Infrastructure investment is critical for crypto startups, not a ‘nice to have’ – TechCrunch
Crypto has had rough couple of months as much of the downward macro pressure hammering software and fintech hit the broader crypto market. Valuations have collapsed, earnings growth (for many companies) is beginning to slow, and institutional and retail capital is retreating to scale.
One area of crypto that is weathering the storm quite well is “infrastructure,” the companies and protocols that help enable the core functionality of other crypto companies. Despite seeing negative price pressures mainly in line with the broader market, these infrastructure companies have continued to generate sustainable revenue by serving new but distinct, enduring use cases.
Furthermore, many of these companies are expanding horizontally and vertically to become true enterprise-grade infrastructure, a process accelerated by the large influx of capital and Web 2.0 talent in the space.
Looking ahead, we expect companies and protocols focused on building critical infrastructure to continue to emerge and scale, creating attractive investment opportunities.
The six-layer cake model
To better understand the crypto landscape, we unpacked the sector into its core technology layers, culminating in a six-layer crypto stack, extending from the basic settlement/mining layer, all the way through the consumer-facing decentralized application and access layer.
We see great value in tools that abstract and enable fundamental activities in crypto.
Between these two extremes is a spectrum of infrastructure providers, hybrid infrastructure application tools known as primitives, and composable applications that codify, enable, and make available the various use cases across the crypto ecosystem.
Image credit: Insight Partners
Imagine that a consumer wants to exchange ETH for another Ethereum-based token on a decentralized exchange – an exchange protocol that allows two assets to trade against each other without an order book.
The first set of steps for this consumer is found in the access layer. This layer is focused on giving individuals or institutions the tools to interact with decentralized applications and networks. For our exchange example, the access layer will equip consumers with a few important things:
