The idea that Layer 1 blockspace has become a commodity may be premature, according to Bitwise CIO Matt Hougan, who argues that institutional behavior tells a very different story.
Hougan pushed back on what he described as an “increasing view in crypto that L1 blockspace is a commodity.
Institutional Capital Clusters on Top-Tier Chains as On-Chain Prediction Markets Redefine Information Edge
According to the Bitwise executive, if infrastructure were truly commoditized, capital and development would be evenly distributed across chains.
Instead, the vast majority of institutional building is taking place on very few chains (Ethereum, Solana, etc.).
“…basically, zero interest in building on the twentieth largest L1,” he explained.
Networks like Ethereum and Solana continue to dominate mindshare, liquidity, and developer activity, even as newer Layer 1s compete aggressively on fees and throughput. Hougan offered a simpler explanation for today’s low-fee environment.
“Top-tier L1s built more bandwidth than the market can use at the moment, so fees are rock-bottom.”
However, he cautioned that the current equilibrium may not last.
“The real question is what happens when demand scales as stablecoins/tokenization/DeFi grow into the trillions,” he wrote. “I’m not sure we know the answer yet.”
If blockchain-based financial infrastructure expands to support trillions of dollars in tokenized assets and on-chain settlement, today’s excess capacity could quickly tighten. Such an outcome could potentially reshape the economics of leading networks.
Prediction Markets as a “Reg FD for the Internet Age,” Hougan Argues
Beyond infrastructure, Hougan also weighed in on another contentious topic: insider trading concerns surrounding crypto-based prediction markets.
“The insider trading worries about prediction markets are basically backwards,” he wrote. “Prediction markets are a markets-based extension of Reg FD, putting us all on a level playing field.”
Regulation Fair Disclosure (Reg FD) was designed to prevent selective disclosure of material information to favored investors.
Hougan argues that prediction markets extend that principle by publicly pricing probabilities around major events.
He reflected on how hedge funds historically extracted “alpha” during pivotal legislative moments in Washington, D.C., hiring lobbyists and consultants to gather private intelligence from Capitol Hill.
Today, however, retail investors can track live probabilities on platforms like Polymarket, including markets tied to the potential passage of legislation such as the Clarity Act.
“For liquid markets, those odds are probably as good or better than anything the lobbying complex can provide. It’s a more even playing field,” Hougan said.
He acknowledged that risks remain, citing the need to aggressively police insider trading in prediction markets. Still, he emphasized that the impact balance is dramatically positive and egalitarian.
Therefore, there are two debates here:
- Whether L1s are commoditized and
- Whether prediction markets enable unfair advantages
Both debates revolve around how power is distributed in financial systems. According to Matt Hougan, institutional concentration on top-tier chains reflects economic reality rather than pure commoditization.
Meanwhile, open prediction markets represent a rare instance where information asymmetry may actually be shrinking.