The Cost of Neglecting Infrastructure Grants in the Rush for dApps

L2s prioritize dApp grants to drive short-term TVL and user metrics, creating a top-heavy ecosystem. This funding model mirrors the unsustainable app-first, infra-later strategy of the 2017 ICO boom.

The user experience is broken because the foundational tooling—reliable RPCs, fast bridges, and robust indexers—remains underfunded. Projects like Chainlink CCIP and The Graph are critical infrastructure, not optional add-ons.

Evidence: Arbitrum and Optimism have distributed over $500M in grants, with less than 5% allocated to core infrastructure providers, creating bottlenecks that degrade performance for all dApps.

Token incentives attract dApps, not infrastructure. Layer 2s like Arbitrum and Optimism allocate billions in tokens to application developers. This creates a superficial ecosystem boom while the underlying data availability, sequencing, and bridging layers remain undercapitalized and under-tested.

Infrastructure is a public good, dApps are private goods. The free-rider problem is systemic. Every dApp benefits from a robust RPC endpoint or a secure bridge, but none want to pay for it. This leads to chronic underfunding of services like Chainlink oracles and Pyth data feeds, which become single points of failure.

Technical debt compounds silently. Underfunded teams maintain critical code with minimal resources. A bug in a widely-used library like OpenZeppelin or a dependency in a major RPC provider like Alchemy can trigger cascading smart contract failures across hundreds of dApps simultaneously.

Evidence: The 2022 Nomad bridge hack exploited a routine upgrade, draining $190M. The root cause was insufficient audit rigor and review for a core piece of cross-chain infrastructure, a direct consequence of funding and attention being diverted elsewhere.

The application-first flywheel is the dominant funding model. The logic is linear: successful dApps like Uniswap and Aave attract users, generate fees, and those fees are partially captured by the underlying L1/L2 via transaction fees. This revenue then funds protocol development and security.

Infrastructure as a public good argues that core layers like Ethereum or Arbitrum should not pick winners. The market, via usage-based fee capture, determines which infrastructure components deserve funding. This creates a meritocratic system where valuable tech wins.

The venture capital subsidy bridges the gap. In practice, the model relies on VC-funded dApp development to bootstrap the flywheel. Teams build with grants or venture money, aiming for a product-market fit that eventually makes the infrastructure investment worthwhile.

Evidence: Ethereum's $10B+ annualized fee revenue, largely driven by DeFi and NFT dApps, directly funds its security budget and developer grants via the protocol treasury, validating the model at scale.

Infrastructure is a public good that dApps treat as a free, infinite resource. Every dApp launch on a new chain assumes cheap RPCs, reliable indexers, and stable bridges. This creates a tragedy of the commons where infrastructure providers like Alchemy or The Graph are underfunded relative to the value they secure.

Capital follows narratives, not necessity. VCs fund the 100th DEX fork before funding a novel sequencer design. This creates application-layer saturation while the base layer remains brittle. The 2022 cross-chain bridge hacks were a direct result of this capital misallocation.

Evidence: The Ethereum Foundation's ecosystem grants total ~$30M annually. In contrast, a single DeFi protocol like Uniswap often raises over $100M in a single round. This ratio guarantees that core protocol R&D lags behind front-end feature development by years.