Cycle and narrative have always been core topics in the global cryptocurrency market. In the past, the industry used Bitcoin halving as a reference to perceive cycles and explore major narrative trends. However, with the adoption of Bitcoin and Ethereum spot ETFs, the cryptocurrency market has become highly coupled with global financial market trends, and the variables that affect the cryptocurrency market trend are increasing.

Against the backdrop of soaring chaos values, it is crucial to perceive periodicity more clearly and explore future narrative trends. As innovative narrative catchers, investment institutions have always had a relatively cutting-edge sense of **ell. In view of this, OKX has specially planned a column titled "Crypto Evolution Theory", inviting mainstream cryptocurrency investment institutions around the world to systematically output topics such as the cyclical nature of the current market, new narrative directions, and segmented hot tracks, in order to stimulate further discussion.

The following is the fourth issue, jointly organized by OKX Ventures and Fundamental Labs, focusing on topics such as "How should the next stage of infrastructure develop?" We hope their insights and perspectives can inspire you.

About OKX Ventures

OKX Ventures is the investment arm of OKX, a leading cryptocurrency trading platform and Web3 technology company, with an initial capital commitment of $100 million. It focuses on exploring the best blockchain projects globally, supporting cutting-edge blockchain technology innovation, promoting the healthy development of the global blockchain industry, and investing in long-term structural value. Through its commitment to entrepreneurs who support the development of the blockchain industry, OKX Ventures helps establish innovative companies and brings global resources and historical experience to blockchain projects.

About Fundamental Labs

Fundamental Labs has been investing in Web3 since 2016, supporting top entrepreneurs to drive innovation while creating value for a better digital society. We have a diversified investment portfolio covering AI, encrypted finance, and more. We work closely with over 60 projects including Coinbase, Polkadot, VeChain, BNB, Avalanche, Anywhere, Peaq Network, Chainlink, Filecoin, Mask, SingularityNET, Stacks, Zecrey, Bitlight Labs, and others to promote the construction of the global Web3 ecosystem.

OKX Ventures: According to L2Beat's data, we already have too many rollups, but very few of them are more active than ETH.

In our observation, over the past two years, Infra has been the most sought after field in the primary market, especially during the most difficult financing period of 2022-2023. However, this trend reversed at the end of last year, with Web3 applications becoming the sector with the most VC bets.

We remain steadfast in our support for the development of Infra at this stage, but we always remind ourselves not to fall into the inertia of repeatedly building wheels when investing, in order to avoid resource imbalance between Infra and applications, leading to the awkward situation of L2s>Raas>DAU.

One of the reasons for this phenomenon is also related to modular storytelling. DA、 Independent architectures such as execution and interoperability can be fine tuned or recombined internally to achieve performance optimization, claiming innovation or upgrade without worrying about market education costs. The ultimate consequence is the widely criticized ghost city phenomenon and increasingly severe ecological fragmentation in Infra.

On the positive side, ETH has shed the label of "noble chain" and single digit gwei has become the norm. The DeFi three piece set - DEX, Perp, lending, and pump and run asset issuance platforms - has become a standard feature for all public chains, integrated into the technology stack of public chains, and has a basic solution for financial on chain interactions. And popular applications with high concurrency, high cost, and complex logic such as AI, social networking, and gaming also have new infrared solutions:

1. Parallel high-performance public chains such as EVM or Move;

2. ZK coprocessor.

If our current path is correct, super applications that enable large-scale applications may rapidly emerge in the next 2-3 years.

Fundamental Labs: The Web3 infrastructure race is currently very active, with significant progress and innovation in various fields. Bitcoin and Ethereum remain the most mainstream blockchains, with Ethereum being widely used as the earliest and most mature **art contract platform. At the same time, we have also seen significant progress in Layer 1 public chains such as Solana, Aptos, Co**os, due to their high performance and cross chain compatibility. NEAR has shown outstanding performance in focusing on AI and on chain abstract narrative, with a significant increase in the number of active addresses on the chain, making it one of the best performing Layer 1 outside of Solana this year.

