An overview of Web3 infrastructure frameworks: which infrastructure applications are worth paying attention to?

Original Title: 《A Framework for Web3 Infrastructure》

Original Author: Eric Hu

Compiled by: The Way of DeFi

The internet has fundamentally changed society, individuals, and the economy. As a tool for unlocking unprecedented knowledge transfer, it has led the information age and become the foundational platform supporting applications, networks, and services.

The web has evolved over time and will continue to do so—today, we are transitioning from "Web2" to "Web3," the next evolution of the internet. If you ask 10 people to define Web3, you will get more than 10 different answers, but the internet is changing, a result of multiple technologies maturing, globalization, and social transformation.

Web3 embodies many principles—but it is expected to become a more decentralized and collaborative internet of data and value. Blockchain and crypto are at its core, but they are just one of many technologies adopted by this new internet.

The explosive growth of blockchain and crypto experiments showcases novel structures and business models: powerful network effects, coordinating stakeholders with greater distrust to achieve common goals, aligning incentives, transforming governance models, defining agreed ownership, and perhaps most importantly—interconnected data has value, all accomplished in a digitally native manner.

While blockchain and crypto help create new applications and businesses, it is important to emphasize that Web3 is an evolution of both front-end applications/UX and back-end technologies. Web3 highlights greater composability and smarter networks within the tech stack. Whether through smart contracts or machine learning-driven decisions, the upgraded computing networks are better suited for automating and managing high-throughput analytics or monitoring technologies (NLP, computer vision, IoT) with data-intensive use cases (AR/VR, autonomous driving, smart cities).

Similar to the bandwidth explosion of the 2000s that supported the growing internet, the deployment of 5G and edge computing in hardware will converge to provide processing power (whether through expanded blockchain-driven computing and/or next-generation cloud) that opens new possibilities for applications and services.

Another point to emphasize is the cultural and social transformations (timing) that are indispensable for the success of new technologies. Over the past few years, accelerated by the COVID-19 pandemic, many trends have been supported. We have seen significant growth in digital transformation, cashless payments, and migration to the cloud. As a society, we are becoming increasingly accustomed to transacting digitally and experiencing our lives. Cryptocurrency has entered mainstream culture and has grown into a true (though still nascent) asset class. After years of asking "when will institutions enter," they are finally here.

Today's "Web3" is still cumbersome and fraught with friction. The next steps involve onboarding experiences, better UX/UI, appropriate regulation, and excellent or novel use cases. However, betting on a technology based on today's circumstances is foolish. A lot of foundational work is being laid. It starts with building the right blocks.

In the past two years, there has been an explosion of innovation—from teams building layer 1 or scaling protocols, new applications and projects, to novel governance or token models. Talent and innovation follow capital. In 2021, $25 billion flowed into blockchain-based projects. Among these projects, those classified as "infrastructure" are the most critical.

So, why is infrastructure key today, rather than applications?

As Moxie, the founder of Signal, aptly pointed out—no one wants to run their own servers. As Web3 matures, like other iterations of the web, abstracting complexity is a key driver of growth. Managed services and tools enable teams to leverage their strengths and innovate without dedicating significant resources to the back end (security, reliability, scalability). When the next billion users join Web3, most will not need to care about what blockchain or token standard the protocol uses or overcome the barriers (and fears!) of interacting with applications.

This is why proper infrastructure, architecture, and tools are crucial. The prospects for this in Web3 are vast, so in summary, we can use the framework of Web3 infrastructure as a mental model for what is happening.

Evolution of the Web and Principles of Web3

Overview of Web Evolution

Before we dive deeper into infrastructure, it may be useful to discuss the principles of Web3—after all, these are the building goals for all these projects.

