Block space is too crowded! The importance of on-chain applications has surpassed that of public chain infrastructure.

Michael Dempsey, a partner at Compound VC, shared his views on the issue of "overcrowding in the blockchain space" in his blog. He pointed out three fundamental problems and proposed two potential trends for the industry to address the lack of on-chain applications.

This article is compiled and translated. For any doubts, please refer to the original article.

Why is the issue of too much block space a problem?

Michael believes that the issue of block space inflation will erode the crypto ecosystem in this market cycle, and some even think it has already happened.

Developers pursuing public chains rather than applications

Michael argues that most developers today see the most valuable projects as building new Layer1 or Layer2 networks rather than DApps or application-centric protocols, leading to more fragmented and useless block space creation.

Furthermore, developers have realized this issue and taken downgrading measures to build an abstraction layer to absorb some value from Layer1 and Layer2, such as liquidity staking token (LST), re-staking token (LRT), and data availability (DA).

Explaining the opportunities and risks of the liquidity re-staking token (LRT) project

Block space supply significantly exceeds demand

Although many factors need to be considered, when using Token Terminal to view the one-year generated fees for all protocols, it is found that the utility of block space does not hold up, with various DeFi protocols' fees and growth rates far exceeding block space.

The fact is, protocols are in greater demand than block space.

Recently, Uniswap, a representative of on-chain protocols, conducted an initial test by proposing to accumulate fees for UNI. As the market reassesses the possibility of "valueless governance tokens" acquiring tangible value, it has led to a rapid increase in trading volume for other DeFi protocols.

Copy-paste engineering hinders innovation

These block space-related tokens may still be more valuable than tokens related to protocols with practical use. Over half of the top 100 cryptocurrencies by market capitalization are tokens based on providing blockchain space.

This has led to many developers joining similar block space development or related services, such as re-staking. Although the capital market prefers existing patterns to reduce risks, this has hindered the development of innovative applications.

A more serious issue is that these similar projects only slightly increase the adoption of cryptocurrencies, essentially providing no help to the crypto industry.

How to get developers involved in the application layer?

Facing these issues, Michael believes there are several possible directions for industry development to turn the situation around.

Effective monopolies or oligopolies of basic public chains

Initially, the operating systems of mobile phones were diverse, with competition among Blackberry, PalmOS, Windows Phone, Android, and iOS to capture the lucrative position of spec setters. However, eventually, dominant ecosystems emerged with iOS and Android, and development shifted towards the application layer.

The current development of underlying blockchain networks is akin to the early days of the mobile phone industry, with numerous competitors vying for TVL and users. Although Ethereum currently holds around 57% market share, the trend still shows fragmented development.

However, when public chains develop into monopolies or oligopolies, it can drive long-term value in the crypto industry. Structurally forcing innovation into the application layer and creating a flywheel for rapid application development will lead to the growth of the total market value of the crypto industry.

Development of decentralized and centralized application chains

The maturity of the application chain industry can meet the needs of a more diverse user base. Users of Cosmos may join due to the vision of the application chain, and users accustomed to centralized services can benefit from the application chain, effectively eliminating trust issues.

This will prompt developers to develop applications in the form of application chains.

The issue of excessive block space is not about how to design and optimize

The existing blockchain industry focuses too much on protocol technical development, while applications and users often lag behind. The issue of excessive block space raised by Michael this time is just the tip of the iceberg,

The current market is mainly focused on performance issues with block space, ultimately likely leading to louder debates on holistic public chains and modular public chains, but these debates are not actually important. The key is how to create more application services that meet user needs through marketing and market-oriented methods to enhance the long-term value of the blockchain ecosystem.

It is time for the industry to shift towards developing applications, and this requires urging developers to join the development at the application layer, indicating that there is still a long way to go.