Crypto Infrastructure Bloat: A Surge in Redundant Solutions

The increasing negative sentiment surrounding the current state of crypto infrastructure and the lack of consumer applications is becoming increasingly prevalent.

• This topic has gained traction across social media and podcasts, evolving into a widely accepted viewpoint.
• Previous cycles introduced innovations such as smart contract-enabled blockchains, ICOs, DeFi, layer-2 solutions, and NFTs.
• However, the current cycle is marked by a proliferation of memecoins and redundant infrastructure.

The Proliferation of Layer-2 Solutions

According to L2Beat, there are currently 71 live layer-2 solutions, with an additional 82 on the way. This number does not even include layer-3 solutions.

• The primary reason for this surge is profitability; launching a layer-2 can be financially rewarding.
• Investors often use comparative analysis to value new layer-2 solutions based on the market performance of established ones.

The Fat Protocol Thesis

This phenomenon is linked to the "Fat Protocol Thesis," proposed by Joel Monegro of Union Square Ventures in 2016.

• The thesis posits that the infrastructural layer of Web3 will accrue the most value, contrasting with Web2, where value has concentrated in the ecosystems of major tech companies.
• Currently, 18 of the top 30 crypto tokens by market capitalization are layer-1 or layer-2 solutions.

The Role of Rollup-as-a-Service

With the advent of Rollup-as-a-Service (RaaS) providers like Conduit and Caldera, launching a rollup chain has become remarkably straightforward.

• This has led to a crowded market of similar rollups competing for investments.
• Conduit’s founder, Andrew Huang, emphasizes the need for differentiation among projects to avoid user fatigue.

Market Reactions

Market participants are starting to show signs of rejecting the rollup trend.

• For example, the recently launched Blast layer-2 solution experienced a significant drop in its token value, falling from a $2.7 billion fully diluted valuation to just over $1 billion.

The Need for Infrastructure

Despite advancements in infrastructure, many believe it is still inadequate.

• Existing rollups face challenges such as fragmented liquidity and user experience issues.
• Caldera CEO Matt Katz highlights that Ethereum's rollup-centric vision may lead to an overwhelming number of isolated rollups that struggle to communicate with one another.

Interoperability Challenges

Interoperability remains a significant hurdle in the current infrastructure landscape.

• This encompasses more than just cross-chain bridges and includes concepts like "chain abstraction," aimed at simplifying cross-chain interactions for users.
• Wei Dai, a research partner at 1kx, notes that better interoperability can enhance user experience by reducing reliance on external facilitators for cross-chain transfers.

Consumer Applications: The Next Step

The question arises: is the infrastructure ready for consumer application developers?

• Vitalik Buterin argues that developers now have no excuses for not building scalable applications.
• Venture funding trends indicate a shift, with investments in crypto infrastructure dropping from 24% to 15% in recent quarters.

While infrastructure builders are actively developing new solutions, consumer app builders are also making strides.

• Seed Club, a DAO-focused venture fund, reports a significant increase in project applications.
• However, challenges remain in marketing and user engagement, necessitating innovative strategies to attract users to the unique experiences offered by crypto and blockchain technologies.