Blockfills’ John Divine discusses the untapped potential of the Tezos token.

Layer-one and layer-two cryptocurrencies have sparked significant debate among investors and analysts. Roundtable anchor Rob Nelson and John Divine, head of over-the-counter trading at Blockfills, recently delved into the topic, offering insights into the complexities and opportunities within this space.

Nelson opened the discussion by clarifying the definitions of layer-one and layer-two tokens. He explained, “A layer-one means it’s sort of the original chain, a layer-two is a sidebar office. There can be a lot of layer-ones like bitcoin, ethereum, solana.” This foundational understanding set the stage for a deeper dive into the investment strategies associated with these tokens.

Divine elaborated on the investment potential of layer-one tokens, using Tezos (XTZ)  – which has a market capitalization of more than $758 million – as a prime example. “Interestingly, there is no token for the layer-two; you buy the layer-one asset, which is Tezos, ticker symbol XTZ,” he stated. He highlighted Tezos’ decentralized nature and robust ecosystem, including its applications in NFTs, asset tokenization, and decentralized finance. 

Divine expressed surprise at Tezos’ market position, noting, “I was shocked to see that this asset is trading at number 98 on the top 100 crypto assets. To me, it seems like a top 50 asset, potentially a top 25 asset.”

Nelson then steered the conversation towards broader investment strategies, questioning whether it’s beneficial to hold both layer-one and layer-two tokens. Divine responded by discussing ratio spreads, such as Arbitrum against ethereum. “If that chart is super bearish, you’re probably better off just buying ether,” he said. “If that chart is positively sloping, there could be some edge in owning the layer-two token.”

Divine also raised critical questions about the proliferation of tokens. “Do these layer-twos need tokens, or are they just plays to enrich the people who were early in the protocol?” he asked.This skepticism was underscored by the Tezos Ether link, which he cited as an example of a potentially oversaturated market with tokens that may lack utility and decentralization.

As the conversation progressed, Nelson highlighted the importance of evaluating the long-term utility and decentralization of tokens, especially in light of new regulatory frameworks like the Financial Innovation Technology for the 21st Century Act (FIT 21). Divine stressed the need for a cautious approach to investing in layer-two tokens, which may not fulfill their initial promise.

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