The encryption industry is experiencing a K-shaped split.

Author: Vaidik Mandloi; Translation: BitpushNews

There is a famous crypto KOL, known online as ThreadGuy. He rose to fame in 2021 for teaching people how to trade NFTs.

Now, he sits in a New York apartment, with a barrel of US crude oil behind him, trading pharmaceutical stocks and commodities on Hyperliquid. A few weeks ago, he invited Cobie to join a live stream. Cobie has been one of the most veteran voices in crypto since 2012; he sold Echo to Coinbase for $375 million and now works there full-time.

When ThreadGuy asked him about the state of cryptocurrency, Cobie described a phenomenon called the “K-shaped” dynamic.

“Something strange is happening in crypto,” he said, “cryptocurrencies seem to be achieving extraordinary success, more than ever before. But this success isn’t reflected at all in the prices of assets people can buy.”

That sentence has been stuck in my mind ever since. Because he’s right. Polymarket and Kalshi have become a duopoly worth $44 billion in prediction markets. Stablecoins are being used to pay gig workers. DoorDash now pays drivers through Tempo. Hyperliquid, on its own chain built from scratch, handles more trading volume than most centralized exchanges. Trade XYZ predicts that the stock market will open within 50 basis points on Monday.

Cryptocurrencies were supposed to enable transferring funds without banks, creating markets without brokers, and allowing anyone, anywhere, anytime to trade anything. By almost every measure critics have used, it has achieved that.

And those who believed in it earliest, those holding tokens, have almost nothing to show for it. You can’t buy equity in Polymarket, you can’t buy Tempo. Circle is public, but half of USDC’s net profit margin—before shareholders see a penny—flows to Coinbase as a distribution fee. Platforms are winners, but token holders lose every time.

That’s the K-shaped theory. As I delved deeper, I realized it’s not just a crypto problem.

Where is the value flowing?

Let’s start with stablecoins, because they are the true “product-market fit” of crypto. It’s estimated that Tether will make $10 billion in 2025, with only about 100 employees. It’s one of the highest-profit companies per capita on Earth. Circle has gone public, with a market cap of $23 billion as of April 28. Stablecoin supply has grown 100-fold over the past few years, from $6.8 billion in 2020 to over $20k today. The U.S. Treasury even predicts it will grow to $2 trillion by 2028.

This is real financial infrastructure being built on the crypto track. And for anyone holding tokens, the economic relationship with all this is zero. Tether’s profits flow to Tether’s shareholders. Circle’s earnings go to Circle’s equity holders and Coinbase (which takes 50% of USDC’s revenue just for putting USDC in front of users). DoorDash pays drivers through Tempo, with the value accumulating to DoorDash, Tempo, and the drivers—not anyone’s token portfolio.

Prediction markets tell the same story. Polymarket has evolved from a vertical crypto experiment into a regular feature on CNN. The Wall Street Journal now uses its data alongside editorial reports. Substack has integrated directly with Polymarket, allowing authors to embed real-time odds into articles, turning each newsletter into a live data terminal. The company behind the NYSE, ICE, invested $2 billion at an $8 billion valuation. Kalshi won a legal lawsuit against the CFTC and expanded into economics, sports, and science. By 2025, the combined trading volume of these two platforms reached $44 billion, with a peak of $10 billion in a single month.

None of this value flows to token holders. Early supporters of Polymarket—Founders Fund, General Catalyst, and Blockchain Capital—are sitting on huge paper gains. One of the biggest success stories in crypto, built on the crypto track, ultimately falls into a traditional equity structure, with all upside profits going to venture capitalists.

You might argue that Polymarket hasn’t issued tokens yet. That’s true; it might eventually. But even if it does, private investors have already valued it at $8 billion. The window for early users to capture meaningful gains closed long before most people even knew it existed. If it never issues tokens, the entire value of the prediction market revolution—the thing crypto has debated for years that could change how the world processes information—will be captured entirely by traditional equity structures. Funded by VCs, exiting to institutions, with users having no on-chain ownership.

