The Infrastructure Bet
While others chase applications, the biggest returns come from betting on the infrastructure that enables everything else.
Every investor wants to find the next Facebook or Google. The consumer application that captures hundreds of millions of users and becomes a household name. In crypto, this translates to hunting for the next Uniswap or OpenSea. The protocol that ordinary people actually use.
But the biggest returns historically come from a different bet. Not the application layer that users see, but the infrastructure layer that developers build on. Amazon Web Services was more valuable than most of the startups that used it. Nvidia's chips power AI, but Nvidia captured more value than most AI companies. The pattern repeats across technology cycles.
In crypto, we're still in the infrastructure phase. Most of what gets called "Web3" today is really just financial infrastructure with extra steps. DeFi protocols are building money Legos. NFT marketplaces are building identity and ownership systems. DAOs are building governance mechanisms. These aren't end-user applications. They're primitives that enable applications.
This creates a massive opportunity for investors who can identify which infrastructure will matter. The teams building developer tools, consensus mechanisms, and protocol standards today are creating the foundation for whatever consumer applications emerge over the next decade.
The challenge is that infrastructure investments require patience. Building developer tools doesn't create obvious user metrics. Consensus protocols don't have viral marketing loops. Protocol standards can take years to get adopted. Most infrastructure companies look boring compared to consumer apps with hockey stick growth charts.
But boring can be beautiful. Infrastructure companies often have better economics than consumer applications. They serve developers who pay for tools that save them time. They don't depend on advertising revenue or extracting value from users. They can charge fair prices for real utility.
Infrastructure also tends to be more defensible. Applications can be copied or disrupted by new user interfaces. But infrastructure creates lock-in through developer adoption, network effects, and switching costs. Once developers build on your tools, they're reluctant to rewrite everything for a competitor.
The crypto ecosystem is particularly good for infrastructure companies because it enables new business models. Instead of just selling software licenses, infrastructure providers can own tokens that appreciate with network usage. Instead of charging subscription fees, they can capture value through transaction fees or governance tokens.
This aligns incentives better than traditional software models. Infrastructure providers succeed when the applications built on their platforms succeed. Developers get tools that improve as the ecosystem grows. Users benefit from better applications enabled by better infrastructure.
We're seeing early examples of this dynamic with projects like Chainlink, The Graph, and Alchemy. These aren't consumer brands, but they're becoming essential infrastructure that other projects depend on. Their success correlates with the overall growth of the crypto ecosystem rather than just their individual adoption.
The key insight is that infrastructure value accrues differently than application value. Applications capture value from their specific user base. Infrastructure captures value from all the applications built on top of it. This can create more leverage and defensibility over time.
Of course, not all infrastructure bets work out. Some technologies never get adopted. Some standards lose to competing approaches. Some tools solve problems that turn out not to matter. Infrastructure investing requires technical judgment about which problems are real and which solutions will scale.
But the asymmetric risk-reward profile is compelling. Infrastructure investments can have lower downside because they serve clear technical needs. And they can have higher upside because they benefit from all the innovation happening on top of them.
The timing is also favorable for infrastructure investing in crypto. The space is mature enough that real technical problems are becoming clear, but early enough that the solutions aren't yet commoditized. There's a window where thoughtful infrastructure investments can capture significant value.
We're particularly interested in infrastructure that enables new categories of applications rather than just optimizing existing ones. Zero-knowledge proof systems that enable private computation. Consensus mechanisms that enable different trust models. Development frameworks that make blockchain programming more accessible. The shift toward modular blockchain architectures exemplifies this approach—building specialized tools that excel at specific functions rather than trying to do everything.
These tools might not create obvious user-facing value today. But they could enable entirely new kinds of applications that aren't possible with current infrastructure. The teams building these foundations today could capture enormous value as the ecosystem scales. We're seeing this already with creator economy platforms that are built on composable infrastructure allowing for new monetization models.
The consumer applications will come. When they do, they'll be built on infrastructure that smart investors are funding today. The question is whether you want to bet on the lottery ticket of finding the next viral app, or the more systematic approach of investing in the infrastructure that enables many viral apps. This patience-oriented approach is particularly valuable for teams that are committed to building through market downturns.
History suggests the infrastructure bet is often the better one.
Developing Web3 infrastructure? We're seeking teams building the foundational layers of the decentralized internet. From developer tools to consensus mechanisms, we invest in infrastructure that enables the next generation of applications. Reach out to us at funding@zerdius.com.