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Written by: Jesus Rodriguez, CEO and Co-founder of IntoTheBlock; Translated by: Yangz, Techub News
The Web3 ecosystem is often seen as the next generation infrastructure of the Internet.However, nearly 10 years after the Ethereum White Paper was released, there are still not many mainstream applications running on the infrastructure.Meanwhile, new infrastructure building modules have been emerging, including various L1, L2 and L3, Rollup, ZK layers, etc.While we may be building the future of the Internet with Web3, there is no doubt that we are overbuilding infrastructure as well.Currently, the imbalance between infrastructure and applications in Web3 is unique in the history of the technology market.
As for why this happens?It’s simple, because building infrastructure on Web3 is profitable.
Web3 breaks the application model of some traditional technology infrastructure markets, not only creating a road to rapid profitability, but also brings unique risks to its development.To explore this further, we need to understand how infrastructure technology trends often create value, how Web3 deviates from this routine, and the risks posed by excessive infrastructure construction.
The infrastructure and application value creation cycle of the technology market
Traditionally, value creation in the technology market fluctuates between the infrastructure layer and the application layer, seeking a dynamic balance between the two.
Take the Web1 era as an example.Companies such as Cisco, IBM and Sun Microsystems power the infrastructure layer of the Internet.However, even in the early days, the emergence of applications such as Netscape and AOL also brought great value.Cloud infrastructure has driven the advent of the Web2 era, which has brought about SaaS and social platforms, giving birth to new cloud infrastructure.
Looking at the recent trends such as Generative AI were initially just infrastructure games for model builders, but applications such as ChatGPT, NotebookLM and Perplexity have quickly gained momentum.This in turn drives the creation of new infrastructure to support a new generation of AI applications, and this cycle may continue multiple times.
This constant value-creating balance between the application layer and the infrastructure layer has always been a hallmark of the technology market, which also makes Web3 a clear anomaly.But why is this imbalance so obvious in Web3?
Infrastructure Casino
The main difference between Web3 and its predecessor is the rapid capital formation and liquidity of infrastructure projects.In Web3, infrastructure projects often launch tokens that can be traded on exchanges, providing investors, teams and communities with a large amount of liquidity.This is in sharp contrast to the traditional market.In traditional markets, investors’ liquidity is usually achieved through a company’s acquisition or public offering of shares, and both methods usually take a considerable time. Generally speaking, most venture capital companies have a ten-year investment cycle orLonger.Although rapid capital formation is one of the advantages of Web3, it often dislocates the team’s incentive mechanisms, which are not conducive to creating long-term value.
This “infrastructure casino” is a risk for Web3, which inspires builders and investors to prioritize infrastructure projects over applications.After all, who cares about the application when L2 tokens can achieve billions of dollars in just a few years with very little use?This approach presents some challenges, many of which are subtle and difficult to solve.
Challenges of overbuilding Web3 infrastructure
1) Build without feedback
The biggest risk of overbuilding infrastructure in Web3 is the lack of market feedback on applications built on infrastructure.Applications are the ultimate manifestation of consumer and enterprise use cases and regularly direct new use cases in infrastructure.Without application feedback, Web3 may build infrastructure for “imagined” use cases, which is out of touch with market reality.
2) Extremely dispersed liquidity
The launch of the new Web3 infrastructure ecosystem is one of the main reasons for the dispersion of liquidity in this field.New blockchains often require billions of dollars to start liquidity and attract first-tier DeFi projects to join their ecosystem.In the past few months, new L1 and L2 have been created faster than new capital has poured into the market.As a result, capital in Web3 is more dispersed than ever before, posing a huge challenge to adoption.
3) Inevitably growing complexity
If you have tried using some wallets, DApps, and cross-chain bridges for newer blockchains, you should know that user experience is often awful.Over time, technical infrastructure will naturally become more complex and sophisticated.And applications built on this infrastructure should usually abstract this complexity for end users.However, in Web3 (lack of application development), users can only interact with increasingly complex blockchains, resulting in friction during adoption.
4) Limited developer community
If the development of Web3 infrastructure exceeds the speed of capital formation, then the challenges in the developer community are even greater.DApps are built by developers, and creating a new developer community is always a challenge.Most new Web3 infrastructure projects are operated within a very limited community of developers, drawing talents from existing talent pools that are simply not large enough to support the large amount of infrastructure being built.
5) The widening gap with Web2
Trends such as generative artificial intelligence are driving the development of a new generation of Web2 applications and redefining fields such as SaaS and mobile.The main trend for Web3 is still to build more blockchains rather than taking advantage of this momentum.
End the vicious cycle
It is profitable for investors and development teams to launch L1 and L2, but this does not necessarily bring long-term benefits to the Web3 ecosystem.Web3 is still in its early stages, and although more infrastructure building modules are needed, most builders in the industry are actually building infrastructure without market feedback.
Market feedback usually comes from applications on top of infrastructure, but there are basically no such applications in Web3.Most of the use of Web3 infrastructure comes from other Web3 infrastructure projects.We continue to build infrastructure, launch tokens, raise funds, but we are actually acting blindly.
