Exploring the evolution of the innovation cycle: Why are excess returns often harvested by secondary developers?

Originally Posted by: Saurabh Deshpande

ต้นฉบับแปล: Felix, PANews

If you see what’s happening on the chain, it might feel like the end of the world is coming. It could even be argued that AI has replaced การเข้ารหัสลับcurrency as the hotbed for future technological development. All of these statements have some truth to them, but it’s best to look at the problem from a broader perspective.

This article explains how the innovation cycle evolves step by step to reach the point where technology finds market fit. Todays story will delve into the commonalities between Uber, Pendle, and EigenLayer. I hope it can help you dispel the pessimistic arguments on Twitter and find a new perspective.

For thousands of years, it was believed that humans could not fly. Now, 112 years after the first human flight, we have figured out how to catch a rocket returning from space. Innovation seems to be a gradual process that transcends time.

The real magic of technology is rarely found in the initial invention; it’s in the ecosystem that grows around it. Think of it as compound growth, but with innovation instead of money.

While the first movers who create something new grab the headlines and VC funding, it’s often the second wave of builders who unlock the greatest value—those who see untapped potential in the existing foundation. They see possibilities that others don’t. History is full of innovators who never predicted how their inventions would reshape the world. They simply tried to solve the problems at hand. In the process, they opened up possibilities that far exceeded their initial vision.

The best innovations are not destinations, but launch pads for entirely new ecosystems to take off. Today’s post will explore how this phenomenon manifests itself in Web3. It starts with the Global Positioning System (GPS) that we use every day, and then traces back to the cryptocurrency space through re-staking and points mechanisms.

A weekend that changed the Internet

The Global Positioning System (GPS) has been pinpointing locations on Earth since its introduction in 1973. But Google Maps goes far beyond that, making this raw data accessible, usable, and understandable to billions of people.

Google Maps began with three strategic acquisitions in late 2004.

First up was Where 2 Technologies, a small Australian startup working out of a bedroom in Sydney. They developed “Expedition,” a C++ desktop app that used pre-rendered map tiles for smooth navigation. It was a far superior user experience to MapQuest’s clunky experience.

At the same time, Google acquired Keyhole (satellite imagery technology) and ZipDash (real-time traffic analysis), integrating core parts of its mapping vision. Together, these acquisitions formed the foundation of Google Maps: combining interactive navigation, rich visual data, and dynamic information into a single application.

Expedition was a desktop application, but Larry Page insisted on a web-based solution. Initial attempts were slow and uninspired. Bret Taylor, a Stanford graduate and former associate product manager at Google, set out to fix that.

Bret Taylor rewrote the entire front end using Asynchronous JavaScript and XML (AJAX). AJAX was a new technology that allowed websites to update content without reloading the entire page. Before AJAX, web applications were static and clunky. But with AJAX, responsiveness rivaled that of desktop software. Maps became draggable, and new tiles loaded without refreshing the page—a revolutionary user experience in 2005.

The real genius came when Google released its Maps API later that year, transforming it from a product to a platform. Developers could now embed Google Maps and build on top of them, sparking thousands of “mashups” that eventually grew into full businesses. Uber, Airbnb, and DoorDash all owe their existence to Bret Taylor making maps programmable over one fateful weekend.

Bret Taylor’s intuition is a recurring phenomenon in the tech world: the most profound value often comes not from foundations, but from what others build on top of them. These “second-order effects” represent the true compounding magic of innovation—the ability of a single breakthrough to empower an entire ecosystem, spawning unimagined applications.

Once Google Maps became programmable, it set off a chain reaction. Airbnb, DoorDash, Uber, and Zomato were the first to join in, integrating GPS into the core of their services. Pokémon Go went a step further, overlaying augmented reality technology on top of location data, blurring the line between reality and virtuality.

What’s behind all this? Payments, of course. Because what good is an on-demand service if payments can’t be seamless?

The GPS technology they rely on is not new. But GPS alone doesn’t work miracles. It’s the culmination of decades of technological evolution, such as satellite positioning, mobile hardware, AJAX, APIs, and payment channels, all of which were quietly taking shape.

That’s why second-order effects are so powerful. They get little attention in the present. But one day you look up and see that your daily routine is being orchestrated by an invisible network of innovations that have quietly built up over the years.

How re-staking can help create products

In June 2023, EigenLayer introduced the re-staking feature to the Ethereum mainnet, which completely changed the security landscape of Ethereum. The concept is novel yet simple and easy to understand, and anyone interested in cryptocurrency can understand: What if you can stake your ETH twice?

In traditional staking, your ETH can earn a stable but modest 3.5% – 7% yield. Restaking essentially allows the same ETH to play a dual role, protecting both the Ethereum network and the EigenLayer protocol network at the same time – same funds, multiple income streams, and improved capital efficiency.

