The Web3 Ecosystem: Overbuilding Infrastructure and the Lack of Mainstream Applications
The Web3 ecosystem is often seen as the future infrastructure of the internet. However, nearly a decade after the release of the Ethereum white paper, there are few mainstream applications running on this infrastructure. Instead, we are witnessing the emergence of various new infrastructure building blocks such as L1, L2, and L3 blockchains, rollups, ZK layers, DeFi protocols, and more. While Web3 may be shaping the future of the internet, there is a clear imbalance between infrastructure and applications in this space.
One of the reasons for this trend is the profitability of building infrastructure in Web3. Unlike traditional tech markets, Web3 offers a rapid path to profitability for infrastructure projects, leading to an overemphasis on infrastructure development at the expense of applications.
Value creation in tech markets has historically balanced between the infrastructure and application layers. In previous eras like Web1 and Web2, there was a symbiotic relationship between infrastructure providers and application developers, leading to the creation of innovative products and services. However, Web3 deviates from this norm due to the rapid capital formation and liquidity opportunities in infrastructure projects.
The proliferation of new Web3 infrastructure projects has led to challenges such as building without adoption feedback, extreme liquidity fragmentation, increasing complexity, limited developer communities, and a widening gap with Web2 technologies. These challenges underscore the risks of overbuilding infrastructure in Web3 without adequate focus on application development.
While launching new L1 and L2 blockchains may be lucrative in the short term, the long-term sustainability of the Web3 ecosystem depends on striking a balance between infrastructure and applications. Without meaningful market feedback from applications, the industry risks building infrastructure for hypothetical use cases that may not align with market needs.
As Web3 continues to evolve, it is essential for stakeholders to prioritize application development alongside infrastructure projects to ensure the growth and relevance of the ecosystem. By fostering a diverse developer community and encouraging the creation of innovative applications, Web3 can realize its full potential as the next frontier of the internet.