Crypto’s infrastructure bloat

The growing frustration with the crypto industry's infrastructural bloat and lack of consumer-focused applications is becoming increasingly evident. This sentiment is so widespread across social media and podcasts that it has almost become a consensus. While previous cycles brought innovations like smart contract-enabled blockchains, ICOs, DeFi, layer-2s, and NFTs, the current cycle appears to be dominated by memecoins and an overabundance of infrastructure projects.

According to L2Beat, there are already 71 live layer-2 (L2) solutions, with another 82 on the way—and that’s not even including layer-3 (L3) solutions. The question arises: why so many? The most straightforward answer is profitability.

In an industry still grappling with methods of “fundamental” valuation, the typical approach for valuing a new L2 is to compare it to the biggest L2s. The logic is that if the largest L2s have achieved multibillion-dollar valuations, newer L2s following the same market narrative should at least capture a significant portion of that value.

This trend highlights the success of one of crypto’s most enduring investment theories: the “Fat Protocol Thesis.” Proposed by Joel Monegro of Union Square Ventures in 2016, the thesis suggests that value in Web3 will accumulate at the infrastructural layer, unlike in Web2, where value has shifted from the TCP/IP/SMTP protocol layers to the walled gardens of Big Tech.

So far, this idea has largely played out. Of the top 30 crypto tokens by market capitalization, 18 are either layer-1 (L1) or L2 solutions.

The proliferation of rollup chains has also been facilitated by Rollup-as-a-Service (RaaS) providers like Conduit and Caldera, making it easier than ever to launch a rollup. However, this has led to a crowded market of nearly identical rollups vying for attention and investment.

Andrew Huang, the founder of Conduit, acknowledges the issue, stating that his company focuses on projects with “unique differentiation from day one.” He doesn’t deny that the market is flooded with “copy and paste L2s” that contribute to user fatigue.

This sentiment appears to be resonating with the market. For example, the highly anticipated Blast L2 launched with a fully diluted valuation (FDV) of $2.7 billion, only to fall dramatically to just over $1 billion as it failed to meet market expectations.

Beyond the marketing hype, there’s a practical reason for the rollup boom: cost minimization. For most application builders on a blockchain, reducing costs is a crucial factor driving the adoption of rollup solutions.
 

Source >> https://blockworks.co/news/crypto-infrastructure-bloat