• Digitization: Today, we are in a transitional state from physical information and assets to digital. Web3 exists in the era of data flow. Physical data can be measured, combined, and executed through digital information. Back-end computing will handle information from various sources—AR/VR, IoT sensors, autonomous devices, and more.
• Convergence and maturation of emerging technologies: No technology exists in a vacuum. Crypto and blockchain technologies are key parts of the architecture and value system. But other technologies are also maturing—5G, artificial intelligence, edge computing, IoT. Combining more efficient and smarter processing of larger datasets, flexible infrastructure, and new business models (like tokens) will provide a foundation for the next generation of applications.
• Ownership of data and assets: Web3 will help achieve true ownership of data, assets, and work. Blockchains are revolutionary because they can track and prove digital ownership. Digital assets—whether fiat currency, cryptocurrency, or NFTs—can be controlled by users through wallets. Traceability (and zero understanding of privacy) allows for measuring and controlling contributions of assets or individuals. Combined with digital identity, this is powerful.
• Increased control and decentralized governance: Cryptocurrencies and blockchains fundamentally revolve around decentralization, trust, and coordination issues. Tokens not only represent assets but often also represent voting rights or membership. Decentralization will always be a scale at which entities exist. Centralization has its own benefits, but with the first iteration of DAOs, new models of corporate governance, network control, and distributed decision-making are emerging. More decentralized control will enable builders, operators, and users of platforms to have a say in the platform's development.
• Composability: Before the internet emerged, we only had intranets. The same is increasingly true for blockchains, with interoperability becoming a focus. Through open-source code, the building of Web3 considers composability. This means teams can adopt existing projects or plans and build on top of them. This allows for faster development and communication across applications and through the tech stack (interoperability).

A more mature Web3 will lay the groundwork for transforming the relationships between data, value, and ownership on the network. Companies, users, and networks can share or interact with data or transfer value more freely. So Web3 has a lot to accomplish, and today we are observing a space that is experiencing growing pains. This is why people care about laying the necessary foundational infrastructure services for Web3.

So, what is the importance of infrastructure?

Infrastructure is the cornerstone of development. Today, we see it as roads, bridges, and utilities, as well as core "digital infrastructure." "Digital infrastructure" refers to the pipelines and services of today's internet. Over the past few years, digital infrastructure has evolved from hard assets like signal towers or fiber networks to "upper layer" technologies like cloud, data centers, and managed network software.

For Web3, we now define infrastructure as the tools, services, and architecture that allow for the large-scale deployment, building, and use of Web3 applications. After all, businesses and retail must use Web3 in a smoother and more scalable way. Web3 infrastructure takes many forms—especially within the realm of decentralization. A significant portion of Web3 projects themselves are decentralized. That is, they use tokens or community-based governance. However, decentralization is a spectrum, and there are good reasons for it—there are trade-offs in terms of funding, user experience, and operational efficiency. In Web3 infrastructure, projects and teams are building across various domains, many of which adopt centralized approaches and raise funds through traditional equity financing.

Some characteristics of Web3 infrastructure make it attractive to builders and investors. More predictable revenue, similarities to existing platforms/software, more experienced management teams, and mission-criticality to the ecosystem. This has led to funding from Web3-native/Crypto capital, as well as growth or venture capital from traditional financial participants. Thus, since 2021, these Web3 infrastructure tracks have begun to take shape.

Guiding Questions for the Framework

When we look at the infrastructure of Web3, there are almost no guiding questions supporting the framework as a way to think about the prospects in its ongoing evolution:

1. What Web3 services and tools ("architecture") do project teams typically use, and what data, storage, or computing ("core infrastructure") systems support these?
2. What operational challenges exist for builders or institutions in Web3? What "mission-critical" solutions have been developed to abstract unnecessary complexity?
3. What foundational services need to be established for certain use cases (e.g., DeFi, NFTs) to achieve large-scale success?
4. In what capabilities are existing companies and projects investing resources—whether through acquisitions or organic building?
5. How do the components of "Web3 infrastructure" interact with each other? To what extent is each component established (i.e., number of projects in the field, common standards, maturity of solutions)?

In Web3, one can consider digital infrastructure in three categories of services and products above the foundational computing (blockchain) layer—data, value/liquidity, and Interplayers/blockchain-support services.

Computing Layer (Blockchain and Blockchain-Inspired Technologies): The foundation of Web3 is the computing layer. This includes blockchains and blockchain-inspired networks (layer 1, subnets/sidechains, and scaling solutions), with everything else built on top of it. With many blockchains today, cross-chain/full-chain protocols and on-chain messaging projects have emerged to allow value and information to exchange from one chain to another. This is an important point—blockchain networks interweave the transmission of data and value among various stakeholders in a more trustless manner. There is a wealth of information about this developing computing/blockchain layer, but it can be said that this is where a significant amount of time and continued investment is being spent.

