Challenges and Opportunities of Crypto Assets Infrastructure

The Crypto Assets infrastructure sector is facing challenges of market fatigue and declining valuations. After years of rapid growth, investors have become more cautious about infrastructure projects. This reflects the gradual maturation of the market, where merely relying on technological innovation is no longer sufficient to achieve high valuations.

One major issue with current infrastructure projects is the severe homogenization and lack of true innovation. Despite advancements in technology, there have yet to be breakthrough use cases that support entirely new categories of applications. The crypto ecosystem struggles to provide a compelling value proposition for mature Web2 platforms to migrate onto the blockchain. Aside from decentralization, these platforms have little incentive to fundamentally change their existing operating models. This fundamental adoption gap has led to trading and speculation becoming the dominant applications for most infrastructure layers, limiting the potential for transformation in the field.

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 the importance of short-term market acceptance and practical applications, which not only increases the difficulty of early market promotion but also makes it challenging for projects to obtain effective user feedback and validation.

The surge in infrastructure projects has led to an imbalance between supply and demand - too many platforms competing for a limited number of attractive applications. This imbalance has resulted in a large number of "ghost chains" with extremely low usage rates and almost no revenue, creating unsustainable economic models that primarily rely on token appreciation rather than genuine usability.

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

In contrast, cloud computing directly addresses the validated demand in the market, namely how to efficiently manage server resources with different configurations, at different times and locations. This demand itself has a relatively mature market foundation, and cloud computing platforms meet the actual needs of developers in terms of rapid deployment, elastic expansion, and cost optimization through modular and interface-based server resources, database management, and storage services. It is precisely because it effectively solves the pain points of enterprises and developers that cloud computing technology has quickly gained market recognition and ultimately evolved 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 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 these challenges, infrastructure development remains profitable, with 35 of the top 50 crypto assets maintaining their own infrastructure layers. However, the standards for success have significantly increased - new infrastructure projects must simultaneously demonstrate concrete use cases, significant user appeal, and compelling narratives to achieve meaningful valuations.

The Evolution of Blockchain Infrastructure

The previous cycle of blockchain infrastructure mainly focused on addressing the limitations of Ethereum, with projects positioning themselves as "faster and cheaper" alternatives while offering little in terms of truly innovative features. Today, the landscape has changed dramatically, with recently 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 fundraising rounds. According to data from the data platform, these projects represent the most influential new infrastructure in the 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 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 Observation 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 that purely relied on technical narratives and high FDV (Fully Diluted Valuation) to attract investments is facing severe challenges.

unsustainable token economic model

Many projects exhibit characteristics of high FDV, low circulating market cap (MC), and low trading volume. This indicates that a large unlocking of tokens in the future will bring sustained selling pressure, which may lead to price declines due to token dilution, even if the project makes technological progress, 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, being just as important as the technology itself.

Valuation Ceiling and Exit Challenges

Even successful projects seem to face an invisible cap of around $10 billion in valuation. This means that for investors, achieving outsized 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 paying for pure potential, but instead demands clearer proof of value.

Execution ability overcomes first-mover advantage

Not all projects that create new narratives can achieve the highest valuations. For example, while some projects 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 more pronounced.

Technological Pragmatism Rises: Focusing 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 with the real world.

"Sustained value of 'faster and cheaper'"

Despite the market's pursuit of 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 (EVM, MoveVM, SVM) rather than introducing entirely new paradigms. This indicates that improvements in speed, cost, and efficiency continue to be the core value points of infrastructure until 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 align with real-world applications and assets demonstrate strong market appeal. Some projects focus on RWA (Real World Assets), while others focus on the programmability of IP (Intellectual Property), both of which have achieved 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 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 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 fields is more likely to attract capital and market favor.

Some new narratives have cooled down.

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, partial DePIN, and Desci, have not yet given birth to billion-dollar leading projects in 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 Collaboration and Precise Narration: The Dual Engines 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 into a dedicated ecosystem. Whether it's L1/L2 attracting developers to build applications or providing shared security for other protocols, it reflects the importance of network effects. An ecosystem with multiple composable projects can create value far exceeding isolated solutions, forming a positive cycle that attracts more users, developers, and capital.

Layered narrative, precise communication

Infrastructure needs to cater to both end users and developers, who have vastly different needs and focus areas. For end users, complex technology should be transformed into intuitive "experience" stories (such as fast transaction speeds, low costs, and ease of use), emphasizing the direct benefits brought by the technology. For developers, a deep explanation of the technology's "capabilities" (such as performance metrics, development tools, scalability, and security) is required, providing professional and precise information for evaluation. Successful projects are often able to adjust their communication strategies based on different audiences, effectively conveying their value propositions.

Future Investment Opportunities in Blockchain Infrastructure

Targeting the Underserved Web2 Market

The most promising infrastructure opportunities will target the 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 New Infrastructure Category

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

• Intent-based infrastructure: Protocols that allow users to express desired outcomes rather than specific transactions, automatically handling execution optimization.
• Add privacy to each blockchain, HTTPS infrastructure for 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 fails to effectively serve users and build robust economic models 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 real returns for ecological participants (such as token holders and validators), for example, for repurchasing coins and incentivizing participants. Currently, some leading L2s have achieved considerable protocol revenue. One L2 has an annual fee of $27.5M, while two other L2s are around $7M. However, due to changes in investor preferences during this cycle, their coin prices remain relatively low, reflecting a mismatch between income and valuation. Currently, the leading Layer 2 FDV is 500x the annual protocol revenue. They are trying to correct this mismatch through measures like repurchasing coins.

The infrastructure lacking income support relies more on selling tokens to maintain team operations. This strategy is difficult to resist.