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In the past week, I came across posts by David Phelps, Gwart, and Nick Tomaino that all provided similar arguments on the shifting balance between infrastructure and apps in different flavors.
To me, the underlying thread across all three essays was that we now have an abundance of blockspace and have hit a local top on how much weight we place on the importance crypto infrastructure in terms of value accrual and user onboarding.
Here are my takeaways and what I believe this means for builders in the space.
As technical complexity is abstracted away, the initial moats that attracted developers are quickly disappearing. Blockspace and liquidity are no longer defensible moats as it becomes trivial to do cross-chain transactions, sub-cent bridging/swapping, etc.
"But more importantly, liquidity itself is collapsing as a moat for most chains as interop solutions and chain abstraction enable users to use apps and bridge between ecosystems seamlessly without even knowing what chain they’re on. It’s the chains, today, that are largely interchangeable—not the apps." - David
Consumer teams will attract the most users through their creativity and ability to quickly experiment - not their allegiance and dependance on underlying infrastructure. Over the next few years, app and wallet designs will dictate value accrual.
"For the industry to deliver on the potential and reach 1B+ users as soon as possible, we need more creativity and less greed. Another scalable L1 may have a good narrative that helps pump a $1B+ FDV coin, but lack of blockspace is not hindering progress in our industry at this point. Lack of creativity surely is." - Nick
It turns out, infrastructure tokens aren't as tightly coupled with the actual infrastructure as we thought they would be. In fact, many L2s didn't even launch a token. And the ones that exist aren't even a requirement for transactions. And to a certain extent, this even applies to eth itself...could it be the case that its monetary function is solely used for blobspace payments? It might be the case that stablecoins are the unit of account that feels most right to use in consumer apps (i.e Polymarket).
"Does Base even need to store ETH reserves? They can denominate entirely in USDC, down to the L2 fee level, and treat ETH as working capital, only held to pay de minimis L1 blob space fees." - Gwart
Overall, the point here is that in the last ~8 years, we've seen exceptional improvements in crypto infrastructure and now starts the period of diligently looking out for the apps and consumer use cases that best incorporate the new tech in meaningful ways.
In fact, it's worth mentioning that even just in the last two years we're seeing a huge difference in what's possible now because of infra improvements.
So what does this mean for builders in the space?
Recently, I wrote two posts that I believe answer the question above - one focused for infra builders and one focused for consumer builders.
Infra
In my post, Base's moat is better than free, I argue that there are two routes as to how L2 builders can differentiate themselves now that L2 fees are converging to a trivial price point and don't have the same advantages as they did just a few years ago:
Developer experience - this means not only providing the best communication, customer service, etc. but also giving devs in the ecosystem access to an extensive toolkit and user base that makes it a no brainer to work with them. The example I gave was Coinbase & Base.
By providing services such as smart wallets, RPC nodes, Onchain Kit, etc., for free Coinbase is "scorching the Earth" around them to make sure they are the front-door to the onchain world.
Technically Distinguishable - some L2s won't be able to compete on the developer experience side against Base, Arbitrum, etc. In that case, it's essential to standout through technical brilliance. For example, can teams build a virtual machine that sets themselves apart from EVM based L2s? This might unlock a totally new set of narratives that attracts a niche of developers that simply can't build their products on the "mainstream L2s".
Some examples here are Eclipse (Solana EVM), Movement, & Rise.
Consumer
In my post, Grab a beer, we're going Bier mode, I discuss how it's essential that devs need to build up their account infra so that it can be re-used to spin up new apps/experiences quickly.
David makes a good point in his post that other than TikTok we haven't seen a social app break out since the early 2010s. The only one that gets an honorable mention is BeReal (which was recently acquired by French gaming company Voodoo).
So what will set apart crypto consumer apps? The onchain rails will provide totally new experiences that should hopefully increase marginal utility for users over time. This utility can come in the form of earning, reputation, etc. At a high level, the mindset consumer builders will need to embrace is "how can I build something that must use crypto in order to work?".
"onchain rails enable entire new types of app experiences with financial and reputational upside that was never possible before: they get rid of the app store fees, open the API on public blockchains, and let users spend and store money easily."
But here's the thing, as with any strong technologies, it's non-obvious as to what the form factor will be. That's why they're a lot tougher to build and are initially adopted only by tech enthusiasts.
In order to see a breakout crypto app, the best thing consumer devs can do is build a framework that allows them to spin up new ideas and test them as fast as possible.
For example, I saw two devs recently mention their tech stack with the intention of trying several ideas with the same underlying infra.
Kartik using the following:
Coinbase smart wallet
Privy signer
Pimlico paymaster
Syndicate transaction cloud
Zora nfts + sparks
And Small Brain using:
Index supply for chain indexing
Reclaim protocol for zkTLS notary
Privy for onboarding
Base
Regardless of what you think the "right stack" should be, the point to emphasize is that the goal should be to make it simple stupid for your team to spin up as many novel experiences as possible.
Even Nikita Bier mentioned in a podcast episode with Lenny that his team tried 14 different apps before they landed on TBH (the one that ended up getting sold to Facebook). He talked about the process more as a science, less as product building.
To wrap up this post, it's starting to become clear to me that there is increasing value in identifying builders who have positioned themselves to build the most number of consumer experiences uniquely enabled by crypto. It will be one of these product studios that will eventually get "lucky" with an app that goes as viral as Angry Birds and Fruit Ninja did back in the day.
There's no need for these studios to commit themselves to any ecosystem or set of services. Rather they should be gravitating towards whatever flow that allows them to 1) easily abstract away any crypto and 2) gain access to a certain type of users that infra teams have built a moat around.
That's all for today's post.
Hope everyone has a great weekend!
- YB
