The new cycle of crypto VC and old rules

Author: Gu Yu, ChainCatcher

An indisputable and obvious fact is that crypto VCs have been declining in recent market cycles. The return rates, influence, and power of almost all VC firms have diminished to varying degrees, and even the VC tokens have been "scoffed at" by many investors.

There are many summarizable reasons for this, such as the fact that most VCs are accustomed to dumping tokens and have too many capital-raising projects, leading users to develop a dislike for VC tokens. More funds are flowing into narratives with lower VC content, such as meme and AI agents, resulting in a lack of liquidity for VC tokens. Additionally, the token unlocking periods for VCs have been extended, slowing down exit cycles and putting them in a disadvantageous position.

Several seasoned investors have also provided their explanations. Jocy Lin, founder of IOSG Ventures, believes that during the bull market cycle of 2021, the liquidity in the primary market was extremely abundant, and VCs raised a large amount of capital in a short time. This excess capital led to generally inflated project valuations and inadvertently amplified the "narrative-driven" investment model. Many VCs are still stuck in the easy money model from the previous two cycles, believing that products and tokens are unrelated. They chase grand narratives and potential tracks while neglecting the true product-market fit (PMF) and sustainable revenue models of projects.

Jocy Lin further explains: The dilemma of crypto VCs is essentially a "mismatch between value capture ability and risk-bearing." They bear the longest lock-up periods and the highest risks, yet are in the weakest position within the ecosystem, being squeezed by exchanges, market makers, and KOLs. When the narrative-driven model collapses, native VCs lacking industrial resources lose their foundation for existence—money is no longer a scarce resource; liquidity and certainty are.

According to Will, a partner at Generative Ventures, exchanges and market makers have become the true exploiters of all liquidity and premiums in this cycle. Most projects that receive VC funding essentially do two things: first, marketing hype, and second, paying listing fees to exchanges. These projects are essentially marketing companies that need to pay a lot of money to exchanges and market makers. Moreover, nowadays, the tokens of VCs must be locked for 2-3 years after being listed, which is even longer than in traditional securities markets, making their liquidity expectations for exits very poor and difficult to profit from.

Anthony Zhu, founding partner of Enlight Capital, believes that Asian VCs, primarily focused on token strategies, are caught in a death spiral in the current sluggish altcoin market. The rapid profit-making effects of the previous bull market have created strong path dependencies at both the LP and GP levels. When this path is extended or even ceases to exist, VCs are squeezed by short-term return expectations from LPs and deviations from fundamentals at the project level, ultimately leading to distorted actions. The current situation is essentially a mismatch between some LPs, GPs, and market opportunities.

However, aside from the overall decline of VCs, a more concerning phenomenon and issue is that the overall activity and influence of Asian VC firms seem to be declining more significantly in this cycle. In the 2025 Top 50 VCs list selected by RootData this month based on activity and exit performance, only 2-3 Asian VCs, such as OKX Venture, made the cut. In the recent IPO boom and major merger exit cases (such as Circle, Gemini, Bridge, Deribit, etc.), only IDG Capital achieved significant returns from its early investment in Circle, while other Asian VCs were largely absent.

Furthermore, Foresight Ventures, SevenX Ventures, Fenbushi Capital, NGC Ventures, and other once very active and high-performing Asian VC firms have made fewer than 10 or even 5 moves this year, with fundraising progress also being sparse.

From once being influential to now falling into silence, why have Asian VCs found themselves in such a predicament?

1. Why Can't Asian VCs Compete with Western VCs?

In the same environment, Asian VCs cannot compete with Western VCs. According to some interviewees, this is mainly due to various reasons such as fund structure, LP types, and internal ecosystems.

Jocy Lin of IOSG Ventures believes that this is partly due to the severe lack of a mature LP community in Asia. As a result, many Asian VC funds primarily raise capital from high-net-worth individuals and entrepreneurs in traditional industries, as well as some idealistic OGs in the crypto industry. Compared to the U.S. and the West, the lack of support from long-term institutional LPs and endowment funds has led Asian VCs to lean more towards thematic speculative investments under LP exit pressure, rather than systematic risk management and exit design. The lifespan of single funds is relatively short, making them more vulnerable during market contractions.

"In contrast, most Western funds have cycles of over 10 years, with a more mature system in fund governance, post-investment empowerment, and risk hedging, allowing them to maintain more stable performance during downturns." In this regard, Jocy Lin also tweeted on X, calling for exchanges to introduce rescue funds amounting to hundreds of millions of dollars. If they cannot take action themselves, they should invest in VCs to help them fulfill the role of capital feeding back to entrepreneurs.

Jocy Lin also stated that Western funds tend to adhere to a human-centered value investment philosophy, allowing them to operate projects in the crypto industry for the long term. Founders who can maintain a project's fundamentals across cycles possess significant entrepreneurial resilience, and such founders are extremely rare in the industry. While some Western investors have succeeded, the success rate of their investment models in the crypto industry is very limited.

Moreover, the subsequent methods by U.S. funds to inflate project valuations have negatively impacted many participating Asian funds. Due to shorter fund cycles and a pursuit of short-term cash returns, Asian funds have begun to diverge, with some betting on higher-risk tracks like gaming and social media, while others aggressively enter the secondary market. However, both of these models struggle to achieve excess returns in the volatile altcoin market, even leading to significant losses. "Asian funds are very loyal and have faith, but this industry has relatively let them down in this cycle," Jocy Lin lamented.

