Editor's Note: When "Exit Scam" is no longer viable, crypto venture capital is also beginning to lose its once-solid logic.
Over the past three cycles, tokens have always been the core path for capital recovery and amplified returns. Around this premise, the industry has built a whole set of familiar rhythms: early funding, narrative expansion, listing circulation, price realization. However, against the backdrop of on-chain revenue becoming a new threshold, meme coin liquidity diversion, and retail funds spilling over into more risky assets, this mechanism is failing.
A more direct change is that the return expectations of token projects have been compressed, while the equity path has regained attractiveness. Early investors are becoming more cautious about projects with an "Exit Scam," and later-stage funds are shifting towards "web2.5" companies with real income and M&A expectations. Crypto venture capital is no longer in a relatively closed competitive environment but is forced to enter the field competing with traditional fintech funds.
In this process, a deeper issue is gradually emerging: when capital itself is no longer scarce, what else can VCs provide?
In recent years, some of the most representative projects have almost bypassed institutional capital, directly establishing network effects and revenue models. This means that funding is no longer the "passport" to enter quality projects. For founders, whether to introduce VCs depends on whether the latter can provide a clear brand endorsement and tangible incrementality, rather than just funds on the balance sheet.
In the new market structure, crypto venture capital needs to redefine its own "product definition." Otherwise, it will become one of the objects eliminated in this cycle.
The following is the original text:
Crypto venture capital is at a watershed moment. Over the past three cycles, token exits have always been the main source of excess returns, but now this pattern is undergoing a substantial reset. What kind of token has value, its definition is being rewritten in real-time, and an industry-level unified evaluation framework has not yet been formed.
So, what exactly happened?
The change in the market structure of this crypto cycle is the result of the superposition of several forces that have never occurred in the same cycle before:
1/ The sudden rise of HYPE has horizontally impacted the entire token market. It has proven one thing: token prices can be supported by real income, with over 97% of its nine- to ten-digit revenue coming from on-chain. This case quickly triggered a collective disillusionment in the market with governance tokens that are "narrative-driven but weak in fundamentals"—for example, early tokens mainly used to circumvent securities regulations but are difficult to directly distribute income on Layer 1 and "governance tokens." Almost overnight, HYPE reshaped market expectations: income-generating ability is no longer a bonus but a minimum threshold.
2/ The Ripple Effect on Other Projects: By 2025, if a project has on-chain revenue, it often gets classified as a security; post-HYPE, if there's no on-chain revenue, most hedge funds view the project's rug pull as only a matter of time. This dilemma has forced the vast majority of projects, especially non-DeFi ones, to hastily adjust their course.
3/ PUMP then subjected the system to a severe "supply shock." The frenzy around meme coins led to an explosive growth in token supply, fundamentally disrupting the market structure — attention and liquidity were significantly scattered. Just on Solana alone, the number of newly issued tokens skyrocketed from around 2000–4000 per year to 40,000–50,000 at its peak, slicing the pie into about 20 times without much growth in liquidity. The same pool of funds and attention that was originally pursuing high returns began shifting from holding altcoins to engaging in more short-term meme coin trading.
4/ The alternative destination of retail risk capital is also rapidly expanding. Prediction markets, stock perpetual contracts, leveraged ETFs, and other products are directly competing for the portion of funds that originally flowed into crypto altcoins. Simultaneously, the maturity of asset tokenization technology allows investors to leverage blue-chip stocks, which not only don't face rug pull risks like most altcoins but are also subject to stricter regulations, have more transparent information, and lower information asymmetry.
All these changes have led to one major outcome: a significant compression of token lifecycles. The cycle from peak to trough has significantly shortened, the retail "hodl" sentiment has plummeted sharply, and faster capital rotation has taken its place.
Core Issues
In this context, almost all venture capitalists are continuously contemplating several core issues:
1/ Are we really investing in equity, tokens, or a combination of both?
The biggest challenge lies in the fact that there's currently no mature paradigm regarding "how token value accrues." Even top projects like Aave still face ongoing disputes between DAOs and equity structures.
2/ What are the best practices for on-chain value accumulation?
The most common current practice is token buybacks, but "common" doesn't mean "correct." We have long been opposed to the mainstream buyback logic: this mechanism is "toxic" and puts project teams with actual revenue-generating capabilities in a dilemma.
The problem lies in the fact that its motive was wrong from the start.
