The Crypto Market from the First-Level Perspective of Eastern and Western VCs: Narrating for the Sake of Narration, Utterly Boring

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7 hours ago

Author: Lao Bai, Partner at ABCDE Investment Research

It seems that this is the longest period of inactivity on Twitter. The reason is simple: as a blogger who never accepts advertisements, the desire to express oneself is the driving force behind writing. However, in the past few months, the market has made it difficult to feel that way. While the dismal performance of the secondary market certainly plays a significant role, the feeling from the primary market may be the main reason for this lack of desire to express.

Recently, I have observed some phenomena and have some thoughts, which may be lengthy, so I plan to break them into three or four posts. The main topics will be "Market from the Perspective of Eastern and Western VC," "New Signs of RWA," and "Noteworthy Aspects of ETH and Solana."

Let's discuss the first topic today

In the past few weeks, I have talked with several peers in Asia and found that everyone has unconsciously entered a "pause" or "conservative" investment mode.

Our last investment was in January, and several peers have similar experiences, with cases of not making any moves for two or three months or even longer being quite common.

As for the market sentiment, the word "boring" may be the most fitting description, or perhaps a temporary "consensus."

This sense of boredom is not entirely linked to the secondary market. I clearly remember that after the Luna crash, although the secondary market was sluggish, discussions about promising expansion projects in the primary market, ZK, or innovative DeFi, GameFi, and AI still excited everyone. However, this sense of excitement has gradually faded as we approach 2025. The secondary market's disinterest in any narrative lasts only a few days, which naturally affects the primary market's emotional transmission. But a more concerning worry is - have we entered a phase where the "low-hanging fruit" has mostly been picked, leading us into a long period of adjustment, exploration, and transformation, accompanied by significant pain during this hiatus? I will elaborate on this topic at the end, as the current state of Western VCs differs somewhat from that of the East.

The trigger for this reflection is a DeFi project we invested in during the pre-seed round last year, which is now raising a seed round. Initially, I thought that given the current state of the primary and secondary markets, I would be satisfied if they could raise the full amount. To my surprise, they oversubscribed by several million dollars, with several European and American VCs eager to invest. This outcome astonished me; the project itself is good, but it is not of S-level quality. Why, while we in Asia are "silent," are European and American VCs still "firing"? What gives them the courage to pull the trigger at this valuation?

We had some internal discussions and made some irresponsible guesses, such as:

  1. The establishment timeline of European and American VCs differs from that of Asian VCs, leading to different exit cycles and investment decisions.

  2. Asian VCs tend to have a "small-town exam-taker" mentality, focusing on outperforming peers or at least beating BTC (though in the current market, few can achieve this - - ). In contrast, their Western counterparts are more idealistic and long-term oriented; as long as they can logically explain to their LPs why they invested in a project at this valuation, their obsession with returns becomes secondary.

  3. There is a pure demand for deploying funds; after completing one round, they want to quickly raise the next round, primarily to collect management fees.

The specific reasons are unclear, and for now, we can only speculate. Therefore, in the coming weeks, I have scheduled chats with several partners and researchers from European and American VCs. Besides exchanging views on the market, I also want to directly ask them about the above question. Once I gather the information, I will update it on Twitter.

Now, turning back to the topic of low-hanging fruit, I also want to take this opportunity to discuss where the future of Crypto lies.

First of all, both personally and as ABCDE, our long-term bullish belief in Crypto has never wavered; this can even be considered a "faith," otherwise, I wouldn't be working full-time in this field. However, in the short to medium term, we are indeed at a crossroads, one that I am uncertain is similar to the crossroads before the DeFi Summer in 2019. Therefore, I want to share this with everyone.

The trigger for this reflection is also related to a recent podcast from AlliaceDAO, where three points resonated with me:

  1. Qiao mentioned that his current feeling is similar to that of 2019, not knowing what the next step for Crypto will be until the DeFi Summer of 2020 opened his eyes and provided direction.

  2. They believe that over the years, Crypto has only found one PMF, which is finance, and more specifically, trading (Dex, Cex, Perp), lending, stablecoins, and minting (asset issuance, e.g., Pumpfun).

  3. They provided a lot of advice for their AI x Crypto startups, suggesting that if the Crypto elements in a project are too forced, it might be better to remove Crypto altogether and focus purely on AI. As a result, 30% of the projects really did remove Crypto and became pure Web2 projects.

Regarding 1 - Although I entered the space in 2019, I was merely trading coins. To be honest, I am not sure if the VCs at that time felt the same "boredom" as now, but I remember that at least IEOs were thriving, EOS was exploring directions, and Starkware introduced the ZK concept. Many projects from the DeFi Summer of 2020 should have been established and invested in during 2018-2019. Theoretically, the sentiment in the primary market should have been better than it is now. In other words, the belief that "something big is coming" was likely stronger back then than it is now.

Regarding 2 - This echoes point 1 and is my biggest concern in the short to medium term: have we reached a crossroads where the low-hanging fruit has mostly been picked, which is different from 2019?

If the biggest PMF of Crypto in terms of utility is finance, then the DeFi Summer and the subsequent years of continuous iterative micro-innovation have essentially reached a boundary today.

On the flip side of utility, which Crypto excels at, is narrative direction. Memes are undoubtedly the best representation, and Pump.FUN has also pushed this direction to a boundary in 2024.

Moreover, in the past few years, when both utility and narrative were uncertain, our circle could at least still focus on infrastructure. From ETH to EOS to Solana, and then to Aptos and Sui… I wonder if with Solana's Firedancer and the likely mainnet launches of Monad and MegaETH this year, we have also reached a boundary in blockchain infrastructure expansion?

Regarding 3 - At a crossroads where all three paths have reached their boundaries, is there only one path left, namely "modularization of blockchain"? This relates to the third point mentioned above, and I have heard similar insights in YC's podcast.

The modularization referred to here is not the kind of modularization seen in Celestia, but rather abstracting blockchain technology as a whole into a module that can be inserted as a function into a startup, similar to AI.

Most of the Crypto projects we see today are entirely born from Crypto or exist for Crypto's sake, rather than solving a real-world problem. It can be nicely termed as Crypto Native, but unflatteringly, it means they are completely self-indulgent within the circle.

The Web2 AI venture capital circle likely faces similar issues, with many projects appearing to be "AI for the sake of AI," rather than addressing a specific real-world problem.

Will the future primary market produce some form of fusion or encounter between Web2 and Web3? A project must exist to solve a real-world problem; in the process of solving that problem, if Crypto elements are needed, they should be included, and if AI elements are needed, they should be added as well. However, the original intention and purpose should be completely unrelated to Crypto and AI. Just as Meituan's delivery service utilizes 5G, platform software, big data, and AI task allocation… but fundamentally, it is a project born to solve the problem of eating.

If the next major phase of Crypto takes this form, will people find it boring? Can the current forms of Crypto VC, exchanges, studios, and other components of the Crypto Native industry chain continue to exist?

Currently, there are more and more projects related to payments and RWA in the primary market, which somewhat aligns with this third idea. Recently, I have also researched Ondo's Global Market and discussed several RWA projects. The next post will specifically address the new directions in the RWA sector.

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