By April 2024, EigenLayer has moved from a theoretical innovation to a fully operational system with significant adoption. The numbers speak for themselves: 70% of new Ethereum validators choose to join the protocol immediately. By the end of 2024, over 6.25 million ETH (~$19.3 billion) was locked in restaking. If ranked by countries with the highest GDP, it should be around 120th.

What’s interesting is not just that EigenLayer made re-staking a reality. It’s that others followed suit. EtherFi is a liquidity staking provider that quietly launched in early 2023.

Ether. I predict that EigenLayer staking will be one of the most popular opportunities in DeFi. You stake ETH, get ETH tokens, and then automatically re-stake on EigenLayer. And, as a bonus, you can use ETH and play in other DeFi sandboxes. Pander is one such sandbox. It’s like getting paid multiple times for doing the same thing — crypto finance, people.

Ether.fi expects EigenLayer restaking to become one of the most popular opportunities in the DeFi space. You stake ETH, get eETH tokens, and then automatically restake on EigenLayer. And, as a reward, you can take your eETH to experience other DeFi sandboxes. Pendle is such a sandbox. Its like everyone gets paid multiple times for doing essentially the same thing.

The result? Pretty impressive. By May 2024, Ether.fi’s TVL had soared to around $6 billion. Their “Liquid Vault” offered around 10% annual interest, back when regular staking wasn’t that exciting.

What Ether.fi is doing with re-staked ETH is effectively the same thing that Lido did with staked ETH before. By creating liquidity, accessibility, and usability for re-staked ETH, it makes re-stacking practical, mainstream, and profitable.

In addition to chasing yield, there is also “points mining”, where people not only pursue immediate yield, but also accumulate “points” that may become valuable tokens in the future. Call it a speculative flywheel if you like. As more and more users re-stake through Ether.fi, more eETH tokens are circulated and deeply integrated with other DeFi projects such as Pendle, where you can trade future yields and even points themselves, creating entirely new financial instruments out of thin air.

What happened to points – after all, crypto is a playground for efficient capital mercenaries. When protocols began offering points as rewards, a large number of users emerged to try to maximize points and manipulate the system in the process. The original intention behind points was to achieve a fairer and broader distribution of tokens. But once it evolved into a competition, the results were skewed. The most active miners are not always the most consistent users. While many projects still use points to distribute tokens, the strategy is no longer as attractive as it once was.

So, as always, the lesson is not just that innovation is important. It’s that the biggest winners are often not the ones who create something that people are buzzing about at the outset. They’re the ones who come later, see what’s really going on, and create just the right thing at just the right time.

Sure, EigenLayer laid the groundwork, but Ether.fi and others who saw the second-order effects also got a piece of the action, ultimately accounting for more than 20% of the Ethereum staking market by mid-2024. In crypto, being first is far less important than knowing what everyone else is doing.

Points and Pendle

Points went mainstream in December 2023 after the huge success of the Jito airdrop. The Solana-based protocol received over $1 billion in FDV on its debut, sparking a gold rush. Suddenly, an entire ecosystem of protocols shifted from direct token distribution to a points system. They began rewarding users for participating in the protocol with points, which could then be redeemed for governance tokens. What started as a new distribution mechanism quickly evolved into a dominant strategy.

Pendle launched in June 2021, focusing on tokenization and future yield trading. Pendles core innovation is very clever, as it splits yield tokens into two parts: the principal token (PT) that represents the underlying asset, and the yield token (YT) that captures future yield. This separation allows users to trade these components separately, giving them greater control over their yield strategy than ever before.

When the points race officially began, Pendle found itself in a strong position with a feature built for an entirely different reason. The platform’s YT token created what amounted to leveraged points mining. Users could simultaneously receive the floating yield of their assets and any associated points, thereby amplifying their points accumulation without the need for additional funds.

Here’s how it actually works. Let’s say Sid wants to earn points from a protocol like EigenLayer that rewards liquidity providers. Traditionally, he would need to deposit ETH into EigenLayer’s staking contract and lock up that money for weeks or months. With the combination of Liquidity Restaking โทเค็นs (LRT) and Pendle, Sid can purchase Yield Tokens (YT) that represent future earnings and points without having to deposit ETH directly into EigenLayer.

For example, lets say the price of eETH is $2,000, and 24 EigenLayer points are earned per day. pteETH represents a fixed-income token, and yteETH represents a floating-income token, which sells for $200. pteETH holders give up points in exchange for fixed income. yteETH holders get floating income and points. Now, with just $2,000, Sid can earn 240 points (worth 10 ETH) per day instead of just 24.

TN Lee, founder of Pendle, analyzed this in detail in a podcast. The team did not build a meta-architecture for points. They could not have predicted this. But they built the perfect infrastructure for this emerging behavior and received abundant capital. Even if this trend eventually cools down and TVL drops to about $2.5 billion, their market value is still 10-15 times higher than before points appeared.

