Infrastructure is becoming a utility. The value accrual is shifting from base-layer consensus to the automated services built on top, mirroring the transition from power grids to the applications they enable.
network-states-and-pop-up-cities
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The Future of Public Utilities: Automated and On-Chain
A technical analysis of how blockchain-based P2P markets will dismantle centralized utilities for energy, water, and bandwidth, replacing them with transparent, automated settlement systems.
introduction
THE SHIFT
Introduction
Blockchain infrastructure is evolving from raw protocols to automated, intent-driven public utilities.
Automation replaces manual orchestration. Developers no longer manually manage cross-chain liquidity or validator sets; protocols like Across and Stargate abstract this into a service layer.
The new stack is intent-based. Users declare outcomes (e.g., 'swap X for Y cheapest'), and systems like UniswapX and CowSwap solve for them, outsourcing execution to a competitive solver network.
Evidence: The $7.5B Total Value Secured (TVS) in EigenLayer restaking demonstrates demand for programmable trust, not just passive staking.
thesis-statement
THE ARCHITECTURAL SHIFT
The Core Argument: From Monolithic Providers to Dynamic P2P Markets
Blockchain infrastructure is evolving from centralized, monolithic providers to decentralized, automated peer-to-peer markets.
Monolithic providers like AWS currently dominate by bundling services, creating single points of failure and rent extraction. This model is antithetical to the decentralized ethos of the applications they host.
The future is dynamic P2P markets where services like RPC calls, indexing, and block building are auctioned in real-time. This mirrors the evolution from centralized exchanges to DEX aggregators like 1inch.
Automation via smart contracts eliminates human gatekeepers. Services become permissionless commodities, with quality and price determined by on-chain reputation and staking mechanisms, not corporate sales teams.
Evidence: The rise of intent-based architectures in protocols like UniswapX and Across proves the demand. Users express a desired outcome, and a decentralized solver network competes to fulfill it at the best cost.
key-trends
FROM TRUSTED THIRD PARTIES TO TRUSTLESS PRIMITIVES
The Three Pillars of On-Chain Utility Disruption
The future of public infrastructure is automated, composable, and governed by code, not corporations.
01
The Problem: Opaque, Inefficient Subsidies
Government subsidies are plagued by fraud, high administrative overhead, and slow distribution. The current model is a multi-trillion-dollar inefficiency.
- Key Benefit 1: Real-time, verifiable fund distribution with ~99.9% reduction in fraud via on-chain attestations.
- Key Benefit 2: Programmable eligibility via zk-proofs (e.g., Worldcoin) enables hyper-targeted aid without privacy loss.
-90%
Admin Cost
Real-Time
Settlement
02
The Solution: Automated Market Operations (AMOs)
Replace central bank bond buying/selling with algorithmic, on-chain stability mechanisms. Think MakerDAO's PSM or Frax Finance's AMO for national economies.
- Key Benefit 1: Transparent monetary policy executed by code, removing human discretion and lag.
- Key Benefit 2: 24/7 global liquidity via DeFi pools, creating a more resilient financial backbone than traditional markets.
$10B+
TVL Potential
24/7
Operation
03
The Enabler: Verifiable Public Goods Funding
Move from grant committees to on-chain quadratic funding and retroactive public goods models. Gitcoin Grants and Optimism's RetroPGF are the blueprints.
- Key Benefit 1: Algorithmic allocation that crowdsources wisdom, funding what users actually value.
- Key Benefit 2: Full-stack accountability where every dollar is tracked from donor to outcome, creating a verifiable impact graph.
100x
Donor Reach
On-Chain
Audit Trail
deep-dive
THE SETTLEMENT LAYER
Mechanics of an Automated Utility: Settlement as the Killer App
On-chain public utilities automate value transfer by abstracting complexity into a universal settlement guarantee.
Settlement is the atomic unit of automated utility. Every transaction, from a token swap to an NFT mint, resolves as a state update on a ledger. This finality is the non-negotiable core that all other services, like Uniswap for liquidity or Aave for lending, depend upon.
Automation replaces manual processes with deterministic code. A user's intent, routed through a solver network like CowSwap or UniswapX, is executed and settled on-chain without human intervention. This creates a trust-minimized pipeline where the outcome is guaranteed by the protocol, not a counterparty.