Above the foundational blockchain layer, we can categorize services, tools, architecture, and infrastructure into three categories:

1. Data Participants: Core infrastructure, architecture, and tools that provide teams with the ability to build and operate Web3 projects.
2. Value and Liquidity Participants: Building blocks for capital to flow between Web3 applications and participants, with less friction (i.e., high gas and slippage fees).
3. "Interplayers" or Blockchain-Support Infrastructure: Stakeholders that support and maintain blockchain/computing networks.

Note that there are endless nuances in how applications and projects leverage or build Web3 infrastructure, but we will keep it at a high level. (For more in-depth content, see Appendix 1)

Data Infrastructure: Web3 will be an evolution of semantics. This means machines and computers will need to analyze, send, and compute vast amounts of data.

For data infrastructure, there are more "core" or established data infrastructures and "emerging" services and tools that make up the architecture for development teams. Here, data infrastructure includes various tools, services, and components that make blockchain data easy to use or build upon.

A brief overview of these data-centric building blocks:

• Core Data Infrastructure:

Managing nodes and API providers that interact with the blockchain, decentralized data storage, block explorers for tracking transactions, and indexing/query services for efficient data access.

• Emerging/Adjacent Data Infrastructure:

Tools and managed services for developing application interactions; this includes everything from developer environments to assisting with code delivery, code audits, SDKs (e.g., privacy/zero-knowledge toolkits), and digital identity services.

Tools and managed services that assist Web3 use cases: NFT-related and DAO/community operation services. Examples include NFT analytics or low-code NFT creation, organizational financial management, voting platforms, and community onboarding tools.

Value and Liquidity Infrastructure: A key innovation of Web3 is linking information with value at the most fundamental level—this may be due to agreed and verifiable ownership.

For Web3, value is intertwined with the core functions of operating networks, whether through governance, security, or utility token incentives. But value without liquidity is worthless. For all types of capital flowing into Web3, value needs to be protected, entered, distributed, converted, accessed, and allowed to flow within the ecosystem without too much friction (i.e., gas, slippage, or usage fees should not be overly disruptive to activity).

Thus, many participants provide building blocks of "value or liquidity":

Today's "Core" Value Infrastructure Includes:

Wallets: The gateway to Web3, wallets are the primary interface for users to interact with blockchains, tokens, and applications. Recently, we have seen wallets becoming more like "browsers," which is a great step for onboarding.

Custodians protect (institutional or large retail) capital, exchanges convert the value of the entire ecosystem and tokens, and existing payment infrastructures (e.g., fiat currency, credit cards) serve as entry and exit points.

Emerging Value and Liquidity Infrastructure Includes:

Dashboards and analytics for portfolio management; DeFi or exchange aggregators for enhanced liquidity and institutional trading infrastructure for efficient markets.

Adjacent services assisting with capital operations—primarily tax, compliance, regulatory, and cybersecurity (to maintain value) services.

"Interplayers" and supporting blockchain infrastructure: We have emphasized that the core tenet of Web3 is the combination of value and data enabled by blockchain technology. Therefore, there is infrastructure supporting the blockchain computing layer, which drives the success of value and data services.

Interplayer/blockchain-support infrastructure includes several subcategories:

• Network Maintenance: Cryptocurrency miners (for proof-of-work networks), staking services, and validator services allow for easier network support or maintenance; these help with transaction processing, voting (via delegation), and sharing network incentives (e.g., block rewards).
• On-Chain Analytics: These services are now popular in compliance or trading use cases, providing dashboards and tracking for activities in the computing layer. They are very helpful for many hacks or security vulnerabilities in today's crypto applications.
• Emerging Supporting Infrastructure: On-chain communication and messaging protocols are receiving increasing attention, as highlighted this summer at EthCC 5, and as they continue to evolve, we can include omnichain protocols or bridges here.

Interconnected - Illustrative NFT Project:

Using this mental model of Web3 infrastructure, let’s look at how everything comes together through an illustrative example of a community-managed NFT project. (For more technical readers, Appendix 1 provides a deeper understanding of the framework's components.)

