crypto has had a rough few months in which much of the downward macro pressure hammer software and fintech hit the broader crypto market. Valuations have collapsed, revenue growth (for many companies) has begun to slow and institutional and retail capital is retreating.
One area of crypto that is weathering the storm quite well is “infrastructure,” the companies and protocols that enable the core functionality of other crypto companies. Despite negative price pressures largely aligned with the broader market, these infrastructure companies have continued to generate sustainable revenues by serving emerging but clear, sustainable use cases.
In addition, 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 into the space.
Looking ahead, we expect businesses and protocols focused on building critical infrastructure to continue to emerge and scale, opening up attractive investment opportunities.
The six-layer cake model
To better understand the crypto landscape, we unpacked the industry into its core technology layers, culminating in a six-layer crypto stack ranging from the settlement/mining base layer to the consumer-facing decentralized application and access layer.
We see tremendous 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 access the various use cases in the crypto ecosystem.
Imagine that a consumer wants to exchange ETH for another Ethereum-based token on a decentralized exchange – a swap protocol that allows two assets to trade against each other without an order book.
The first set of steps for this consumer is the access layer. This layer aims to give individuals or institutions the tools to interact with decentralized applications and networks. For our swap example, the access layer will provide consumers with a few essentials: