Decentralized Internet Infrastructure
A concentrated, high-conviction portfolio of the protocols rebuilding the internet’s foundational layers.
Protocols
Positions
Executive Summary
The internet is undergoing its most significant architectural shift since the introduction of TCP/IP. The centralized infrastructure that powers today’s web — controlled by a handful of corporations — is being replaced by a new generation of open, permissionless protocols that decentralize finance, data, computation, and intelligence.
Just as TCP/IP, HTTP, and SMTP became the invisible backbone of the internet, these new protocols are becoming the invisible backbone of a decentralized web. They are not applications. They are infrastructure — foundational layers on which everything else is built. And just like the original internet protocols, they will outlast the applications that run on top of them.
The AO Mainnet Fund concentrates capital in 5–10 infrastructure protocols that serve as these foundational layers. Our thesis is simple: invest in the picks and shovels, not the gold miners. Invest in protocols, not applications. This is the same logic that made investing in internet infrastructure in the 1990s the most durable strategy of the entire internet era.
Think of it like investing in TCP/IP, HTTP, and SMTP in the 90’s — instead of investing in the companies built on these protocols. Fantastic risk-reward macro investment.
Why Infrastructure Protocols
one system controls everything.
Single point of failure.
Peer-to-peer, no intermediaries.
No single point of failure.
The World’s First Public Digital Infrastructure
Peter Van Valkenburgh, Director of Research at Coin Center, delivers what is widely considered the best explanation of Bitcoin and blockchain technology — before the US Senate Committee on Banking, Housing, and Urban Affairs.
“Unlike every other tool for sending money over the internet, Bitcoin works without the need to trust a middleman. It is the world’s first public digital payments infrastructure — available to all and not owned by any single entity.”
— Peter Van Valkenburgh, Director of Research, Coin Center
Van Valkenburgh articulates the core innovation that underpins our entire thesis: blockchain technology creates permissionless, public infrastructure that anyone can build on and no single entity can control. Just as TCP/IP, HTTP, and SMTP became the invisible backbone of the information internet, decentralized protocols like Bitcoin, Ethereum, and Chainlink are becoming the foundational rails for the internet of value. The fund invests at this infrastructure layer — the protocols that will compound in value as adoption grows, exactly as Van Valkenburgh describes.
The Problem: Centralized Infrastructure
The current internet is controlled by a small number of corporations. Five companies — Amazon, Google, Microsoft, Apple, and Meta — control the majority of cloud computing, search, identity, payments, and social infrastructure. This concentration creates single points of failure, enables rent extraction, and introduces censorship and surveillance risks that undermine the open nature of the internet.
After friendly beginnings, these platforms have become more extractive and less cooperative. They attract users and builders with open APIs and fair terms, then gradually extract more value and compete with their own ecosystems. This pattern repeats across every centralized platform.
The Solution: Permissionless Protocols
Decentralized protocols solve these problems by making infrastructure permissionless, composable, and owned by users. No single entity can shut them down, extract rent, or change the rules. They are credibly neutral — anyone can build on them, and everyone benefits from their growth.
These protocols capture value fundamentally differently from centralized platforms. Instead of extracting revenue through subscriptions and advertising, they accrue value through usage fees, token burns, and staking rewards — creating productive, yield-generating assets that reward long-term holders.
The Opportunity
Investing towards an open, decentralized and more robust architecture of tomorrow’s web.
The Decentralized Infrastructure Stack
Just as the internet is built in layers — from TCP/IP at the base to HTTP for transfer to HTML for presentation to applications at the top — the decentralized internet is being built in layers. Each layer replaces a centralized equivalent with a permissionless protocol.
Infrastructure Categories We Target
System
Rails
Layer
Layer
Layer
Each category represents a critical layer of the decentralized internet. Oracles provide the data feeds that connect smart contracts to the real world. DeFi infrastructure provides the financial primitives that replace banks and exchanges. AI and compute networks provide decentralized intelligence. Data availability layers provide the scalability that blockchains need to serve billions of users. And Layer 1 blockchains provide the execution environments on which everything runs.
We do not pick applications. We invest in the infrastructure that all applications need.
Value Accrual at the Infrastructure Layer
The most durable investments in the internet era were not in applications — they were in infrastructure. Applications come and go (MySpace, AOL, Yahoo), but infrastructure compounds. TCP/IP has been running since 1983. HTTP since 1991. SMTP since 1982. All are still the backbone of the internet.
The same pattern holds for the decentralized internet. Applications will compete fiercely and many will fail. But the infrastructure protocols they all depend on will compound in value as adoption grows.
- Users switch easily between apps
- Revenue depends on retention
- Winner-take-most dynamics
- Vulnerable to disruption by new entrants
- MySpace → Facebook → TikTok
- High switching costs once integrated
- Revenue from usage across all apps
- Every new app strengthens the protocol
- Network effects compound over time
- TCP/IP (1983), HTTP (1991) — still running
Protocol Revenue Models
Infrastructure protocols generate real, usage-driven revenue through multiple mechanisms:
- Transaction fees — Every on-chain action pays a fee to the protocol and its operators
- Token burns — Many protocols burn tokens proportional to usage, creating deflationary pressure
- Staking yields — Validators and stakers earn yield for securing the network (3–8% APY)
- Protocol fees — DeFi protocols charge fees on trades, loans, and liquidations
This is not speculative value — it is real economic activity flowing through open infrastructure.
