June 6, 2024

How many abstractions do we need?

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Crypto infrastructure is overinvested. The feedback loop for infra is too long, and this category can obfuscate the absence of PMF for much longer than consumer crypto applications.

The lack of infrastructure enshrinement at the protocol level has created a VC surplus value to be captured by investing in a myriad of infrastructure and middleware projects. L1s create a massive amount of value by leveraging the infinite TAM. Then, infra projects want to be valued as closely to L1 as possible because they have their network consensus, block production, etc.

That’s one of the reasons why the crypto infrastructure category is so memetic. Everyone knows the established playbook that works, and the outcome that awaits if you follow it through:

  1. Claim that you’re scaling blockchains
  2. Raise too much money from VCs
  3. Announce “partnerships” with other infra projects before your chain is live
  4. Launch testnet (testnet crashes), boast crazy metrics
  5. Drop a token anywhere in the $1B-10B FDV range

More recently we have observed attempts to obfuscate step 1 even further away. Instead of scaling blockchains, dozens of successful and unsuccessful infrastructure projects have pivoted to chain abstraction. It sounds like the ultimate holy grail of infra, the cherry on top, the end game.

The problem is: for whom are we abstracting if there are no users? Chain abstraction is the VC solution to the chain fragmentation problem that relentless VC funding created in the first place. Without a product, chain abstraction is not a real solution to the real problem. And, it doesn’t even designate a new problem for the consumer to solve as owning a Ford or iPhone did (which were step changes compared to previous consumer experiences).

Consider that every infra project has been created as a solution to the previous infra solution:

  1. The L1 doesn’t scale, so we will create rollups;
  2. The rollups fragment liquidity, so we will build bridges;
  3. There are too many bridges, so we will aggregate all of them;
  4. There are many different aggregators, so we will build intents;
  5. Intents are hard to interpret, so we will build an intent interpretation layer;
  6. …why do you think it stops here?

Chain abstraction likely imposes some sort of centralization trade-off, for the stack can only be as decentralized as its weakest component is. Abstraction requires coordination around state attestation, solver execution, block confirmation, and cross-chain transaction guarantees, so there must be consensus around it. Capital markets are such that there will always be another faster / cheaper / insert your buzzword chain abstraction solution than whatever the presently adopted thing is. Founders and VCs will establish the new playbook but play the same game as they always did to win the same prizes.

Building infrastructure is often a response to poor UX because high fees and slow settlement are part of the UX problem. But poor UX in crypto is the cheap cop-out when adoption fails to meet expectations. Critiquing UX requires shallow effort and is thus done by everyone. Whenever crypto cycles turn and enter apathy, people blame it on bad products, forgetting that these same products were so exciting that they brought us to the top of the market in the first place.

In the past, we talked about crypto superapps starting with the product, rather than infra. Whether it’s Uniswap, Metamask, Magic Eden, StepN, Blur/Blast, dYdX, or Hyperliquid, it’s clear that the web3 ideals are being turned upside down. Instead of collaborating across the composable stack, incentives are such that everyone will build their own stack. And that’s fine.

But it also means that chains will be abstracted by someone who doesn’t depict themselves as chain abstractors; instead, it will be someone who builds the most popular app in crypto.

Galxe (formerly known as Project Galaxy) is the most widely adopted web3 application by a wide margin. It has more web traffic than Uniswap, Opensea, or Etherscan. Over 20M unique addresses have interacted with Galxe. More than 1M unique visitors use Galxe website every day.

Before you dismiss this traction as airdrop farming by bots, consider that every onchain use case is dominated by bots. Most of the token trading is done by bots. Crypto games are played by bots too, for they’re still heavily driven by financial incentives. NFT market-making is done by bots. AI agents (smarter bots) are beginning to participate in onchain economies. Even our socialfi darlings are heavily botted, making socialfi more asocial. Crypto is about incentives and resource coordination, and, so far, bots have proven to be excellent target users for harvesting onchain incentives. Agent DAOs and UBI are closer than we think.

But it’s not important whether users are bots (for what it’s worth, the 1M DAU is actual website visitors, not bots); what’s important is how much of economic activity there is, and how much value could be captured as a protocol or an app.

Galxe has found its wedge in airdrop distribution. But it has come a long way since then by building the identity layer that includes Galxe Passport (identity) and Galxe Score (reputation).

The most successful ventures are those that create new bundles or those that unbundle everyone around. Galxe has aggregated the supply side of projects aiming to build a community and distribute their token, with the demand side being users looking to earn tokens. What was previously a CEX loyalty business became a much larger market by enabling projects to build a community before TGE.

We have seen countless early-stage attempts to build identity or data monetization platforms but they have always failed because they didn’t start with the product that people wanted to use (no, users don’t care about owning their data). Galxe has built a unique use case coupled with strong enough financial incentives for people to reveal their identity. Such data will be valuable in ways we cannot foresee yet, especially if policymakers sincerely attempt to consumerize crypto.

Almost 1M people have created Galxe passports with their real-life identity

Aggregation of users allows not only to build the valuable identity layer but also consumer-type products that would otherwise not be successful as standalone ideas. This includes the Galxe mobile app, offramping and spending, AI-enabled trading products, a research hub, etc. Galxe has become the first onchain stop for many new users in crypto.

Now, the question is: How many valuable products could Galxe build so that these users would never have to leave its ecosystem?

Galxe spans across 34 different chains. That’s probably more than any bridge or CEX has been able to integrate. Through Galxe’s Smart Balance feature, users can deposit funds into a single vault, utilizing the balance to cover gas fees for Galxe smart contract transactions across multiple chains without the need to bridge. Soon, Smart Balance will be upgraded to Smart Savings, enabling users to earn yield on their deposited assets.

Unbeknownst to many, Galxe has been abstracting the chains and accounts while people were looking elsewhere. Upon Galxe’s Gravity chain launch which was just announced, it will be the largest blockchain measured by transaction activity with around 100M monthly transactions.

Aggregating user identity, their transactions, and having control over the blockspace is the combination that will lead to chain abstraction. It seems to us that there are only several companies in crypto - Galxe, Coinbase, and perhaps TON - who are well-positioned to make consumer-friendly chain abstraction a reality. While approaching it from different angles, the desired outcome, where blockchain onboarding is coupled with identity, looks the same to us.

Coinbase’s Galxe’s endgame has been revealed

And we don’t know who needs to hear this, but a rebrand in crypto is always bullish. There is no ticker better than $G.

Disclosure: Zee Prime has invested in Galxe