Original Title: 《Market and Some Thoughts from the Perspective of Eastern and Western Primary Markets》
Original Author: Lao Bai, Partner at ABCDE Investment Research
It seems that this is the longest period of inactivity on Twi. The reason is simple: as a blogger who never takes on advertisements, I essentially need a desire to express myself to write anything, and the market in recent months has made it difficult to feel that way. The dismal performance of the secondary market certainly plays a significant role, but the feeling from the primary market might be the main reason for this lack of desire to express.
However, I have recently observed some phenomena and have some thoughts, which may be quite lengthy, so I plan to break it into three or four posts. The main topics will be "The Market from the Perspective of Eastern and Western VC," "New Signs of RWA," and "Some Noteworthy Aspects of ETH and Solana."
Today, let's discuss the first topic.
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 most recent investment was in January, and several peers are similar, with many cases of not making a move for two or three months or even longer.
As for the feeling about the market, the word "boring" might be the most fitting descriptor, or perhaps a temporary "consensus."
This sense of boredom is not entirely linked to the secondary market. I clearly remember that after the collapse of Luna, although the secondary market was sluggish, discussions about promising expansion projects in the primary market, such as 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 a corresponding painful transition period? 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 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 an internal discussion and made some irresponsible guesses, such as:
The establishment timelines of European and American VCs differ from those in Asia, leading to different exit cycles and investment decisions.
Asian VCs tend to have a "small-town problem-solver" mentality, focusing on either outperforming peers or at least beating BTC (which, given the current market situation, few can achieve - - ). In contrast, European and American counterparts are more infused with idealism and long-termism; 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.
A pure demand for deploying funds, where after completing one round, they quickly seek to raise the next, 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 Twi.
Now, turning back to the topic of low-hanging fruit, I also want to take this opportunity to discuss with everyone where the future of Crypto lies.
First of all, whether personally or as ABCDE, our long-term bullish belief in Crypto has never wavered; this can even be considered a "faith," otherwise, I wouldn't be fully engaged in this profession.
However, in the short to medium term, we are indeed at a crossroads, one that I am uncertain whether it resembles the crossroads before the emergence of the DeFi Summer in 2019. Therefore, I am sharing this to communicate with everyone.
The trigger for this reflection is also due to listening to the AlliaceDAO podcast recently, where three points resonated with me.
Qiao mentioned that his current feeling is similar to that of 2019, not knowing what the next step for Crypto will be until the emergence of the DeFi Summer in 2020 opened his eyes and provided direction.
They believe that Crypto has only found one PMF over the years, which is finance, and to be more specific, trading (Dex, Cex, Perp), lending, stablecoins, and minting (asset issuance, e.g., Pumpfun).
They provided a lot of advice to their AI x Crypto startups, suggesting that if the Crypto elements in the project are too forced, it might be better to remove Crypto altogether and focus purely on AI. As a result, 30% of the projects indeed removed Crypto and became pure Web2 projects.
Regarding point 1 - although I entered the space in 2019, I was merely trading coins. To be honest, I am not sure if 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 in 2020 should have been established and funded in 2018-2019, so theoretically, the primary market's experience should have been better than now. In other words, the belief in "something big is coming" was likely stronger back then than it is now.
Regarding point 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.
The opposite of utility is also something Crypto excels at - namely, narrative direction. Meme is undoubtedly the best representative, 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 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 point 3 - at a crossroads where all three paths have reached their boundaries, is there only one last 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 like 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 currently see are entirely based on Crypto or are Crypto for the sake of Crypto, rather than solving a real-world problem. It sounds good to call it Crypto Native, but the downside is that it doesn't break out of the circle and is merely self-indulgent within the community.
The Web2 AI investment circle is likely facing similar issues, with many projects appearing to be "AI for the sake of AI," rather than solving 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 the problem, it should incorporate Crypto elements where necessary and AI elements where needed, but 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 food.
If the next major phase of Crypto takes this form, will people find it boring? Can the current forms of Crypto VC, trading platforms, studios, and other components based on the Crypto Native industry chain continue?
Currently, there are more and more projects related to Payment and RWA in the primary market, which somewhat aligns with this third thought. Recently, I have also researched Ondo's Global Market and discussed several RWA projects, and I will dedicate the next post to discussing new directions in the RWA sector.
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