The killer app is not the service, but the settlement. Protocols compete on execution quality, but they all converge on the same settlement layers—Ethereum, Solana, Arbitrum. The utility's value accrues to the base settlement guarantee, which becomes a commoditized, automated public good.
Evidence: Over 90% of DeFi's $50B+ TVL settles on Ethereum or its L2s. The growth of intent-based architectures and cross-chain settlement via LayerZero and Axelar proves the demand for abstracted, automated finality across networks.
THE FUTURE OF PUBLIC UTILITIES: AUTOMATED AND ON-CHAIN
Utility Protocol Landscape: Market Positioning & Key Metrics
Comparative analysis of leading protocols automating core blockchain utility functions: bridging, swapping, and gas abstraction.
| Core Utility / Metric | LayerZero (Omnichain) | Across (UMA Optimistic) | UniswapX (Intent-Based) |
|---|---|---|---|
Primary Function | Generic message passing & bridging | Optimistic token bridging | Intents-based DEX aggregation |
Settlement Finality | Configurable (Optimistic/ZK) | Optimistic (20 min challenge) | Optimistic (variable off-chain) |
Fee Model | Native gas + protocol fee | Relayer fee + LP spread | Filler competition (Dutch auction) |
Avg. Bridge Cost (ETH->Arb) | $3-7 | $1-3 | N/A (Swap) |
Avg. Fill Latency | 3-5 min | 1-3 min | < 30 sec |
Native Gas Abstraction | |||
Capital Efficiency | Locked in remote chains | Capital pooled on mainnet | No locked liquidity |
Key Risk Profile | Validator set security | Oracle & disputer liveness | Filler MEV & censorship |
risk-analysis
THE HARD PROBLEMS
The Bear Case: Why This Might Not Work (Yet)
The vision of automated, on-chain public goods faces non-trivial scaling, governance, and incentive hurdles that could stall adoption.
01
The Oracle Problem for Real-World Data
On-chain automation requires reliable, tamper-proof data feeds for execution triggers. Current oracle solutions like Chainlink and Pyth face a trilemma: decentralization, latency, and cost. For public utilities requiring sub-second, high-frequency data (e.g., energy grids), this is unsolved.
- Centralization Risk: Reliance on a handful of node operators creates a single point of failure.
- Latency vs. Finality: Fast data isn't always finalized data, leading to potential exploits.
- Cost Prohibitive: High-frequency data feeds are economically unviable for many public sector use cases.
~500ms
Typical Latency
$1M+
Annual Feed Cost
02
The Regulatory Moat
Public utilities are defined by legal frameworks, not code. On-chain automation collides with jurisdictional sovereignty, liability assignment, and compliance (e.g., OFAC sanctions). A smart contract cannot be subpoenaed.
- Legal Personhood: Who is liable when an automated system fails? DAO governance is not a recognized legal entity.
- Sovereign Override: Any government can forcibly halt an "immutable" system within its physical borders.
- Compliance Drag: Integrating AML/KYC and reporting destroys the permissionless, composable benefits.
0
Legal Precedents
100%
Sovereign Risk
03
Incentive Misalignment & MEV
Public utilities require predictable, fair outcomes. Blockchain execution, dominated by proposer-builder separation (PBS) and maximal extractable value (MEV), inherently optimizes for profit, not public good. This creates systemic risk.
- Economic Censorship: Validators can exclude transactions based on profit, not priority.
- Front-Running Critical Infrastructure: Bots will exploit latency in systems like disaster response payouts.
- Staking Centralization: The capital requirements for Ethereum or Solana validators recreate the centralized gatekeepers web3 aims to replace.
$1B+
Annual MEV
3 Entities
Control >50% Staking
04
The Complexity Death Spiral
To solve the above, systems become over-engineered, fragile, and opaque. Adding layers of ZK-proofs, optimistic fraud proofs, and interchain messaging (LayerZero, Axelar) increases attack surfaces and moves trust from simple institutions to complex, unauditable code.
- Verifier's Dilemma: Who watches the watchers? Fraud proofs and ZK verifiers must be trusted.