Memecoins, Pump.fun and Raydium

Sometimes, second-order effects emerge from the most unexpected places, reviving entire ecosystems in the process. The Solana resurgence in 2023-2024 is a brilliant example of how quickly crypto can change, and how those who position themselves at critical intersections can capture value.

After the FTX crash in late 2022, many industry insiders wrote an obituary for Solana. The logic seemed reasonable. SBF and his company had a huge influence on the ecosystem, providing funding, liquidity, and market support. Without them, Solana struggled. The technology was plagued by reliability issues, and news of Solana downtime became a laughing stock. The blockchain that once positioned itself as the Ethereum killer seemed to be on its last legs.

Yet an extraordinary transformation is taking place. Throughout 2023, Solana’s technology has steadily improved. Downtime has become less frequent. Transaction finality and the user experience are noticeably smoother. Developers who were attracted to Solana’s technical foundations (such as high throughput, low costs, and sub-second finality) are starting to return, albeit cautiously.

By early 2024, the tide had turned decisively. As disillusionment with traditional DeFi governance tokens grew and a general turn toward so-called “financial nihilism” ensued, user attention and money began to pour into memecoins. These tokens, which often had little utility beyond community ownership and cultural signaling, captured the market’s imagination. Solana, with its lightning-fast transaction speeds and ultra-low fees, provided the perfect environment for this new wave.

PumpFun went live in January 2024. This “memecoin factory” streamlined the token creation process (once the province of developers with programming skills) into a process that takes only minutes to complete. PumpFun democratized token creation in a way that fits perfectly with the experimental spirit of crypto finance. Almost overnight, thousands of new tokens with names like “BONK,” “Dogwifhat,” and “POPCAT” flooded into the Solana ecosystem.

Seemingly frivolous cryptocurrencies are quickly showing their potential as catalysts for complex value chains. These new tokens need something crucial: liquidity. Without a trading platform, even the most ingenious memecoin concept will be worthless. Raydium, the decentralized exchange for the Solana ecosystem, is in an enviable position.

Since its inception, Raydium has been committed to becoming Solanas top trading platform, focusing on improving capital efficiency and reducing slippage. The protocol was not designed specifically for memecoin. But it turns out that its technical architecture is similar to Uniswaps centralized liquidity pool and permissionless token listing process, which is very suitable for dealing with the sudden influx of new assets.

The timing was perfect. Years of infrastructure development had created the solid foundation needed for this unexpected use case.

Listing on Raydium became a major milestone for these emerging tokens, providing credibility and visibility in an increasingly crowded market. By early 2025, this symbiotic relationship had become so critical that over 40% of Raydium’s swap revenue came from tokens generated by PumpFun.

The relationship is mutually beneficial: PumpFun needs Raydium’s existing liquidity pool to elevate its tokens from niche products to tradable assets, while Raydium thrives on the explosive trading volume these tokens bring.

The economics of the PumpFun team are also impressive: tokens traded exclusively on the PumpFun platform charge a 1% fee per transaction, while Raydiums fee structure is 0.25%. This means that Raydium needs to generate four times the volume to match PumpFuns per-token revenue. Due to its deeper liquidity and broader user base, Raydium has consistently managed to exceed this threshold between August 2024 and February 2025.

Raydium was not the original creator of memecoin, nor did it originate the concept of a token factory. However, by providing a strong infrastructure for trading these assets and quickly responding to competitive threats, it has captured most of the value in the ecosystem.

The saga of the Solana memecoin illustrates a key aspect of second-order effects: value often accrues not to those who create new behaviors, but to those who facilitate them at scale. PumpFun simplified token creation, while Raydium enabled efficient price discovery and trading. Each innovation spurred further adaptations. PumpFun’s vertical integration move led Raydium to create LaunchLab, and created a cascade of second-order effects that reshaped the entire ecosystem.

This attention has not only reinvigorated the ecosystem, it’s been actively exploited. As the memecoin craze intensified, tokens like Trump and Libra were likely launched for the hype. Their strategies rely on narrative, timing, and virality. Trump piggybacked on the energy of political memes, while Libra leaned into broader internet culture. Both tokens initially gained huge attention and reached absurd valuations shortly after launch.

But the energy didn’t last. The attention came and went. The secondary market cooled. Traders shifted their attention. The community dwindled. What these tokens succeeded in was showing how to capture attention at the right moment and turn it into speculative gold. What they failed to do, however, was sustain market cap. With no real utility and no roadmap for sustained development, they were just flash in the pan.

But they proved a point: innovation attracts attention. And in crypto, attention is one of the most powerful raw materials. If used well, it can spark a new craze; if used poorly, it can quickly die.

