If you witness the events unfolding on the blockchain, it may feel like the “end of the world” is imminent. It can even be said that artificial intelligence has replaced cryptocurrency as the breeding ground for future technological development. All these claims hold some truth, but it is best to view the issue from a more macro perspective. This article is based on an article by Saurabh Deshpande, organized, compiled, and written by Felix, PANews.
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Background: OKX Chief Business Officer Lennix: OKX Wallet is Committed to Building Self-Custody and Multi-Chain Ecosystems, Balancing Innovation and Compliance
This article explains how the innovation cycle gradually evolves to reach a point where technology finds its market fit. Today’s story will delve into the commonalities between Uber, Pendle, and EigenLayer. It hopes to help you dispel the pessimistic rhetoric on Twitter and find a new perspective.
For thousands of years, humans were thought incapable of flying. In the 112 years since human flight began, we have now figured out how to catch rockets returning from space. Innovation seems to be a gradual phenomenon that spans eras.
The real magic of technology is rarely seen in the initial invention, but in the ecosystem that forms around it. Think of it as compounded growth, but in terms of innovation rather than money.
While pioneers creating new things grab headlines and secure venture capital, it is often the second-wave builders who dig out the greatest value — those who discover untapped potential within existing foundations. They see possibilities that others fail to notice. History is full of such innovators who never predicted how their inventions would reshape the world. They simply tried to solve the immediate problems at hand. In doing so, they unlocked possibilities far beyond the initial vision.
The best innovation is not the endpoint but a launchpad for an entirely new ecosystem to take off. Today’s article will explore how this phenomenon is presented in Web3, starting with the globally used Global Positioning System (GPS), then tracing it through staking and incentive mechanisms back to the cryptocurrency domain.
A Weekend that Changed the Internet
The Global Positioning System (GPS) has been dedicated to precise Earth location since its inception in 1973. But Google Maps is much more than that, enabling billions of people to access, use, and understand this raw data.
Google Maps began with three strategic acquisitions at the end of 2004.
The first was Where 2 Technologies, a small Australian startup working out of a bedroom in Sydney. They developed “Expedition,” a C++ desktop application that achieved smooth navigation using pre-rendered map tiles. Compared to MapQuest’s clunky experience, it provided a superior user experience.
Meanwhile, Google acquired Keyhole (satellite imagery technology) and ZipDash (real-time traffic analysis), integrating the core parts of its mapping vision. These acquisitions formed the foundation of Google Maps: an interactive navigation system, rich visual data, and dynamic information all integrated into one app.
Expedition was a desktop app, but Larry Page insisted on a web-based solution. The initial attempts were slow and uninspiring. Bret Taylor, a Stanford graduate who had been Google’s associate product manager, set out to fix this.
Bret Taylor rewrote the entire front end using Asynchronous JavaScript and XML (AJAX). AJAX was an emerging technology that allowed websites to update content without reloading the entire page. Before AJAX, web applications were static and cumbersome. With AJAX, response times rivaled those of desktop software. The map became draggable, new tiles loaded without a page refresh — a revolutionary user experience in 2005.
The real genius came when Google released the Maps API later that year, transforming it from a product into a platform. Developers could now embed Google Maps and build upon it, sparking thousands of “mashup” projects that eventually evolved into full-fledged businesses. Uber, Airbnb, and DoorDash owe their existence to Bret Taylor’s decisive action on that weekend, making maps programmable.
Bret Taylor’s intuition reflects a recurring phenomenon in technology: the farthest-reaching value often does not come from the foundation but from what others build upon it. These “second-order effects” represent the true compounded magic of innovation — a breakthrough can empower an entire ecosystem, giving rise to unexpected applications.
After Google Maps became programmable, a chain reaction occurred. Airbnb, DoorDash, Uber, and Zomato were among the first to integrate GPS into their core services. Pokémon Go took it a step further, layering augmented reality on top of location data, blurring the lines between the real and the virtual.
What’s behind all this? Of course, payments. Because if seamless payment isn’t possible, what use is on-demand service?
The GPS technology they relied on wasn’t anything new. But GPS alone couldn’t work wonders. It was the pinnacle of decades of technological evolution, such as satellite positioning, mobile hardware, AJAX, APIs, and payment channels, all of which were quietly taking shape.
This is why second-order effects are so powerful. They often go unnoticed at the moment. But one day, you’ll look up and realize that your daily tasks are coordinated by an invisible innovation network that has been quietly building up over the years.
How Re-Staking Gives Rise to Products
In June 2023, EigenLayer introduced the “re-staking” feature on the Ethereum mainnet, fundamentally altering Ethereum’s security landscape. The concept is novel yet simple, and anyone interested in cryptocurrency can understand: “What if you could stake your ETH twice?”