Protocol Example: Uniswap vs. NYSE
Uniswap replaced centralized exchanges with an open protocol — no company, no middleman, just code. The comparison illustrates how decentralized protocols can replace entire industries.
Fund Strategy
- Strategic accumulation of Network Tokens as core holding
- Focus on long-term value appreciation
- Technical Monitoring & Risk Management
- Downside protection through systematic rebalancing & hedging instruments
- Continuous due diligence and rebalancing
- Protocols showing breakout metrics
- Higher risk-reward asymmetry
- 2–5 high-conviction positions
- Individual positions: 5–10% of fund capital
- Active management with strict position limits
- Continuous due diligence and rebalancing
Selection Criteria
- Protocol Revenue — Real, usage-driven fee revenue. Not inflationary token rewards. We invest in protocols that generate genuine economic throughput.
- Network Effects — Does usage beget more usage? Are switching costs high? We seek protocols with compounding moats that strengthen over time.
- Token Design — Supply caps, burn mechanisms, staking yields. Tokenomics that reward long-term holders and align incentives across all participants.
- Team & Governance — Proven execution track record, credible decentralization roadmap, and strong community governance.
- Market Timing — Early enough for asymmetric upside, mature enough to demonstrate traction. The sweet spot of the adoption curve.
Risk Management
All staked positions maintain liquidity buffers to ensure we can meet redemption requests without forced selling during market stress. Portfolio rebalancing is conducted quarterly. Individual position limits (max 20% for core holdings, max 8% for emerging) prevent concentration risk. All infrastructure is secured using institutional-grade multi-signature wallets.
Investment Rationale
1. Structural Inevitability
The centralization of internet infrastructure creates the same coordination failures that Bitcoin was designed to solve for money. As dependence on centralized platforms deepens, the demand for decentralized alternatives will intensify. This is not a question of if, but when. The decentralized internet is a structural inevitability.
2. Asymmetric Risk-Reward
Decentralized infrastructure protocols are valued at a fraction of their centralized equivalents. Chainlink’s oracle network secures hundreds of billions in DeFi value — yet its market cap is a rounding error compared to the data infrastructure companies it is replacing. This valuation gap is the asymmetry we are investing into.
3. Yield Generation
Unlike traditional venture capital or passive crypto holdings, infrastructure protocols generate real yield. Staking, validation, and protocol fees generate 3–8% APY across our positions. This yield covers operational costs (enabling our 0% management fee) and compounds the portfolio over time.
4. Regulatory Tailwinds
Increasing regulatory clarity for DeFi and crypto infrastructure — particularly in the EU (MiCA) and the United States — is removing uncertainty and opening doors for institutional capital. Infrastructure protocols that demonstrate real utility and transparent governance are best positioned to benefit from this trend.
5. Network Effect Compounding
Infrastructure protocols exhibit powerful network effects. Each new user, developer, or application built on top strengthens every other participant. More usage generates more fees, which attracts more validators, which increases security, which attracts more users. This flywheel is difficult to replicate and impossible to compete with once established.
Portfolio Return Scenarios (2031)
Four scenarios for portfolio returns over a 5-year horizon, reflecting different rates of infrastructure protocol adoption:
Risk Analysis
Infrastructure protocol investing is a high-risk, high-volatility strategy suitable only for sophisticated investors with long-term horizons and high risk tolerance.
Infrastructure protocols depend on complex smart contracts with potential vulnerabilities. Bridge exploits and protocol hacks remain an ongoing risk across the ecosystem.
The portfolio is exposed to crypto market cycles with potential 50%+ drawdowns. Short-term price action may not reflect fundamental protocol value.
AWS, Google, Stripe, and other centralized incumbents have massive resources, established moats, and could build competing solutions faster than expected.
Adverse regulatory developments could materially impact DeFi protocols and token values. Cross-jurisdictional regulatory fragmentation adds complexity.
With 5–10 positions, individual protocol failures have outsized impact on portfolio returns. Mitigated by category diversification and strict position limits.
Some positions may have limited exit liquidity during market stress. Smaller-cap infrastructure tokens could experience significant slippage during large sales.
Fund Terms & Structure
| Parameter | Details |
|---|---|
| Legal Structure | AO Mainnet Fund GmbH & Co. KG |
| Taxation | Fund Level: ~25% | LP Distribution: 0% (tax-free) |
| Management Fee | 0% — operational costs covered by staking rewards |
| Performance Fee | 20% |
| Super Carry | 30% (if return >20x) |
| General Partner | Johannes de Waal |
| Management Company | Tokenstreet GmbH |
Team
Conclusion
The internet is being rebuilt on decentralized protocols. This is not speculative — it is happening now, across every layer of the infrastructure stack. From oracles providing data feeds to DeFi protocols replacing banks, from AI networks decentralizing intelligence to data availability layers scaling blockchains — the foundational layers of a new internet are being laid.
The AO Mainnet Fund’s concentrated approach maximizes conviction while maintaining diversification across infrastructure categories. We invest only in protocols with real usage, real revenue, and real network effects. We avoid applications, memecoins, and speculative plays.
For qualified investors seeking exposure to the foundational layers of the decentralized internet, infrastructure protocols represent the most compelling risk-reward opportunity in the current market. The protocols we invest in today will become the invisible backbone of tomorrow’s web.
Web 3.0 empowers a collectively owned future over a corporate or government owned future. We invest in the infrastructure making this possible.
Get in Touch
For accredited and semi-professional investors seeking exposure to decentralized infrastructure protocols.
mail@aofund.xyz