Bitwise CIO Matt Hougan challenges the notion that Layer 1 blockspace is already a commodity, pointing to institutional behavior as evidence to the contrary.
Hougan disputes the growing belief in the crypto community that L1 blockspace is a commodity.
Institutional Capital Flocks to Leading Chains as On-Chain Prediction Markets Redefine Information Advantage
According to Hougan, if infrastructure were truly commoditized, capital and development would be spread evenly across various chains.
However, the majority of institutional activity is concentrated on a select few chains like Ethereum and Solana.
“…virtually no interest in building on lower-ranked L1 chains,” he noted.
Ethereum and Solana continue to dominate in terms of attention, liquidity, and developer engagement, despite the competitive landscape of newer Layer 1 solutions striving to reduce fees and increase throughput. Hougan attributes the current low-fee environment to the surplus bandwidth provided by top-tier L1 chains.
“Leading L1 chains have more capacity than the current demand, resulting in minimal fees,” he explained.
However, he warns that this equilibrium may not persist as demand escalates with the growth of stablecoins, tokenization, and DeFi into the trillions of dollars.
“The real question is how networks will handle the increased demand,” he pondered. “The future remains uncertain.”
If blockchain-based financial infrastructure evolves to support trillions in tokenized assets and on-chain transactions, the excess capacity today could quickly diminish, potentially reshaping the economics of leading chains.
Prediction Markets: A Modern Approach to Fair Disclosure
Aside from infrastructure, Hougan delves into the controversy surrounding insider trading in crypto-based prediction markets.
“Concerns about insider trading in prediction markets are misguided,” he asserted. “These markets provide a level playing field akin to Reg FD for the digital age.”
Regulation Fair Disclosure (Reg FD) aims to prevent selective disclosure of material information to specific investors.
Hougan suggests that prediction markets extend this principle by publicly establishing probabilities for significant events.
He reflected on how hedge funds historically gained an edge during crucial legislative moments in D.C. by acquiring privileged information through lobbyists and consultants.
I believe that powerful investors have always held an advantage.
Reflecting on this, I often check Polymarket for updates on the Clarity Act.
Historically, during major legislation in D.C….
— Matt Hougan (@Matt_Hougan) February 22, 2026
Today, retail investors can monitor real-time probabilities on platforms like Polymarket, including markets tied to potential legislative outcomes such as the Clarity Act.
“For liquid markets, these odds are likely as accurate or better than insider information from lobbyists. It levels the playing field,” Hougan emphasized.
While acknowledging remaining risks, particularly concerning insider trading, he stresses the overall positive impact of open prediction markets in fostering a more equitable playing field.
Thus, the ongoing debates revolve around:
- Whether L1 chains are truly commoditized
- The implications of prediction markets on information fairness
According to Hougan, the concentration of institutional activity on top chains reflects market realities rather than pure commoditization. Meanwhile, open prediction markets represent a rare instance where information disparities may be narrowing.
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