Author | Jiawei @IOSG
In the late 1990s, investment in the Internet was heavily focused on infrastructure. At that time, the capital markets were almost entirely betting on fiber optic networks, ISP providers, CDNs, and manufacturers of servers and routers. Cisco's stock price soared, and by the year 2000, its market value surpassed $500 billion, making it one of the most valuable companies in the world; fiber optic equipment manufacturers such as Nortel and Lucent also became very popular, attracting billions of dollars in financing.
During this boom, the United States added millions of kilometers of fiber optic cables between 1996 and 2001, far exceeding the actual demand at the time. The result was a serious overcapacity around the year 2000— the price of intercontinental bandwidth fell by more than 90% in just a few years, and the marginal cost of connecting to the internet approached zero.
Although this wave of infrastructure boom allowed later-born companies like Google and Facebook to take root and flourish in a cheap, ubiquitous network, it also brought growing pains for the frenzied investors of the time: the valuation bubble of infrastructure quickly burst, and the market value of star companies like Cisco shrank by more than 70% in just a few years.
Doesn't it sound a lot like Crypto from the past two years?
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Is the era of infrastructure coming to a temporary end?
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Block space has shifted from scarcity to abundance.
The expansion of block space and the exploration of the blockchain “impossible triangle” have largely dominated the theme of early cryptocurrency industry development for several years, making it suitable to be presented as a hallmark element.
Source: EtherScan
In the early stages, the throughput of public chains was extremely limited, and block space was a scarce resource. Taking Ethereum as an example, during the DeFi Summer, with the overlapping of various on-chain activities, the cost of a single DEX interaction often ranged from 20 to 50 dollars, and during extreme congestion, transaction costs reached hundreds of dollars. By the time of the NFT era, the demand and calls for expansion in the market peaked.
The composability of Ethereum is a major advantage, but it overall increases the complexity of single calls and gas consumption, with limited block capacity being prioritized for high-value transactions. As investors, we often discuss the transaction fees and burning mechanisms of L1, using this as an anchor for L1 valuation. During this period, the market has assigned a high price to infrastructure, and the idea of “fat protocols and thin applications” that allows infrastructure to capture most of the value has been recognized, leading to a wave of construction of various scaling solutions, even to the point of creating a bubble.
Source: L2Beats
From the results, Ethereum's key upgrades (such as EIP4844) have migrated L2 data availability from expensive calldata to lower-cost blobs, significantly reducing the unit cost of L2. The transaction fees of mainstream L2s have generally dropped to a few cents. The introduction of modularity and Rollup as a Service solutions has also significantly reduced the marginal cost of block space. Various Alt-L1s supporting different virtual machines have also emerged. As a result, block space has transformed from a singularly scarce asset to a highly fungible commodity.
The above chart shows the changes in on-chain costs of various L2s over the past few years. It can be seen that from 2023 to early 2024, Calldata accounted for the majority of costs, with daily costs approaching $4 million. Subsequently, in mid-2024, the introduction of EIP-4844 led to Blobs gradually replacing Calldata as the dominant cost, resulting in a significant decrease in overall on-chain costs. After entering 2025, the overall expenditure tends to remain at a lower level.
As a result, more and more applications can directly place core logic on the chain, rather than adopting the complex architecture of off-chain processing before going on-chain.
From this point on, we see value capture beginning to migrate from the underlying infrastructure to the application and distribution layer that can directly accommodate traffic, enhance conversion, and form a cash flow closed loop.
- Evolution of the Income Level
Building on the discussion at the end of the last chapter, we can intuitively verify this viewpoint in terms of revenue. In a cycle dominated by infrastructure narratives, the market's valuation of L1/L2 protocols is primarily based on expectations of their technical strength, ecological potential, and network effects, referred to as “protocol premium.” Token value capture models are often indirect (e.g., through network staking, governance rights, and vague expectations of transaction fees).
The value capture of the application is more direct: generating verifiable on-chain revenue through fees such as transaction fees, subscription fees, and service fees. These revenues can be directly used for token buybacks and burns, dividends, or reinvested into growth, forming a tight feedback loop. The revenue sources of the application become solid — more from actual service fee income, rather than token incentives or market narratives.
Source：Dune@reallario
The above chart roughly compares the revenue of protocols (red) and applications (green) from 2020 to the present. We can see that the value captured by applications is gradually increasing, reaching about 80% this year. The table below lists the ranking of 30-day protocol revenue statistics from TokenTerminal, where L1/L2 only accounts for 20% among 20 projects. Notably, applications such as stablecoins, DeFi, wallets, and trading tools stand out.
