The New Cycle and Old Rules of Crypto VC

Author: Gu Yu, ChainCatcher

An indisputable and obvious fact is that crypto VC has been declining in the market cycle of recent years. The returns, voice, and influence of almost all VC institutions have declined to varying degrees. VC tokens have even been "scoffed at" by many investors.

There are many reasons for this. For example, due to the habit of most VCs to sell off their tokens and the excessive amount of capital invested in projects, users have begun to dislike VC tokens. More funds have flowed into narratives with less VC content, such as memes and AI agents, resulting in a lack of liquidity for VC tokens. Another example is that the token unlocking period for VCs has been extended, resulting in slower and more disadvantageous exit cycles. Several veteran investors have also offered their explanations. Jocy Lin, founder of IOSG Ventures, believes that during the 2021 bull market, primary market liquidity was extremely abundant, allowing VCs to raise large amounts of capital in a short period of time. This excess capital led to generally inflated project valuations and inadvertently amplified narrative-driven investment models. Many VCs remain stuck in the easy money model of the first two cycles, believing that products and tokens are unrelated. They are obsessed with grand narratives and potential markets, while ignoring a project's true product-market fit (PMF) and sustainable revenue model. Jocy Lin further explained that the dilemma facing VCs in the cryptocurrency industry stems from a mismatch between value capture and risk-taking. They bear the longest lock-up periods and the highest risks, yet are at the weakest position in the ecosystem, exploited by exchanges, market makers, and key opinion leaders. When the narrative-driven model collapses, native VCs, lacking industry resources, lose their foundation for survival—money is no longer a scarce resource; liquidity and certainty are. According to Will, partner at Generative Ventures, exchanges and market makers have become the true exploiters of all liquidity and premiums in this cycle. Most projects use VC funding for two main purposes: marketing and hype, and collecting exchange listing fees. These projects are essentially marketing companies, burdened with substantial payments to exchanges and market makers. Furthermore, VC-backed coins now require a two- to three-year lock-up period after listing, much longer than in traditional securities markets. This results in very poor liquidity prospects for exits, making it difficult to profit. Anthony Zhu, founding partner of Enlight Capital, believes that Asian VCs primarily focused on token strategies have fallen into a death spiral amid the current altcoin market downturn. The quick money-making effect of the previous bull market has created a strong path dependency for both limited partners and general partners. When this path is stretched or even eliminated, VCs are squeezed by both short-term return expectations on the LP side and deviations from fundamentals on the project side, ultimately leading to distorted actions. The current situation is essentially a mismatch between LPs, general partners, and market opportunities. However, in addition to the overall decline of VC, a more noteworthy phenomenon and issue is that the overall activity and influence of Asian VC firms appear to have declined even more significantly during this cycle. In RootData's 2025 Top 50 VCs list, compiled this month based on activity and exit performance, only two or three Asian VCs, including OKX Venture, made the list. Furthermore, during the recent IPO boom and major M&A exits (Circle, Gemini, Bridge, Deribit, etc.), only IDG Capital achieved significant returns thanks to its early investment in Circle, while other Asian VCs largely missed out. Looking further, once-active and successful Asian VC firms like Foresight Ventures, SevenX Ventures, Fenbushi Capital, and NGC Ventures have made fewer than 10 or even 5 investments this year, and their fundraising progress has been minimal. From once-dominant players to now languishing in silence, how has Asian VC found itself in such a predicament? 1. Why can't Asian VCs compete with their European and American counterparts?

Under the same macro landscape, Asian VCs are unable to compete with European and American VCs. Some interviewees believe this is mainly due to a variety of factors, including fund structure, LP type, and internal ecosystem.

IOSG Ventures founder Jocy Lin believes this is partly due to the lack of a mature LP group in Asia. As a result, many Asian VC funds rely primarily on high-net-worth individuals and entrepreneurial capital from traditional industries, as well as some idealistic OGs in the crypto industry. Compared to the US and other Western markets, Asian VCs lack the support of long-term institutional LPs and endowment funds. This has led Asian VCs to favor thematic, speculative investments over systematic risk management and exit strategies under pressure from LP exits. This has resulted in shorter lifecycles for individual funds, exposing them to greater pressure during market contractions. "In contrast, most European and American funds have a lifespan of over 10 years, and their overall systems for fund governance, post-investment empowerment, and risk hedging are more mature, enabling them to maintain more stable performance during downturns." In response, Jocy Lin tweeted on X, calling on exchanges to release hundreds of millions of dollars in rescue funds. If they can't personally participate, she suggested investing in VCs to allow them to return capital to entrepreneurs. Jocy Lin also stated that Western funds tend to adhere to a people-oriented investment philosophy. Founders who can sustain long-term projects in the crypto industry and maintain their fundamentals through cycles possess exceptional entrepreneurial resilience, a rare breed in the industry. While some Western investors have found success, their investment model has a very limited success rate in the crypto industry. Furthermore, the inflated valuations employed by subsequent US funds have impacted many participating Asian funds. Due to their shorter fund cycles and pursuit of short-term cash returns, Asian funds have begun to diverge. Some are betting on riskier sectors like gaming and social networking, while others are aggressively entering the secondary market. However, both approaches struggle to achieve outperformance in the volatile altcoin market, and some may even incur significant losses. "Asian funds are a very loyal and committed group, but the industry has relatively let them down this cycle," Jocy Lin lamented. Anthony Zhu shared a similar view. He stated that European and American funds are generally larger and have deeper pockets, allowing for more flexible investment strategies and better performance in markets that aren't unilaterally bullish. Another key factor is that European and American projects offer a wider range of exit options and opportunities, rather than relying solely on a single exchange listing. During the recent M&A boom of the past year, the primary acquirers were leading European and American crypto companies and financial institutions. Due to various geographical and cultural factors, Asian crypto projects have not yet become a high-priority target for these acquirers. Furthermore, the majority of current IPOs are European and American.

