Challenges and Opportunities Facing Encryption Infrastructure

The cryptocurrency infrastructure sector is undergoing significant market adjustments. After years of rapid development, the valuations of infrastructure projects are returning to rationality, and investors are becoming more cautious. This trend reflects the increasing maturity of the market, where relying solely on technological innovation is no longer sufficient to achieve high valuations.

The main dilemma faced by current infrastructure projects is that most projects offer similar functionalities with insufficient differentiation. Despite advancements in technology, there have not yet been any breakthrough use cases that can support entirely new categories of applications. The existing ecosystem struggles to provide a compelling value proposition for mature Web2 platforms to encourage them to migrate to blockchain. Excluding the characteristic of decentralization, these platforms have little motivation to radically change their existing operating models. This fundamental barrier to adoption has led to transactions and speculation remaining the dominant applications of 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 excessively pursue elements that go beyond core functionalities, such as privacy protection, trust assumptions, verifiability, and transparency. This forward-looking technological approach ignores the importance of short-term market acceptance and practical application, which not only increases the difficulty of early market promotion but also leads to projects struggling to obtain effective user feedback and validation.

The surge in infrastructure projects has created a contradictory situation - too many platforms are competing for a limited number of quality applications. This imbalance has led to a large number of "ghost chains" with extremely low usage rates and almost no revenue, creating an unsustainable economic model that relies mainly on token appreciation rather than true utility.

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 the integration of more Web2 applications with blockchain technology. Therefore, ZKVM technology currently appears more as an idealized rather than practical infrastructure product.

In contrast, cloud computing directly responds to the validated market demand for efficiently managing server resources with different configurations, at different times and locations. This demand itself has a relatively mature market foundation, and cloud computing platforms meet developers' practical needs for 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 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 troubled 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 cryptocurrencies maintaining their own infrastructure layers. However, the bar for success has been significantly raised – new infrastructure projects must simultaneously demonstrate concrete use cases, substantial user appeal, and 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 a certain well-known public chain, 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, and recently successful projects have introduced more diverse and specialized infrastructure solutions.

In the past year, some infrastructure projects have achieved remarkable results through TGE or large-scale financing rounds. According to data from a certain data platform, these projects represent the most influential new infrastructure in the primary and secondary markets:

Blockchain Infrastructure:

• Movement: MoveVM certain public chain Layer2
• Berachain: Proof of Liquidity, EVM-compatible Layer 1
• Monad: High-performance EVM-compatible Layer 1
• Solayer: Heavy re-staking based on a certain 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 the security of a certain public chain 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:

The most notable 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.

Many projects exhibit characteristics of high FDV, low circulating market cap (MC), and low trading volume. This suggests that a large number of token unlocks in the future will bring continuous selling pressure. Even if the project makes technical progress, the dilution of tokens could lead to a price drop, thereby eroding user confidence and forming 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 is as important as the technology itself.

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

Not all projects that have created new narratives can achieve the highest valuations. For example, although Double Zero, Story, and Eigenlayer are pioneers in their respective fields, many subsequent projects have achieved 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 seizing opportunities is becoming increasingly prominent.

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

Despite the market's pursuit of 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 improvements in speed, cost, and efficiency remain core value points of the infrastructure before the next generation of killer applications is found. Network layer optimizations ( such as Double Zero) and security enhancements ( like Succinct, 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( real-world assets), while Story emphasizes the programmability of IP( intellectual property). These projects have all achieved high valuations. They apply blockchain technology to proven Web2 concepts( such as asset management and IP commercialization), injecting programmability, global liquidity, and new financial possibilities, thereby lowering the understanding threshold for users and broadening application scenarios.

From the perspective of use cases, financial ( DeFi, RWA ), and artificial intelligence ( AI ) are the two areas 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.

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 yet to produce billion-dollar leading projects during this cycle. This may reflect either insufficient technological maturity in these areas or a lack of clear, large-scale market demand and sustainable business models.

In addition to technology and market positioning, building a strong ecosystem and conducting 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 into 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 isolated solutions, forming a positive loop that attracts more users, developers, and capital.

Infrastructure needs to cater to both end users and developers, who have distinctly different needs and concerns. 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 the technology. For developers, it is essential to explain the "capabilities" of the technology in depth ( such as performance metrics, development tools, scalability, and security ), providing professional and accurate 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

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, new categories of infrastructure will create significant value, such as:

• Intent-based infrastructure: a protocol that allows users to express desired outcomes rather than specific transactions, automating the 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 stream of income is the lifeblood of a project's healthy operation. It not only needs to cover high operational costs, but also provide actual returns for 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 has an annual fee of $27.5M, and 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 head Layer2 FDV is 500 times the annual protocol income. They are addressing 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 the fluctuations of market cycles. 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 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 adoption of AI