Source: ASXN
In addition, due to the market reaction brought about by the buyback, the price performance of the application tokens is gradually becoming more correlated with their revenue data.
Hyperliquid has a daily buyback scale of approximately 4 million USD, providing significant support for the token price. Buybacks are considered one of the important factors driving price rebounds. This indicates that the market is beginning to directly link the protocol's revenue and buyback behavior to token value, rather than relying solely on sentiment or narrative. Moreover, the author expects this trend to continue to strengthen.
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Embrace the application-oriented main theme of the new cycle
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The Golden Age of Asian Developers
Source: Electric Capital
Source: Electric Capital
The Electric Capital 2024 Developer Report shows that the proportion of blockchain developers in Asia has reached 32% for the first time, surpassing North America to become the largest developer hub in the world.
In the past decade, global products like TikTok, Temu, and DeepSeek have demonstrated the outstanding capabilities of Chinese teams in engineering, product development, growth, and operations. Asian teams, especially Chinese teams, possess a strong iterative rhythm, can quickly validate needs, and achieve overseas expansion through localization and growth strategies. Crypto precisely aligns with these characteristics: it requires rapid iteration and adjustment to adapt to market trends; it must serve global users, cross-linguistic communities, and various market regulations.
Therefore, Asian developers, especially Chinese teams, have a structural advantage in the Crypto application cycle: they possess strong engineering capabilities and are sensitive to market speculation cycles with a very strong execution ability.
Against this backdrop, Asian developers have a natural advantage, enabling them to deliver globally competitive Crypto applications more quickly. In this cycle, we see Rabby Wallet, gmgn.ai, and Pendle as representatives of Asian teams on the global stage.
It is expected that we will soon see this transformation: the market trend will shift from being dominated by the American narrative to leading with Asian product implementation, and then expand into the European and American markets in a new way. The Asian team and market will have more say during the application cycle.
- Primary Market Investment in Application Cycle
Here are some insights on investing in primary markets:
Trading, asset issuance, and financial applications still have the best PMF and are almost the only products that can survive a bear market. The corresponding products are Hyperliquid and other perps, Pump.fun and other launchpads, as well as products like Ethena. The latter packages capital rate arbitrage into products that can be understood and used by a broader user base.
If there is significant uncertainty in investing in a niche market, one might consider investing in the Beta of the market, thinking about which projects will benefit from the development of this market. A typical example is the prediction market — there are approximately 97 publicly available prediction market projects, with Polymarket and Kalshi being the more obvious winners, making it unlikely for long-tail projects to outperform. On the other hand, investing in tool-type projects within the prediction market, such as aggregators and chip analysis tools, is more certain and allows one to reap the benefits of market development, transforming a challenging multiple-choice question into a single-choice question.
After having the product, the next core step is how to make these applications truly reach the public. In addition to common entry points like Social Login provided by services such as Privy, I believe that an aggregated trading front-end and mobile end are also quite important. During the application cycle, whether it is perp or prediction markets, the mobile end will be the most natural touchpoint for users, whether it is the user's first deposit or daily high-frequency operations, the experience on mobile will be smoother.
The value of aggregating the front end lies in the distribution at the traffic end. The distribution channels directly determine the conversion efficiency of users and the cash flow of the project.
Wallets are also an important part of this logic.
The author believes that wallets are no longer merely asset management tools, but have a positioning similar to Web2 browsers. Wallets directly capture order flow, distributing it to block builders and seekers, thus monetizing traffic; at the same time, wallets also serve as distribution channels, connecting users to other applications through built-in cross-chain bridges, integrated DEXs, and third-party services such as Staking. In this sense, wallets control the order flow and traffic distribution rights, serving as the primary entry point for user relationships.
For the infrastructure over the entire cycle, I believe that some public chains created out of thin air have lost their significance; while infrastructure that provides basic services around applications can still capture value. The specific points are as follows:
Infrastructure for customized multi-chain deployment and application chain construction for applications, such as VOID; companies that provide user onboarding services (covering login, wallet, deposits and withdrawals, etc.), such as Privy, Fun.xyz; this can also include wallet and payment layers (fiat-on/off ramps, SDK, MPC custody, etc.). Cross-chain bridges: As the multi-chain world becomes a reality, the influx of application traffic will urgently require secure and compliant cross-chain bridges.
