Original author: Yiping
Original source: IOSG Ventures
Challenges Facing Crypto Infrastructure
Market fatigue and falling valuations
The cryptocurrency infrastructure space is experiencing significant market fatigue. After years of explosive growth, infrastructure project valuations are shrinking and investors are becoming more discerning. This trend reflects an increasingly mature market where technological innovation alone is no longer enough to earn high valuations.
Innovation issues
Today’s infrastructure projects face a critical dilemma: most offer similar functionality with minimal differentiation. Despite advances in technology, we have yet to see groundbreaking use cases that enable entirely new categories of applications. The ecosystem struggles to provide a compelling value proposition for established Web2 platforms (like X or Instagram) to migrate to the blockchain. Beyond decentralization, these platforms have little reason to radically change how they operate. This fundamental adoption gap has left trading and speculation as the dominant applications for most infrastructure layers, limiting the transformative potential of the space.
Infra Overbuilding and vacant infrastructure
Many infrastructure projects tend to focus on pursuing forward-looking technological innovations while ignoring the actual needs of developers. They tend to focus too much on elements beyond core functions, such as privacy protection, trust assumptions, verifiability, and transparency. This overly advanced technology route ignores the importance of short-term market acceptance and practical applications, which not only increases the difficulty of early market promotion, but also makes it difficult for projects to obtain effective user feedback and verification.
The proliferation of such infrastructure projects has created a paradoxical situation where too many platforms compete for too few attractive applications. This imbalance has resulted in a large number of “ghost chains” with very little actual usage and almost no revenue generation, creating an unsustainable economic model that relies primarily on token appreciation rather than real utility.
For example, although ZKVM technology is quite advanced, the verifiability it provides cannot effectively solve the practical challenges faced by blockchain at this stage, nor can it promote the integration of more Web2 applications with blockchain technology. Therefore, ZKVM technology is currently more of an idealized rather than a practical infrastructure product.
In contrast, cloud computing directly responds to the markets proven needs, namely how to efficiently manage server resources with different configurations, at different times and locations. This demand itself already has a relatively mature market foundation, and the cloud computing platform directly meets the actual demands of developers in terms of rapid deployment, elastic expansion and cost optimization through modular and interfaced server resources, database management and storage services. It is precisely because it effectively solves the pain points of enterprises and developers that cloud computing technology has quickly gained market recognition and eventually developed into an important 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 frustrated by infrastructure limitations, while infrastructure teams lack clear signals about which features drive real usage. Restoring this feedback mechanism is critical to sustainable growth. Despite these challenges, infrastructure development remains lucrative, with 35 of the top 50 cryptocurrencies by market cap maintaining their own infrastructure layer. However, the bar for success has risen dramatically — new infrastructure projects must simultaneously demonstrate concrete use cases, massive user traction, and a compelling narrative to achieve meaningful valuations.
The most successful new infrastructure in the past year
The evolution of blockchain infrastructure
Previous cycles of blockchain infrastructure have focused primarily on addressing the limitations of Ethereum, with projects positioning themselves as “faster and cheaper” alternatives while offering little in the way of truly innovative features. Today, the landscape has changed dramatically, with recent successful projects introducing more diverse and specialized infrastructure solutions.
Most influential new project
In the past year, some infrastructure projects have achieved remarkable results through TGE or large-scale financing rounds. According to Cryptorank data, these projects represent the most influential new infrastructure in the primary and secondary markets:
Blockchain infrastructure
Movement: MoveVM Ethereum Layer 2
Berachain: Proof of Liquidity, EVM-Compatible Layer 1 Monad: High-Performance EVM-Compatible Layer 1
Solayer: Heavy staking based on Solana ecosystem, ultra-high-speed SVM
Succinct: ZK Proof Generation Network and ZKVM
Emerging Infrastructure
Walrus: Blob storage solution
Aethir: GPU Computing Network
Double Zero: Decentralized physical fiber network infrastructure
Eigenlayer: Providing Ethereum security to new protocols
Humanity: A digital identity protocol platform
The bridge between Web2 and Web3
Ondo: RWA Layer 2
Plume: The RWAFi blockchain
Story: AI-driven IP programmable platform
The following is a summary of the project data (data as of April 2024, for reference only):
Core Observation and Analysis
Based on the analysis of recent successful infrastructure projects and the current market environment, the following core observations can be extracted:
Market maturity and valuation reshaping: from technology 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 by relying on technical narratives and high FDV (fully diluted valuation) is facing severe challenges.
Unsustainable Token Economic Model
Many projects are characterized by high FDV, low circulating market capitalization (MC), and low trading volume. This indicates that the large amount of token unlocking in the future will bring continuous selling pressure. Even if the project makes technological progress, the price may fall due to token dilution, which will erode user confidence and form a negative feedback loop. This shows that a sound and sustainable token economic model is crucial to the long-term health of the infrastructure, and its importance is no less than the technology itself.
Valuation Ceiling and Exit Challenges
Even for successful projects, their valuations seem to face an invisible ceiling of about $10 billion. This means that for investors, obtaining excess returns (such as 100 times) requires entering at a very early stage (valuation below $50 million), highlighting the importance of timing and early judgment. The market no longer easily pays for pure potential, but requires clearer proof of value.
