Supply, demand, and durability: A framework for surviving cycles w/ Santiago Santos
Speakers
Summary
- The "Inversion" Thesis: Santiago argues the best opportunity in crypto is not buying tokens, but acting as Private Equity: buying "boring," cash-flowing traditional businesses (remittances, trade finance, B2B payments) and retrofitting them with stablecoins to collapse costs (e.g., reducing loan costs from $11k to $700).
- L1 Blockspace is Commoditized: He believes Layer 1 blockchains (Ethereum, Solana) are structurally overvalued. The supply of blockspace is becoming elastic (infinite L2s/L3s/App-chains), while demand is not keeping pace. This destroys the "fat protocol" thesis.
- Bitcoin is Unique: He explicitly separates Bitcoin from "Crypto." Bitcoin is a commodity (Digital Gold) valued on flows and scarcity. Everything else (ETH, SOL) is technology valued on cash flows, which currently do not justify multi-hundred-billion-dollar valuations.
- SaaS Mispricing: He notes a "SaaS Apocalypse" where algorithms are indiscriminately selling software stocks due to AI fears, creating opportunities in high-quality "System of Record" companies.
Trade Ideas
Santiago states, "Bitcoin is very different than Solana Ethereum... it pretends to be digital gold it is a commodity... sitting at one-tenth of the valuation of gold." While he is bearish on "crypto tech" valuations, he views Bitcoin as a distinct asset class (commodity) that is under-owned by Wall Street relative to Gold. The "supply curve" for Bitcoin is fixed, unlike the elastic supply of smart contract blockspace. LONG Bitcoin as a convergence trade toward Gold's market cap. Regulatory shifts or a breakdown in the "digital gold" narrative.
He discusses the "SaaS apocalypse" where the market assumes AI destroys software. He notes, "The Algo is not making a nuanced decision of whether Service Now sort of treats a super high quality... system of record... in the same way that it treats a wrapper." The market is inefficiently dumping all SaaS stocks. High-quality "System of Record" companies like ServiceNow are being punished unjustly alongside weak "wrapper" companies. This creates a value buying opportunity. LONG NOW (ServiceNow) as a contrarian play against the "AI kills SaaS" narrative. AI actually disrupting the core business model of system-of-record software faster than anticipated.
When asked why he chose Avalanche for his fund's infrastructure, he said: "I just want something that is out of the box and is sovereign block space... I don't want to compete for block space... Avalanche provides that." Santiago's "Inversion" strategy requires a chain where he can control the environment (Subnets) to onboard real-world businesses without noise from "fartcoins." He views AVAX as the superior infrastructure for institutional/corporate adoption. LONG AVAX as the infrastructure play for the "Real World Assets" (RWA) and "Private Equity on-chain" thesis. Failure of the "Inversion" thesis or lack of adoption for Avalanche Subnets.
Santiago says, "I hate the prices... I hate it at that valuation [Ethereum at $350B]... Infrastructure is rapidly commoditizing... excess... of block space." He also notes, "Ethereum has way more downside than upside. Solana similar." The "moats" for L1s are evaporating. It is now easy to spin up sovereign chains (LayerZero, App-chains). If blockspace supply is infinite (elastic) and demand is finite, price must fall. He compares these valuations to real-world fintechs (Stripe, Revolut) and finds L1s unjustifiably expensive. SHORT / AVOID generic Layer 1 tokens that rely on gas fees for value accrual. "Memetic value" or irrational exuberance driving prices higher despite fundamentals.
Santiago repeatedly points to Figure as the proof of concept: "Figure is now telling you where the future is going... lowered the cost to issue the loan... from $11,000 per loan to 700." Figure has successfully executed the "Inversion" thesis (using blockchain to collapse costs in HELOCs). This validates the model and suggests Figure is the leader in real-world blockchain utility. LONG FIGURE (Equity/Token if available) as the market leader in RWA/Fintech efficiency. Regulatory hurdles or competition from traditional banks adopting similar tech.
Santiago R. Santos
Founder and CEO, Inversion Capital
Santiago is looking to buy businesses in "Cross-border trade... Remittance operators... Payment processors." He explicitly mentions Western Union (WU) as a business "left for dead" but with massive distribution that could be retrofitted with stablecoins. These legacy businesses have high friction (T+2 settlement, high fees). If an investor (like Inversion Capital) acquires or influences them to adopt stablecoins, margins expand drastically (cost to serve drops from dollars to cents). WATCH legacy payment/remittance firms as potential acquisition targets or turnaround plays via crypto adoption. These businesses may be too slow to adapt and get disrupted by crypto-native competitors (like Figure) before they can pivot.
