Blockworks noted that an infrastructure glut is occurring in the cryptocurrency space, and despite the proliferation of L2 solutions, practical applications are still lacking. Overbuilding of infrastructure has led to market aversion, and interoperability and user education still need improvement.
Crypto Industry Infrastructure Swells
According to L2Beat data, there are currently 71 L2 solutions in the encryption field, with another 82 under development, and this does not include L3 solutions.
It is obvious that after the initial coin offering (ICO) boom, DeFi Summer, L2 and NFT new innovation explosion, there is still a phenomenon of too much infrastructure and lack of practical applications in the current cryptocurrency industry.
Is the essence of encryption still a pursuit of fame and profit?
As we all know, "profitability" has always been the reason why countless new L2s are frequently launched to this day, especially in terms of creating fully diluted valuations (FDV).
A few months ago, encryption researcher Ignas also expressed his boredom with the current plethora of L2 and applications, emphasizing that most users, including him, may no longer be interested in these seemingly successful cases such as Uniswap or Aave. Copy and paste to another L2 to get excited about the move:
Most of the new project tokens this year have adopted the consistent issuance method of "high valuation, low circulation". However, they lack real innovation in application and are still useless tokens in the long run.
(Ignas: There is a lack of real innovation in the current market, naming communities, prediction markets, and game projects as potential innovation drivers in the future)
It is not difficult to see that the "Fat Protocols Theory (FPT)" proposed by Joel Monegro, co-founder of the venture capital firm Union Square Ventures, still has far-reaching influence. Looking at the current top 30 cryptocurrencies by market value, nearly 20 are L1 or L2 tokens.
This theory emphasizes that the value of blockchain will accumulate from the infrastructure layer rather than the application layer, which is also confirmed by the current market situation.
However, the glut of solutions seems to have led to user fatigue and market aversion. The much-anticipated L2 Blast originally issued tokens with a lower-than-expected $2.7 billion FDV, and now the value is only $1 billion.
(Ignas comments on the current market situation: Ethena’s advantage is that it is difficult to copy. It is recommended not to play Blast)
Infrastructure is necessary
Andrew Huang, founder of Rollups Construction Service (RaaS) Conduit, said that he is not opposed to the existence of these less differentiated L2, applications, or Rollups, and explained the economic driving force for the continuous construction of infrastructure:
For many teams, developing and rolling out their own dedicated Rollup solution is a sound business decision, allowing them to directly capture the revenue generated by the application without having to hand over costly fee revenue to L1 or L2.
He added, “As the growth of DApps drives up network fees, our own Rollup will help developers reduce costs and gain more revenue.”
(Why shouldn’t Rollups use the protocol’s native token as the gas payment currency?)
Infrastructure challenges
Poor interoperability experience
Matt Katz, CEO of Caldera, another RaaS service provider, believes that although the infrastructure has improved, there are still many limitations and challenges that need to be solved, including the liquidity decentralization and interoperability issues of Rollups:
It is expected that tens of thousands of Rollups will appear in the future, but they are usually independent of each other and difficult to bridge.
And called for, “DApps and infrastructure need to work together instead of treating encryption as a zero-sum game.”
Unbalanced development
On the other hand, Wei Dai, a partner at the investment company 1kx, pointed out the imbalance of infrastructure, saying that too much money and resources have been invested in certain areas, while other important areas including AVS tools and interoperability layers still have insufficient funds. insufficient:
Interoperability issues are not limited to cross-chains, but also include broader design concepts, such as "Chain Abstraction". By then, there will no longer be a need to rely on external service providers for high-risk cross-chain transmissions, thus improving user experience. .
(What is chain abstraction? It improves user experience more comprehensively than account abstraction)
Dilemmas of on-chain applications: promotion and education
Finally, Josh Cornelius, partner of crypto venture capital Seed Club, admitted that although the infrastructure has been roughly mature, many applications have still failed to flourish because of the lack of marketing and user education:
For developers of consumer applications, the biggest challenge is for users to understand the novel and differentiated experiences that cryptocurrencies and blockchain can bring.
He emphasized, "Old marketing strategies are no longer applicable, and developers need to find new ways to let users understand and accept these new technologies."
What we need are impactful entrepreneurs who can talk about blockchain technology with stories that are easy to understand and culturally relevant.
Is this article still BUILD? Behind the proliferation of encryption infrastructure, what are the industry's weaknesses and challenges? First appeared in Chain News ABMedia.