- Cross-Chain Fragility: Bridges like Wormhole and Nomad have been exploited for >$2B total.
- Cognitive Overload: No city council can reasonably audit a stack involving 10+ protocol layers.
10+
Protocol Layers
$2B+
Bridge Exploits
future-outlook
THE INFRASTRUCTURE
The Network State Endgame: Pop-Up Cities as First Adopters
Network states will bootstrap adoption by deploying fully automated, on-chain public utilities that legacy cities cannot match.
Network states deploy on-chain primitives as their core infrastructure. They bypass legacy procurement and build with composable DeFi protocols like Aave for credit and Chainlink for oracles from day one.
Automation replaces bureaucratic bloat. Smart contracts on networks like Arbitrum or Base manage utilities—water rights, energy grids, waste management—with deterministic, auditable logic, eliminating corruption and inefficiency.
Pop-up cities are the ultimate stress test. A Zuzalu-style experimental community adopting a fully on-chain treasury via Safe provides real-world data on scalability and user experience that no testnet can replicate.
Evidence: Arbitrum processes over 2M transactions daily, demonstrating the throughput required for city-scale utility management without congesting the base Ethereum layer.
takeaways
THE FUTURE OF PUBLIC UTILITIES
TL;DR for Busy Builders
Infrastructure is moving from manual, opaque governance to automated, transparent protocols. Here's what to build.
01
The Problem: Opaque, Inefficient Governance
Legacy public goods funding (Gitcoin Grants, protocol treasuries) is slow, political, and suffers from voter apathy. Decision latency is weeks, with high overhead.
- Voter Turnout: Often <5% of token holders.
- Allocation Lag: Months between proposal and execution.
- Administrative Overhead: ~20-30% of funds lost to process.
<5%
Voter Turnout
~30%
Process Waste
02
The Solution: Retroactive Public Goods Funding (RPGF)
Pioneered by Optimism's Collective, RPGF flips the model: fund what's already proven useful. It uses on-chain data to reward builders post-hoc, creating a flywheel.
- Eliminates Speculation: Funds real usage, not promises.
- Aligns Incentives: Builders focus on utility, not grant proposals.
- Data-Driven: Allocates based on hard metrics like TVL secured, transactions enabled.
$500M+
OP Allocated
10x
Efficiency Gain
03
The Problem: Fragmented Liquidity Silos
Every new L2 or appchain fragments liquidity and composability. Bridging is a UX nightmare and security risk, creating $2B+ in bridge hack liabilities.
- Capital Inefficiency: Assets stuck in bridge contracts.
- Security Surface: Each bridge is a new attack vector.
- Developer Friction: Must integrate N bridges for N chains.
$2B+
Bridge Hack Liab.
7+ Days
Withdrawal Delays
04
The Solution: Native Yield-Bearing Stablecoin Protocols
Protocols like Ethena's USDe and Mountain Protocol's USDM create capital-efficient, chain-agnostic base money. They turn idle collateral into productive assets.
- Native Yield: Earns yield at the protocol level (~5-15% APY).
- Cross-Chain Native: Minted natively on multiple L2s (Arbitrum, Base).
- Reduces Fragmentation: Serves as unified, yield-bearing collateral across DeFi.
$2B+
USDe TVL
~10% APY
Native Yield
05
The Problem: Centralized Sequencer Risk
Most L2s (Arbitrum, Optimism, Base) run a single, centralized sequencer. This creates a single point of failure for censorship and liveness, betraying decentralization promises.
- Censorship Risk: Sequencer can reorder or exclude transactions.
- Liveness Risk: If it goes down, the chain halts.
- MEV Extraction: Value flows to a single entity.
100%
Of Major L2s
~0s
Finality If Down
06
The Solution: Shared Sequencing Layers (Espresso, Astria)
Decentralized sequencing networks that multiple rollups can outsource to. They provide credible neutrality, MEV resistance, and atomic cross-rollup composability.
- Interop Composability: Enables atomic transactions across rollups.
- MEV Redistribution: MEV can be captured and redistributed to the public goods treasury.
- Fault Tolerance: No single point of failure.
~500ms
Proposal Time
>100
Rollup Capacity
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