A Crypto VC’s Reflections and Confusions
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A Crypto VC’s Reflections and Confusions
To stay at the table, VCs must prove to founders: beyond capital, what else can you bring?
Navigating Web3 tides with focused insightsAuthor: Catrina
Translated by: Jiahuan, ChainCatcher
Crypto venture capital is at a watershed moment. Over the past three cycles, token exits have been the primary driver of outsized returns—but today, the landscape is undergoing a major reset. The definition of token value is being rewritten in real time, yet no industry-standard evaluation framework has emerged.
What’s Actually Happening?
This time, crypto market structure is being simultaneously disrupted—and fundamentally upended—by multiple unprecedented forces:
1. HYPE’s emergence awakened the token market, proving that token prices can be underpinned by real revenue—over 97% of its nine- to ten-figure revenue is generated on-chain.
This has completely demystified governance tokens propped up solely by narrative and lacking fundamental substance—think of L1s and “governance tokens” historically designed mainly to navigate the ambiguity of securities law (an ambiguity that made direct revenue distribution infeasible). HYPE reset market expectations almost overnight: revenue is now subject to far stricter scrutiny and has become table stakes for participation.
2. Cascading repercussions across other token projects
Prior to 2025, having on-chain revenue would likely classify your token as a security; post-HYPE, most hedge funds will tell you that if you lack on-chain revenue, your token is headed to zero. This places most projects—especially non-DeFi ones—in a bind, forcing them to scramble to adapt.
3. PUMP delivered a staggering supply shock to the system.
The meme coin frenzy triggered an explosion in token supply, fundamentally undermining market structure through distraction and liquidity fragmentation. On Solana alone, newly minted tokens surged from roughly 2,000–4,000 per year to a peak of 40,000–50,000. This effectively sliced the already-stagnant liquidity pie into roughly one-twentieth of its prior size. The same buyer cohort—seeking outsized returns—has shifted attention and capital from altcoins to meme coin speculation.
4. Retail speculative capital is rapidly diverting elsewhere.
Prediction markets, stock perpetuals (perps), and leveraged ETFs are now directly competing for the same capital pool that previously flowed into altcoins. Meanwhile, maturing tokenization technology enables leveraged trading of blue-chip equities—assets with far lower risk of total loss than most altcoins, subject to significantly stricter regulation, greater transparency, and lower information asymmetry risk.
The result? Token lifecycles have been dramatically compressed: time from peak to trough has sharply shortened; retail willingness to “hold” tokens has collapsed, replaced by faster capital rotation.
Big Questions Every VC Is Asking Themselves—and Each Other
1. Are we underwriting equity, tokens, or some hybrid?
The biggest challenge here is that there’s no new best-practice playbook for value accrual in token projects—even top-tier successes like Aave still face unresolved tensions between DAO governance and equity structures.
2. What are best practices for on-chain value accrual?
Token buybacks are the most common approach—but common doesn’t mean correct. We’ve long opposed the prevailing buyback trend: it’s toxic and puts founders with real revenue in an impossible position.
The underlying motivation is entirely flawed: stock buybacks occur after companies have completed their growth investments; crypto buybacks, however, are increasingly demanded immediately—driven by retail/public sentiment (a wholly fickle and irrational force).
You might burn $10 million in capital that could otherwise be reinvested—only for that value to vanish overnight due to the liquidation of a random market maker.
Public companies conduct buybacks when their stock is undervalued. Token buybacks, however, are front-run at every stage—and thus often executed at local highs.
Especially if you’re a B2B business generating off-chain revenue, buybacks are functionally pointless. In my view, if your revenue is under $20 million, there’s absolutely no justification for conducting buybacks purely to appease retail investors—rather than reinvesting that capital into growth.
I highly recommend fourpillars’ report, which shows that even nine- to ten-figure buybacks do almost nothing to establish long-term price floors for projects.
Beyond that, to satisfy both retail and hedge funds, you must execute buybacks continuously and transparently—just like HYPE does. Any failure to do so triggers punishment: witness PUMP’s P/E ratio (based on fully diluted valuation) of just 6x, driven by public “distrust”—despite having burned $1.4 billion in revenue that could have gone to treasury.
Here’s further reading on “on-chain value accrual mechanisms that work without burning money.”
3. Will the “crypto premium” disappear entirely?
That is, will all projects henceforth be valued on multiples similar to public equities—roughly 2x to 30x revenue? Pause and reflect on what this implies: if true, most L1 blockchains would fall another >95% from current levels—exceptions being TRON, HYPE, and other revenue-generating DeFi projects. And this doesn’t even factor in token vesting schedules.
Personally, I don’t believe this will happen—HYPE set an exceptionally high bar, making many investors impatient with early-stage startups’ “Day One revenue/user traction.” Yes, that’s a reasonable expectation for sustained innovation in payments and DeFi.
But disruptive innovation takes time—to build, launch, grow, and finally scale revenue exponentially.
Over the past two cycles, we exhibited excessive patience and blind optimism toward so-called “disruptive technologies”: new L1s, Flashbots/MEV concepts raised rounds 8–9 before hitting product-market fit. Now we’ve overcorrected—supporting only DeFi projects.
The pendulum will swing back. While evaluating DeFi projects on “quantitative” fundamentals is indeed a net positive for industry maturity, “qualitative” fundamentals must also be weighed for non-DeFi categories: culture, technological innovation, disruptive concepts, security, decentralization, brand equity, and ecosystem connectivity—traits that don’t manifest solely in TVL or on-chain buybacks.
So What Should You Do Now?
Return expectations for token projects have been sharply compressed—while equity-based businesses haven’t seen a comparable decline. This divergence is especially pronounced between early- and growth-stage projects.
Early-stage investors have become far more price-sensitive when underwriting projects potentially exiting via tokens. At the same time, appetite for equity deals has increased—particularly in favorable M&A environments. This stands in stark contrast to 2022–2024, when token exits were the preferred liquidity path, predicated on the assumption that token valuation premiums would persist.
Later-stage investors—the ones with the strongest brand equity and added value in native crypto contexts—are increasingly stepping away from purely “crypto-native” deals. Instead, they’re backing more “Web2.5” companies whose underwriting is anchored in revenue traction.
This brings them into unfamiliar territory—competing head-on with firms like Ribbit and Founders Fund, which possess deeper expertise in traditional fintech, stronger portfolio synergies, and better visibility into pre-crypto early-stage deal flow.
The crypto VC space is entering a value-validation phase. Survival hinges on VCs finding their own PMF (product-market fit) among founders—where the “product” is a blend of capital, brand credibility, and added value.
For the highest-quality deals, VCs must sell themselves to founders to earn a seat at the cap table—especially given recent standout cases where projects required little (e.g., Axiom) or no institutional capital (e.g., HYPE). If capital is the sole offering, it’s almost certainly doomed to obsolescence.
VCs who remain in the game must have absolute clarity on what they offer in terms of brand credibility (what draws top founders to engage in the first place) and added value (what ultimately secures their right to win the deal).
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