IntoTheBlock联创：Web3 infrastructure is being overbuilt, and we are acting blindly.

By Jesus Rodriguez, CEO & Co-Founder, IntoTheBlock Compiler: Yangz, Techub News The Web3 ecosystem is often seen as the next generation of infrastructure for the internet. However, nearly 10 years after the release of White Paper, there are still not many mainstream applications running on this infrastructure. At the same time, new infrastructure building blocks are emerging all the time, including various L1, L2, and L3, rollups, ZK layers, and more. While we may be building the future of the internet through Web3, there’s no doubt that we’re also overbuilding our infrastructure. Currently, the imbalance between infrastructure and applications in Web3 is unique in the history of the technology market. As for why this is happening? Quite simply, because building infrastructure on Web3 is profitable. Web3 has disrupted the adoption model of some traditional technology infrastructure markets, creating both a path to rapid profitability and unique risks for its growth. To explore this further, it’s important to understand how infrastructure technology trends typically create value, how Web3 deviates from this routine, and the risks that come with overbuilding infrastructure. Infrastructure and Application Value Creation Cycle in the Technology Market Traditionally, value creation in the technology market has been fluctuation between the infrastructure layer and the application layer, seeking a dynamic balance between the two. Take, for example, the Web1 era. Companies such as Cisco, IBM, and Sun Microsystems power the infrastructure layer of the Internet. However, even in the early days, the advent of apps such as Netscape and AOL brought great value. Cloud infrastructure has fueled the Web2 era, which in turn has led to SaaS and social platforms, giving rise to new cloud infrastructures. More recently, trends like Generative AI started out as an infrastructure game for model builders, but apps like ChatGPT, NotebookLM, and Perplexity are quickly gaining momentum. This, in turn, is driving the creation of new infrastructure to support a new generation of AI applications, and this cycle is likely to 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, making Web3 a glaring anomaly. But why is this imbalance so evident in Web3? The main difference between infrastructure casino 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 a large amount of liquidity for investors, teams, and communities. This is in stark contrast to traditional markets. In traditional markets, investors’ liquidity is usually achieved through company acquisition or public issuance of shares, both of which usually take a considerable amount of time, and generally speaking, most VC firms have an investment cycle of ten years or more. While rapid capital formation is one of the strengths of Web3, it tends to misalign team incentives to the detriment of long-term value creation. This “infrastructure casino” is a Web3 risk that incentivizes builders and investors to prioritize infrastructure projects over applications. After all, who cares about an application when an L2 token can achieve a valuation of billions of dollars in just a few years with very little usage? This approach presents several challenges, many of which are subtle and difficult to solve. Challenges of Overbuilding Web3 Infrastructure 1) Building Without Adoption Feedback Probably the biggest risk of overbuilding infrastructure in Web3 is the lack of market feedback for apps built on top of infrastructure. Applications are the ultimate embodiment of consumer and enterprise use cases and regularly guide new use cases in the infrastructure. Without application feedback, Web3 risks building infrastructure for “imagined” use cases that are out of touch with market realities. 2) Liquidity is extremely fragmented The launch of the new Web3 infrastructure ecosystem is one of the main reasons for the fragmentation of Liquidity in this space. New blockchains often require billions of dollars to launch Liquidity and attract Tier 1 Decentralized Finance projects to its ecosystem. Over the past few months, new L1s and L2s have been created faster than new capital has poured into the market. As a result, capital in Web3 is more dispersed than ever, creating significant challenges for adoption. 3) The Inevitable Rising Complexity If you’ve tried using wallets, DApps, and cross-chain bridges for newer blockchains, then you should know that the user experience is often poor. Technology infrastructure naturally becomes more complex and sophisticated over time. Applications built on that infrastructure should often abstract this complexity away from the end user. However, in Web3 (with a lack of application development), users can only interact with increasingly complex blockchains, leading to friction in the adoption process. 4) Limited developer community If Web3 infrastructure is growing faster than capital formation, the challenge is even greater when it comes to developer communities. DApps are built by developers, and creating new developer communities is always a challenge. Most new Web3 infrastructure projects operate within a very limited developer community that draws talent from existing talent pools that are simply not large enough to support the massive amount of infrastructure being built. 5) The widening gap with Web2 Trends such as generative AI are driving the next generation of Web2 applications and redefining areas such as SaaS and mobile. The main trend in Web3 is still to build more blockchains rather than capitalize on the momentum. Ending the vicious cycle Launching L1s and L2s is lucrative for investors and development teams, but it doesn’t necessarily deliver long-term benefits for the Web3 ecosystem. Web3 is still in its early stages, and while more infrastructure building blocks are needed, most builders in the industry today are building infrastructure without market feedback. Market feedback often comes from applications on top of infrastructure, but there are few 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’re actually going blind.