Bitwise CIO Questions Commoditization of Layer 1 Blockspace

Bitwise Chief Investment Officer Matt Hougan challenges the notion that layer 1 blockspace has become a commodity, suggesting that the organization’s behavior points to a different conclusion.

He mentioned a growing sentiment in the crypto community that “L1 blockspace is a commodity.”

Institutional Capital Concentration in Leading Chains

According to Bitwise officials, once blockchain infrastructure is truly commoditized, both capital and development would be spread evenly across chains. However, they observe that institutional efforts are still largely concentrated on a few dominant chains, like Ethereum and Solana.

“We basically have no interest in building on top of the 20th largest L1,” he elaborated.

Despite some new layer 1 networks striving to capture fees and throughput, Ethereum and Solana still hold significant influence over mindshare, liquidity, and developer engagement. Hougan provided a straightforward insight into the current low-cost environment.

“Top-tier L1 is building out more bandwidth than the market currently has available, so prices are at the lowest levels.”

He cautioned, however, that this balance might not endure.

“The real question is what happens when demand grows as stablecoins/tokenization/DeFi grows into the trillions,” he said. “I don’t know the answer yet.”

With the expansion of blockchain-based financial infrastructure aiming to handle trillions in tokenized assets and on-chain transactions, the existing surplus capacity could soon be tested. Such a shift might alter the economic foundations of major networks.

Prediction Markets and Insider Trading Concerns

Hogan also tackled another contentious issue: insider trading challenges linked to crypto-based prediction markets.

“The insider trading concerns around prediction markets are basically the other way around,” he claimed. “Prediction markets are a market-based extension of Reg FD that puts us all on a level playing field.”

Regulation Fair Disclosure (Reg FD) aims to prevent selective sharing of crucial information among favored investors. Hogan argues that prediction markets enhance this principle by openly pricing the probabilities of significant events.

He noted that in the past, hedge funds leveraged lobbying and consulting to gather privileged information during crucial legislative discussions in Washington, D.C.

However, retail investors now have access to live probability tracking on platforms like Polymarket, even for potential legislation like the Clarity Act.

“For a liquid market, those odds are probably as good or better than what lobbying groups can offer. It’s a more level playing field,” Hogan remarked.

While he acknowledged ongoing risks and the necessity of strong measures against insider trading in prediction markets, he emphasized the overwhelmingly positive and equitable impact of these platforms.

This leads to two main discussions:

• The commoditization of L1 blockspace;
• The potential unfair advantage of prediction markets.

Both conversations center on the distribution of power within the financial system. Matt Hougan contends that the concentration of institutions on leading chains mirrors economic realities rather than simple commoditization. Meanwhile, open prediction markets illustrate a scenario where information disparity might be diminishing.