Vertically Integrated Capital Aggregator: How Web3 Builds Unassailable Moats
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Vertically Integrated Capital Aggregator: How Web3 Builds Unassailable Moats
It may be impossible to replicate a vertically integrated product overnight, but you can build upon it.
Navigating Web3 tides with focused insightsBy Decentralisedco
Translated by AididiaoJP, Foresight News
Today’s story is about what makes protocols antifragile—and how tokens serve as levers to撬动 (leverage) ecosystems. In the weeks following a series of hacks, we dove deep into the Hyperliquid ecosystem. We quickly realized that protocols across the industry are building defensible moats through vertical integration.
This article explores how Web3 leaders sustain their moats.
Throughout this piece, I frequently use terms like “supply-side aggregators,” “demand-side aggregators,” and “vertically integrated capital ecosystems.” For clarity:
- A supply-side aggregator pools differentiated market participants to deliver commoditized products (e.g., Uber).
- A demand-side aggregator scales a product outward to seemingly homogeneous groups (e.g., Amazon).
- A vertically integrated capital aggregator brings together multiple parts of an ecosystem—offering users multiple financial products in one place.
Blockchains are monetary rails. A protocol’s value lies in its economic output. Composability and real-time verifiability enable blockchain-native businesses to vertically integrate. Tokens let participants across the stack align incentives via a shared medium. Teams that intentionally engineer value capture at every layer of the stack build moats. Vertical integration accelerates capital velocity within the ecosystem—and, when executed well, becomes a revenue stream.
Uber aggregates riders citywide and positions itself as a demand aggregator; Swiggy does the same. You might think there’s little difference between ordinary passengers or hungry people—they’re commodifiable. So as a platform, Uber extracts ~30% from each aggregated “commodity”—i.e., human users. Restaurants hate it. Drivers hate it. Both try to bypass the platform via direct cash payments.
Riders—or me—understand that the platform’s ability to run a reputation system is its real value. Today, no cash transactions happen.
You see similar dynamics with Jupiter on Solana. Its early influence came from routing orders across exchanges to deliver users the best price. Unlike restaurants and drivers, Jupiter aggregates venues for my WIF buy order.
Substack and Spotify, however, operate on parallel tracks. Spotify pays up to 70% of its revenue to record labels. Last year, it paid $13.75 billion to rights holders out of $20.22 billion in total revenue. For every $1 earned, only $0.04 reaches the artist. Substack takes just 10% of what I pay newsletter writers. It neither commodifies readers nor authors—it simply positions itself as a tool. Perhaps deliberately: if it gained pricing power, writers might leave the platform outright.
Spotify functions, in part, as a loose supply-side aggregator due to its ties with many record labels. Substack, meanwhile, positions itself as a demand-side aggregator without pricing power—relying instead on its reader base.
These applications each aggregate different sides of the market. But their ability to accumulate capital—or pricing power—depends on how tightly they integrate into the ecosystem. We’ll soon see another version of this.
Web2-native aggregators leveraged two forces driving massive user growth:
Moore’s Law dramatically reduced smartphone costs. India alone has 800 million smartphone users. Today, roughly 5.5 billion people are online globally.
Internet access costs fell, and bandwidth costs dropped rapidly.
By contrast, crypto—as an economy—has a far smaller TAM. Best estimates suggest ~560 million users have interacted with crypto. Last month, DeFi active wallets numbered ~10 million. These are fundamentally different economies governed by radically different rule sets.
One is attention-driven; the other is driven by on-chain capital flowing inside wallets. We often misapply attention-economy behaviors to transaction economies. For instance, user behavior in prediction markets differs sharply from that on Instagram.
Revisiting Aggregation
Three years ago, when I first wrote about aggregators, I argued blockchains lowered verification and trust costs. The internet’s original promise was access—you could sit in pajamas in New York and buy Temu goods from Shenzhen. At the time, I believed blockchains enabled real-time verification and near-zero-cost settlement with suppliers—or rather, I predicted the industry would evolve that way.
In 2022, I wrote:
“We believe blockchains will give rise to entirely new markets capable of instant on-chain event verification. This will drastically reduce the cost of large-scale IP validation—enabling novel business models.”
