This excerpt from the 0xResearch newsletter discusses the current state of the blockchain industry, particularly the proliferation of Layer 1 (L1) blockchains and the skepticism they face. Despite widespread frustration with the growing number of chains, new L1 launches continue, as seen in recent fundraising rounds: Camp Network raised $30 million at a $400 million valuation; Unto secured $14. 4 million at $140 million valuation; and Miden raised $25 million with undisclosed valuation. Critics often attribute new chain launches to “greed” and the so-called L1 premium—exemplified by SUI, whose token nearly doubled in value despite weak fundamentals and low fee revenue. While some may view this as an anomaly, the L1 premium persists, encouraging new projects. Another perspective is that founders pursue different visions for chain optimization, debating execution environments, MEV capture, data layers, and governance features like oracles or gas tokens. These technical and social differences, including initiatives like Rogue’s VC-free, fair launch zk rollup, reflect diverse economic freedoms valued by builders. Nevertheless, optimism arises as L1 valuations are compressing compared to prior cycles. For example, Monad and Initia’s recent valuations are significantly lower than Avalanche’s $5. 25 billion and Flow’s $7. 6 billion valuations in 2022.

Both private and public markets are adjusting to the oversaturation of chains, demonstrating the free market’s corrective effects. Total blockchain funding shows a downward trend, though this may disappoint those hoping to eliminate new chains altogether. Frustration with too many chains often ties to a desire for more applications. Historically, between 2013 and 2017, consumer apps attracted most venture funding, per Joel Monegro’s 2016 Fat Protocol thesis, but that trend has reversed. 1kx, an active consumer app investor, highlights the challenges in app funding: applications depend on traction and deliver immediate feedback, whereas infrastructure can secure investment pre-launch based on market comps. Successful apps like Pudgy Penguins and Axie Infinity have overcome these hurdles. Notably, application revenue currently outpaces protocol revenue across most chains. If free markets have corrected L1 overvaluations, a similar positive shift might occur for application funding, potentially revitalizing the ecosystem. To receive full editions of this newsletter and more insights, consider subscribing.