In traditional staking, your ETH earns stable but modest returns of 3.5% – 7%. Re-staking essentially allows the same batch of ETH to serve double duty, securing both the Ethereum network and the EigenLayer protocol network — the same capital, multiple income streams, and enhanced capital efficiency.
By April 2024, EigenLayer had evolved from a theoretical innovation to a fully operational system, receiving significant adoption. Data says it all: 70% of new Ethereum validators immediately chose to join the protocol. By the end of 2024, over 6.25 million ETH (approximately $19.3 billion) had been locked in re-staking. If ranked by GDP, it would place about 120th globally.
What’s interesting is not just that EigenLayer made re-staking a reality, but that others quickly followed suit. EtherFi, a liquidity staking provider, quietly launched in early 2023.
I predict that EigenLayer’s stake will become one of the most popular opportunities in DeFi. You stake ETH, receive ETH tokens, and then automatically re-stake on the EigenLayer protocol. As a reward, you can use ETH and play in other DeFi sandboxes. Pendle is one such sandbox. It’s like earning multiple rewards for doing the same thing — welcome to crypto finance.
Ether.fi predicts that EigenLayer’s re-staking will become one of the most popular opportunities in DeFi. You stake ETH, receive eETH tokens, and then automatically re-stake on EigenLayer. As a reward, you can take eETH and explore other DeFi sandboxes. Pendle is one such sandbox. It’s like everyone earning multiple rewards for doing essentially the same thing.
What was the result? Quite impressive. By May 2024, Ether.fi’s TVL soared to about $6 billion. Their “Liquid Vault” offered around 10% annual returns, while traditional staking wasn’t nearly as exciting at the time.
What Ether.fi did with re-staked ETH is actually similar to what Lido did with staked ETH previously. By creating liquidity, accessibility, and availability for re-staked ETH, they made re-staking practical, mainstream, and profitable.
Aside from chasing yield, there’s also “staking mining,” where people not only pursue immediate returns but accumulate “points” that could later turn into valuable tokens. If you like, you could call it a speculative flywheel. As more and more users re-stake via Ether.fi, more eETH tokens circulate, and they deeply integrate with other DeFi projects like Pendle, where you can trade future earnings or even the points themselves, creating entirely new financial instruments.
What happened to the points — after all, cryptocurrency is a playground for efficient capital mercenaries. When protocols started using points as rewards, a large number of users appeared, attempting to maximize their points and manipulate the system in the process. The original intention behind points was to create fairer and broader token distribution. But once it evolved into a race, the results became skewed. The most active “miners” are not always the most consistent users. Although many projects still use points to distribute tokens, this strategy is no longer as appealing as it once was.
So, as always, the lesson isn’t just that innovation is important. More crucially, the biggest winners are often not the ones who create the hot topics from the start. They are those who come later, perceive the real situation, and create just the right thing at the right moment.
Of course, EigenLayer laid the foundation, but Ether.fi and others who saw the second-order effects also reaped the benefits, eventually capturing more than 20% of the Ethereum staking market by mid-2024. In crypto, being first isn’t as important as understanding what others are doing.
Points and Pendle
After Jito’s airdrop success, points became mainstream in December 2023. This Solana-based protocol debuted with an FDV of over $1 billion, sparking a “gold rush.” Suddenly, the protocols across the entire ecosystem shifted from direct token distribution to point systems. They began using points to reward users participating in their protocols, and these points could later be exchanged for governance tokens. This new type of distribution mechanism quickly evolved into the dominant strategy.
Pendle launched in June 2021, focusing on tokenization and future yield trading. Pendle’s core innovation is clever because it splits yield tokens into two parts: Principal Tokens (PT), which represent the underlying asset, and Yield Tokens (YT), which capture future yield. This separation allows users to trade these components separately, offering better control over their yield strategies than ever before.
When the points race officially began, Pendle found itself in a favorable position with a feature built for entirely different reasons. The platform’s YT tokens established a mechanism akin to leveraged point mining. Users could earn both the floating yield of the asset and any related points, thereby expanding their point accumulation without additional capital.
Here’s how it works in practice. Suppose Sid wants to earn points from a protocol like EigenLayer, which rewards liquidity providers. Traditionally, he would need to deposit ETH into EigenLayer’s staking contract and lock up the funds for weeks or months. With liquidity re-staking tokens (LRT) and Pendle’s integration, Sid can buy yield tokens (YT) that represent future yield and points, without directly depositing ETH into EigenLayer.
For example, suppose the price of eETH is $2,000, and it earns 24 EigenLayer points daily. pteETH represents fixed yield tokens, and yteETH represents floating yield tokens, priced at $200 each.
teETH Holders Give Up Points for Fixed Income, yteETH Holders Get Floating Income and Points
Now, with just $2000, Sid can earn 240 points daily (worth 10 ETH) instead of just 24 points.
Analysis by Pendle Founder TN Lee
Pendle’s founder, TN Lee, elaborated on this in a podcast. The team did not build a meta-framework for points. They couldn’t have anticipated this development. However, they built perfect infrastructure for this emerging behavior and secured substantial capital. Even if this trend eventually cools off and the TVL drops to around $2.5 billion, their market cap is still 10-15 times higher than it was before the points emerged.
Memecoins, Pump.fun, and Raydium
Sometimes, second-order effects emerge from the most unexpected places, revitalizing the entire ecosystem in the process. The revival of Solana from 2023 to 2024 is a brilliant case, showcasing the rapid changes in the cryptocurrency space and how those positioned at critical intersections can capture value.
At the end of 2022, after the FTX collapse, many in the industry wrote Solana’s “obituary.” This logic seemed reasonable. SBF and his company had significant influence over the ecosystem, providing capital, liquidity, and market support. Without them, Solana struggled. The technology was plagued with reliability issues, and the news of “Solana crashing” became a joke. The blockchain, once positioned as an “Ethereum killer,” seemed to be on its last legs.
However, an extraordinary transformation was unfolding. Throughout 2023, Solana’s technology steadily improved. Outages became less frequent. Transaction finality and user experience became noticeably smoother. Developers, drawn by Solana’s technical foundation (such as high throughput, low costs, and sub-second finality), began to return, albeit cautiously.
By early 2024, the situation took a decisive turn. As people grew disillusioned with traditional DeFi governance tokens and broadly shifted towards so-called “financial nihilism,” user attention and capital began flowing towards memecoins. These tokens, often with little utility other than community ownership and cultural signals, captured the market’s imagination. Solana, with its lightning-fast transaction speeds and extremely low fees, provided the perfect environment for this new wave.
PumpFun launched in January 2024. This “memecoin factory” simplified the token creation process (which was once the domain of developers with programming skills) to a few minutes. PumpFun democratized token creation in a way that perfectly aligned with the spirit of cryptocurrency financial experimentation. Almost overnight, thousands of new tokens like “BONK,” “Dogwifhat,” and “POPCAT” flooded the Solana ecosystem.
What seemed like frivolous cryptocurrencies quickly demonstrated their potential as catalysts in complex value chains. These new tokens needed something crucial: liquidity. Without trading platforms, even the most ingenious memecoin concepts would be worthless. Solana’s decentralized exchange, Raydium, found itself in an enviable position.
Raydium: A Key Player
Since its inception, Raydium has aimed to be Solana’s top trading platform, focusing on improving capital efficiency and reducing slippage. The protocol was not specifically designed for memecoins, but its technical architecture, similar to Uniswap’s centralized liquidity pools and permissionless token listing process, proved highly effective for handling the sudden influx of new assets.
The timing couldn’t have been better. Years of infrastructure development created a solid foundation for this unexpected use case.
Listing on Raydium became an important milestone for these emerging tokens, enhancing their credibility and visibility in an increasingly crowded market. By early 2025, this symbiotic relationship became crucial, with over 40% of Raydium’s swap revenue coming from tokens generated by PumpFun.
This relationship was mutually beneficial: PumpFun needed Raydium’s existing liquidity pools to elevate its tokens from niche products to tradable assets, while Raydium thrived on the explosive trading volumes brought by these tokens.
The Economic Impact of PumpFun
The economic benefits of the PumpFun team are also impressive: tokens exclusively traded on the PumpFun platform incur a 1% transaction fee, while Raydium’s fee structure is 0.25%. This means Raydium needs to generate four times the trading volume to match the revenue from each PumpFun token. Due to its deeper liquidity and broader user base, Raydium consistently surpassed this threshold between August 2024 and February 2025.
Raydium was neither the original creator of memecoins nor the first to pioneer the token factory concept. However, by providing robust infrastructure for trading these assets and swiftly responding to competitive threats, it captured most of the value in the ecosystem.
The Legend of Solana Memecoins
The legend of Solana memecoins illustrates a key aspect of second-order effects: value often doesn’t go to the creators of new behavior but to those who scale it. PumpFun simplified token creation, while Raydium enabled efficient price discovery and trading. Each innovation sparked further adaptations. PumpFun’s vertical integration prompted Raydium to create LaunchLab, generating a series of second-order effects that reshaped the entire ecosystem.
This attention not only revitalized the ecosystem but was actively leveraged. As the memecoin craze grew, tokens like Trump and Libra were likely launched simply for the hype. Their strategy relied on narrative, timing, and viral spread. Trump tapped into the energy of political memes, while Libra leaned more into broader internet culture. Both tokens garnered immense attention initially and reached absurd valuations shortly after launch.
