The maturity of cryptocurrency is not a negative development, but rather an evolution necessary for the technology to seek mainstream adoption and long-term growth.

Written by: Sam Lehman

Translated by: Deep Tide TechFlow

In the past few months, I have seen four crypto funds I am familiar with either shift to liquidity-only or quietly shut down. Several top funds are struggling to raise capital. Many investors I know have completely exited the space. Some are chasing artificial intelligence, while others have let go entirely (not just because they made early retirement wealth from AI meme coins).

This is not just noise or coincidence; something fundamental has changed.

If we view it as a growth story, I believe cryptocurrency is bidding farewell to its wild and unfiltered childhood and stepping into late adolescence. The early chaotic period, characterized by short-termism, speculative hype, and venture capital games, is giving way to a more mature, systematic era. This is an exciting moment, and this shift will bring many key implications. For better or worse, I also believe that most Web3 venture capital firms are not yet prepared for the changes ahead.

Venture capitalists love to tell founders about the importance of adaptability. Now, I think it is time for venture capitalists themselves to make some adjustments.

Here are some of my latest thoughts on this transition: how the old crypto venture capital model is breaking down, what is taking its place, and which investors are most likely to thrive in the next phase of crypto venture capital.

The Old Web3 Venture Capital Model

The past crypto venture capital model was roughly as follows:

• Look for projects about a year away from token issuance that have connections to top centralized exchanges (CEX) (there were entire funds that raised capital solely based on partners being former CEX employees or having deep ties to CEX. Their "added value" was their ability to sniff out which projects would get listed on exchanges. If a fund pitches you this model today, don’t believe it…)
• Invest through SAFT (Simple Agreement for Future Tokens) (perhaps with some advisory services thrown in)
• Quickly sell to retail when the project conducts a token generation event (TGE), as the lock-up period was not as strict as today’s standard of 1+3. To support this, there would typically be greater retail demand to buy venture capital tokens during market cycle peaks.

The viability of this model led to many negative behaviors among investors. First, many venture capitalists raised funds with a 5-year term—this is only half the length of a typical fund in web2. This structure alone makes it nearly impossible to support long-term builders. If your fund can only hold assets for 5 years before needing to distribute to limited partners, you cannot systematically invest in projects along a more standard 10-year liquidity path.

On the other hand, founders receiving funding from these types of investors face immense pressure to achieve liquidity on a rapidly accelerating timeline, even pushing for a token generation event (TGE) before reaching product-market fit (PMF).

For the healthy development of the industry, this model is rapidly becoming outdated.

As we move into 2025, we see a maturing market, increased regulatory clarity, and renewed interest from traditional financial institutions, bringing a more systematic approach focused on fundamentals, real utility, and sustainable business models.

What Growth Looks Like

I believe the future crypto industry will demand greater patience from both investors and founders. A mature market is bringing about some substantive changes:

• Longer lock-up periods: Most centralized exchanges (CEX) are standardizing a 1-year cliff, followed by an additional 2 to 3 years of vesting.
• Focus on fundamentals: The oversaturation of altcoins, combined with a more discerning retail base, is forcing the market to pay more attention to quality for differentiation—actual revenue, defensible moats, and clear paths to profitability are replacing speculative games. To be clear, this does not mean tokens are dead; rather, your token needs strong fundamentals to stand out from the crowd.
• Alternative exit paths: Initial public offerings (IPOs) are becoming more feasible for crypto companies, while significant mergers and acquisitions (M&A) outcomes are also achievable. This provides a new path to liquidity independent of token issuance.

I am not confident that most Web3 venture capital firms are prepared for this new reality. From what I have seen, those companies that recognize this either completely exited the space, shifted to liquidity investments, or are raising new funds with different structures to adapt to this new game. In contrast, those companies that have been able to support this new model are poised to thrive in this new paradigm.

Who Will Win in This Changing Market

Undoubtedly, this new landscape presents a fantastic opportunity for many funds. Those that can support founders from "pre-seed to IPO" can now operate in a market that few can participate in. About 10 (?) crypto funds can provide lead checks for Series A and beyond. Beyond capital considerations, there are also few funds that can offer support and resources to guide crypto companies toward IPO. How many funds value (and execute) true corporate governance? How many understand the roadshow process, investor relations, etc.? I think not many… However, if you are one of those funds that maintain higher standards and operate systematically while others are letting immature emerging managers pretend to be genius investors at the casino, then you are entering a magical era of investment.

In the early stages of the venture capital market, the role of pre-seed investors is also changing. Many pre-seed and seed investors can get involved early, providing advice on community building and mind share growth, and achieving liquidity before any actual product development occurs. Now, I believe early-stage investors will need to be more adept at working with their companies to find product-market fit (PMF), iterate on products, engage with users, etc., rather than rushing to launch and achieve liquidity.

A final thought on this. I remember a talk at CSX in 2023 suggesting that companies find product-market fit (PMF) before launching tokens. It is somewhat crazy to acknowledge that this viewpoint was somewhat controversial within the industry at the time. Fortunately, I believe this perspective is changing with the increasing emphasis on fundamentals. In turn, this should encourage our industry to build more sound, robust, and genuine businesses (I have noticed some interesting conversations and experiments around "micro" token issuances that allow teams to secure enough funding to develop products. I think the viability of this path is still undecided, but I am willing to explore further).

Embracing Maturity

The maturity of cryptocurrency is not a negative development, but rather an evolution necessary for the technology to seek mainstream adoption and long-term growth. The projects being built today are more substantive, focused on solving real problems, and more likely to create lasting value than many of the previous companies.

For venture capital firms, this transition is both a challenge and an opportunity. Those that can adjust their models to accommodate longer time horizons, focus on fundamentals rather than hype, and provide real value beyond capital will thrive in this new landscape. Those that cling to outdated models will increasingly find themselves left behind, as sharp founders choose to partner with funds that can provide them with the best support in this new environment.

The crypto industry is growing. The question for venture capital firms is whether they can grow alongside it.

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