Challenges and Opportunities Facing the Encryption Infrastructure Industry

The cryptocurrency infrastructure sector is experiencing significant market fatigue. After years of rapid growth, the valuations of infrastructure projects have begun to decline, and investor sentiment has become more cautious. This reflects the increasing maturity of the market, where merely relying on technological innovation is no longer sufficient to achieve high valuations.

The main dilemma facing current infrastructure projects is severe homogenization and insufficient differentiation. Although technology has made progress, there has yet to be a groundbreaking use case that supports entirely new categories of applications. The encryption ecosystem struggles to provide sufficient value propositions for mature Web2 platforms to migrate to the blockchain. Aside from the characteristic of decentralization, these platforms have little incentive to fundamentally change existing operational models. This fundamental adoption barrier leads to trading and speculation remaining the dominant applications of most infrastructure layers, limiting the transformative potential of the field.

Many infrastructure projects focus too much on forward-looking technological innovations while neglecting the actual needs of developers. They often excessively pursue elements beyond core functions such as privacy protection, trust assumptions, verifiability, and transparency. This advanced technological approach overlooks the importance of short-term market acceptance and practical application, which not only increases the difficulty of early market promotion but also makes it challenging to obtain effective user feedback and verification.

The surge in infrastructure projects has created a paradox - too many platforms competing for too few attractive applications. This imbalance has resulted in a plethora of "ghost chains" with extremely low usage rates and minimal revenue, creating unsustainable economic models that rely primarily on token appreciation rather than actual value.

For example, although ZKVM technology is quite advanced, the verifiability it offers does not effectively address the practical challenges faced by blockchain at this stage, nor does it promote further integration of more Web2 applications with blockchain technology. Therefore, ZKVM technology is currently more of an idealized rather than a practical infrastructure product.

In contrast, cloud computing directly responds to the verified market demand of how to efficiently manage server resources with different configurations, times, and locations. This demand itself has a mature market foundation, and cloud computing platforms directly meet developers' practical needs in rapid deployment, elastic scaling, and cost optimization through modular and interface-based server resources, database management, and storage services. Because it effectively addresses the pain points of enterprises and developers, cloud computing technology has rapidly gained market recognition and has ultimately developed into an important infrastructure supporting the internet economy.

A healthy encryption ecosystem requires an efficient feedback loop between application developers and infrastructure builders. Currently, this loop has been disrupted - application developers are hindered by infrastructure limitations, while infrastructure teams lack clear signals to understand which features can drive actual usage. Restoring this feedback mechanism is crucial for sustainable growth. Despite these challenges, infrastructure development remains highly profitable, with 35 of the top 50 cryptocurrencies by market capitalization maintaining their own infrastructure layers. However, the standards for success have significantly increased - new infrastructure projects must demonstrate concrete use cases, attract a large number of users, and present compelling narratives to achieve meaningful valuations.

The most successful new infrastructure of the past year

The previous cycle of blockchain infrastructure primarily focused on addressing the limitations of Ethereum, with various projects positioning themselves as "faster and cheaper" alternatives, while offering little in the way of truly innovative features. Today, the landscape has changed dramatically, with recent successful projects introducing more diverse and specialized infrastructure solutions.

In the past year, some infrastructure projects have achieved remarkable results through TGE or large-scale funding rounds. These projects represent the most influential new infrastructure in the primary and secondary markets:

Blockchain Infrastructure

• Movement: MoveVM Ethereum Layer2
• Berachain: Liquidity Proof, EVM compatible Layer 1
• Monad: High-performance EVM-compatible Layer 1
• Solayer: Heavy re-staking based on the Solana ecosystem, ultra-fast SVM
• Succinct: ZK proof generation network and ZKVM

Emerging Infrastructure

• Walrus: Blob storage solution
• Aethir: GPU computing network
• Double Zero: Decentralized Physical Fiber Optic Network Facilities
• Eigenlayer: Provides Ethereum security for new protocols
• Humanity: Digital Identity Protocol Platform

The Bridge Between Web2 and Web3

• Ondo: RWA Layer2
• Plume: RWAFi blockchain
• Story: AI-driven IP programmable platform

Core Observations and Analysis

Based on the analysis of recent successful infrastructure projects and the current market environment, the following core observations can be distilled:

Market Maturity and Valuation Restructuring: From Technological Frenzy to Value Reversion

The most significant feature of the current market is the shift in valuation logic. The early model of attracting investment solely relying on technical narratives and high FDV( fully diluted valuation) is facing severe challenges.

unsustainable token economic model

Many projects exhibit characteristics of high FDV, low circulating market value ( MC ), and low trading volume. This indicates that a large number of token unlocks in the future will bring continuous selling pressure, and even if the project makes technical progress, the price may still fall due to token dilution, thereby eroding user confidence and creating a negative feedback loop. This suggests that a sound and sustainable token economic model is crucial for the long-term health of the infrastructure, and its importance is no less than that of the technology itself.

Valuation ceiling and exit challenges

Even successful projects seem to face an invisible ceiling of about $10 billion in valuation. This means that for investors, achieving excess returns (, such as 100 times ), requires entering at a very early stage ( with valuations below $50 million ), highlighting the importance of timing and early judgment. The market is no longer easily willing to pay purely for potential but demands clearer proof of value.

