The boom, the fall, and the exodus: The disillusionment of classic VCs with Web3

Author: Ada & Liam｜TechFlow

“All in Crypto”!

In 2021, Sequoia China's head, Neil Shen, typed a few words in a WeChat group, and the screenshot was quickly forwarded to countless investment groups, like a drumbeat, pushing the market's enthusiasm to a higher point. The market atmosphere at the time was almost euphoric. Coinbase had just listed on the Nasdaq, FTX was being hailed as "the next Wall Street giant," and nearly every traditional VC firm was vying to be labeled "crypto-friendly." "This is a once-in-thirty-year technological wave," one described it. Sequoia's announcement became a defining moment of that bull market. However, just four years later, this statement rings with irony. Many institutions that once pledged to "all in on Web3" have quietly exited, sharply scaled back, or shifted their focus to AI. The volatile nature of capital is essentially a harsh reminder of the cycle. How are those classic Asian VCs who entered Web3 back then faring now? Pioneers of a Savage Era In 2012, Coinbase was founded. Brian Armstrong and Fred Earlsom were just a pair of young entrepreneurs in San Francisco. Back then, Bitcoin was still considered a geek's toy, priced at just over a dozen dollars. At the YC roadshow, IDG Capital invested in Coinbase's angel round. By the time Coinbase listed on the Nasdaq in 2021, the return on this investment was estimated to be over a thousand times. The Chinese story is equally fascinating. In 2013, OKCoin received investments from Tim Draper and Ma Gang; that same year, Huobi received funding from ZhenFund, and the following year, it secured investment from Sequoia China. According to information disclosed by Huobi in 2018, Sequoia China holds a 23.3% stake in Huobi, making it the second-largest shareholder after founder Li Lin. Also in 2013, Lightspeed Venture Partners partner Cao Darong first introduced Bitcoin to a man named Changpeng Zhao over a poker game. "You should invest in Bitcoin or blockchain startups," Cao Darong told Zhao. Zhao sold his house in Shanghai and went all in on Bitcoin. The rest of the story is well known: in 2017, he founded Binance. In just 165 days, Binance became the world's largest spot cryptocurrency trading platform, and Zhao later became the richest Chinese person in the crypto world. Compared to the other two exchanges, Binance's early funding journey was not smooth, primarily securing investment from Pancheng Capital, backed by Kuaidi Dache founder Chen Weixing; Black Hole Capital, backed by R&F Properties' son Zhang Liang; and several internet and blockchain founders. A small anecdote is that in August 2017, Sequoia China had the opportunity to acquire approximately a 10% stake in Binance at a valuation of $80 million. However, the investment fell through due to issues on Binance's part. Sequoia Capital later sued Binance, leading to a bitter dispute between the two parties. Also in 2014, angel investor Wang Lijie invested 200,000 RMB in the domestic blockchain company NEO (Antcoin), making it his most significant investment. From 2012 to 2014, when crypto-native VC was still in its infancy, traditional VC firms supported half of Web3. From the three major exchanges to Bitmain and imToken, traditional capital firms like Sequoia Capital and IDG were behind them. Everything went wild in 2017. Driven by the ICO boom, countless tokens saw skyrocketing prices. Wang Lijie, already reaping a profit, sold NEO at just 1.5 yuan. However, NEO's price continued to rise, peaking at over 1,000 yuan, a cumulative increase of over 6,000 times in three years. Deeply stimulated, Wang Lijie began placing frantic bets on blockchain, claiming he "went to bed at 1 a.m. and woke up at 5 a.m., meeting with project developers and reading white papers from morning till night, and investing an average of $2 million worth of Ethereum every day." So much so that when someone invited him for tea, he replied, "You're delaying my ability to make money."

In January 2018, Wang Lijie stated at a blockchain summit in Macau:

"I've made more in the past month than in the past seven years."

Also in early 2018, Xu Xiaoping, founder of Zhen Fund, delivered a "Do Not Spread" speech to an internal WeChat group of 500 people. He stated that blockchain is a great technological revolution, one that will prosper those who follow it and perish those who resist it. It will be even more rapid and thorough than the internet and mobile internet, and he called on everyone to learn and embrace this revolution.

The two speeches became the most well-known symbols of the apex of that bull market cycle.