Anthony Zhu shares a similar view. He states that Western funds are generally larger in scale and deeper in pockets, allowing for more flexible investment strategies and better performance in non-unidirectional rising market environments.

Another key factor is that Western projects have more exit methods and opportunities, rather than relying solely on single exchange listings for exits. In the recent merger boom, the main acquirers have been leading crypto companies and financial institutions from the U.S. and Europe. Due to geographical, cultural, and other reasons, Asian crypto projects have not yet become high-priority targets for these acquirers. Additionally, most current IPO projects also have Western backgrounds.

Source: RootData

Due to more accessible equity exit channels, the investment targets of Western VCs tend to be more diverse. Many Asian VCs, constrained by team backgrounds, fund structures, and exit channels, typically avoid equity investments, thus missing out on many tenfold or even hundredfold project opportunities.

However, Anthony also emphasizes that although Asian crypto VCs focused on token investments have underperformed since the last cycle, some Asian dollar VC firms investing in equity projects have performed excellently. "Mainstream institutional VC investors tend to be more patient, and their performance is reflected over long cycles. Asia has a group of the best crypto entrepreneurs in the world working hard on innovative products, and more Asian projects will enter mainstream exit channels in the U.S. and Europe in the future. Asia also needs more long-term capital to support outstanding early-stage projects."

Will offers another unconventional perspective. In his view, the poor performance of Asian VCs is due to being too close to Chinese exchanges; the closer they are, the worse it gets, as they all pin their exit hopes on exchange listings. 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, BGB, instead of investing in so many small projects that rely heavily on exchange listings, only to find themselves locked in."

2. The Transformation of VCs and the Industry

Crisis breeds change, and a major reshuffling of the crypto VC landscape is now inevitable. If the period from 2016 to 2018 was the rise of the first generation of crypto VCs, and 2020 to 2021 was the rise of the second generation, then we are likely entering the third generation of crypto VC cycles.

In this cycle, aside from the previously mentioned focus on dollar equity investments, some VCs will pay more attention to the more liquid secondary markets and related OTC fields. For example, LD Capital has completely shifted to the secondary market in the past year, heavily investing in tokens like ETH and UNI, sparking significant discussion and attention, and has become one of the most active players in the Asian secondary market.

Jocy Lin states, IOSG will not only place greater emphasis on primary market equity and protocol investments but will also extend its investment research capabilities based on past foundations, considering various strategies such as OTC or passive investment opportunities and structured products in the future to better balance risk and return.

However, IOSG will still maintain an active stance 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 investments. We hope to invest in products and sustainable business models that still possess endogenous growth momentum in an environment lacking macro liquidity," Jocy Lin said.

When discussing cash flow and revenue, the most notable project in this cycle is 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, and this community-driven development model that does not rely on VCs sets a new path for many projects. Will there be more and more quality projects learning from Hyperliquid, further diminishing the role of crypto VCs? Additionally, with the increasing prevalence of KOL rounds and community rounds, to what extent will they replace the role of VCs?

Anthony believes that for certain types of DeFi projects like Perp, due to the small team size required and strong profit-making effects, a model similar to Hyperliquid may continue to exist, but this may not hold for other types of projects. In the long run, VCs remain a crucial force in driving the large-scale development of the crypto industry and linking institutional capital with early-stage projects.

"The success of Hyperliquid is largely due to its product's self-circulating characteristics—being a perpetual contract protocol, it inherently possesses blood-making capabilities and market-driven effects. However, this does not mean that the 'no VC' model can be universally replicated. For most projects, VCs are still a key source of product development funding, compliance consulting, and long-term capital in the early stages," Jocy Lin stated. In any sub-sector and industry of traditional TMT (such as AI or healthcare), there is not a single sector without the participation of VCs and capital; an industry without VCs is undoubtedly unhealthy. The moat of VCs has not disappeared; it has transformed from providing money to providing resources and patience.

Jocy Lin also shared a statistic: projects backed by top VCs have a 40% survival rate after three years. In contrast, fully community-driven projects have a survival rate of less than 10% after three years.

When discussing KOL rounds and community rounds, Jocy Lin believes their rise is indeed changing the structure of early-stage financing. They can help form consensus and community momentum in the early stages of a project, especially excelling in marketing and GTM aspects. However, the empowerment of this model is mainly limited to narrative dissemination and short-term user mobilization, with limited support for long-term governance, compliance, product strategy, and institutional expansion of projects.

Currently, Asian crypto VCs are facing their lowest point in years. The rapid changes in internal and external ecosystems and narrative logic have led VCs onto different trajectories. Some VC names have already fallen into the dust of history, some are still hesitating, and some are making bold adjustments, exploring how to form a healthier and more sustainable relationship with projects.

However, the exploitative state of market makers and exchanges continues. The high frequency of listings by Binance Alpha has exacerbated this situation. How to break free from this negative ecological relationship and find breakthroughs in exit paths and investment strategies will remain one of the biggest tests for the new generation of VC models.

Recently, crypto industry giants like Coinbase 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, with at least 7 crypto companies going public, and the total fundraising of crypto-related listed companies (including DAT companies) has surpassed $16.4 billion, setting new historical highs. According to reliable sources, a well-known traditional Asian VC firm has established an independent fund primarily for equity investments, with a lifespan of around 10 years. More and more VCs will align with the "old rules" of the equity investment market.

This may be one of the strongest signals the market is sending to VCs about the new cycle: there are still many opportunities in the crypto primary market, and the golden cycle for equity investments may have already arrived.