The same pattern exists even in DeFi (Decentralized Finance). Crypto spent nearly a decade building DeFi infrastructure—from lending protocols, automated market makers, perpetual exchanges, to stablecoin rails. Most of it was built transparently, with tokens, and during a time when regulators were trying to kill it. The builders took huge risks. In an era where a single smart contract bug could wipe everything out, liquidity providers and testers also bore the risk.

And now, the technology has proven itself. It’s clear that stablecoins, on-chain trading, and tokenized assets are feasible. But the companies capturing the value aren’t those taking the risks.

They are traditional firms with equity structures, private funding rounds, and no obligation to share anything with the initial users or communities that made the technology possible. Stripe is building stablecoin payments. PayPal has launched its own stablecoin. Banks are tokenizing assets on private blockchains.

They’ve been sitting in the backseat, watching crypto build stuff. Once it’s proven feasible, they’re now rebuilding within “walled gardens,” channeling economic benefits to shareholders.

Returns are being privatized. Tokens should have been a mechanism to prevent this, allowing early participants to share in the value they helped create. Instead, the most successful projects either never issued tokens or issued them too late and at valuations so high that public holders are essentially “exit liquidity” for insiders, with entry prices just pennies.

The K-shaped capitalism problem

This isn’t a failure unique to crypto. It’s how wealth is created today, everywhere, and crypto has merely inherited the same disease it was supposed to cure.

SpaceX’s private valuation has grown from zero to about $1.75 trillion. OpenAI’s valuation is $852 billion. Anthropic’s valuation is around $800 billion. These three alone represent trillions in value creation. If you were an ordinary person in the 1970s or early 2000s, and believed Apple, Amazon, or Google would become important, you could buy their stock directly. You could participate in the wealth creation of the companies you believed in. That “seeing the future right” and “getting rewarded” was the basic social contract of capitalism. Now, that contract no longer exists.

These epoch-defining companies stay private at every stage of generating real returns. The only ones who get the chance are those already in the circle: Silicon Valley networks, fund-of-funds, LPs writing $50 million checks to VC tools. When SpaceX or OpenAI finally go public, their prices will reflect a decade of private gains, and retail investors will have no chance. The number of U.S. public companies has fallen 46% since 1997, from about 7,500 to 4,000.

Today, over 1,400 venture-backed unicorns are worth $5 trillion, all still private. Companies used to go public to raise funds; now, they raise billions in private rounds from the same small circle of funds indefinitely. When they IPO, the price discovery has long been done in a room that ordinary people are never allowed into.

Data confirms this isn’t paranoia. From 1970 to 1990, IPOs had an average annual return of 5%, less than half the returns of similarly sized public companies. “Low float” IPOs like SpaceX and OpenAI have a 90% failure rate. Since 1980, 10 of 11 low-float IPOs underperformed the market by more than 50% within three years. So, the trade offered to ordinary investors is: when a company is worth $10 million and growing, you’re not allowed to invest; when it’s worth $1.5 trillion and insiders are seeking exit liquidity, then you’re allowed in.

This is the so-called K-shaped economy, where profits circulate within closed circles and losses are socialized through overvalued IPOs, forced high-point index fund purchases, and inflation and stagnant wages shared by everyone.

It’s also why talent is leaving crypto. Since early 2025, crypto code commits have dropped 75%, from 850k weekly to 210k. Active developers have fallen 56%, to around 4,600. Where did they go? AI. GitHub now hosts 4.3 million AI-related repositories. The adoption of large language models (LLMs) has grown 178% in a year.

From a K-shaped theory perspective, this makes perfect sense. Every major crypto bull run— from 2013’s altcoins, 2017’s ICOs, 2021’s DeFi and NFTs, to memecoins—has one thing in common: ordinary people can make quick money. AI now has that same energy. Someone named Peter Steinberger built OpenClaw alone, later selling it to OpenAI for billions. That’s the energy crypto once had. If you’re a 22-year-old like me, deciding where to spend the next five years, the math is simple: crypto offers governance tokens valued at $16 billion at launch, then declines for two years; AI offers the chance to build an AI agent with three others, which could be worth a billion before your next birthday.

Talent is leaving because, somewhere, crypto has stopped distributing the value it creates. The K-shaped dynamic pushes profits upward to VCs, equity holders, and insiders who were supposed to be replaced. Where have the anonymous heroes of decentralization gone?