Challenges and Opportunities Facing Encryption Infrastructure

The cryptocurrency infrastructure sector is experiencing significant market fatigue. After years of rapid growth, the valuations of infrastructure projects have begun to decline, and investors have become more cautious. This reflects an increasingly mature market, where relying solely on technological innovation is no longer sufficient to achieve high valuations.

The main dilemma facing current infrastructure projects is that most projects offer similar functionalities with minimal differentiation. Despite technological advancements, there has yet to be a groundbreaking use case that supports entirely new categories of applications. The ecosystem struggles to provide sufficient attraction for mature Web2 platforms to migrate to blockchain. Apart from decentralization, these platforms have little incentive to fundamentally change their existing operational methods. This fundamental adoption gap has led to trading and speculation becoming the dominant applications in most infrastructure layers, limiting the transformative potential of the field.

Many infrastructure projects focus too much on forward-looking technological innovation while neglecting the actual needs of developers. They often overly pursue elements that go beyond core functionalities, such as privacy protection and verifiability. This technological approach overlooks short-term market acceptance, making early promotion more difficult and leading to challenges in obtaining effective user feedback.

The surge in infrastructure projects has created a paradox: too many platforms competing for too few attractive applications. This imbalance has resulted in a large number of "ghost chains" with extremely low usage rates and almost no revenue, creating an unsustainable economic model that primarily relies on token appreciation rather than real utility.

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

In contrast, cloud computing directly responds to the validated demand in the market for efficiently managing server resources with different configurations, times, and locations. This demand has a mature market foundation, and cloud computing meets the actual needs of developers for rapid deployment, elastic scaling, and cost optimization through modular and interface-based services. As a result, cloud computing technology has quickly gained market recognition and has ultimately become 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 constrained by infrastructure, while the 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 lucrative, with 35 of the top 50 cryptocurrencies by market capitalization maintaining their own infrastructure layers. However, the standards for success have risen significantly - new infrastructure projects must simultaneously demonstrate concrete use cases, user appeal, and compelling narratives to achieve meaningful valuations.

The Evolution of Blockchain Infrastructure

The early cycle of blockchain infrastructure mainly focused on addressing the limitations of Ethereum, with various 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 financing. According to data platform statistics, 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 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 Optical Fiber 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 Return

The most notable 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 value, and low trading volume. This foreshadows that a large number of token unlocks in the future will bring sustained selling pressure. Even if the project makes technical progress, the dilution of tokens may lead to a price drop, which in turn undermines user confidence and creates 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.

Even successful projects seem to face an invisible ceiling 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 of 100 times (, highlighting the importance of timing and early judgment. The market is no longer easily paying for pure potential, but rather demanding more clear evidence of value.

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 garnered 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.

) Pragmatism in Technology Rises: Focus on Optimization, Integration, and Real Needs

The development direction of infrastructure technology 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.

Despite the market seeking breakthrough innovations, the demand for core blockchain performance optimization 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 until the next generation of killer applications is found. Network layer optimization and security enhancements also fall into this category.

Projects that connect with real-world applications and assets demonstrate strong market appeal. Focusing on RWA( real-world assets) and IP### intellectual property(, programmable projects achieve high valuations. They apply blockchain technology to validated Web2 concepts, injecting programmability, global liquidity, and new financial possibilities, lowering the threshold for user understanding and expanding application scenarios.

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 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, some DePIN, and Desci, have not yet birthed billion-dollar leading projects during this cycle. This may reflect insufficient technological maturity in these areas, or a failure to find clear, large-scale market demand and sustainable business models.

) Ecological Synergy and Precise Narration: The Dual Engine of Value Amplification

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

The vast majority of projects valued at over $1 billion are dedicated to building or integrating specialized ecosystems. 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 feedback loop that attracts more users, developers, and capital.

Infrastructure needs to cater to two core groups: end users and developers, whose demands and focuses are entirely different. For end users, it is necessary to translate complex technology into intuitive "experience" stories, such as fast transaction speeds, low costs, and ease of use (, emphasizing the direct benefits brought by technology. For developers, a detailed explanation of the technology's "capabilities" is required, such as performance metrics, development tools, scalability, and security ), providing professional and precise information for evaluation. Successful projects are often able to adjust their communication strategies according to different audiences, effectively conveying their value propositions.

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Future Investment Opportunities in Blockchain Infrastructure

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.

Compared to gradually improving existing infrastructure, the 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.

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. 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 sustain itself.

A continuous revenue stream is the lifeblood of a project's healthy operation. It not only needs to cover high operational costs but should also provide real returns to ecosystem participants, such as for token buybacks and incentivizing participants. Currently, some top L2s 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 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 used complex use cases with hundredfold efficiency or realize functionalities that were previously unattainable; for end users, it can bring a smoother experience, lower usage costs, and richer features.

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 integrating AI capabilities into existing user experiences.

Therefore, blockchain infrastructure must prioritize seamless integration pathways that enable Web2 applications to gradually implement blockchain functionalities without disrupting their core user experience. The most successful infrastructure will allow familiar applications to provide ownership, transaction, and financial functionalities without requiring users to understand complex blockchain concepts or navigate a completely 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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