From marketing slogans to generating value, understand the "three steps" of chain abstraction

Source: Austin King X Account

Author: Austin King

Compiled by: Deep Tide TechFlow

Most people still do not quite understand what "chain abstraction" really is.

Is it just a buzzword used by teams to attract venture capital investment, or will it truly have a significant impact like the "modular" movement?

To be honest, it's both, but many overlook the fact that its development will occur in phases.

In this article, I will analyze the current phase we are in and what we might achieve by the end of 2025. What impact will it have on the market when retail investors gradually realize that the dreams painted for them by venture capitalists are not real and that they intend to treat them as liquidity for their exits?

Phase 1 (Q4 2024 and Q1 2025, Stable and Non-threatening)

Congratulations------if you are reading this article and missed the huge gains brought by the modular wave triggered by Celestia in 2021, this will be your next opportunity to engage with projects that drive industry transformation on a similar scale.

We are currently in the initial phase of chain abstraction. In reality, only a few companies have a clear theory on how to build this concept correctly, and even fewer have the engineering strength to initiate it.

So, what is real today, and what is just hype?

The reality is that the most promising teams are currently only in the technical development phase, capable of demonstrating proof-of-concept demos. However, these protocols have not yet been widely applied in actual production. While somewhat disappointing, are these early proof-of-concepts promising?

At present, we are essentially in an extremely complex and difficult-to-use crypto environment. Users need to consider gas fees, mnemonic phrases, RPC endpoints, gas fees on other networks, which chains our tokens are on, which chains the applications we want to use are on, etc.------the complexity has reached the limit of how many people are willing to go through these cumbersome steps.

Companies currently focusing on chain abstraction are taking a step-by-step approach to solving problems------they attempt to address two or three complex issues faced by users. This is the proof-of-concept project currently being presented to the public.

The impact of this phase will be limited, and the entire industry will remain in this phase during Q4 of this year and Q1 of next year (I have had in-depth discussions with some leading teams, and this is my preliminary judgment based on their roadmaps).

It will be interesting------but people may still view chain abstraction as a new buzzword/marketing term, believing it is a means to attract investment. Although there will be evidence of substantial progress on the mainnet, it will not be enough for the entire industry to make significant adjustments around this design paradigm. However, the positive side is that if you dig deeper, you will start to see some companies on the mainnet that could become key leaders in the field, preparing themselves while most people have not yet paid attention.

Phase 2 (Q2 and Q3 2025, The Beginning of L1 Psychological Warfare)

By the second quarter of next year, people will start to see more instances of chain abstraction in the applications they use without actively searching for "chain abstraction" projects------the user experience will be enhanced in a way that is compatible with existing systems.

They may hear that a friend is using a wallet designed with a "universal account" that allows them to use funds anywhere. They might fund a margin account for a perpetual contract trading protocol, only to realize afterward that the protocol is on Arbitrum, but they actually deposited from Optimism, without even being aware that they needed to consider these details.

This is when we will see a new wave of people beginning to understand the actual situation. If you are a founder, this may be a good time to start serious fundraising. Venture capital researchers will begin to realize "there is a huge untapped opportunity here," as they have already seen the potential of this design paradigm on the mainnet, but they also understand that this is just the beginning, and there are many high-leverage opportunities to participate in.

As we approach the end of the third quarter, almost no one will be able to continue denying that chain abstraction will fundamentally change the way end users access these networks, and people will start to see:

Using applications will become simpler, and many applications will receive more funding support, unlike the infrastructure projects that venture capital is currently investing in that have no real applications.

By then, there may only be two or three infrastructure companies that adopted this design paradigm early on and will take the lead in the field of chain abstraction.

This will trigger one of the most interesting cultural conflicts I have seen in my seven years in the cryptocurrency space. Almost every practitioner holds a large amount of L1 tokens. We currently live in a culture where people strongly identify with a particular smart contract platform, such as Ethereum or Solana. This change will first appear in the Ethereum ecosystem, under the banner of "making Ethereum a complete network again," but will soon expand to all blockchains.

From a psychological perspective------if you hold cryptocurrency, your main investments are almost certainly BTC, ETH, SOL, or some other L1 tokens. Moreover, L1 teams are the most well-funded in the industry, with a vast network of key opinion leaders (KOLs) to promote their views. Additionally, the largest venture capital firms have invested hundreds of millions of dollars into L1 projects, and they must deliver multiple returns for their limited partners (LPs), or their investors' reputations will suffer severely.

Initially, when chain abstraction is limited to "making Ethereum a complete network again," these people will accept it. But once chain abstraction begins to threaten the status of L1 networks as centers of value accumulation, the most well-funded entities in the industry will coordinate to launch large-scale psychological warfare, trying to convince you that L1 is still where you should invest.

Phase 3 (Q4 2025 and Beyond, Major Decoupling)

The end of this year will be a difficult time for many investors. The opposition to chain abstraction is not because they are pessimistic about its prospects or do not believe it is beneficial to the industry, but because they have hundreds of millions of dollars in financial interests at stake, and they need to convince ordinary investors that the L1 projects they advocate will deliver the best returns.

This phase will be very interesting because it will become a confrontation between well-funded and biased large venture capital firms and empirical data that increasingly shows revenues are closer to order flow origins rather than foundational L1s (like Ethereum, Solana, Sui, etc.).

In the first half of 2025, projects participating in chain abstraction will be relatively simple and positive, but over time, you will see more and more intense debates arise within the industry, with people concocting various reasons to explain why L1 will still accumulate value and why chain abstraction is a scam.

What does this mean for ordinary people active on cryptocurrency Twitter? Currently, putting your funds into the most talked-about projects is still reasonable. This is the reality of the industry today, where almost nothing is based on fundamentals. However, as the next year approaches, you need to examine the direction of this field from a more macro perspective. You may see some data that makes you think, "Wow, chain abstraction really exists, I need to shift my investments towards applications and protocols that handle order flow origins because they can generate the most revenue"------but in reality, adjusting investments at that time would not be rational. If you are the kind of person who follows me and delves into industry trends, you need to realize that you do not belong to the ordinary retail group that will massively change investment directions in the future. You need to view this data from this perspective: "Will this data about chain abstraction protocols increasing revenue make retail investors realize that large venture capitalists are using biased and self-serving narratives to treat them as exit liquidity?"

When retail investors begin to realize this, the industry will undergo unprecedented drastic changes. We are finally learning how to evaluate crypto networks. Stakeholders will do everything possible to obscure this to maintain retail exit liquidity, but it will become increasingly clear that they have invested too much in infrastructure projects with no actual use, and they will feel extreme panic due to their inability to rely on the expected retail exit liquidity, and they will do everything in their power to maintain this situation, because frankly, their entire careers depend on it.