Current Challenges and Future Opportunities of Encryption Infrastructure

The cryptocurrency infrastructure sector is experiencing significant market fatigue. After years of rapid development, the valuations of infrastructure projects are shrinking, and investors are becoming more cautious. This trend reflects the gradual maturation of the market, where relying solely on technological innovation is no longer sufficient to achieve high valuations.

The main issue facing current infrastructure projects is severe homogenization and insufficient differentiation. Although there have been technological advancements, there has yet to be a breakthrough use case that supports entirely new categories of applications. The encryption ecosystem struggles to provide mature internet platforms with sufficient value propositions to motivate their migration to the blockchain. Aside from the characteristic of decentralization, these platforms have little incentive to fundamentally change their existing operating methods. This fundamental adoption barrier results in trading and speculation remaining the dominant applications for most infrastructure layers, limiting the transformative potential in the field.

Many infrastructure projects focus too much on cutting-edge technological innovations while neglecting the actual needs of developers. They often pursue advanced features, such as privacy protection and verifiability, excessively beyond core functionalities. This forward-looking technological approach overlooks the importance of short-term market acceptance and practical applications, making early promotion more difficult and leading to challenges in obtaining effective user feedback.

The surge in infrastructure projects has created a paradox - too many platforms competing for a limited number of applications. This imbalance has resulted in a large number of "ghost chains" with very low usage rates and almost no revenue, creating unsustainable economic models that rely primarily on token appreciation rather than actual utility.

For example, while ZKVM technology is advanced, the verifiability it provides currently does not effectively address the practical challenges faced by blockchain, nor does it promote the integration of more traditional applications with blockchain technology. Therefore, ZKVM technology is currently more of an idealized rather than a practical infrastructure product.

In contrast, cloud computing directly meets the validated needs of the market - efficiently managing server resources with different configurations, at different times and locations. This demand itself has a mature market foundation, and cloud computing platforms directly address 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 solves the pain points of enterprises and developers that cloud computing technology has rapidly gained market recognition, ultimately becoming 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 broken down - application developers are hindered 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 highly profitable, with 35 of the top 50 cryptocurrencies by market capitalization maintaining their own infrastructure layers. However, the standards for success have significantly increased - new infrastructure projects must simultaneously demonstrate concrete use cases, mass user appeal, and compelling narratives to achieve meaningful valuations.

New Trends in Infrastructure

The early phase of blockchain infrastructure primarily focused on addressing the limitations of Ethereum, with various 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 recently successful projects introducing more diverse and specialized infrastructure solutions.

Over the past year, some infrastructure projects have achieved significant results through public token offerings or large-scale financing. These projects represent the most influential new infrastructures in the primary and secondary markets:

In terms of blockchain infrastructure, some emerging projects such as Movement (MoveVM Ethereum Layer2), Berachain (Liquidity Proof, EVM-compatible Layer1), Monad (High-performance EVM-compatible Layer1), Solayer (Re-staking based on Solana ecosystem, ultra-fast SVM), and Succinct (ZK proof generation network and ZKVM) have attracted market attention.

Innovative projects have also emerged in the field of new infrastructure, such as Walrus (Blob storage solution), Aethir (GPU computing network), Double Zero (decentralized physical fiber optic network facility), Eigenlayer (providing Ethereum's security for new protocols), and Humanity (digital identity protocol platform).

In addition, some projects are committed to connecting Web2 and Web3, such as Ondo (RWA Layer2), Plume (RWAFi blockchain), and Story (AI-driven IP programmable platform).

Market Trend Analysis

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. Many projects exhibit characteristics of high fully diluted valuations, low circulating market caps, and low trading volumes. This indicates that a large number of token unlocks in the future will bring continuous selling pressure. Even if projects make technical progress, the dilution of tokens may lead to price declines, which in turn erodes user confidence, forming a negative feedback loop.

Even successful projects seem to face an invisible cap of about $10 billion in valuation. This means that for investors, achieving excess returns requires entering at a very early stage, highlighting the importance of timing and early judgment. The market is no longer willing to pay a premium for pure potential; instead, it demands clearer proof of value.

Not all projects that have created new narratives can achieve the highest valuations. For example, while some projects 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 timing is becoming increasingly prominent.

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. Although the market seeks breakthrough innovations, the demand for optimization of core blockchain performance 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 continue to be the core value points of infrastructure before finding the next generation of killer applications.

Projects that connect with real-world applications and assets demonstrate strong market appeal. Projects focusing on the programmability of real-world assets and intellectual property have received high valuations. They apply blockchain technology to validated Web2 concepts, injecting programmability, global liquidity, and new financial possibilities, reducing the understanding threshold for users and broadening application scenarios.

From the perspective of target use cases, finance and artificial intelligence are currently the two most recognized fields by the market that can support high-valued infrastructure. This indicates that infrastructure capable of providing underlying support for these two high-potential fields is more likely to attract capital and market favor.

Future Investment Opportunities

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 generate significant value, such as intent-based infrastructure and Web3 HTTPS infrastructure that adds privacy to each blockchain.

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 robust economic models 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 for ecological participants. Currently, some leading Layer 2 projects have achieved considerable protocol revenue, but due to changes in investor preferences during this cycle, their token prices remain relatively low, reflecting a mismatch between revenue and valuation.

Creating revolutionary applications from scratch requires a lot of time and resources. A more efficient approach is to directly integrate blockchain functionality into existing Web2 applications. Blockchain infrastructure must prioritize seamless integration paths, allowing Web2 applications to gradually implement blockchain features without disrupting their core user experience.

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.