Since then, new markets have indeed launched. NFT trading volume has reached ~$10 billion. Perpetual contract notional cleared has hit ~$14.6 trillion. DEX trading volume has reached ~$10.8 trillion. The vision—that technology would enable global settlement with anonymous counterparties—was correct.
But it must also be noted that OpenSea’s volume dropped from ~$5 billion at the time to ~$70 million this month.
Markets emerge, evolve—and fade. As with many things in life. Along the way, they leave us fuel for thought. Sid argues speculation in crypto is a feature—not a bug. All new markets begin ambiguous: participants don’t know exactly what they’re buying—or why something holds value. Novelty is priced in. When rationality returns and valuations become efficient, bubbles fade into memory. Both NFTs and DeFi cycled through such manias.
These bubbles were critical for stress-testing and validating the monetary rails that ultimately underpin markets like Hyperliquid.
That brings me to recent weeks in crypto. In the Drift and Kelp incidents, ~$578 million was hacked over three weeks. Over the past twelve months, ~$1.7 billion was stolen from DeFi and crypto protocols tracked by DefiLlama—while total DeFi protocol revenue stood at ~$3.42 billion.
In other words, over the past year, for every $1 earned in DeFi revenue, ~$0.50 was lost to hacks.
Meanwhile, more apps launch daily—software itself has become commoditized. App Store submissions this quarter rose 84% YoY. Two forces are now at play: more software competes for fewer users’ attention, while a handful of platforms dominate most of crypto’s generated revenue.
Now we realize the industry loses $0.50 for every $1 it earns. The inflection is steep—but bear with me.
If we break down the $3.5 billion in revenue generated by decentralized channels, a pattern emerges quickly. ~40% comes from derivatives platforms—Hyperliquid alone contributed ~$902 million. Second is DEXs, led by Uniswap generating ~$927 million in fees. Lending platforms like MakerDAO rank third, collectively earning ~$500 million. All share one trait: they’re capital-intensive businesses.
Unlike Saturday-afternoon products built in a few lines of code, they require patient capital—capital willing to absorb platform risk.
This is where you recognize the key distinction between Web2 and Web3-native aggregators. Because blockchains are primarily tools for moving funds and verifying whether transactions follow developer-defined rule sets—they only become valuable when performing capital-intensive operations. Perpetual exchanges can deploy large sums repeatedly into productive use within a single day. Lending platforms skim a small cut from the massive yields generated.
For example, Aave earned ~$123 million last year from $920 million in yield generated. But such aggregators only dominate markets when they simultaneously own three critical elements:
- Supply-side (liquidity)
- Demand-side (users)
- Distribution
Hyperliquid is a unique beast here. It’s paid builders nearly $100 million in code bounties—but the vast majority of its revenue comes from its native frontend. It both retains top-tier users and expands the surface area for new users to interact with the protocol.
But what’s the logic behind this? One theory: in Web3, distribution is a toll. Large protocols tend to own and retain their best users. You see this clearly when comparing DEX revenue against on-chain aggregators routing orders.
On Ethereum, aggregators account for 36% of all DEX volume. On Solana, that figure dips as low as ~7% monthly. Kyber, 1inch, CoW, and ParaSwap combined have generated only ~$112 million in fees since launch. Meanwhile, Uniswap—operating as a standalone exchange dominating most volume—has accumulated ~$5.5 billion in lifetime fees. You see similar patterns with Hyperliquid.
Builder code accounts for only ~6% of Hyperliquid’s cumulative $1.1 billion in revenue. MetaMask’s deep Ethereum integration earned $184 million in swap fees last year. Phantom generated ~$180 million—but in a massive ecosystem, this remains a small slice. These products only function atop a single protocol with liquidity and economic activity.
They attract and retain users precisely because they offer deep liquidity. From this perspective—capital in crypto is no longer a commoditized product. It’s the most essential ingredient. Vertical integration of capital gives participants stronger reasons to stay within the ecosystem. In such systems, capital generates more liquidity—because it can be deployed productively.
Capital isn’t the moat—it’s the outcome of vertical integration. Vertical integration *is* the moat; capital is merely a byproduct.
Note: this model only works when parked capital is *not* incentivized. Skeptical? Look at any pre-launch protocol with an airdrop program—or examine the countless L2s struggling to generate value.