DeFi platforms such as decentralized exchanges, lending, and liquidity mining are still the main application tracks in the current industry. The transaction fees generated by DeFi applications have become the main source of income for top public chains. Chain scaling technology is gradually maturing, and Layer 2, which adopts Rollup technology, greatly expands the transaction processing capabilities of blockchain. By optimizing off chain computing, it improves performance while reducing transaction costs.

Overall, the current state of Web3 infrastructure presents diverse and innovation driven characteristics, with various fields intertwined and jointly promoting the development of decentralized networks.

2、 How will the form of infrastructure evolve?

OKX Ventures: Actually, the problems solved by infrastructure will not fundamentally change. We still need faster and better performing infrastructure to become the state machine and asset settlement layer of the entire real world. In the short term, as the upstream infrastructure tends towards homogenization, we believe there are two major changes that need to be noted:

On the one hand, there are opportunities and challenges after the ETF is approved:

On the challenge level, the main source comes from the impact of institutional holdings and specialized node operations on the decentralization of PoS networks. Taking Ethereum as an example, after the ETF is approved, CEX like Coinbase may become the custodian of most institutions, and the staking of CEX is highly centralized, and the cost of holding 33% of nodes hostage may be much lower than imagined. As Solana founder Toly said, 'Economic security is a meme'. As the marginal utility of decentralized governance decreases with the increase of pledge ratio, Ethereum needs to use engineering design such as LST protocol governance and DVT technology to prevent the deterioration of economic security. Otherwise, it is inevitable that there will continue to be critici** within the Ethereum team regarding the upgrade of PeerDAS.

At the opportunity level, we need to seize the best opportunity of ETF market education and provide infrastructure for new PMFs, including but not limited to payments, AI infrastructure, social networking, and RWA.

On the other hand, there will be iterations of downstream infrastructure such as DA/co processors/Solver networks/shared sorters/chain abstractions, which will improve the performance of various dimensions of infrastructure in the form of plugins, including more seamless cross chain operations, cheaper financial interactions, and new application scenarios unlocked by proof aggregation.

Fundamental Labs: The evolution of infrastructure is fundamentally driven by user needs. With the growth of Web3 user base, the requirements for infrastructure performance, reliability, and security will continue to increase. More efficient, lower transaction fees, more user-friendly interface, and identity management will always be the direction of infrastructure evolution. Cross platform and cross application integration and collaboration are also directions worth paying attention to. During this process, privacy protection, data sovereignty control, and decentralized governance mechani**s also need to evolve towards facilitating effective participation by community members.

At present, new public chains and layer 2 networks are constantly emerging, bringing users new choices, but also leading to an increasing degree of ecological fragmentation, and the interoperability between different blockchains needs to be enhanced. Meanwhile, with the gradual establishment of regulatory frameworks, infrastructure needs to comply with new regulations while providing services to users, ensuring operational compliance and protecting user rights.

In the long run, infrastructure will iterate towards performance improvement, parallelization of computing, modularity, technological integration, management abstraction, ease of use, cost-effectiveness, and compliance with regulations. In terms of investment logic, we always start from industry pain points and actual needs, driven by research, and support projects that can bring positive impetus to industry development.

Specifically, in the field of public blockchains, we see it as the infrastructure of the Bitcoin ecosystem. The approval of Bitcoin ETFs will bring more funds and liquidity, enhance public trust, and drive wider adoption. Bitcoin scalability solutions such as Lightning Network, Taproot Assets, RGB, and BitVMB will also usher in new opportunities. As a representative of chain abstraction and AI narrative, NEAR's solutions such as secure aggregation and account aggregation will simplify user cross chain operations, enhance user experience, and are worth paying attention to.

In the application field, with the gradual clarification of regulatory frameworks, DeFi platforms may need to strengthen AML and KYC measures to comply with new regulations. Compliance technology infrastructure and stablecoins will become even more important.

