Market Reality Check: Blame the Game Rules, Not the Players – Elections and Rate Cuts Remain Key Catalysts
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Market Reality Check: Blame the Game Rules, Not the Players – Elections and Rate Cuts Remain Key Catalysts
Not all narratives are "investable."
Navigating Web3 tides with focused insightsAuthor: Tommy
Compiled by: TechFlow
During @EthCC, I spent a significant amount of time in one-on-one conversations with serious builders, venture capital firms (VCs), and market makers. Below are some reflections I’ve gathered on the current state of the industry:
1. Blame the Game, Not the Players
“We love consumer apps, but 90% of our deals this year have been infrastructure projects.” Many builders and VCs agree that there are too many people building infrastructure and too few truly user-driven consumer applications. Most VCs I spoke with expressed interest in consumer decentralized applications (dApps). Yet, looking at recent funding announcements, it’s clear the market remains dominated by infrastructure projects.
This is a vicious cycle hard to pin on any single stakeholder:
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Projects and VCs want listings on large, liquid centralized exchanges (CEXs)
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CEXs prefer to list projects with strong marketing narratives (high fully diluted valuations, FDV) and top-tier backers providing solid incentives
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Infrastructure projects carry valuation premiums due to resource-intensive development, attracting more capital and reinforcing the cycle.
2. Declining VC Interest in High-FDV Early-Stage Rounds
Since last Q4, project valuations have risen significantly. Many private or Series A rounds now exceed $1B FDV—especially AI-related projects.
On the other hand, most recent major launches have underperformed (e.g., $BLAST below $2B; $ZK and $W at $3B; $ZRO at $4B). The broader altcoin market remains weak, with many VC-backed projects now trading at FDVs below their last private round.
In the current market environment, 50–100x returns for VCs are nearly impossible. Not to mention, VCs face lock-up periods (~1 year lock + 2–3 year vesting). These projects may need to survive through the next bear market while competing against newer entrants that can quickly capture attention due to the industry’s short attention span.
As a result, more VCs are exploring liquidity strategies (if their mandates allow) or pursuing OTC deals at steep discounts relative to the last round (or current FDV if already trading). Larger VCs with greater resources are incubating projects founded by ex-staff to secure earliest participation and higher return potential.
Additionally, many VC analysts and research partners are transitioning into emerging Layer 1/Layer 2 (L1/L2) ecosystems or launching their own projects. Direct involvement now appears to offer higher expected value (EV) than investing alone. A key advantage is leveraging their experience and networks to raise funds for their projects, as they deeply understand what VCs look for.
Moreover, poor altcoin performance has led to low distributed profits to investors (dpi) for limited partner (LP) funds. Without strong track records, raising new funds becomes difficult. Some of these funds have already deployed most of their capital last year, leaving little room to act even when attractive opportunities arise.
3. Same Wine, New Bottle
Concepts that failed to gain traction are being repackaged. For example, Intent was once a hot topic but has since been replaced by narratives like decentralized sequencing (DA) and restaking.
Many projects now rebrand themselves as “chain abstraction” or even “AI,” particularly intent-driven projects incorporating large language models (LLMs) or algorithmic components.
Likewise, most DePIN projects have added “AI” elements into their branding strategies to attract VC attention.
This mirrors how security tokenization projects from the last cycle have become real-world assets (RWA) this cycle.
I don’t think rebranding is inherently wrong—finding market-accepted narratives is hard. However, the market is still waiting for a genuinely new narrative, not just recycled concepts.
4. Not All Narratives Are “Investable”
There’s a difference between popular narratives and investable verticals.
Account Abstraction is a compelling narrative offering better UX. But it’s not a vertical—it’s a feature embedded across use cases: wallets, gaming, DeFi, SocialFi, etc. You still need a concrete product to sell. No project will succeed by saying “we do account abstraction,” but rather “we built a wallet with account abstraction” or “a game featuring AA,” and so on.
Chasing trendy narratives without analyzing the underlying vertical (product) is risky for VCs—you might end up backing the hottest narrative in the wrong vertical.
5. Market Makers Aren’t Sitting Pretty
Market making can be profitable, but with several U.S.-based players exiting due to regulation, new entrants are flooding in, intensifying competition.
Some market makers engage in price wars to win deals. Under the option model (preferred by most), market makers borrow tokens from teams for sell-side liquidity while deploying stablecoins on the buy side. This either requires substantial capital (using own funds) or incurs high costs (borrowing with interest). Thus, the option model is far from “cost-free” for market makers.
To win deals, market makers must offer: i) strong relationships and reputation, ii) compelling proposals, iii) value-added services for clients.
Project teams are also becoming more sophisticated about different market makers, eroding information asymmetry advantages and further increasing competitive pressure.
6. Market Catalysts (ETFs, Elections, Rates)
Most are awaiting the ETH ETF launch, hoping its price trajectory mirrors BTC ETF post-listing gains.
Unlike BTC ETF, there’s hope that ETH ETF will strongly catalyze Ethereum ecosystem tokens.
Some anticipate more altcoin ETF approvals after ETH (could SOL ETF be next?)
If more altcoin ETFs get approved, project endgames may shift from CEX listings to ETF eligibility—fundamentally changing how older tokens are valued.
Another catalyst is the U.S. election, with hopes for a crypto-friendly administration and favorable policymaking.
A rate cut is expected this year, with more likely in 2025—potentially injecting more liquidity into crypto markets.
Despite current market sluggishness, most remain optimistic about the outlook for the next 2–3 quarters. The prevailing sentiment is calm patience—stay grounded, but confident and hopeful.
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