Execution outweighs first-mover advantage
Not all projects that pioneered new narratives received the highest valuations. For example, while Double Zero, Story, and Eigenlayer were pioneers in their respective fields, many subsequent projects received comparable or even higher valuations through stronger execution, better market timing, or more optimized solutions. This shows that in an increasingly crowded market, high-quality execution, effective market strategies, and timing are becoming increasingly important.
The rise of technological pragmatism: focusing on optimization, integration and real needs
The technological development direction of infrastructure shows a clear pragmatic tendency, and the market prefers solutions that can solve practical problems, optimize existing paradigms or effectively connect the real world.
The ongoing value of “faster and cheaper”
While the market seeks breakthrough innovations, the demand for optimization of core blockchain performance remains strong. Projects such as Monad, Movement, Berachain, and Solayer have achieved significant valuations by improving the performance of existing virtual machines (EVM, MoveVM, SVM) rather than introducing a completely new paradigm. This shows that improvements in speed, cost, and efficiency remain the core value points of infrastructure until the next killer application is found. Network layer optimizations (such as Double Zero) and security enhancements (such as Succinct, Eigenlayer) also fall into this category.
Embrace the real world and connect to Web2
Projects that are connected to real-world applications and assets have shown strong market appeal. Ondo and Plume focus on RWA (real-world assets), and Story focuses on the programmability of IP (intellectual property). These projects have received high valuations. They apply blockchain technology to proven Web2 concepts (such as asset management and IP commercialization), and inject programmability, global liquidity and new financial possibilities into them, lowering the threshold for users to understand and broadening the application scenarios.
DeFi and AI become value anchors
From the perspective of target use cases, finance (DeFi, RWA) and artificial intelligence (AI) are the two most recognized areas in the market that can support high-valuation infrastructure. This shows that infrastructure that can provide underlying support for these two high-potential areas is more likely to be favored by capital and the market.
Some new narratives have been met with a cold reception
At the same time, some infrastructure narratives that were once highly anticipated, such as pure game 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 may reflect that these areas are either not mature enough in technology or have not yet found clear, large-scale market demand and sustainable business models.
Ecosystem synergy and precise narrative: dual engines for value amplification
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.
Ecosystem network effects
The vast majority of projects with a valuation of more than $1 billion are committed 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 beyond isolated solutions, forming a positive cycle and attracting more users, developers, and capital.
Layered narrative, precise communication
Infrastructure needs to be oriented to two core groups: end users and developers, whose needs and concerns are completely different. For end users, complex technologies need to be transformed into intuitive experience stories (such as fast transactions, low costs, and ease of use), emphasizing the direct benefits of technology. For developers, it is necessary to explain in depth the capabilities of the technology (such as performance indicators, development tools, scalability, and security), and provide professional and accurate information for evaluation. Successful projects are often able to adjust communication strategies according to different audiences and effectively convey value propositions.
Future investment opportunities in blockchain infrastructure
Targeting the unserved Web2 market
The most promising infrastructure opportunities will target large Web2 markets that are not yet adequately served by blockchain solutions. These projects can create globally accessible markets while introducing improved financialization mechanisms.
Creating a new category of infrastructure
New categories of infrastructure will generate significant value compared to incremental improvements to existing infrastructure, such as:
Intent-based infrastructure: A protocol that enables users to express desired outcomes rather than specific transactions, automatically handling execution optimization.
Adding privacy to every blockchain, HTTPS infrastructure for 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 functions: meeting real user needs and generating sustainable revenue. The early market craze may be based on expectations and technical narratives, but in the end, infrastructure that cannot effectively serve users and establish a robust economic model will be difficult to sustain.
A continuous income stream is the blood of a healthy project. It not only needs to cover the high operating costs, but also provide actual returns to ecosystem participants (such as token holders and validators), such as repurchasing tokens, incentivizing participants, etc. At present, some top L2s such as Base and Arbitrum have achieved considerable protocol income. Bases annual handling fee is $27.5M, while Arbitrum and OP are around $7M. However, due to changes in investor preferences in this cycle, the price of its tokens is still relatively low, reflecting the mismatch between income and valuation. At present, the top Layer 2 FDV is 50 0x of the annual protocol income. They are fixing this mismatch through measures such as repurchasing tokens.
Infrastructure that lacks income support relies more on selling tokens to keep the team running. This strategy is difficult to withstand the fluctuations of the market cycle. Stable income is the markets direct proof that it solves practical problems and provides effective services. For developers, infrastructure can realize complex use cases that have been widely used or realize functions that were previously impossible with a hundred times the efficiency; for end users, it can bring a smoother experience, lower usage costs and richer functions.
Web2 APP actively integrates blockchain
Creating revolutionary applications from scratch requires a great deal of time and resources. A more efficient approach is to emulate the recent AI revolution: integrating blockchain capabilities directly into existing Web2 applications. The incredible pace of AI adoption is driven not primarily by standalone AI applications, but by thousands of established platforms integrating AI capabilities into existing user experiences.
Therefore, blockchain infrastructure must prioritize seamless integration paths that enable Web2 applications to incrementally implement blockchain functionality without interfering with their core user experience. The most successful infrastructure will enable familiar applications to provide ownership, transaction, and financial functionality without requiring users to understand complex blockchain concepts or navigate entirely new interfaces.
Financial incentives may drive this wave of integration. Just as AI capabilities have helped 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.