For observers of crypto innovation, the lesson is clear. When new primitives emerge, look not only at the immediate impact, but also at who is best suited to facilitate, optimize, and scale the behaviors they enable. This is often where the outsized returns are truly realized.

What now?

Having read this, you may be wondering what the next second-order explosion will look like. Maybe you call it compound innovation, or maybe it’s technology convergence, but the point is the same. This article is about multiple technologies colliding at the same time, triggering a chain reaction that is greater than the sum of its parts.

We’ve already seen this happen: restaking reshaped DeFi incentives, memecoin infrastructure reinvigorated the ecosystem, and yield protocols accidentally enabled airdrop leverage. So, what’s the next domino to fall? Maybe the EVM experience. Maybe. It really is being rewritten, redesigned, and polished to feel like real 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 links are connected smoothly, it may trigger an unprecedented chain reaction.

Behind the noise of the L2 debate and scaling wars, a race is brewing to not only scale Ethereum, but also to increase its utility by making it more usable. Real usability, that is, enabling others to build on it without being bothered by wallets, fees, or failed transactions. Because when friction disappears, innovation flourishes. And when innovation flourishes, compounding returns appear in the most unexpected places.

Over the past few months, I’ve hosted some of the most amazing people leading this revolution: Andre Cronje from Sonic, Keone Hon from Monad, and Shuyao Kong from MegaETH. While their approaches vary, the goal is clear: Eliminate latency. Eliminate friction. Even eliminate wallets. Replace them with something faster, smoother, and more invisible. Create true software experiences, not cumbersome click-throughs.

Both MegaETH and Monad claim to be able to process 10,000 transactions per second. That’s Solana-like speed, but with Ethereum semantics. Crypto has a tendency to overstate itself, and if it works, this will be the first EVM-based chain to put Solana in a passive position in terms of user experience. (This is kind of funny considering that EVM blockchains have long been plagued by slow confirmations and hellish wallet popups.)

Andres pitch is not focused on pure speed, but on removing complexity. He says Ethereums performance ceiling is far from being reached. According to him, it is currently running at only about 2% of its total capacity. This is not due to hardware limitations, but because of the way the Ethereum Virtual Machine (EVM) accesses and writes data. Sonic has reduced data storage requirements by 98% through its new database structure. His Sonic development roadmap is betting on abstraction – abstract fees, abstract accounts, abstract wallets. If all goes according to plan, by the end of this year, users will not even realize that they are on the blockchain, while maintaining a considerable degree of decentralization. And this is the key.

So who will win in this brave new world? Probably not the infrastructure teams busy refreshing TPS benchmarks, but the applications built on top of that infrastructure, like Pumpfun leveraging Solana’s infrastructure to make $500 million in less than a year. Social protocols, in particular, may break through. Projects like Farcaster have demonstrated the potential to combine the permanence of cryptocurrency with the convenience of web-nativeness. No more paid posting, no more MetaMask pop-ups. Just content sharing.

Then there’s DeFi. The next generation of financial applications needs better inputs. Andre puts it bluntly: “We have no on-chain volatility, implied volatility, or realized volatility.” When this data does emerge, expect real options markets, coherent derivatives, and properly structured perpetual contracts — the financial layer that crypto has been pretending to have.

Perhaps the most exciting are the applications that haven’t been imagined yet. Because that’s how things always evolve. In 2005, no one looked at Google Maps and said, “You know what this needs? Ridesharing.” But once the foundation changes, everything on top of it changes with it.

So I’m skeptical. I’ve been in crypto long enough to know that every promised 10x improvement usually only gets you a slightly better dashboard and more Discord notifications, but I’m also excited. Because this time, the underlying technologies feel real. And behind them, a new generation of builders are quietly working on the second-order magic that may reshape everything. Because for every breakthrough underlying technology we see today, there are dozens of builders already working on second-order applications that can demonstrate the true value of the underlying technology.

This article is sourced from the internet: Exploring the evolution of the innovation cycle: Why are excess returns often harvested by secondary developers?

Related: CertiK Releases Hack3d: 2025 Q1 Security Report

CertiKs Hack 3d: 2025 Q1 Security Report has been released. This report deeply analyzes the security status of Web3.0 from January to March 2025. In the first quarter of 2025, there were 197 security incidents, with a total loss of approximately US$1.67 billion, a surge of 303.4% from the previous quarter. Among them, the Bybit incident caused a loss of approximately US$1.45 billion, triggering widespread discussion on the security of centralized exchanges. Key data Quarterly data: In the first quarter of 2025, there were 197 on-chain security incidents in the Web3.0 industry, with a total loss of approximately US$1.67 billion. Compared with the previous quarter, the total loss increased by approximately 303.4%, and the number of security incidents increased by 6. Attack method: Wallet theft caused the most serious financial…