Any business aggregating capital is, to some degree, a hacker target. Drift was targeted due to its ~$570 million TVL. KelpDAO was targeted for holding ~$1.6 billion in restaked ETH. Hyperliquid’s bridge holds ~$2 billion in user deposits—making it one of the most valuable targets in the space. Similar patterns appear with Ronin (~$625 million) and Nomad (~$190 million).
Because blockchain-native businesses require substantial capital to generate value, we face a dynamic: to win, you must remain vulnerable—until robust security mechanisms and mechanisms to freeze fund flows are in place.
Even with capital, high TVL alone doesn’t guarantee success. In any economy, idle or underutilized capital becomes a liability during hacks. That’s why protocols try to differentiate themselves via economic output—starting with niche use cases.
CHIP (the firm behind USDAI) issued ~$100 million in loans this quarter—with a $1.5 billion pipeline advancing. These higher-risk tranches will yield ~16% APY this year.
Maple’s highest-risk pool offers ~15–20% APY—matching or exceeding Aave’s current USDC pool at 12.6% APY. It aggregates borrowers who can productively deploy protocol liquidity to generate economic output.
Naturally, Hyperliquid stands as the best example of a supply-side aggregator putting capital to meaningful use. Over the past year, it generated ~$942 million in revenue against an average TVL of ~$3.5 billion. A rough calculation shows each dollar of capital parked on the protocol turns over ~285 times annually—generating ~$0.30 in fees per $1 of TVL. Compare that to Aave’s lending market, which generates ~$0.05 per $1 of TVL.
In a market where consumer preferences aren’t fixed and investor loyalty is low, capital flows to wherever it produces the best outcomes. When factoring in hack risk, investors demand a risk premium. Right now, perpetual exchanges are the only places where idle capital can be repeatedly deployed on-chain—and generate fees.
I originally viewed Hyperliquid solely as a supply-side aggregator—providing capital to users willing to trade on-chain. That remained my thesis. And it’s true. But when you consider how it uses tokens to incentivize vertical integration, that thesis falls apart. Before we go further, let me explain how vertically integrated ecosystems operate.
Ticketmaster handles 70% of major live events in the U.S. It extracts 30% from your ticket to Justin Bieber’s Coachella set singing old hits—because it owns venues, promotes tours, ensures merch availability at concerts, and coordinates sponsors. That 30% is 15x what Stripe charges for online ticket processing. Yet you pay the premium because Ticketmaster vertically integrates across the value chain.
You experience a market illusion: artists, venues, and fans are all participants—but no one can object to Ticketmaster’s cut. Apple’s App Store operates similarly. Apple curates the store, collects fees, ensures devices work seamlessly, and delivers millions of users already accustomed to hearing Apple Pay’s “ding”—even if you subscribe to yet another app you’ll never use.
Vertical Integration in Crypto
Protocols have begun slowly implementing this same logic.
In Web3, without vertical integration making collaboration easier for capital providers, those providers become commodities. Users won’t develop loyalty until the ecosystem delivers cumulative experiences that can’t be replicated elsewhere.
For Maple, that integration requires years of experience working with hedge funds and market makers. For Centrifuge, integration includes securing ~$1 billion from Grove for Janus Henderson’s JAAA bond issuance. They don’t capture loose, abstract fragments of the economy—they vertically integrate to deliver better end-user products. Doing so builds moats that can’t be copied overnight.
Maple’s years of underwriting experience—or Centrifuge’s moat as a trusted capital coordinator—is the moat itself—in a world where capital and relationships are the only hard-to-replicate assets.
Vertically aggregating companies may routinely outsource certain stack layers to third parties. Partly because doing so yields minimal economic upside. Hosting or issuing cards via MetaMask likely generates far less profit than swaps and credit underwriting.
Yet when businesses scale exponentially, owning the entire stack is where competitive advantage is built. This also explains part of the industry’s M&A activity.
When a company achieves vertical integration, you’re not competing against a single product—you’re competing against the holistic user experience it delivers. On Hyperliquid, once HIP-4 launches, users can deposit funds for free (via Native Markets), take positions in prediction markets, and use those positions as collateral for perpetual trades. Its risk engine enables this experience—and notably, even in traditional finance today, this wouldn’t be possible without an investment bank.
Hyperliquid owns users, on-ramps, a risk engine, trading interface, liquidity, and token issuance rights. For a new business to compete means fighting on six distinct fronts simultaneously.
