Published: June 2025
Definition and Evolution of Ledgers
A ledger is a structured chronological record of transactions that documents transfers of assets from one owner/entity/wallet to another. Deconstructing the ledger transactions determines the organization’s balance sheet (assets and liabilities) as well as profit-loss over a selected timeframe. Ledgers are a record-keeping system for accounting. Initially, ledgers were a list of transactions entered manually and chronologically into a book (book-keeping). However, a typographical error is difficult to detect in a single-entry, manual ledger, which led to double-entry accounting where each economic event (e.g., purchase or sale) is recorded in at at least two ledger accounts: once as a debit and then a matching credit transaction. Debits must equal credits to balance the books.
Manual accounting evolved into the use of linked spreadsheets, then relational databases (Quickbooks, Peachtree, and Xero). Accounting for enterprises with multiple divisions, subsidiaries, etc. increased complexity and let to the development of Enterprise Resource Planning (ERP) software, which is a general ledger plus sub-ledgers (e.g., SAP, and Oracle). The above approaches rely on trusted owners of at least some ledgers (e.g. bank accounts).
Decentralized Ledgers
BTC solved two core problems required to create a decentralized ledger: double-spending and the Byzantine Generals Problem. For the first time, code could operate a ledger with guarantees that no asset could be spent twice and that tampering would require majority control. Taking majority control became economically irrational through game theory. The value of the network comes from the trust, so if someone violates the trust by becoming a majority then the network loses it's value. Additionally, the cost to take a majority is prohibitively expensive.
Financial institutions are now recognizing that decentralized ledgers, where code enforces rules, solve core issues of coordination and trust in traditional finance at low compliance and maintenance costs. Counterparty risk is replaced with platform risk.
Value of Decentralized Ledgers
The value of a decentralized ledger is largely determined by the significance of the data it secures. People engage with data that matters to them, especially when it is tied to their business or livelihood. When that data is important, users are more likely to interact with the ledger consistently.
The volume of data recorded on the ledger reflects the number of transactions processed per block, which directly impacts the fees collected to sustain the network. In this way, both the relevance and the activity level of the data contribute to the overall value of the blockchain.
This is why many new Layer 1 networks offer financial incentives to artificially stimulate activity. They often engage in reverse justification, pointing to high transaction volumes as evidence of value. The assumption is that if there is activity, there must be something meaningful driving it. However, this approach skips the critical step of actually securing valuable data or building useful applications. Instead, it creates the illusion of demand through subsidized or manufactured usage. Without genuine utility, this activity is superficial and unsustainable. It is more performance than substance.
The trajectory of total value locked (TVL) of Berachain L1 provides an example of this contention. After providing marketing incentives, the TVL of Berachain’s total value rose markedly, then plateaued, and finally plummeted when the incentives were stopped (see Figure below).
Source: DeFiLlama (2025) [1]
This dynamic has been playing out for years in the decentralized ledger space and has come to be known as the "L1 trade." It reflects the reality that most participants in the space are speculators rather than businesses. These speculators move from one blockchain to the next, chasing the highest incentives and the strongest narratives. Rather than seeking long-term utility or building lasting applications, they are drawn to whichever ledger offers the most lucrative rewards and can convince others that its incentives are worthwhile. As a result, attention and capital rotate through ecosystems without creating sustained value.
What the space truly needs are real businesses that benefit from moving off costly, centralized ledgers and onto interoperable, decentralized ones. These businesses bring meaningful data that users care about and interact with—data tied to real-world value and activity. By securing important business data on-chain, they naturally drive transaction volume and user engagement. This, in turn, makes the ledger valuable for the right reasons: not because of artificial incentives or hype, but because the underlying data and applications genuinely benefit from being on crypto rails.
Defensibility
Decentralized ledgers are open source by nature. Both their code and data are publicly accessible, which makes them easy to replicate or fork. As a result, they appear to lack a traditional technical moat. So-called “vampire attacks” highlight this vulnerability: a competing Layer 1 (L1) can clone the software and offer incentives to lure users away from the original network.
True defensibility does not come from the codebase itself, but from owning the production of valuable data. This is why we’re seeing the rise of "appchains"—blockchains dedicated to a single application or ecosystem. These projects recognize that they are the primary source of valuable on-chain activity on general-purpose Layer 1s, and they choose to migrate to their own ledgers to capture more of the value they create. By operating their own chains, these applications gain greater control over performance, governance, and economics, aligning the infrastructure more closely with their specific needs and long-term goals.
Internet Capital Markets require new Decentralized Ledgers
A financial institution seeking the benefits of a ledger that eliminates double-spending and counterparty risk must decide whether to adopt an existing blockchain or build one tailored to its needs.
General-purpose blockchains such as Ethereum and Solana introduce challenges for specialized financial applications. These networks do not prioritize one user's data over another. As a result, high-value financial transactions compete for blockspace alongside meme coin trades and NFT sales. This undermines the principle of separation of concerns. In traditional software architecture, it is considered poor practice to mix unrelated data types in the same database table, and a one-size-fits-all database rarely performs well across different business functions.
Relying on existing blockchains can also result in value leakage. On Ethereum, for instance, validators have no direct stake in the success or safety of a specific application. They process transactions and collect fees, regardless of the business purpose behind those transactions. In critical moments, they may fail to act. Consider the Bitget hack, where $1.4 billion worth of ETH was stolen and laundered through Ethereum. Despite the scale of the theft, validators, who serve as the chain’s de facto auditors, took no meaningful action [2].
Now compare this to Sui, when faced with a $220 million exploit, Sui validators intervened by freezing the attacker’s wallet, reducing the effective damage to $60 million [3]. Some Ethereum advocates argue that inaction is a sign of proper decentralization. However, decentralization should not mean apathy or indifference. It should not translate to a system where no one is accountable when real-world value is at stake.
A network that is secured by participants who care about the data and its integrity is better aligned with the needs of users. Financial institutions are not looking for passive infrastructure. They want infrastructure supported by people who understand their industry and are willing to protect it.
Conclusion
At its core, a ledger is simply a system of record. And there are many ways to store and maintain records. Businesses should choose the ledger that fits their specific needs, rather than defaulting to the most popular option.
We believe the next generation of financial infrastructure will not rely on general-purpose public chains. Instead, it will be built on dedicated blockchain rails that are tightly controlled and may not involve direct interaction from retail users at the protocol level. Retail investors will likely continue to access financial products through familiar platforms like Robinhood, SoFi, or PayPal. These platforms will serve as interfaces, offering users the benefits of blockchain, such as lower costs and 24/7 access, without exposing them to unnecessary complexity.
Meanwhile, financial institutions will take on the responsibility of building and operating the underlying blockchain infrastructure that powers these innovations. This division of roles enables a more secure, compliant, and purpose-built approach to bringing traditional financial products onto blockchain rails.
References
- DeFiLlama. (2025). Berachain Chain Overview. Retrieved from https://defillama.com/chain/berachain
- Shin, L. (2025, February 22). Exchanges Start to Fill Bybit's $1.4B Hole as Hackers Move Stolen Funds. CoinDesk. Retrieved from https://www.coindesk.com/markets/2025/02/22/exchanges-start-to-fill-bybit-s-usd1-4b-hole-as-hackers-move-stolen-funds
- Barnes, M. (2025, April 15). How Hacker Used Fake Tokens to Syphon $220M from Sui DEX Cetus. DLNews. Retrieved from https://www.dlnews.com/articles/defi/how-hacker-used-fake-tokens-to-syphon-220m-sui-dex-cetus/