Challenges and Opportunities Facing Crypto Assets Infrastructure

Current Market Environment

The Crypto Assets infrastructure sector is experiencing significant market weakness. After years of rapid growth, the valuations of infrastructure projects are beginning to decline, and investor sentiment is becoming more cautious. This reflects the gradual maturation of the market, where relying solely on technological innovation can no longer support high valuations.

Innovation Bottleneck

Currently, infrastructure projects face a critical dilemma: most provide similar functionality with insufficient differentiation. Although technology has advanced, there has yet to be a groundbreaking use case that supports entirely new categories of applications. The Crypto Assets ecosystem struggles to offer sufficient value propositions to mature Web2 platforms to incentivize their migration to the blockchain. Aside from the decentralization feature, these platforms have little reason to fundamentally change their existing operating models. This fundamental adoption barrier has led to trading and speculation remaining the dominant applications of most infrastructure layers, limiting the transformative potential of the field.

Overbuilding of Infrastructure

Many infrastructure projects focus too much on cutting-edge technological innovations while neglecting the actual needs of developers. They often overemphasize elements beyond core functionalities, such as privacy protection, trust assumptions, verifiability, and transparency. This forward-looking technological approach overlooks short-term market acceptance and practical applications, making early promotion more difficult and leading to challenges in obtaining effective user feedback and validation.

The surge in such infrastructure projects has created a paradoxical situation – 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 actual usage rates and almost no revenue, creating unsustainable economic models that rely primarily on token appreciation rather than actual value.

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

In contrast, cloud computing directly responds to market-validated demands, specifically how to efficiently manage 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 interfaced 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 rapidly gained market recognition and ultimately developed into an important infrastructure supporting the internet economy.

Break the Feedback Loop

A healthy crypto ecosystem requires an efficient feedback loop between application developers and infrastructure builders. Currently, this loop has broken down—application developers are hampered 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 lucrative, with 35 of the top 50 crypto assets maintaining their own infrastructure layers. However, the standards for success have risen significantly—new infrastructure projects must simultaneously demonstrate concrete use cases, substantial user appeal, and compelling narratives to achieve meaningful valuations.

Recent Successful Infrastructure Projects

In the past year, some infrastructure projects have achieved remarkable results through token generation events or large-scale financing. These projects represent the most influential new infrastructure in both primary and secondary markets:

blockchain infrastructure

• Movement: MoveVM Ethereum Layer 2
• Berachain: Liquidity Proof, EVM compatible Layer 1
• Monad: High-performance EVM-compatible Layer 1
• Solayer: Heavy 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

Market Maturity and Valuation Restructuring

The most significant feature of the current market is the shift in valuation logic. The early model that relied solely on technical narratives and high fully diluted valuations to attract investment is facing severe challenges.

unsustainable token economic model

Many projects exhibit characteristics of high fully diluted valuations, low circulating market caps, and low trading volumes. This foreshadows that the future unlocking of a large number of tokens will bring continuous selling pressure, and even if the projects make technical progress, the price may still decline due to token dilution, thereby eroding user confidence and creating a negative feedback loop. This indicates 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 requires entering at a very early stage, highlighting the importance of timing and early judgment. The market is no longer willing to pay purely for potential, but demands clearer proof of value.

execution power outweighs first-mover advantage

Not all projects that have pioneered new narratives can achieve the highest valuations. For example, while some projects are pioneers in their respective fields, many subsequent projects have attained 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 more pronounced.

The Rise of Technological Pragmatism

The technical 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 with the real world.

"Continuous value of 'faster and cheaper'"

Despite the market seeking breakthrough innovations, the demand for optimization of core blockchain performance remains strong. Some projects have achieved significant valuations by enhancing the performance of existing virtual machines 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 optimization and security enhancements 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. Projects focusing on real-world assets and the programmability of intellectual property have achieved high valuations. They apply blockchain technology to validated Web2 concepts, injecting programmability, global liquidity, and new financial possibilities, lowering the understanding threshold for users and broadening application scenarios.

DeFi and AI become value anchors

From the perspective of target use cases, finance and artificial intelligence are the two fields currently most recognized by the market and capable of supporting high valuation infrastructure. This indicates that infrastructure capable of providing underlying support for these two high-potential areas is more likely to attract capital and market favor.

Some new narratives are encountering a chill.

Some infrastructure narratives that were once highly anticipated, such as pure gaming chains, Rollup-as-a-Service, dedicated validation layers, multi-VM chains, Agent chains, partial DePIN, and Desci, have yet to produce 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

In addition to technology and market positioning, building a strong ecosystem and engaging in 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 dollars are committed to building or integrating a dedicated ecosystem. Whether attracting developers to build applications or providing shared security for other protocols, this 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 points are vastly different. For end users, it is essential to transform complex technology into intuitive "experience" stories, emphasizing the direct benefits brought by the technology. For developers, it is necessary to delve into the "capabilities" of the technology, 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 the underserved Web2 market

The most promising infrastructure opportunities will target large Web2 markets that have not yet been adequately 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, the new category of infrastructure will generate significant value, for example:

• Intent-based infrastructure: A protocol that allows users to express desired outcomes rather than specific transactions, automating the optimization of execution.
• 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 robust economic models will struggle to survive.

A continuous revenue stream is the lifeblood of a project's healthy operation. It not only needs to cover high operating costs but should also provide real returns to ecosystem participants, such as for token buybacks and incentivizing participants. Currently, some leading Layer 2s have achieved considerable protocol revenue. 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 fully diluted valuation of leading Layer 2s is 500 times their annual protocol revenue. They are working to fix this mismatch through measures such as token buybacks.

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

Web2 applications actively integrate blockchain

Creating revolutionary applications from scratch requires a lot of time and resources. A more efficient approach emulates the recent AI revolution: directly integrating blockchain functionality into existing Web2 applications. The astonishing speed of AI adoption is primarily driven not by standalone AI applications, but by thousands of established platforms integrating AI capabilities into the existing user experience.

Therefore, blockchain infrastructure must prioritize seamless integration pathways that allow Web2 applications to gradually implement blockchain functionalities without disrupting their core user experience. The most successful infrastructure will enable familiar applications to provide ownership, transaction, and financial functionalities.