The rapid growth of the Web3 ecosystem has been fueled by advances in Ethereum scaling systems and the emergence of high-performance Layer 1 blockchains. This has led to increased adoption of cryptographic technologies across the board, from internet startups to large enterprises.

However, the current model for building the Web3 ecosystem has some inherent flaws.

Arjun Krishan Kalsy is the head of ecosystems at Mantle. This article is part of CoinDesk Crypto 2023.

Blockchain infrastructure companies are trying to solve two complex and expensive problems simultaneously: building the best-in-class infrastructure and building the largest and most dynamic ecosystem. Each of these efforts requires specialized equipment and a significant expenditure of resources to be successful.

As a result, many blockchain infrastructure companies have seen their treasury funds quickly depleted. For example, the float for Polygon’s MATIC token is greater than 90% (all rights included) and the float value for Solana’s SOL token is greater than 85% (all rights included). This means that most of the tokens from the ecosystem funds of the main infrastructure projects have already been spent in the market.

This type of growth strategy, where an infrastructure company has to solve two different problems simultaneously, is not sustainable. Over time, this will put pressure on the treasury funds of these projects and slow down the growth and adoption of Web3 technology as a whole.

Specialized Layers: A Different Approach to Building Web3

The optimal solution is to turn the single treasury problem into a two treasury solution, each with a focus on building infrastructure or ecosystem. By separating the responsibilities of building best-in-class infrastructure and supporting ecosystem development, each treasury can focus on its specific goals and allocate resources accordingly. This can lead to a more efficient and effective use of resources and a stronger and more dynamic ecosystem.

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Using a two-treasury system, the base layer would focus on building the necessary technical infrastructure, such as the blockchain, connection tools, and other tools. Meanwhile, the ecosystem layer will focus on supporting builders and entrepreneurs who are building Web3 businesses, applications, and protocols.

By using dual participation, it is possible to create value for both the infrastructure and business layers. The infrastructure token would accumulate value through staking and providing crypto-economic security, while the ecosystem layer token would accumulate value by driving the ecosystem economy. Additionally, the ecosystem layer would generate gas fees, which would transfer value to the infrastructure layer.

Read more: 2023: The year DAOs follow the law?

This is analogous to how Web2 infrastructure companies like Amazon Web Services act as the base layer as companies build businesses on top of their infrastructure to create value for the end user. Overall, this approach offers the potential to create tremendous value for both parties involved.

decentralized organizations

DAOs (Decentralized Autonomous Organizations) have several unique advantages when it comes to building ecosystems. A DAO is a decentralized network of participants governed by a set of rules encoded in a smart contract. This structure allows for a more open and inclusive decision-making process, as each token holder has a say in the direction of the DAO and can actively contribute to the growth of the ecosystem.

However, the decentralized nature of DAOs may not always be the best option for making complex technology decisions. These decisions often require a high degree of expertise and can benefit from the concentrated efforts of a small, centralized team. Additionally, the presence of information asymmetry may prevent the general public from making optimal decisions in these cases.

Read more: How Bad Tax Policy Drives DAOs Out of the US

By combining the horizontal structure of a DAO with the vertical structure of an infrastructure provider to create a larger ecosystem, greater value is generated for the community. This hybrid approach allows us to harness the benefits of horizontal and vertical structures for ecosystem building and technology decision making.

In the last couple of years, the Web3 space has grown by leaps and bounds, but we’re still way behind when it comes to mass adoption. The total number of Web3 on-chain participants globally is still in the single-digit millions.

If we want to achieve mass adoption of Web3 technology, we will need to find new ways to optimize the allocation of resources to build both the technology and the ecosystem.