In 2018, the ICO bubble burst, sending thousands of tokens plummeting to near zero, wiping out the market capitalization of once-hyped projects. Bitcoin also plummeted from a high of nearly $20,000 to just over $3,000, a drop of over 80%. By the end of that year, the cryptocurrency world had become a dirty word in the investment community. "I was attending a venture capital event in Beijing, and a VC partner joked, 'It doesn't matter if your startup fails. The worst that can happen is you launch a new coin.' The audience erupted in laughter, but I just blushed and panicked," recalled Leo, a former blockchain entrepreneur. In the second half of 2018, the entire industry seemed to have hit pause. Lively WeChat groups fell silent overnight, and project discussion groups were filled with links to Pinduoduo's stock cuts. On March 12, 2020, the market experienced another single-day market crash, with Bitcoin's price plummeting by 50% at one point. It felt like the end of the world. "Don't even mention the traditional VCs looking down on the crypto world. I myself felt like the industry was dead back then," Leo said. Both entrepreneurs and investors were made fun of by the mainstream narrative. As Justin Sun recalls, he'll never forget Wang Xiaochuan's "scam" look at him. In 2018, the crypto world plummeted from the center of a myth of wealth creation to the very bottom of the contempt chain. Classic VCs Re-enter the Market Looking back, March 12, 2020, marked the crypto industry's darkest trough in nearly a decade. Moments were flooded with blood-red candlestick charts, and people believed this was the final blow, the end of the industry. But the turnaround was unexpected and dramatic. The Federal Reserve's flood of liquidity pushed the previously moribund market to the forefront. Bitcoin took off from its lows, surging over sixfold in a year, becoming the most dazzling asset after the pandemic. But perhaps it was the Coinbase IPO that truly revitalized traditional VCs. In April 2021, the nine-year-old exchange rang the Nasdaq bell. It proved that "crypto companies can go public," and early investors like IDG reaped a thousand-fold return.

The bell of Coinbase echoed between Wall Street and Liangmaqiao. According to crypto media person Liam,many classic VC practitioners came to him after that to communicate offline and learn about the overall situation of cryptocurrency.

