Bitwise CIO Matt Hougan argues that the notion of Layer 1 blockspace becoming a commodity is premature, as institutional activity concentrates on top chains like Ethereum and Solana. He points to low fees resulting from excess bandwidth rather than true commoditization. Hougan also defends prediction markets as a tool that levels the information playing field in crypto.
Matt Hougan, chief investment officer at Bitwise, has pushed back against the growing perception in the crypto space that Layer 1 blockspace is a commodity. In a recent analysis, he notes that if infrastructure were truly commoditized, capital and development would spread evenly across chains. Instead, most institutional building occurs on a handful of networks, such as Ethereum and Solana.
Hougan explains, "…basically, zero interest in building on the twentieth largest L1." These top-tier chains maintain dominance in mindshare, liquidity, and developer activity, despite competition from newer Layer 1s offering lower fees and higher throughput. He attributes the current low-fee environment to overbuilt capacity: "Top-tier L1s built more bandwidth than the market can use at the moment, so fees are rock-bottom."
Looking ahead, Hougan raises questions about future demand. "The real question is what happens when demand scales as stablecoins/tokenization/DeFi grow into the trillions," he wrote. He suggests that expansion into trillions of dollars in tokenized assets and on-chain settlement could strain today's excess capacity, potentially altering the economics of leading networks.
Shifting to prediction markets, Hougan addresses concerns over insider trading. He describes these markets as a "Reg FD for the Internet Age," extending Regulation Fair Disclosure's aim to prevent selective information sharing. "The insider trading worries about prediction markets are basically backwards," Hougan argues. "Prediction markets are a markets-based extension of Reg FD, putting us all on a level playing field."
He contrasts historical advantages for hedge funds, which relied on lobbyists for private intelligence from Washington, D.C., with today's accessible platforms like Polymarket. These allow retail investors to track probabilities on events, such as the passage of 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.
While acknowledging the need to police insider trading, Hougan views prediction markets as promoting greater equality in information access.