Challenges and Opportunities Facing Encryption Infrastructure

Market Status and Challenges

The cryptocurrency infrastructure sector is experiencing a noticeable market fatigue. After years of rapid development, the valuations of infrastructure projects have begun to decline, and investor sentiment has become more cautious. This reflects a maturing market where mere technological innovation is no longer sufficient to support high valuations.

The main dilemma faced by current infrastructure projects is serious homogenization, making it difficult to achieve differentiation. Although technology continues to advance, there has yet to be a breakthrough use case that can support entirely new application categories. The encryption ecosystem struggles to provide sufficient value propositions for mature Web2 platforms to migrate to the blockchain. Aside from the decentralized characteristic, these platforms have little incentive to fundamentally change their existing operating models. This fundamental application gap leads to trading and speculation still being the primary application scenarios for most infrastructures, limiting the potential for industry transformation.

Many infrastructure projects pursue cutting-edge technological innovation too much, neglecting the actual needs of developers. They often focus excessively on some elements beyond core functions, such as privacy protection and verifiability. This forward-looking technological approach ignores short-term market acceptance, making early promotion more difficult and hindering the project from obtaining effective user feedback.

The surge in infrastructure projects has led to an imbalance between supply and demand - numerous platforms are competing for a limited number of attractive applications. This imbalance has resulted in many "ghost chains" with extremely low usage rates and almost no revenue, creating an unsustainable economic model that primarily relies on token appreciation rather than true 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 achieving sustainable growth.

Successful Project Analysis

Recently, some infrastructure projects have achieved significant results through initial token offerings 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: Proof of Liquidity, EVM-compatible Layer 1
• Monad: High-performance EVM-compatible Layer 1
• Solayer: 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'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

1. The maturation of the market has led to a shift in valuation logic. The model that relied on technical narratives and high FDV to attract investment is facing challenges.

2. Many projects exhibit characteristics of high FDV, low circulating market cap, and low trading volume, indicating that future token unlocks may bring ongoing selling pressure. A sound and sustainable token economic model is crucial for the long-term development of the infrastructure.

3. Even successful projects face an invisible cap of about 10 billion dollars in valuation. This means investors need to enter very early to achieve excess returns, highlighting the importance of timing and early judgment.

4. Execution capability is surpassing first-mover advantage. Many subsequent projects have achieved comparable or even higher valuations through stronger execution, better market timing, or more optimized solutions.

5. The technological development of infrastructure shows a pragmatic tendency, and the market prefers solutions that can solve practical problems, optimize existing paradigms, or effectively connect to the real world.

6. Projects that connect with real-world applications and assets demonstrate strong market appeal. Applying blockchain technology to validated Web2 concepts injects programmability and new financial possibilities.

7. Finance ( DeFi, RWA ) and artificial intelligence ( AI ) are the two areas currently most recognized by the market that can support high valuation infrastructure.

8. Most high-valued projects are committed to building or integrating into dedicated ecosystems, reflecting the importance of network effects.

9. Successful projects can adjust their communication strategies according to different audiences to effectively convey their value propositions.

Future Investment Opportunities

1. Target the large Web2 market that blockchain solutions have not yet fully served.

2. Create a brand new category of infrastructure, such as intent-based infrastructure and Web3 HTTPS infrastructure with privacy for each blockchain.

3. Focus on infrastructure that can meet the real needs of users and generate sustainable revenue. A stable income stream is key to the healthy operation of a project.

4. Prioritize seamless integration pathways that allow Web2 applications to gradually implement blockchain functionality without disrupting their core user experience.

5. Develop blockchain integration solutions that can create new revenue streams for Web2 companies, such as through tokenization, fractional ownership, and programmable royalties.