Traditional corporate stock buybacks usually occur when growth investment opportunities are limited or when the stock is undervalued; however, crypto project buybacks are often forced to be "executed immediately" under pressure from retail investors and market sentiment — this pressure itself is highly emotional and unstable. You might have just spent $10 million on a buyback that could have been reinvested, only to be completely engulfed by the market the next day due to a liquidation by a market maker.
Public companies buy back stock when undervalued; token buybacks, on the other hand, are often front-run and executed at local tops.
If your business operates on a B2B model with most revenue generated off-chain, such buybacks are even more futile. In my personal view, at a stage where annual revenue is below $20 million, conducting buybacks to please retail investors has almost no valid reason — these funds should have been prioritized for growth.
I resonate a lot with a report/screenshot from fourpillars: Even buybacks in the tens of millions struggle to substantively establish a long-term price floor for a project.
Furthermore, to please both retail and hedge funds, you must conduct buybacks continuously and transparently, just like HYPE. Failing to do so will result in market punishment akin to a PUMP — with a fully diluted valuation (P/F) at only 6x because the market "doesn't trust" it. Even though, in fact, it has burned $1.4 billion that could have gone into the treasury.
3/ Will the "crypto premium" completely disappear?
This implies that the valuation of all future projects may regress to a range similar to traditional public companies — roughly between 2-30x revenue.
One can seriously contemplate the implications of this: If this assessment holds true, then from current levels, the prices of most L1s may need to drop over 95% to align with this valuation system. Only a few exceptions — such as TRON, HYPE, and other DeFi projects with real income — may relatively hold.
And this is not even considering the additional selling pressure from token vesting.
Personally, I don't believe things will go that far. HYPE has actually set an "outlier-style" market expectation, making investors excessively impatient about whether early-stage projects have "revenue/user growth at launch." Such demands are reasonable for "sustaining innovation" like payments, DeFi; however, for "disruptive innovation," it takes time from build, launch, growth to real revenue breakout.
In the last two cycles, we have swiftly shifted from being overly forgiving of "disruptive technology" to experiencing 8-9 rounds of "patience+hopium" fundraising in highly abstract narratives like new L1s, Flashbots/MEV and then quickly swung to another extreme — only willing to bet on DeFi projects. This is essentially an overcorrection.
But the pendulum will eventually swing back.
For DeFi projects, pricing based on "quantitative fundamentals" is indeed a reflection of industry maturity; however, for non-DeFi projects, "qualitative fundamentals" should not be overlooked: including culture, technological innovation, disruptive ideas, security, degree of decentralization, brand value, and industry connectivity. These dimensions will not simply be reflected in TVL or on-chain buyback data.
So, what will happen next?
The return expectations for token projects have been significantly compressed, while equity-based businesses have not undergone an equal cooling-off. This differentiation is particularly pronounced in early and growth-stage investments:
In the early stages, investors have become more price-sensitive to projects that are "token exit in the future"; at the same time, interest in equity-based projects has significantly increased, especially in the current relatively friendly M&A environment. This contrasts sharply with 2022–2024 when token exits were the default path, with the assumption that "token valuation premium would continue to exist."
In the later stages, investors with a brand advantage and resource capability in the crypto-native context are gradually moving away from purely "crypto-native" projects and are instead betting more on "web2.5" companies—where the valuation logic is more anchored in real revenue growth. This also brings them into unfamiliar competitive territory: they need to compete directly with crossover funds and traditional Web2 fintech funds (such as Ribbit Capital or Founders Fund), the latter of which have accumulated deeper experience in the traditional financial context, portfolio synergy, and early-stage project acquisition ability.
The entire crypto venture capital industry is entering an "attribution period."
Who can stay will depend on whether they can find their own "Product-Market Fit" (PMF) in the founder's mind—and this "product" is not just funding but also a combination of brand identity and actual empowerment ability.
For high-quality projects, VCs need to, in turn, "sell themselves to the founders" to qualify for a place in the cap table. Especially in recent years, some of the most successful projects have relied hardly on institutional capital (e.g., Axiom) or even had no funding at all (e.g., HYPE). If a VC can only offer funding, it is almost certain to be marginalized.
VCs truly eligible to remain at the table must clearly answer two questions:
First, what is its brand identity—why would top founders seek it out proactively;
Second, where is its value add—ultimately deciding whether it can win that deal.
