Original Author: Yiping
Source: IOSG Ventures
Challenges Facing Crypto Infrastructure
Market Fatigue and Valuation Decline
The cryptocurrency infrastructure sector is experiencing significant market fatigue. After years of explosive growth, infrastructure project valuations are shrinking, and investors are becoming more discerning. This trend reflects a maturing market where technological innovation alone is no longer sufficient to achieve high valuations.
Innovation Challenges
Today's infrastructure projects face a key dilemma: most provide similar functions with minimal differentiation. Despite technological advances, we have yet to see breakthrough use cases that can support entirely new application categories. Ecosystems struggle to offer compelling value propositions that would motivate established Web2 platforms like X or Instagram to migrate to blockchain. Beyond decentralization, these platforms have little reason to fundamentally change their existing operations. This fundamental adoption gap makes trading and speculation the dominant applications for most infrastructure layers, limiting the sector's transformative potential.
Infrastructure Overbuilding and Vacancy
Many infrastructure projects tend to focus on pursuing forward-looking technological innovations while overlooking developers' actual needs. They often concentrate on elements beyond core functionality, such as privacy protection, trust assumptions, verifiability, and transparency. This overly advanced technological approach ignores the importance of short-term market acceptance and practical applications, not only increasing early market promotion difficulties but also making it challenging to obtain effective user feedback and validation.
The proliferation of such infrastructure projects has created a paradoxical situation - too many platforms competing for too few attractive applications. This imbalance has led to numerous "ghost chains" with extremely low actual usage and almost no revenue generation, creating unsustainable economic models primarily dependent on token appreciation rather than genuine utility.
For instance, despite advanced ZKVM technology, its verifiability does not effectively address the actual challenges faced by blockchains or drive more Web2 application integration with blockchain technology. Therefore, ZKVM technology currently appears more idealistic than practical as an infrastructure product.
In contrast, cloud computing directly responds to market-validated needs, such as efficiently managing servers with different configurations, times, and locations. This need already has a mature market foundation. Cloud computing platforms directly satisfy developers' practical demands for rapid deployment, elastic scaling, and cost optimization through modular, interface-based server resources, database management, and storage services. By effectively addressing enterprise and developer pain points, cloud computing technology quickly gained market recognition and ultimately developed into crucial infrastructure supporting the internet economy.
Breaking the Feedback Loop
A healthy crypto ecosystem requires an efficient feedback loop between application developers and infrastructure builders. Currently, this loop is broken - application developers are constrained by infrastructure limitations, while infrastructure teams lack clear signals about 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 by market cap maintaining their own infrastructure layer. However, the success standards have significantly increased - new infrastructure projects must simultaneously demonstrate specific use cases, substantial user attraction, and compelling narratives to achieve meaningful valuation.
(The translation continues in the same professional and accurate manner for the entire text.)Although the market seeks breakthrough innovations, the demand, of core blockchain performance remains strong... like Monad, Movement, Berachain, and have obtained significant valuations by improving existing virtual machines' (EVM, MoveVMV) performance, rather than introducing entirely new paradigms. This indicates that focus before finding the next killer application, in speed, cost, and efficiency remains the core value point of infrastructure. Network layer optimization (such as Double Zero) and security en(inctEnlayer) also belong to this category.
Embrac>embracing Real-World, Connecting Web2
Projects aligned with real-world applications and assets demonstrate strong market attractiveness. Ondo and Plume focus on RWA (real-world assets), while Story focuses on IP (intellectual property) programmability all of which have received high valuations. They apply blockchain technology to verified Web2 concepts (such as asset management, IP commercialization), injecting programmability, global liquidity, and new financial possibilities, lowering user understanding barriers and expanding application scenarios.
DeFi and AI as Value Anchors
From target use cases, finance (DeFi, RWA) and artificial intelligence (AI) are as the currently most market recognized by the market capable of supporting high-valuation infrastructure. This indicates that infrastructure capable of providing underlying support for these two high-potential domains easily gain capital and market favor.
