Challenges and Opportunities Facing Encryption Infrastructure

Market Status

The cryptocurrency infrastructure sector is experiencing significant market fatigue. After years of rapid growth, the valuations of infrastructure projects have begun to shrink, and investors have become more cautious. This reflects a maturing market where mere technological innovation is no longer sufficient to support high valuations.

Innovation Dilemma

Current infrastructure projects face a critical issue: most functions are similar and lack significant differentiation. Despite technological advancements, there have not yet been breakthrough use cases that can support entirely new categories of applications. The ecosystem struggles to provide enough value propositions for mature Web2 platforms to migrate to blockchain. Apart from decentralization, these platforms have little incentive to completely change their existing operating models. This fundamental adoption barrier results in trading and speculation remaining the primary applications of most infrastructure layers, limiting the transformative potential of the field.

Overbuilding of Infrastructure

Many infrastructure projects focus too much on forward-looking technological innovations while neglecting the actual needs of developers. They often overemphasize elements beyond core functionality, such as privacy protection, trust assumptions, verifiability, and transparency. This forward-thinking technological approach overlooks short-term market acceptance and practical application, making it not only difficult to promote early on but also challenging for projects to obtain effective user feedback and validation.

The surge in infrastructure projects has created a paradox: too many platforms competing for a limited number of attractive applications. This imbalance has led to a large number of "ghost chains" with extremely low usage rates and almost no revenue, creating unsustainable economic models that rely primarily on token appreciation rather than actual utility.

In contrast, cloud computing directly responds to the market-validated demand for efficiently managing server resources with different configurations, times, and locations. This demand already 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. It is precisely because it effectively addresses the pain points of enterprises and developers that cloud computing technology has quickly gained market recognition, ultimately becoming a key infrastructure supporting the internet economy.

Breaking the Negative Cycle

A healthy encryption ecosystem requires an efficient feedback loop between application developers and infrastructure builders. Currently, this loop has been broken - 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 the challenges, infrastructure development remains highly profitable, with 35 of the top 50 cryptocurrencies maintaining their own infrastructure layers. However, the success criteria have significantly increased - new infrastructure projects must simultaneously demonstrate specific use cases, strong user appeal, and compelling narratives to achieve meaningful valuations.

Analysis of Successful New Infrastructure Projects

In the past year, some infrastructure projects have achieved remarkable results through TGE or large-scale financing. 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 Layer1
• 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

Bridge between Web2 and Web3:

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

Core Observations and Analysis

Market Maturity and Valuation Restructuring

The most significant feature of the current market is the shift in valuation logic. The early model of attracting investment solely through technical narratives and high FDV is facing severe challenges.

Many projects exhibit characteristics of high FDV, low circulating market cap, and low trading volume. This indicates that a large number of token unlocks in the future will bring persistent selling pressure. Even if the project makes technical progress, the dilution of tokens may lead to a price decline, eroding user confidence and creating negative feedback. A sound and sustainable token economic model is crucial for the long-term health of the infrastructure, and its importance is on par with the technology itself.

Even successful projects seem to face an invisible cap of around $10 billion in valuation. This means that investors need to enter at a very early stage with a valuation below $50 million to achieve excess returns, highlighting the importance of timing and early judgment. The market is no longer easily paying for pure potential and demands clearer proof of value.

Not all projects that create new narratives can achieve the highest valuations. For example, although Double Zero, Story, and Eigenlayer are pioneers in their respective fields, many subsequent projects obtain comparable or even higher valuations through stronger execution, better market timing, or more optimized solutions. This indicates that in a crowded market, high-quality execution, effective market strategies, and timing are becoming increasingly important.

( The rise of technological pragmatism

The development of infrastructure technology shows a clear pragmatic tendency, with the market favoring solutions that can address real problems, optimize existing paradigms, or effectively connect with the real world.

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

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

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

At the same time, some infrastructure narratives that were once highly anticipated, such as pure gaming chains, Rollup-as-a-Service, 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 insufficient technological maturity in these areas, or that a clear, large-scale market demand and sustainable business model have yet to be found.

( Ecological Coordination and Precise Narrative

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.

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

Infrastructure must cater to two core groups: end users and developers, whose needs and concerns are entirely different. For end users, complex technology needs to be transformed into intuitive "experience" stories ) such as fast transaction speeds, low costs, and ease of use (, emphasizing the direct benefits brought by technology. For developers, in-depth explanations of technical "capabilities" ) such as performance metrics, development tools, scalability, and security ### are required, providing professional and precise information for evaluation. Successful projects often adjust their communication strategies based on different audiences to effectively convey value propositions.

Future Investment Opportunities

( Targeting the underserved Web2 market

The most promising infrastructure opportunities will target 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 category of infrastructure

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

• Intent-based infrastructure: Protocols that enable users to express desired outcomes rather than specific transactions, automatically handling execution optimization.
• Add privacy for 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 functions: meeting the real needs of users and generating sustainable revenue. Early market enthusiasm 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.

Sustainable revenue streams are the lifeblood of a project's healthy operation. They not only need to cover high operational costs but should also provide actual returns for ecological participants like token holders and validators ), such as for token buybacks and incentivizing participants. Currently, some leading L2s like Base and Arbitrum have achieved considerable protocol revenue. Base has annual fees of $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 revenue and valuation. Currently, the FDV of leading Layer 2s is 500 times their annual protocol revenue. They are working to correct this mismatch through measures like token buybacks.

Infrastructure lacking income support relies more on selling tokens to maintain team operations. This strategy is difficult to withstand market cycle fluctuations. Stable income is a direct proof of the market's ability to solve real problems and provide effective services. For developers, infrastructure can achieve widely applied complex use cases with a hundredfold efficiency or enable functionalities that were previously unattainable; for end users, it can provide a smoother experience, lower usage costs, and richer features.

Web2 applications actively integrating blockchain

Creating revolutionary applications from scratch requires a significant amount of time and resources. A more efficient approach mimics the recent AI revolution: directly integrating blockchain functionality into existing Web2 applications. The rapid adoption of AI is primarily driven not by standalone AI applications, but by thousands of established platforms incorporating AI features into existing user experiences.

Therefore, blockchain infrastructure must prioritize seamless integration pathways, allowing Web2 applications to gradually implement blockchain features without disrupting their core user experience. The most successful infrastructure will enable familiar applications to provide ownership, transactions, and financial functionalities without requiring users to understand complex blockchain concepts or navigate an entirely new interface.

Financial incentives may drive this wave of integration. Just as AI capabilities help Web2 companies create advanced tiers and new revenue streams, blockchain integration can unlock new monetization models through tokenization, fractional ownership, and programmable royalties. Infrastructure that makes these benefits easily accessible while minimizing technical complexity will catalyze the next phase of blockchain adoption in mainstream applications.

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