• First, let’s choose the Ethereum network to launch the NFT project. Miners and staking providers are used to protect and support the network by processing transactions.
• Now, we need to build the NFT. The team may use an NFT developer toolkit or write their own smart contracts in a standard development environment. They will leverage data storage providers like IPFS to store the actual NFT information. If this is a large or complex project, they may hire a smart contract auditing firm before launch. Upon release, the team will seek to list the collection on marketplaces like Opensea.
• Community participants will need a wallet to store the NFT and use ETH for payment. They may enter an exchange or pay with a card through another entry point (like Moonpay). Note that cryptocurrency exchanges, wallets, and marketplaces all utilize block explorers and API providers to communicate with the Ethereum blockchain (e.g., when you exchange ETH for an NFT).
• Finally, community and governance. The NFT project team may use an MPC or multi-signature wallet or custodial solution as their treasury. Operational tools like counting can be used to manage their community voting proposals. Meanwhile, mature participants may leverage on-chain or NFT analytics to measure activity, create dashboards, and manage their portfolios.

Concluding Thoughts:

It may not be obvious today, but looking back a few years, the pace of growth and innovation in Web3 has been incredible. Over the past few years, we have embraced an entirely new asset class, with some of the smartest people, largest companies, and a lot of capital joining this innovation. Mass adoption will improve regulation, onboarding, new applications (with real revenue), business models, social structures, and technological infrastructure.

For critics, we are not there yet. But there is a lot being built, and it is exciting. We are experiencing the development of a new industry in real-time, and as society learns to interact in the digital age. Critique is certainly needed. But as builders address every iteration of issues from privacy to scalability, we have already seen experimental outcomes of new governance models, digital or physical hybrid businesses, and the power of incentive-aligned networks. Now is the best time to build, and I am excited to see where things are headed.

Author's Note: For more detailed information on the Web3 infrastructure framework, see Appendix 1, and for useful readings on the topic, see Appendix 2. If you have any thoughts on the framework, feel free to reach out to us to add or disagree with anything!

About Me: A tech investor from New York City, currently in San Francisco. I first fell into the Web3 rabbit hole in 2016; this led to co-founding and leading one of the first university organizations focused on blockchain education, development, and research in 2017—Cornell Blockchain. Prior to that, I was an investment banker at Evercore, focusing on communications and digital infrastructure, helping the firm enter the Web3 space, and spent some time in KKR's investment credit. Passionate about supporting the development of networks.

Appendix 1: Web3 Infrastructure Framework - In-Depth

Data Infrastructure:

Core Data Infrastructure:

• Node and API Infrastructure: The core of Web3 application functionality, node providers offer APIs and RPC (remote procedure calls that allow programs to communicate with the blockchain) based on a usage revenue model. Examples: Alchemy and Infura.
• Data Storage: Due to efficiency and cost reasons, it often makes no sense to put many types of data on the blockchain (e.g., video and most front-end content). Decentralized storage solutions and services built to support scaling fill this gap. Examples: IPFS and Arweave; Pinata and Ceramic.
• Data Flow - Querying, Indexing, and Oracles: Data is distributed among nodes in the blockchain. Querying and indexing protocols are crucial for making this data easily accessible via APIs. Similarly, oracles provide data from external systems to the blockchain (e.g., weather data, token prices, etc.), acting as on-chain APIs for smart contracts. Examples: The Graph, Chainlink.
• Block Explorers: Blockchain explorers are search engines that display data about the flow of funds or transaction statuses within a blockchain network. Wallets like Metamask use API calls to allow explorers to display recent transactions and other items. Examples: Etherscan, Blockchain.com.

Emerging Data Services and Tools:

• Developer Platforms/Toolkits: Developer tools help teams create, test, and debug their software. This includes tools that make it easier to develop applications like SDKs. While more developer environments have been established for EVM-compatible chains, these chains use similar tools as developers build applications on non-EVM chains. Examples: Hardhat, Truffle, Aleo.
• Smart Contract Auditing: As a key part of the blockchain development process, auditors are relied upon to ensure the robustness and security of code before public deployment. Examples: Open Zeppelin, Trail of Bits.
• Digital Identity: The core tenets of Web3 depend on digital identity—which may include key attributes like KYC or permissioned access. Projects here are building services like single sign-on (SSO) with wallets or Web3 identities, such as ".eth" domain names. Examples: ENS, Spruce.
• NFT Tools and Services: With the growth of NFT use cases, a wide variety of tools and services have emerged to support the ecosystem. Projects range from analytics to developer studios, NFT toolkits, aggregators, and marketplaces. Examples: Opensea, Rarity Sniper, NFTrade, LooksRare.
• Community Building and Operations: As DAOs (Decentralized Autonomous Organizations) become more popular, many face challenges in logistics and operations. Several projects have emerged to assist with collaboration, discovery, operations, fund management, launches, and analytics. Examples: Coordinape, RabbitHole, Snapshot, DeepDAO, SuperDAO, Tally.

