Reflections and Confusions of a Crypto VC

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Author: Catrina

Translation: Jiahui, ChainCatcher

Crypto venture capital is at a watershed moment. In the past three cycles, token exits have been the main driver of excess returns, but now it is undergoing a major reset. The definition of token value is being rewritten in real-time, yet industry-standard valuation frameworks have yet to emerge.

What exactly is happening?

This time, the crypto market structure is being hit simultaneously by multiple unprecedented forces, completely overturning:

1. The emergence of HYPE awakened the token market, proving that token prices can be backed by real revenue, with over 97% of nine- to ten-figure revenues generated on-chain.

This has thoroughly disenchanted the market from governance tokens that rely on narratives and lack fundamentals—think of those Layer 1 and “governance tokens” that once existed mainly to evade securities law ambiguity (which made direct revenue sharing impossible). HYPE almost overnight reset market expectations: now, revenue is scrutinized more strictly and has become a basic criterion for entry.

2. Chain reaction effects on other token projects

Before 2025, if you had on-chain revenue, you would be considered a security; after HYPE, if you ask most hedge funds, they will tell you that if you lack on-chain revenue, you are doomed. This puts most projects, especially non-DeFi projects, in a dilemma, forcing them to adapt hastily.

3. PUMP has caused an astonishing supply shock to the system.

The explosion of supply driven by meme coin mania, diverting attention and liquidity, fundamentally disrupts market structure. On Solana alone, the number of newly generated tokens surged from about 2,000–4,000 annually to a peak of 40,000–50k. This effectively slices the liquidity pie, which was already not growing much, into about one twentieth. Similarly, the same buyer groups’ attention and funds have shifted from holding altcoins to speculating on meme coins for excess gains.

4. Retail speculative capital accelerates diversion.

Prediction markets, perpetuals (perps), and leveraged ETF trading now directly compete for the same capital pool that would have flowed into altcoins. Meanwhile, the maturation of tokenization technology makes leveraged trading of blue-chip stocks possible, stocks that do not face the zeroing risk typical of most altcoins, are under stricter regulation, more transparent, and carry lower informational disadvantages.

As a result, token lifecycle is greatly compressed: the time from peak to trough shortens dramatically, retail “holding” willingness plummets, replaced by faster capital rotation.

Every VC is asking themselves and their peers some big questions:

1. Are we underwriting equity, tokens, or a combination of both?

The biggest challenge here is that we lack a new best practice manual for value accumulation in token projects—even the most successful projects like Aave still face debates between DAO and equity.

2. What are the best practices for on-chain value accumulation?

The most common is token buybacks, but that doesn’t mean it’s correct. We have long opposed the prevailing trend of token buybacks: they are toxic and put founders with real revenue in a dilemma.

This motivation is entirely wrong: stock buybacks happen after a company invests in growth, whereas crypto buybacks are increasingly driven by retail/public perception (a highly fickle and irrational thing) demanding immediate action.

You might burn $10 million that could have been reinvested, only for that value to vanish the next day due to a random market maker being liquidated.

Public companies buy back shares when undervalued. Token buybacks, however, tend to be front-run at various stages, often executed at local highs.

Especially if you are a B2B business generating off-chain revenue, buybacks are pointless. In my view, when your revenue is less than $20 million, there’s no reason to do buybacks just to please retail investors—reinvest that capital into growth instead.

I really like the report from fourpillars, which shows that buybacks in the tens of millions of dollars are almost useless for setting long-term price floors for projects.

Furthermore, to satisfy retail and hedge funds, continuous and transparent buybacks are necessary. Any behavior that fails to do so will be punished, just like PUMP’s P/E ratio (based on fully diluted valuation) being only 6x because the public “distrusts” them—even though they have burned $1.4 billion in revenue that could have gone into the treasury.

Here is further reading on “on-chain value accumulation mechanisms that work without burning money.”

3. Will the “crypto premium” completely disappear?

This means that in the future, all projects will be valued based on multiples similar to public stocks (roughly 2 to 30 times revenue). Think about what this implies—if true, most Layer 1 blockchain prices could fall over 95% from current levels, with exceptions like TRON, HYPE, and other revenue-generating DeFi projects. And this is even without considering token ownership.

Personally, I don’t believe this will be the case—HYPE has set an extremely exceptional expectation, making many investors impatient with early-stage startups’ “first-day revenue/user traction.” For continuous innovation like payments and DeFi, yes, that’s a reasonable expectation.

But disruptive innovation takes time to build, launch, grow, and then achieve exponential revenue growth.

In the past two cycles, we have been overly patient and blindly optimistic about so-called “disruptive technologies”—new Layer 1 chains, Flashbots/MEV concepts, all the way to Series 8-9, now overcorrecting by only supporting DeFi projects.

The pendulum will swing back. While evaluating DeFi projects based on “quantitative” fundamentals is indeed a net positive for industry maturity, for non-DeFi categories, “qualitative” fundamentals must also be considered: culture, technological innovation, disruptive concepts, security, decentralization, brand assets, and industry connectivity. These traits are not solely reflected in TVL and on-chain buybacks.

What should we do now?

Token project return expectations have been significantly compressed, while equity businesses have not experienced the same decline. This divergence is especially evident in early and growth-stage projects.

Early investors underwriting projects that might exit via tokens are now much more price-sensitive. Meanwhile, appetite for equity deals has increased, especially in favorable M&A environments. This is a stark contrast to 2022–2024, when token exits were the preferred liquidity path, based on the assumption that token valuation premiums would persist.

Late-stage investors—those with the strongest brand assets and added value in the native crypto context—are increasingly moving away from purely “crypto-native” trading. Instead, they support more “Web2.5” companies, whose underwriting is anchored in revenue traction.

This puts them in unfamiliar territory, competing head-to-head with institutions like Ribbit, Founders Fund—who have deeper backgrounds in traditional fintech, stronger portfolio synergies, and better visibility into early-stage deals outside crypto.

The crypto VC space is entering a period of value validation. Survival depends on VC finding its Product-Market Fit (PMF) among founders—where “product” is a combination of capital, brand recognition, and added value.

For the best deals, VCs need to pitch themselves to founders to earn the right to enter the capitalization structure, especially since some of the most successful recent cases (like Axiom) require little to no institutional capital, or none at all (like HYPE). If capital is the only thing VCs can offer, they are almost certainly doomed.

Venture capitalists who remain in this game must be very clear about what they can offer in terms of brand recognition (the motivation that makes top founders willing to engage initially) and added value (which ultimately determines their right to win deals).