For newly launching apps, integrating into even a small slice of Hyperliquid is far better than building atop a new protocol like Monad—where cumulative derivatives volume stands at just $2.6 billion (spread across five perpetual protocols).
Vertically integrated ecosystems like Hyperliquid attract developers, more integrations, headlines, and happy token holders.
Exchanges see this shift too. Coinbase acquired Deribit, owns custody services, co-issues USDC with Circle and earns revenue from reserves, operates large-scale wallet infrastructure, and maintains on-ramps in 100+ countries. It also launched its own chain to pursue vertical integration. Granted, Coinbase may be premature in targeting retail users who clearly don’t want to “mint” content on-chain or use Farcaster.
Coinbase’s integration exists loosely—but is buried beneath layers of bureaucracy, regulatory hurdles, and internal priorities. This may be the core distinction between open and closed integration systems. As an exchange valued at ~$60 billion, Coinbase has little incentive to chase edge-case developers.
By contrast, Hyperliquid benefits by turning its core channel into the best trading venue—while simultaneously building an ecosystem and creating value for its underlying token.
In this context, tokens are part of integration—acting as the shared substrate that sustains and validates these integrations. That’s why the industry conflates tokenized protocols with tokenized businesses. Tokenized protocols assume third-party developers can easily build atop them. They incentivize directing value (downward) to the token—typically via market buybacks.
Companies like Robinhood and Coinbase are powerful economic actors—but they cannot replicate Hyperliquid’s core owner-operator network.
Protocol airdrops ensure ownership goes to individuals who contributed economically. They hold enough tokens to drive value toward it. Hyperliquid commits to this mission by allocating 99% of revenue to token buybacks from the market. Imagine a public company using 100% of revenue to buy back employee ESOP shares—we might see greater acceptance of capitalism.
This is why the industry is evolving—whether we culturally like it or not. Solana focuses on immutability; Ethereum prioritizes censorship resistance and open-source ethos—but you’ll see ideology bending to commercial reality.
Hyperliquid is a beautiful garden—but it’s a walled one. To my knowledge, its source code isn’t open-source. Its risk engine’s workings aren’t verifiable. Maple’s risk underwriting parameters aren’t public. As a lender, I might not even know who underwrote the loan on USDAI.
Negotiating With Chaos
If every $1 earned sees $0.50 lost to hacks, no economy can be built. If founders are held liable for hundreds of millions in parked TVL, they’ll flee to AI. Every hack triggers urgent calls to freeze stablecoins—which often implies centralization.
Vertically integrated stacks ultimately sacrifice full decentralization for economic progress.
This isn’t a new story on the internet. In the late 1990s, many dreamed of an open internet enabling consequence-free free speech. Yahoo auctioned Nazi memorabilia—until a French court intervened in 2000. Tim Wu explores this theme deeply in *Who Controls the Internet?*. The internet’s story—or that of all human commercial networks—is one where full decentralization yields to a milder version, surrendering some control to enable economic interaction.
We accept a diluted version of the original vision so commerce can scale—because without dilution, chaos follows.
This massive energy expansion shows in how we describe those eras: the “Wild” West, the internet “bubble.” Perhaps crypto is undergoing similar expansion and energy convergence. I explored these themes in depth last year in the following article.
What This Means for Founders
Observe MetaMask and Phantom’s data. These businesses earn more than most L2s—because they sit downstream of ecosystems generating massive economic output. Building bridges and exchanges where there’s no liquidity or users is no longer viable—especially when accompanied by the pain of hacks. Build where liquidity and users exist today.
Mimicking vertically integrated products overnight may be impossible—but you can build atop them.
Operating systems followed similar patterns. When BlackBerry faded and iOS rose, developers had to choose where to build. We see the same in crypto—only this time, capital incentives may keep developers blind for longer.
Platforms and protocols on the internet are strikingly similar. We may dislike their rules—but they keep things functional.
In the era of vertical integrators, we’ll increasingly agree on certain rules—so our capital stays close, and the economies where we invest massive time continue scaling. Trends point this way. Stablecoins, RWAs, perpetual exchanges with closed risk engines, lending platforms with opaque underwriters, and off-chain RFQ products like Derive—all point to the same trend.
That trend is vertically integrated capital aggregators willing to abandon the dream of full decentralization—for the sake of progress.
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