Interoperability is the bottleneck. L1s like Solana and Avalanche compete for users, but the liquidity and user experience between them remains fragmented and insecure. This fragmentation is the primary friction in a multi-chain world.
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Why Interoperability Infrastructure Is Undervalued Versus L1s
The pipes connecting blockchains capture value from all chains, offering a diversified bet against maximalism. This analysis breaks down the flawed market logic favoring L1s over the cross-chain plumbing.
introduction
THE MISALLOCATION
Introduction
The market overvalues monolithic L1s while undervaluing the critical, revenue-generating infrastructure that connects them.
Infrastructure captures more value. While L1s monetize block space, interoperability protocols like LayerZero and Axelar monetize the flow of assets and data. They are toll roads for the entire ecosystem, generating fees from every cross-chain transaction.
The market is wrong. Investors chase L1 token appreciation, but the sustainable revenue model lies in the plumbing. Protocols like Wormhole and Circle's CCTP are becoming essential utilities, not speculative bets.
Evidence: Arbitrum and Optimism process millions of cross-chain messages monthly via bridges like Across and Stargate, yet the aggregate valuation of major interoperability protocols remains a fraction of a single mid-tier L1.
key-trends
WHY INFRASTRUCTURE EATS L1S
Executive Summary: The Cross-Chain Thesis
While L1s compete for users, the plumbing connecting them captures the value of the entire multi-chain economy.
01
The L1 Valuation Trap
Investors over-index on monolithic chain performance, ignoring that user activity is inherently multi-chain. The real value accrues to the protocols that facilitate this flow, not just the destination.\n- Example: A user on Solana swapping to an asset on Arbitrum via Jupiter.\n- Outcome: Value captured by the bridge/router, not just the L1s.
~$100B
Bridged Value
>60%
Multi-Chain Users
02
The Security Sinkhole
Native bridges are systemic risk concentrators (see: Wormhole, Nomad). Dedicated interoperability layers like LayerZero and Axelar abstract this risk, creating a more robust and auditable security marketplace.\n- Benefit: Security becomes a verifiable service, not a chain-specific afterthought.\n- Metric: $1.6B+ in value secured by Axelar's decentralized validator set.
$2B+
Hacks (2022-23)
50+
Chains Secured
03
Intent-Based Abstraction (UniswapX, CowSwap)
The endgame isn't bridging tokens; it's abstracting chains. Intent-based architectures let users declare a goal ("swap X for Y"), with solvers competing across chains for best execution. The infrastructure enabling this is the moat.\n- Mechanism: Solvers source liquidity from Across, LayerZero, CCIP.\n- Result: User gets optimal outcome; infrastructure captures fee.
~30%
Better Prices
0
Chain Awareness
04
Modularity's Mandatory Middleware
The rise of modular blockchains (Celestia, EigenDA) and rollup-as-a-service explodes chain count. Every new rollup needs secure, fast messaging—a pure infrastructure play. This is a quadratic growth problem for interoperability networks.\n- Driver: 100s of app-chains needing connectivity.\n- Play: Universal interoperability layers become the TCP/IP of Web3.
1000+
Projected Rollups
10x
Msg Volume Growth
market-context
THE INFRASTRUCTURE GAP
The Maximalist Mirage
The market overvalues monolithic L1s and undervalues the cross-chain infrastructure enabling their composability.
L1 valuations are disconnected from their actual utility, which is now defined by interoperability. A chain's value accrual depends on its ability to connect to liquidity and users on other chains via protocols like LayerZero and Axelar.
The interoperability layer is the new kernel. Just as an OS manages hardware resources, CCIP, IBC, and Wormhole manage cross-chain state. This infrastructure is more defensible than any single L1's execution environment.
Evidence: The total value secured by bridges and oracles like Chainlink and Across Protocol often exceeds the market cap of the mid-tier L1s they connect. The infrastructure enabling the multi-chain thesis is the actual bottleneck and moat.
ECONOMIC ANALYSIS
Value Capture: L1s vs. Interop Protocols
Comparative analysis of value accrual mechanisms and market positioning between base-layer blockchains and interoperability infrastructure.
| Value Capture Vector | Layer 1 (e.g., Ethereum, Solana) | General-Purpose Bridge (e.g., LayerZero, Axelar) | Intent-Based/AMM Bridge (e.g., Across, UniswapX) |
|---|---|---|---|
Primary Revenue Model | Block space auction (gas fees + priority fees) | Message passing fees + native token staking rewards | Liquidity provider spreads + solver competition |
Fee Capture as % of TVL (Annualized) | 0.5% - 2.0% | 0.05% - 0.15% | 0.3% - 1.5% (variable by route) |
Protocol-Owned Liquidity | |||
Sovereign Monetary Policy | |||
Maximal Extractable Value (MEV) Capture | Direct via proposer/block builder | Relayer MEV (cross-chain arbitrage) | Solver MEV (intra-chain & cross-chain arbitrage) |
Ecosystem Lock-in (Composability) | Native: All apps built on-chain | Weak: Apps can switch messaging layer | Strong: Integrated into DEX flow (e.g., CoW Swap) |
Market Cap / Fee Ratio (P/F) | 20x - 100x | 100x - 500x | N/A (often fee-shared with LPs) |
Security Cost as % of Revenue | ~0% (security is native) | 30% - 60% (staker/validator rewards) | 5% - 15% (auditor/guardian rewards) |
deep-dive
THE MISALLOCATION
First-Principles of Cross-Chain Value Flow
The market overvalues monolithic L1s while undervaluing the composable interoperability layer that enables their utility.