Additionally, it is important to focus on the new opportunities brought about by technological integration. For example, decentralized AI computing infrastructure, tokenized training data and Machine Fi, as well as compliant RWA platforms are all within our scope of attention.

3、 Industry observation and investment insights

OKX Ventures: Compared to the previous cycle, the public chain infrastructure landscape has undergone significant changes since the concept of modularity was proposed, and the entire market has actually taken some time to digest and accept it.

At present, when examining the project, we roughly divide it into execution layer, DA, settlement layer, and middleware facilities for solving interoperability problems. Our investment layout for the entire technology stack has mostly focused on the past 1-2 years. For example, in the rollup oriented execution layer expansion track, in addition to investing in all the top L2 projects on the market in the previous cycle, we also paid close attention to the hottest parallel EVM concept last year, with representative investment portfolios including Sei, Monad, and MegaETH.

The L2 concept of other public chains such as Solana and Move is not yet mature. We have invested in non EVM public chain based execution layer projects such as SonicSVM and Lumio, but it is still unknown whether the cross VM execution layer solution will be recognized by the market. However, based on the principle of blockchain openness, we believe that working behind closed doors and relying solely on one company for L2/L3 will not be a long-term solution.

The DA layer has relatively less technological innovation, and the Matthew effect is more significant. Currently, we have only invested in Celestia and Avail, which is independent from Polygon. But in this track, we can talk about the BTC ecosystem. At the end of last year, we talked intensively about hundreds of BTC second layer projects. Due to BTC layer one not supporting **art contracts, it cannot serve as a settlement layer. The existing Merlin, B2, Bitlayer, etc. all use BTC as the DA layer, with the only exception being the L2 RGB protocol based on UTXO. However, regardless of technological differences, we believe that the core task of BTC's second layer is to implant concepts such as native BTC interest generation and on chain asset issuance into people's hearts, especially to enable Bitcoin supporters to accept the construction of DeFi and other ecosystems based on BTC. This is also the reason why we invested in Babylon and some BTC LSDeFi projects such as Lombard.

However, there have been some innovations in the settlement layer this year, but competing with ETH does not seem to be a "politically correct" choice, as most projects are still in the early stages. We have also invested in collaborative processors such as FHE/Proof Aggregation, mainly because these plugin like facilities help promote the large-scale application of blockchain.

Fundamental Labs: Our investment logic has always been to layout different layers of infrastructure from the perspective of the technology stack.

In terms of underlying public chains, we have deployed BTC computing power and supported a series of Layer 1, such as NEAR, Avalanche, Polkadot, Nervos, Platon, etc. For the emerging DePIN track, we led the investment in Peaq Network in 2022.

In terms of middleware, we have laid out Filecoin, Chainlink, and Stratos. At the DApp application layer, we have invested in marketplaces and development frameworks such as Metaplex and Mintbase.

At the user access layer, we have also invested in Math Wallet, Mask Network, and RSS3. A compliant centralized exchange is an important infrastructure for the entire industry, so we invested in Coinbase. Overall, compared to traditional Web 2.0, the significance of Web 3 lies in achieving greater decentralization and user autonomy, which is also the core of the development of infrastructure.

OKX Ventures Disclaimer, please read carefully https://www.okx.com/zh-hans/learn/okx-disclaimer.

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Risk Warning and Disclaimer

This article is for reference only. This article only represents the author's viewpoint and does not represent the position of OKX or the aforementioned institutions. This article is not intended to provide (i) investment advice or investment recommendations; (ii) Offer or solicitation to purchase, sell, or hold digital assets; (iii) Financial, accounting, legal or tax advice. We do not guarantee the accuracy, completeness, or usefulness of such information. The digital assets held (including stablecoins and NFTs) involve high risks and may experience significant fluctuations. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. For your specific situation, please consult your legal/tax/investment professionals. Please be responsible for understanding and complying with applicable local laws and regulations on your own.