The number of cryptocurrency applications that could attract investors is starting to shrink as the industry matures, but that could be a positive to emerge winners in the sector in the long term, says cryptocurrency services company NYDIG.

Greg Cipollaro, NYDIG research leader, said in a note on Friday that the “investable universe” of cryptocurrencies is narrowing to include applications or services that “extend traditional financial products to include blockchain infrastructure.”

He specifically named Bitcoin (BTC), token assets, stablecoins, some decentralized financial infrastructure, and a limited number of “general-purpose” blockchains such as Ethereum, adding that beyond these use cases, “the likelihood of large-scale blockchain applications appears less likely than previously assumed.”

Some cryptocurrency executives have championed blockchain technology to offer an alternative to almost any offering, but many of the once-welcomed use cases for cryptocurrencies, such as gaming, social networking and the metaverse, have faded in comparison to their centralized competition.

This is because centralized systems “will always be faster, cheaper and more operationally efficient for the vast majority of enterprise and consumer applications,” Cipollaro says.

Economically viable applications will be smaller than expected

“The space for economically viable blockchain applications is narrower than early accounts had hoped,” Cipollaro said, arguing only for use cases where blockchain’s benefits outweigh its costs.

“The core features of open blockchains, trustworthiness, permissionlessness, and censorship resistance, are uniquely suited to money and money-like (financial) applications,” he added. “Most real-world applications do not require impermissible global state machines with immutable ledgers.”

The current market reflects this, where Bitcoin’s dominance has grown because there has been little financial bet on altcoins due to the “limited emergence of solid new narratives,” Cipollaro said.

“The failure of many non-financial sectors to gain traction indicates a consolidation of capital towards a smaller set of use cases,” he added. “Instead of an explosion of applications, we are seeing capital concentrated in a few core categories.”

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This narrowing down of use cases could “improve robustness and clarity around long-term winners,” especially for Bitcoin and some projects associated with financial infrastructure, Cipollaro said.