Execution power overwhelms first-mover advantage

Not all projects that have pioneered new narratives can achieve the highest valuations. For example, while Double Zero, Story, and Eigenlayer are pioneers in their respective fields, many subsequent projects have obtained comparable or even higher valuations through stronger execution, better market timing, or more optimized solutions. This indicates that in an increasingly crowded market, the importance of high-quality execution, effective market strategies, and timing is becoming increasingly prominent.

Technological Pragmatism Rising: Focus on Optimization, Integration, and Real Needs

The technological development direction of infrastructure shows a clear pragmatic tendency, with the market favoring solutions that can solve practical problems, optimize existing paradigms, or effectively connect to the real world.

"Continuous value of 'faster and cheaper'"

Despite the market's quest for breakthrough innovations, the demand for optimization of core blockchain performance remains strong. Projects like Monad, Movement, Berachain, and Solayer have achieved significant valuations by enhancing the performance of existing virtual machines (EVM, MoveVM, SVM), rather than introducing entirely new paradigms. This indicates that before finding the next generation of killer applications, improvements in speed, cost, and efficiency are still the core value points of infrastructure. Network layer optimizations ( such as Double Zero ) and security enhancements ( like Succinct and Eigenlayer ) also fall into this category.

Embrace the real world, connect to Web2

Projects that connect with real-world applications and assets demonstrate strong market appeal. Ondo and Plume focus on RWA( real-world assets), while Story emphasizes the programmability of IP( intellectual property), and these projects have all achieved high valuations. They apply blockchain technology to validated Web2 concepts( such as asset management and IP commercialization), infusing them with programmability, global liquidity, and new financial possibilities, thereby lowering the understanding threshold for users and broadening application scenarios.

DeFi and AI become value anchors

From the perspective of target use cases, finance ( DeFi, RWA ), and artificial intelligence ( AI ) are currently the two areas most recognized by the market, capable of supporting high valuation infrastructure. This indicates that infrastructure that can provide underlying support for these two high-potential areas is more likely to gain favor from capital and the market.

Some new narratives have encountered a chill.

At the same time, some infrastructure narratives that were once highly anticipated, such as pure gaming chains, Rollup-as-a-Service (RaaS), dedicated verification layers, multi-VM chains, Agent chains, and some DePIN and Desci, have not yet produced billion-dollar leading projects during this cycle. This may reflect that these areas either lack technological maturity or have not yet found clear, large-scale market demand and sustainable business models.

Ecological Synergy and Precise Narrative: The Dual Engine of Value Amplification

In addition to technology and market positioning, building a strong ecosystem and effective market communication have become key levers for the success of infrastructure projects.

network effects of the ecosystem

The vast majority of projects valued at over $1 billion are dedicated to building or integrating a dedicated ecosystem. Whether it is L1/L2 attracting developers to build applications, or providing shared security for other protocols like Eigenlayer, it reflects the importance of network effects. An ecosystem with multiple composable projects can create value far exceeding that of isolated solutions, forming a positive cycle that attracts more users, developers, and capital.

layered narrative, precise communication

Infrastructure needs to cater to two core groups: end users and developers, whose needs and focus are entirely different. For end users, it is necessary to transform complex technology into an intuitive "experience" story ( such as fast transaction speeds, low costs, and convenience ), emphasizing the direct benefits brought by technology. For developers, it is essential to delve into the "capabilities" of the technology ( such as performance metrics, development tools, scalability, and security ), providing professional and precise information for evaluation. Successful projects often adjust their communication strategies based on different audiences to effectively convey their value propositions.

Future Investment Opportunities in Blockchain Infrastructure

Targeting Underserved Web2 Markets

The most promising infrastructure opportunities will target the large Web2 markets that have not yet been fully served by blockchain solutions. These projects can create globally accessible markets while introducing improved financialization mechanisms.

Create a new type of infrastructure category

Compared to gradually improving existing infrastructure, a new category of infrastructure will create significant value, such as:

• Intent-based infrastructure: a protocol that allows users to express desired outcomes rather than specific transactions, automatically handling execution optimization.
• Add privacy to each blockchain, the HTTPS infrastructure of Web3

Infrastructure that meets user needs and provides stable income

As the blockchain industry matures, the long-term value of infrastructure is gradually returning to its core function: meeting the real needs of users and generating sustainable revenue. The early market frenzy may have been based on expectations and technological narratives, but ultimately, infrastructure that cannot effectively serve users and establish a robust economic model will struggle to sustain itself.

A continuous stream of income is the lifeblood of a project's healthy operation. It not only needs to cover high operating costs but should also provide actual returns to ecological participants ( such as token holders and validators ), for example, for token buybacks and incentivizing participants. Currently, some leading L2s like Base and Arbitrum have achieved considerable protocol revenue. Base's annual fees are $27.5M, while Arbitrum and OP are around $7M. However, due to changes in investor preferences during this cycle, their token prices remain relatively low, reflecting a mismatch between income and valuation. The current FDV of leading Layer 2s is 500x their annual protocol revenue. They are working to fix this mismatch through measures such as token buybacks.

lacking income support