Value and Liquidity Infrastructure:

Core Value Infrastructure:

• Wallet Providers: As the primary interface for much of Web3, wallets not only store value (digital assets) but also enable on-chain identity and interaction with dapps (e.g., DeFi). There are several types based on specific needs in security and user experience. Examples: Metamask, Rainbow, Coinbase Wallet.
• Custodians: Qualified custodians are crucial for the widespread adoption of digital assets. Trustworthy custody, record-keeping, and management of assets are the first steps for institutions entering Web3. Examples: Anchorage Digital, Fireblocks, Gemini, Qredo.
• Exchanges and Marketplaces: Value cannot be maintained without liquidity. Exchanges and marketplaces are essential. There has been a lot of M&A activity in the exchange space as companies seek to build a complete suite of asset management products. Examples: Coinbase, FTX, Uniswap.
• Fiat On/Off Ramps: Many users enter through centralized exchange gateways (i.e., exchanging fiat for cryptocurrency), but as Web3 evolves, fiat and crypto rails must become more seamless. Today's platforms provide integrations for dapps, allowing operations like purchasing NFTs with credit cards. Examples: Moonpay, Wyre.

Emerging Value and Liquidity Services:

• Liquidity and DeFi Tools: DeFi has undergone multiple iterations, and the importance of appropriate liquidity and portfolio management in the ecosystem cannot be overstated. Projects range from dashboards to decentralized exchange aggregators to trading infrastructure. Examples: 1inch, Bloxroute Labs, Talos.
• Tax Services: With tax guidelines being established, accurate tax and accounting tools for Web3 or DeFi activities are crucial for any organization. Examples: Koinly, Taxbit.
• Compliance: Particularly important for DeFi, projects here focus on transaction monitoring, KYC, AML, and regulatory compliance. Examples: Elliptic, Coinfirm.
• Security: Current cybersecurity services in Web3 are still in their infancy, primarily consisting of bounty platforms or crowdsourced threat detection. Examples: Immunefi, Polyswarm.

Interplay Infrastructure (Supporting Blockchain Infrastructure and Architecture)

• Cryptocurrency Mining and Staking Providers: Supporting the computing layer (blockchain and similar technologies) in Web3, these help protect the network by processing transactions and validating through mining or staking. These providers run node infrastructure and allow users to participate in staking rewards by allocating funds. Examples: Core Scientific, Foundry, Whinstone, Blockdaemon, Figment.
• On-Chain Analytics: Blockchains contain vast amounts of data, providing useful information for all participants in the ecosystem, from governments to traders. Metrics include transaction data, wallet, and user activity. On-chain analytics services aggregate useful metrics and provide dashboards to visualize blockchain data for due diligence, discovery, market sentiment, and more. Examples: Chainalysis, Nansen, Dune Analytics.
• Cross-Chain Bridges, On-Chain Messaging, and Full-Chain Protocols: In traditional internet infrastructure, "messaging/network" is a key concept. As Web3 may encompass a multi-chain/computing future, protocols that allow blockchains to interoperate are foundational to unifying the ecosystem. This can take many forms, from single-chain bridges to multi-chain bridges to interoperability protocols. On-chain messaging is also being developed (e.g., combining transactions with direct messaging between wallets for reconciliation use cases). Examples: Wormhole, CCIP (Chainlink), Layer Zero, WalletConnect, EPNS (Ethereum Push Notification Service).

Appendix 2: More Useful Resources and Frameworks

《Web3 Stack Developer Guide》: https://alchemy.com/blog/web3-stack

《Jump Crypto: Key Pillars of Crypto Infrastructure》: https://jumpcrypto.com/peeking-under-the-hood

《Web3 Report Q3 2021》: https://consensys.net/reports/web3-report-q3-2021

《Canvas Ventures: The Web3 World》: https://www.canvas.vc/blog/the-web3-world

《My First Impressions of Web3》: https://moxie.org/2022/01/07/web3-first-impressions.html

《Architecture of a Web 3.0 Application》: https://www.preethikasireddy.com/post/the-architecture-of-a-web-3-0-application