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 are shrinking, and investors are becoming more cautious. This reflects the market's increasing maturity, where relying solely on technological innovation is no longer sufficient to achieve high valuations.

A key dilemma facing current infrastructure projects is that most provide similar functionality with minimal differentiation. Despite technological advancements, there has yet to be a breakthrough use case that supports entirely new categories of applications. The ecosystem struggles to offer enough appeal to established Web2 platforms to encourage their migration to the blockchain. Aside from decentralization, these platforms have little reason to fundamentally change their existing operating methods. This fundamental adoption gap has led to trading and speculation becoming the dominant applications of most infrastructure layers, limiting the transformative potential of the field.

Many infrastructure projects focus too much on forward-looking technological innovations while neglecting the actual needs of developers. They often overemphasize elements that go beyond core functionalities, such as privacy protection and trust assumptions. This forward-thinking technological approach overlooks short-term market acceptance, increases the difficulty of early promotion, and also leads 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 led to a significant number of "ghost chains" with extremely low usage rates and almost no revenue, creating an unsustainable economic model that relies primarily on token appreciation rather than real utility.

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 lucrative, but the standards for success have significantly increased - new projects must simultaneously demonstrate concrete use cases, substantial user attraction, and compelling narratives to achieve meaningful valuations.

The Most Successful New Infrastructure of the Past Year

The previous cycle of blockchain infrastructure was 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 solutions.

In the past year, some infrastructure projects have achieved remarkable results through token issuance 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 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: Providing Ethereum's 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 Technical Frenzy to Value Reversion

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 fully diluted valuations is facing severe challenges.

Unsustainable Token Economic Model

Many projects exhibit characteristics of high fully diluted valuations, low circulating market capitalizations, and low trading volumes. This indicates that a large number of token unlocks in the future will bring continuous selling pressure. Even if the projects achieve technological progress, the price may still decline due to token dilution, thereby eroding user confidence and forming a negative feedback loop. This suggests 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 around $10 billion in valuation. This means that investors need to enter at a very early stage to achieve excess returns, highlighting the importance of timing and early judgment. The market is no longer willing to easily pay for pure potential; it demands clearer proof of value.

Execution power outweighs first-mover advantage

Not all projects that create new narratives can achieve the highest valuations. Some 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 prominent.

Pragmatism in Technology on the Rise: Focus 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 to the real world.

"Faster and Cheaper" Continuous Value

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 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 Web2

Projects that align with real-world applications and assets demonstrate strong market appeal. Projects focusing on RWA, IP programmability, and other areas have received high valuations. They apply blockchain technology to validated Web2 concepts, injecting programmability, global liquidity, and new financial possibilities, lowering the user understanding threshold 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 that can provide underlying support for these two high-potential areas is more likely to attract capital and market favor.

Some new narratives are facing a chill

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 produced billion-dollar leading projects in 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.

Ecological Synergy and Precision Narration: The Dual Engine 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 dedicated ecosystems. Whether 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 beyond isolated solutions, forming a positive feedback loop that attracts more users, developers, and capital.

Layered narrative, precise communication

Infrastructure needs to cater to both end users and developers, who have distinctly different needs and focuses. For end users, complex technology should be transformed into intuitive "experience" stories, emphasizing the direct benefits brought by the technology. For developers, a deep explanation of the technology's "capabilities" is necessary, providing professional and precise information for evaluation. Successful projects often adjust their communication strategies according to different audiences, effectively conveying 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 the gradual improvement of existing infrastructure, a new category of infrastructure will generate significant value, such as:

• Intent-based infrastructure: A protocol that enables users to express desired outcomes rather than specific transactions, automatically handling execution optimization.
• 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 real user needs 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 a robust economic model 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 operating costs but should also provide actual returns to ecological participants, such as for token buybacks and incentivizing participants. Currently, some leading Layer 2s have achieved considerable protocol revenue. However, due to the change in investor preferences 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 taking measures such as token buybacks to address this mismatch.

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 that the market is solving real problems and providing effective services. For developers, infrastructure can achieve widely used complex use cases with hundredfold efficiency or realize functions that were previously unattainable; for end-users, it can bring 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 imitates 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 incorporating AI capabilities into their existing user experiences.

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

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.