But in Leo's view, the return of classic VC is not just due to the wealth effect. "This group of people naturally wear the mask of elitism. Even if they secretly bought some coins during a bear market, they wouldn't admit it publicly." What truly helped them remove this mask was an upgraded narrative: from Crypto to Web3. This was a conceptual shift strongly promoted by Chris Dixon, Head of Crypto at a16z. Simply saying "investing in cryptocurrency" is seen by many as tantamount to speculation. However, changing the phrase to "investing in the next generation of the internet" instantly adds a sense of mission and moral legitimacy. Deploring the monopolies of Facebook and Google, while emphasizing decentralization and fairness, garners support and applause. The craze of DeFi and the explosion of NFTs can easily be incorporated into this grand narrative framework. The popularity of the Web3 narrative has relieved many traditional VCs of their moral burdens. Will, a crypto-fintech investor working for a leading institution, recalled: "We've experienced a cognitive shift. Early on, we viewed it as an extension of the consumer internet, but this logic has been disproven. What really changed our perspective was fintech." In his eyes, the timing of the Web3 boom fell right between the end of the mobile internet and the early days of AI. Capital needed a new story, so it shoehorned blockchain into the internet framework. But what truly lifted the industry out of its death spiral was the awakening of its financial nature. "Look at successful projects—which one isn't related to finance? Uniswap is an exchange, Aave is lending, Compound is wealth management. Even NFTs are essentially the financialization of assets." Another catalyst came from FTX. Founder SBF burst onto the scene as a "financial prodigy," captivating virtually every major traditional VC. His positive persona and rapidly inflated valuation ignited a sense of FOMO among VCs worldwide. At a Beijing venture capital gathering, investment tycoons were eager to know who could buy old shares of FTX and Opensea, envying those who had already done so. During this period, an interesting phenomenon also emerged: the flow of talent between traditional VCs and crypto VCs. Some left Sequoia and IDG to join emerging crypto funds; others transitioned from crypto VCs to traditional institutions, directly taking on the title of "Head of Web3." This two-way flow of capital and talent allowed the crypto market to truly enter the narrative of mainstream investors for the first time. The 2021 bull market was like a carnival. The WeChat group was buzzing with activity. Unlike in the past, this time, it featured more traditional VCs, family offices, and members of major internet companies. NFTs were trending, and VC leaders were switching their profile pictures to high-net-worth NFTs like monkeys and punks. Even Zhu Xiaohu, once known for his bearish views on cryptocurrency, changed his profile picture to a monkey. At offline conferences, in addition to crypto-native entrepreneurs, elite traditional VC partners also began to appear. Classical VCs have entered the Web3 market in a variety of ways: directly investing in crypto projects, sending valuations soaring; investing in crypto VCs as an LP (Sequoia China, which was once in court with Binance and later became an LP of Binance Labs after the two parties settled); directly buying Bitcoin in the secondary market... Crypto VCs, classic VCs, exchanges, and project owners are intertwined, pushing project valuations ever higher. Everyone is anticipating a more glorious bull market, but behind the clamor, risks are quietly brewing. VC Falls If the 2021 bull market was heaven, then 2022 has instantly turned into hell. FTX's success is due to its success, and its failure is also due to its failure. The collapse of LUNA and FTX not only destroyed market confidence but also directly dragged down a number of traditional VCs. Institutions like Sequoia Capital and Temasek suffered heavy losses, and Temasek, as a state-owned capital, was even held accountable in the Singapore Parliament. After the bull market bubble burst, many once-highly valued crypto projects were reduced to their original state. Unlike crypto-native VCs who experimented with small investments, traditional VCs have always been accustomed to making large bets, often reaching tens of millions of dollars in single investments. They also purchased large quantities of SAFTs from crypto VCs, becoming a key source of exit liquidity for crypto VCs in the previous cycle. What is even more disheartening for traditional VCs is that the narrative of the crypto industry is changing so rapidly that it has outstripped their investment logic. Projects once held high hopes can be completely abandoned by the market within a few months, often leaving investors with deeply trapped equity and liquidity problems. Ethereum's Layer 2 (L2) sector is a prime example. In 2023, Scroll raised funds at a valuation of $1.8 billion, with Sequoia China and Qiming Venture Partners among its investors. However, on September 11th of this year, Scroll announced the suspension of DAO governance and the resignation of its core team, leaving its total market capitalization at just $268 million and a VC investment loss of 85%. Meanwhile, the dominant position of exchanges and market makers has made VCs increasingly redundant. Investor Zhe said frankly: "Those projects with a valuation of less than 30 to 40 million US dollars can make some money if they are finally listed on Binance. At the end of the lock-up period, they can get two or three times the money. If they are a little more expensive, they can only be listed on OKX or smaller exchanges, which means they will lose money." In his view, the logic of making money has long been irrelevant to the project itself, and depends on only three things: whether it can be listed on Binance; Is the chip structure favorable? Is the project owner willing to "feed the meat"? "Anyway, the exchange has the most say and gets the lion's share. How much of the rest you get depends on luck." Zhe's words capture the pain of many classic VCs. They find their role in the primary market increasingly like that of "porters": investing in projects, only to have the exchange reap the lion's share, while they receive only scraps. Some investors even lamented: "In fact, there is no need for a primary market now. Project parties can make money by listing on Binance Alpha. Why should they share profits with VCs?" As the logic of capital became obsolete, the focus of traditional VCs also shifted. As Will explained, the Web3 boom coincided with the end of the mobile internet era and the early days of AI—a period of inactivity. However, when ChatGPT emerged, the true North Star appeared. Funding, talent, and narratives instantly shifted, gravitating towards AI. In their WeChat Moments, VCs who had once actively shared news about Web3 financing quickly adopted the persona of "AI investors." Zac, a former classic VC investor, observed that many classic VCs were looking at Web3 projects during the industry's peak in 2022-2023, but by now, 90% have stopped. He predicts that if the Asia-Pacific cryptocurrency primary market remains as sluggish as it is for another six months to a year, even more will abandon it. leaf="">No more big bets

The Web3 primary market in 2025 looks like a shrinking chess game.

The excitement has faded, and only a few players remain, but the landscape is being reshaped in secret.

As a bellwether for classic VCs, Sequoia Capital's movements are still worth paying attention to.

According to Rootdata data, Sequoia China invested in a total of 7 projects in 2025, including OpenMind, Yuanbi Technology, Donut, ARAI, RedotPay, SOLO, and SoSoValue, followed by IDG Capital, Jinshajiang Venture Capital, and Xiangfeng Investment. The previously active Qiming Venture Partners made its last web3 investment in 2024. July.