Interoperability is the utility layer. A blockchain's value derives from its applications, but those applications require cross-chain liquidity and data. Without Across, LayerZero, or Axelar, isolated L1s become digital silos with limited use cases.
The market misprices infrastructure. Investors pour capital into L1 token speculation, but the real economic activity flows through bridges and messaging protocols. This creates a valuation disconnect between the asset and the pipes that give it function.
Composability drives network effects. Interoperability protocols like Chainlink CCIP and Wormhole become more valuable with each integrated chain, creating defensible moats that individual L1s cannot replicate. Their value accrual is non-linear.
Evidence: The Total Value Bridged (TVB) across all major bridges exceeds $20B, yet the combined fully diluted valuation of the top interoperability protocols is a fraction of a single major L1 like Solana.
protocol-spotlight
THE INTEROPERABILITY PREMIUM
Infrastructure in the Wild: Protocol Architectures
While L1s capture speculative attention, the infrastructure enabling their composability is the true value accrual layer.
01
The L1 Valuation Trap
Investors over-index on monolithic chain tokenomics while ignoring the interoperability fabric that determines their utility. A chain's value is capped by its ability to connect.
- TVL is portable: Billions in assets move via bridges like LayerZero and Axelar weekly.
- Modular future: Rollups and app-chains increase, not decrease, reliance on cross-chain messaging.
- Risk asymmetry: A bridge hack can drain an L1, yet security budgets are orders of magnitude smaller.
>100
Active L2s/L1s
$2B+
Bridge TVL
02
Intent-Based Abstraction (UniswapX, CowSwap)
Solving the UX fragmentation of 50+ DEXs across chains. Users state a desired outcome, solvers compete across venues and chains to fulfill it.
- Eliminates routing complexity: User gets best price, protocol handles cross-chain liquidity.
- Shifts value to solvers: The infrastructure layer (fillers, MEV searchers) captures fees, not the source chain.
- Future-proofs: Agnostic to new L1/L2 deployments; the intent engine simply incorporates them.
~30%
Better Prices
0
Chain Knowledge Needed
03
Universal Verification (EigenLayer, Babylon)
Security is the ultimate non-portable asset. These protocols commoditize cryptoeconomic security, allowing L1s to rent it instead of bootstrapping their own validator set.
- Capital efficiency: Staked ETH or BTC can secure dozens of chains and AVSs.
- Reduces launch cost: New chain security budget drops from billions to millions.
- Interop foundation: Secure light clients and bridging are primary use-cases, creating a trust-minimized web.
$15B+
Restaked TVL
90%
Cost Reduction
04
The Liquidity Network Thesis (Across, Chainlink CCIP)
Bridges are evolving from simple asset movers to generalized liquidity networks. They become the settlement layer for cross-chain states.
- Capital efficiency: Optimistic models (Across) or locked capital (CCIP) reduce the $10B+ stranded liquidity problem.
- Programmable liquidity: Smart contracts can permissionlessly request funds on any chain.
- Fee market creation: Relayers and liquidity providers form a new primitive, decoupled from L1 gas markets.
<60 sec
Optimistic Delay
$1B+
Volume/Month
counter-argument
THE MISALLOCATION
The Bear Case: Security Debt and Winner-Take-Most
The market overvalues monolithic L1s while underpricing the critical, high-moat interoperability layer that connects them.
Security is a liability for L1s. Each new chain like Solana or Avalanche must bootstrap its own validator set and economic security, creating massive, redundant capital expenditure. This security debt fragments liquidity and developer attention, making the entire ecosystem weaker.
Interoperability infrastructure is the moat. Protocols like LayerZero and Axelar become the indispensable plumbing. Their canonical messaging layers enable asset and state transfer, creating a winner-take-most network effect as integration complexity locks in users.
The market cap gap is irrational. The combined value of major bridges and oracles is a fraction of a single mid-tier L1. Yet, daily active addresses on chains like Arbitrum and Base are wholly dependent on this undervalued middleware to function.
Evidence: Ethereum's rollup-centric roadmap explicitly outsources execution but retains settlement and consensus. This validates the interoperability thesis—the future is multi-chain, and the value accrues to the connective tissue, not just the execution venues.
risk-analysis
INTEROPERABILITY INFRASTRUCTURE
Synthetic Risks: What Could Derail the Thesis?
The bull case for interoperability protocols like LayerZero, Axelar, and Wormhole rests on a multi-chain future. These are the scenarios where that future fails to materialize.
01
L1 Consolidation & Winner-Take-Most
The market consolidates around a single dominant L1 (e.g., Solana, Ethereum) or L2 superchain (e.g., OP Stack, Arbitrum Orbit), rendering generalized message bridges redundant.