Source: RootData

Due to smoother equity exit channels, the investment targets of European and American VCs are often more diversified. Many Asian VCs are limited by factors such as team background, fund structure and exit channels, and usually stay away from equity investments. However, as a result, they have missed many project opportunities with returns of ten times or even a hundred times. However, Anthony also emphasized that while Asian crypto VCs focusing on token investments have generally underperformed since the last cycle, some Asian dollar-denominated VC firms investing in equity projects have performed exceptionally well. "Mainstream institutional VC investors are more patient, and their performance will only be reflected over the long term. Asia is home to some of the world's best crypto entrepreneurs, dedicated to developing innovative products. In the future, more and more Asian projects will enter mainstream European and American exit channels. Asia also needs more long-term capital to support outstanding early-stage projects." Will offered another unconventional perspective. In his view, the reason for the dismal performance of Asian VCs is their proximity to Chinese exchanges. The closer they are, the worse the performance, as they all rely on exchanges to list their exits. However, in this cycle, exchanges are the biggest exploiters of liquidity. "If these VCs had seen the situation clearly before, they should have bought exchange tokens such as BNB, OKB, and BGB, instead of investing in so many small projects, relying heavily on exchanges for listing, and ultimately being locked in." 2. VC and Industry Transformation Crisis breeds change, and a major reshuffle of the crypto VC landscape is inevitable. If 2016-2018 marked the rise of the first generation of crypto VCs, and 2020-2021 the rise of the second generation, then we are likely entering the third generation of crypto VC cycles. In this cycle, in addition to the aforementioned renewed focus on US dollar equity investments, some VCs are shifting their strategies to focus more on the more liquid secondary market and related OTC sectors. For example, LD Capital has fully pivoted to the secondary market over the past year, acquiring significant positions in tokens like ETH and UNI, generating significant discussion and attention, and establishing itself as one of the most active players in the Asian secondary market. Jocy Lin stated that IOSG will not only prioritize primary market equity and protocol investments, but will also expand upon its established investment research capabilities. Future strategies include OTC and passive investment opportunities, structured products, and other strategies to better balance risk and return. However, IOSG will remain active in the primary market. "In terms of investment preferences, we will focus more on projects with real revenue, stable cash flow, and clear user demand, rather than relying solely on narrative-driven projects. We hope to invest in products and sustainable business models that can maintain endogenous growth momentum despite the lack of macro liquidity," said Jocy Lin. Speaking of cash flow and revenue, the most high-profile project of this cycle is undoubtedly Hyperliquid, which, according to DeFillama data, has generated over $100 million in revenue in the past 30 days. However, Hyperliquid has never received VC investment. This VC-independent, community-driven project development model has set a new path for many projects. Will more and more high-quality projects follow Hyperliquid's example, further diminishing the role of crypto VCs? Furthermore, with the increasing number of KOL and community-led rounds, to what extent will they replace the role of VCs? Anthony believes that for some DeFi projects, such as Perp, due to the small team size required and the strong monetization potential, models similar to Hyperliquid may continue to exist, but this may not be the case for other types of projects. In the long run, VCs will remain a key force in driving the large-scale development of the crypto industry and connecting institutional funding with early-stage projects. "Hyperliquid's success is largely due to the self-circulating nature of its product—as a perpetual contract agreement, it naturally has the ability to generate revenue and drive the market. However, this does not mean that the "VC-free" model can be universally replicated. For most projects, VC remains a key source of product development funding, compliance advisors, and long-term capital in the early stages." Jocy Lin stated that in every traditional TMT segment and industry (such as AI or healthcare), there is no track without the participation of VC and capital, and an industry without VC is absolutely unhealthy. VC's moat has not disappeared, but has shifted from providing money to providing resources and patience. Jocy Lin also shared a statistic: the three-year survival rate of projects invested by top VCs is 40%. For completely community-driven projects, the three-year survival rate is less than 10%. Discussing KOL and community funding rounds, Jocy Lin believes their rise is indeed changing the structure of early-stage financing. They can help build consensus and community momentum in the early stages of a project, offering advantages particularly in marketing and GTM. However, this model's capabilities are primarily limited to narrative communication and short-term user mobilization, with limited support for a project's long-term governance, compliance, product strategy, and institutional expansion. Today, Asian crypto VC is facing its lowest point in years. Rapid changes in internal and external ecosystems and narrative logic have led VCs to different paths. Some VCs have become history, some are still hesitant, and some are already making drastic adjustments, exploring how to form a healthier and more lasting relationship with projects. However, the bloodsucking state of market makers and exchanges continues, and Binance Alpha's high frequency of coin listings has even exacerbated this situation. How to break free from this negative ecological relationship and find breakthroughs in exit paths and investment strategies will continue to be one of the biggest tests for the new generation of VC models. Recently, Coinbase Crypto industry giants such as [likely a name or company name] have significantly accelerated the frequency of mergers and acquisitions. According to RootData statistics, the number of mergers and acquisitions in the first 10 months of this year has exceeded 130, at least seven crypto companies have gone public, and total fundraising by crypto-related listed companies (including DATs) has exceeded $16.4 billion, all of which are record highs. According to reliable sources, a well-known traditional Asian VC firm has established an independent fund primarily focused on equity investment, with a lifespan of approximately 10 years. More and more VCs are aligning with the "old rules" of the equity investment market. This is perhaps one of the strongest signals the market is sending to VCs regarding the new cycle: opportunities in the primary crypto market remain abundant, and the golden period for equity investment may have arrived.