But this energy did not last long. Attention came quickly, and it faded just as fast. The secondary market cooled. Traders shifted their focus. Communities began to shrink. What these tokens proved was how to capture attention at the right time and convert it into speculative gold. However, they failed to maintain market value. They had no real utility, no sustainable development roadmap—just a flash in the pan.
The Power of Innovation and Attention
However, they proved a point: innovation can capture attention. And in the crypto space, attention is one of the most powerful raw materials. When harnessed properly, it can spark new waves of interest; if misused, it will quickly fade.
For observers of crypto innovation, the lesson is clear. When new primitives emerge, it’s not just about looking at the immediate impact but also about who is best positioned to facilitate, optimize, and expand the suite of behaviors they support. This is often where the real excess returns are realized.
What’s Next?
By now, you might be wondering what the next second-order explosion will look like. Perhaps you call it compound innovation, or maybe it’s technological convergence, but the point remains the same. This article discusses multiple technologies colliding at once, creating a chain reaction greater than the sum of its parts.
We have already witnessed this: re-staking reshaped DeFi incentives, memecoin infrastructure revitalized entire ecosystems, and yield protocols unexpectedly achieved airdrop leverage. So, what’s the next domino to fall? Perhaps it’s the experience of EVM. Maybe. It’s certainly being rewritten, redesigned, and refined to feel more like actual software—at least that’s the promise. Whether it becomes the next great compounding layer or just another incremental upgrade remains to be seen.
But if these pieces fit together smoothly, they could trigger an unprecedented chain reaction.
Competing for Attention in the Race to Expand Ethereum
Behind the noise of Layer 2 debates and scaling wars, a race is brewing—not just to expand Ethereum’s suite, but to enhance its utility by improving its usability. True usability—enabling others to build on top of it without being hindered by wallet issues, fees, or transaction failures. Because when friction disappears, innovation flourishes. And when innovation flourishes, compounding returns will emerge in the most unexpected places.
In recent months, we’ve seen some of the leading figures of this transformation: Andre Cronje from Sonic, Keone Hon from Monad, and Shuyao Kong from MegaETH. Though their approaches vary, their goal is clear: eliminate latency. Remove friction. Even eliminate wallets. Replace them with something faster, smoother, and more intangible. Build a true software experience, not a clunky clicking process.
Next-Generation Financial Applications
MegaETH and Monad both claim to handle 10,000 transactions per second. That’s Solana-level speed, but with Ethereum semantics. Given the crypto space’s tendency to overpromise, if this really happens, it would be the first Ethereum-based chain that actually makes Solana look passive in terms of user experience.
Andre’s pitch isn’t purely about speed, but about eliminating complexity. He believes Ethereum’s performance ceiling has not yet been reached. According to him, its current execution capacity is only around 2% of the total capacity. This isn’t due to hardware limitations but because of how Ethereum’s Virtual Machine (EVM) accesses and writes data. Sonic has reduced data storage requirements by 98% with its new database structure. His Sonic roadmap bets on abstraction—abstracting fees, accounts, and wallets. If all goes according to plan, by the end of this year, users won’t even realize they’re on a blockchain, while maintaining a significant degree of decentralization. And that’s key.
The Future: Who Will Win?
So, who will win in this brave new world? It may not be the infrastructure teams busy refining TPS benchmarks, but rather the applications built on these infrastructures, like Pumpfun, which profited $500 million in less than a year by utilizing Solana’s infrastructure. Social protocols, in particular, might be the ones to break through. Projects like Farcaster have already demonstrated the potential to combine the permanence of cryptocurrencies with the convenience of web-native experiences. No more paying to post, no more MetaMask pop-ups. Just content sharing.
The Future of DeFi
Then there’s DeFi. The next generation of financial applications will need better inputs. Andre bluntly states: “We don’t have on-chain volatility, implied volatility, or actual volatility.” When this data truly emerges, we can expect real options markets, coherent derivatives, and well-structured perpetual contracts—the financial layers that crypto has long pretended to have.
Unimaginable Applications
Perhaps most exciting are the applications we haven’t yet imagined. Because things always evolve this way. In 2005, no one would have looked at Google Maps and said, “You know what it needs? Ride-sharing.” But once the foundation changes, everything built on top of it will change as well.
Final Thoughts
So, as an individual, you may be skeptical. After all, you’ve been in crypto long enough to know that every tenfold improvement promised usually just results in a slightly better dashboard and more Discord notifications. But you’re also excited. Because this time, the underlying technology feels real. And behind it, the next generation of builders is quietly working on second-order magic that could reshape everything. Because for every groundbreaking underlying technology we see today, there are dozens of builders already working on second-order applications to truly reveal its value.