- Network effects in liquidity and developer mindshare become insurmountable.
- Cross-chain activity becomes a niche use case, not the default.
- Interop protocols become low-margin utilities, not foundational infrastructure.
>70%
TVL on Top 2 Chains
~0
Cross-Chain Premium
02
Application-Specific Bridges Win
Vertical integration proves superior. Major dApps (Uniswap, Aave) or ecosystems (Cosmos IBC, Polygon zkEVM) build and control their own secure bridges, bypassing general-purpose layers.
- Trust minimization is easier for a single asset or app.
- Economic capture stays within the dApp's ecosystem.
- General-purpose interop becomes a commodity with no moat.
90%+
Volume on Native Routes
-80%
Fee Accrual to General Layer
03
Intents & Solvers Make Bridges Obsolete
The rise of intent-based architectures (UniswapX, CowSwap, Across) abstracts away chain boundaries for users. Solvers compete to source liquidity anywhere, making the underlying bridge a hidden, replaceable component.
- User experience is chain-agnostic; the bridge is invisible.
- Economic value accrues to solver networks and MEV searchers, not the bridge protocol.
- Bridges are reduced to dumb pipes with no pricing power.
$1B+
Monthly Intents Volume
<5%
Bridge Fee Take Rate
04
Regulatory Capture of Cross-Chain Flows
Governments target cross-chain messaging as a critical control point for sanctions enforcement and AML. Compliance requirements force centralization or blacklisting at the protocol level.
- OFAC-compliant relayers become mandatory, breaking censorship resistance.
- Legal liability shifts to bridge developers and validators, stifling innovation.
- The value proposition of permissionless interoperability is destroyed.
100%
KYC'd Validators
0
Censorship-Free Guarantee
05
Shared Security is a Moat That Never Forms
The promised 'Ethereum-level security' for cross-chain messages via restaking (EigenLayer, Babylon) or light clients fails to achieve sufficient economic security or liveness guarantees.
- Capital efficiency for securing external chains is poor; slashing is non-credible.
- Coordination failures and complex cryptoeconomics lead to chronic vulnerabilities.
- The security model remains fragmented and inferior to staying on a single L1.
<$1B
Effective Slashing Capital
High
Systemic Risk
06
The Modular Stack Eats the Interop Layer
Interoperability gets baked directly into the modular stack (Celestia DA, EigenDA, Espresso). Rollups natively read from and write to each other via shared data availability and sequencing layers, making external message buses unnecessary.
- Native cross-rollup communication becomes a standard feature of the settlement layer.
- Latency and cost are reduced by an order of magnitude versus external bridges.
- Dedicated interop protocols are disintermediated by infrastructure they helped enable.
~100ms
Native Rollup Latency
-99%
vs. 3rd Party Cost
investment-thesis
THE MISALLOCATION
Capital Allocation for a Multi-Chain Future
Venture capital over-indexes on monolithic L1s while undervaluing the interoperability layer that makes a multi-chain ecosystem functional.
Interoperability is the bottleneck. The market funds L1s to build sovereign territory but starves the bridges and messaging layers that connect them. This creates isolated liquidity pools and fragmented user experiences.
The value accrual is inverted. Protocols like Across and LayerZero capture fees from every cross-chain transaction, yet their valuations lag behind L1s that they make usable. The plumbing is more critical than the faucet.
Modular design demands it. With rollups and app-chains proliferating, the demand for secure communication via IBC or CCIP will scale exponentially. The interoperability layer becomes the system's central nervous system.
Evidence: Daily bridge volume often exceeds $1B, yet the combined market cap of major bridge protocols is a fraction of a single mid-tier L1. This arbitrage will correct.
takeaways
WHY INFRASTRUCTURE > MONOLITHS
TL;DR: The Interoperability Mandate
The market overvalues sovereign L1s while undervaluing the connective tissue that makes them useful. This is a structural mispricing.
01
The L1 Liquidity Trap
Every new L1 fragments liquidity and user experience, creating a prisoner's dilemma. Isolated chains are useless chains.
- TVL is trapped in silos, reducing capital efficiency.
- Developers face exponential complexity supporting N chains.
- Users are forced into costly, slow CEX arbitrage to move assets.
100+
Active L1/L2s
$50B+
Siloed TVL
02
The Solution: Intents & Shared Security
Move from brittle asset bridges to declarative intent systems and pooled security layers. This is the UniswapX and Across model.
- Intents abstract chain complexity (see CowSwap).
- Shared security (e.g., EigenLayer, Polygon AggLayer) turns security into a reusable commodity.
- Universal liquidity pools emerge, slashing bridging costs by -70%.
-70%
Bridge Cost
~2s
Settlement
03
The Modular Endgame
Monolithic L1s are legacy tech. The future is specialized layers (execution, data, settlement) connected by hyper-efficient messaging like LayerZero and CCIP.
- Interoperability infra is the new kernel.
- L1s become commoditized execution environments.
- Value accrual shifts decisively to the protocols that route value, not just store it.
10x
Msg Volume
$1B+
Protocol Revenue
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