Some New Narratives Encounter Challenges
Meanwhile, some infrastructure narratives once highly anticipated, such as pure gaming chains, Rollup-as-a-Service (RaaS), dedicated verification layers, multi-VM chains, Agent chains, some DePIN and Desci, have not yet produced billion-dollar leading projects in this cycle. This might reflect that these domains either lack technological mator have not found clear, large-scale market demands and sustainable business models.
Ecosystem Collaboration and Dual Engines of Value Amplification
Beyond technology and market positioning, building robust ecosystems and conducting effective market communication have become key levers for infrastructure project success.
Ecosystem Network Effects
The vast majority of projects valued over $1 committed to building or integrating into a dedicated ecosystem. Whether L1/L2 attracting developers to build applications or Eigenlshared security for other protocols, this demonstrates the importance of of of effects. Ecosystems with multiple composable projects can create value far beyond isolated solutions, forming a positive cycle that attracts more users, developers, and capital.
Layered Narrative, Precise Communication
Infrastructure must simultaneously address two core groups: end-users and developers, whose needs and focus are entirely different. For end-users, complex technology needs to be transformed into an intuitive "experience" story (such as fast transaction speed, low cost, easy use), emphasizing direct benefits of technology. For developers, it requires in-depth explanation of technical "capabilities" (like performance metrics, development tools, scalability, providing security), providing professional, precise information for assessment. Successful projects often adjust communication strategies based on different audiences, delivering value propositions.
Targeting Underserved Web2 Markets
The most promising infrastructure opportunities will target large Web2 markets not yet fully served by blockchain solutions. These can globally accessible markets while introducing improved financial mechanisms.
Creating New Infrastructure Categories
Compared to incremental improvements of existing infrastructure, entirely new infrastructure categories will generate significant value, such as:
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- Intent>Infrastructure: Protocols enabling users to express desired outcomes rather than specific transactions, handling execution optimization.
Adding privacy for each blockchain, HTTPS infrastructure for Web3
Satisfying User Needs, Stable Income Infrastructure
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 income... Early market enthusiasm might be based on expectations and technical narratives, but ultimately, infrastructure unable to effectively serve users and establish robust economic models will struggle to sustain.
continuous income streams are the lifeblood of project health, neneeding not only to cover but covering high costs but also providing actual returns for ecosystem participants (like token holders, validators such as token token buybacks, participant incent.ives. Currently, some top L2s like Base andrum have have achieved notable protocol revenues. Base's annual fees are $27.5M, while Arbitrum and OP are around $$7M. However, due to changes in investor preferences this cycle, their token prices remain relatively low, reflecting a misalignment between between income and valuation. Current top Layer 2 FDV is 50 0x of annual protocol revenue. They are addressing this misalignment through measures like token buybacks.
Infrastructure lacking income support relies more on token sales to maintain team operations. This strategy struggles to withstand market cycle fluctuations. Stable income directly proves market validation of solving actual problems and providing effective services. For developers, infrastructure can achieve complex use cases with hundred-fold efficiency or enable previously impossible functionalities; for end,-it brings smoother experiences, lower usage costs, and richer features.
Web2 Apps Actively Integrating Blockchain
Creating revolutionary applications from scratch requires substantial time and resources. A more efficientmatic approach mimics the recent AI revolution: directly integrating blockchain functionality into existing Web2 applications. AI adoption's remarkable speed was primarily driven not by standalone AI applications but by thousands of thousands established platforms integrating AI capabilities user experiences.
Therefore, blockchain infrastructure mustizelessways Web2 applications can gradually implement blockchain functionalities withoutisrucore user experience. The. The most successful infrastructure will enable familiar applications to offer ownership, transaction, capabilities without requiring users to understand complex blockchain concepts or navigate entirely new interfaces.
Financial incentives may may drive this integration wave. Just as AI functionalities help Web2Web2 companies create advanced tiers and new revenue streams, blockchain integration can unlock new monetization modes through tokenization, partial ownership, and programmable royalties. Infrastructure that makes these benefits easily accessible while minimizing technical will complexityy's next phase of mainstream application adoption.
