoin and Ethereum, which handle transaction processing and record-keeping. These platforms serve as the core infrastructure for nearly all other crypto applications. Schwab notes that by the end of 2025, these foundational networks represented close to 80% of the total crypto market capitalization, which stood at $3.2 trillion.

• Infrastructure Protocols: The second layer consists of software that links blockchains and applications. This includes oracles for external data, bridges for transferring assets between chains, and scaling solutions to enhance transaction speed. While these protocols are essential, Schwab points out that their business models are challenging—users rarely interact with them directly, and switching to alternatives is often straightforward.
• Product Protocols: At the top are user-facing services such as exchanges, lending platforms, staking solutions, and other tools. These products tend to foster greater user loyalty, have higher barriers to switching, and are more likely to become industry standards. Schwab cites examples like Aave (AAVE) for lending and Lido (LDO) for staking, though it refrains from making specific investment recommendations.

Comparing Web2 and Web3

To clarify these distinctions, Schwab draws a parallel with the traditional software industry. Foundational blockchains are likened to cloud service providers such as AWS or Microsoft Azure, which form the base for countless applications.

Product protocols are compared to companies like Salesforce or Netflix, which interact directly with end users. In contrast, infrastructure software, while indispensable, often struggles to build customer loyalty or maintain pricing power due to its replaceable nature and distance from the end user.

Approaching Crypto Investments

The report also outlines a method for assessing cryptocurrencies, borrowing concepts from growth equity investing. Schwab recommends evaluating protocols based on four key factors:

• Network effects
• Market share
• Scalability
• Tokenomics (including token distribution, incentives, and supply management)

Ethereum serves as a case in point. It dominates the smart contract space, boasting more than ten times the market share of its nearest rival, as measured by total value locked (TVL). Its early adoption and widespread use have established a powerful network effect, making it the go-to platform for developers. However, Schwab also notes concerns regarding Ethereum’s slower transaction speeds and the concentration of ownership.

Key Insights and Risks

One major insight from the report is that, despite their importance, infrastructure protocols often find it difficult to capture lasting value. Among crypto projects with market capitalizations exceeding $100 million, product protocols outnumber infrastructure ones by nearly two to one. Foundational blockchains, though fewer, hold the lion’s share of the market’s total value.

Schwab cautions that cryptocurrencies remain speculative and carry significant risk. For those considering entering the market, the report advises that simply purchasing crypto is not enough. Investors should understand where value is most likely to accumulate—primarily in the foundational networks and the widely used applications built upon them.