According to Zac’s observation: “Now the number of classical VCs who are still looking at Web3 projects can be counted on one hand. ”

In his opinion, the quality of encryption projects has seriously declined.

“Teams that strive to find PMFand create long-term value for users receive far less positive feedback than teams that delve intoattention economyandactive market-making. "Zac said. In addition, crypto treasury companies represented by MicroStrategy and BMNR have become a new investment option, but this has once again caused a vampire effect on the increasingly depleted crypto primary market. "Do you know how many PIPE projects there are in the market now?" said Wang Yuehua, partner of Draper Dragon. "There are at least 15, and each requires an average of US$500 million. That's US$7.5 billion. Almost all the big funds in the market are on Wall Street, and they go to participate in PIPE. ”

PIPE (Private Investment in Public Equity) refers to a listed company issuing stocks or convertible bonds to specific institutional investors at a discounted price in order to achieve rapid financing.

Many listed companies that were originally unrelated to the cryptocurrency business have obtained large amounts of financing through PIPE, and then purchased large amounts of BTC, ETH, SOL and other assets, transforming themselves into crypto treasury companies. Investment companies that entered the market at a discount often made considerable profits.

“This is why there is no money in the primary market. "Wang Yuehua said, "Big funds are all playing with higher certainty PIPE, who is willing to take the risk to invest in the early stage? " Some people leave, some people stick to it. Will still chooses to believe and stick to it. He believes in Web3, AI, and is even willing to invest in public goods that seem to have "no business model." "Not everyone wants to do business." Will said, "Really great projects often start with a simple public good. Just like Satoshi Nakamoto created Bitcoin, he did not pre-mine, did not raise funds, but created the most successful financial innovation in human history. ”

The dawn of the future

Several major events that occurred in 2025 are changing the rules of the game.

Circle’s listing was like a spark, lighting up stablecoins and RWAs (Real-World Assets).

This stablecoin issuer was listed on the New York Stock Exchange with a valuation of approximately US$4.5 billion, giving traditional VCs a long-awaited "non-tokenized" exit example. Subsequently, Bullish, Figure, and others went public one after another, giving more investors confidence.

“We don’t touch the primary and secondary markets of pure tokens, but we will look at stablecoins and RWAs,” said several traditional VCs. Investors offer the same assessment. The reasons are simple: ample room for growth, visible cash flow, and a clearer regulatory path. Stablecoins offer a more "bank-like" business model, with reserve fund spreads, issuance/redemption and settlement fees, and service fees from compliant custody and clearing networks, naturally creating the potential for sustainable profitability. RWAs, on the other hand, move receivables, government bonds, mortgages/real estate, and fund shares onto the blockchain, generating revenue from fees and spreads across multiple stages, including issuance/matching/custody/circulation. If the previous generation of crypto companies listed on the US stock market were primarily exchanges, mining companies, and asset management firms, then the new generation of prospectuses is dominated by stablecoins and RWAs. Meanwhile, the boundaries between stocks and tokens are blurring. The "MicroStrategy"-style treasury strategy has attracted a wave of imitators. Listed companies are allocating to leading assets like BTC/ETH/SOL through equity financing or PIPE issuances, transforming themselves into "crypto-equity." Behind the leaders of this sector are many classic VCs like Peter Tiel. Some institutions are even entering the market themselves, such as Huaxing Capital, which announced a $100 million investment in BNB, choosing to participate in crypto asset allocation through the open market. "The traditional financial world is embracing crypto," Wang Yuehua said. "Look at Nasdaq investing $50 million in Gemini. This is not only a capital move, but also a change in attitude. This shift is also reflected at the LP level. According to multiple interviewees, traditional LPs such as sovereign funds, pension funds, and university endowment funds are beginning to reassess the value of allocating to crypto assets. The past decade of capital has seen the ebb and flow of the tide. Asia's classic VCs once pushed exchanges onto the stage and shouted "All in" in unison during the bull market, but in the end they became marginal players in the crypto world. Although the current reality is bleak, the future may not be without hope. As Will firmly believes: "Classic VCs will definitely allocate more to crypto-related fintech investments." The future of classic VCs Will there be another large-scale entry? No one dares to assert. The only certainty is that the pace of progress in the crypto world will not stop.