Author: Lao Bai , ABCDE investment research partner
This seems to be the longest time that Twi has been off the air. The reason is simple. As a blogger who never accepts public comments, every time I write something, I need to express myself. However, the market in recent months makes it difficult for people to have this feeling. The sluggish performance of the secondary market certainly accounts for a large proportion, but the feeling of the primary market may be the main reason for this lack of desire to express myself.
However, I have recently observed some phenomena and have some thoughts. This may be quite long, so I plan to split it into three or four articles. The main parts are "The market from the perspective of the first-level VC in the East and the West", "New signs of RWA", and "Some things worth mentioning on ETH and Solana"
Let’s talk about the first topic today.
In the past few weeks, I have talked with several colleagues in Asia and found that everyone has entered a "pause" or "conservative" investment mode.
Our most recent move was in January, and several of our peers have similar situations. There are many cases where they haven’t made a move for two to three months or even longer.
As for the market's feeling, the word "boring" may be the most appropriate adjective, or a temporary "consensus"
This feeling 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, everyone was still excited about the expansion projects that were discussed well in the primary market, when they talked about ZK, or innovative Defi, Gamfi, and AI. And this sense of excitement has gradually faded after entering 2025. The secondary market is decadent for any narrative, which is only hot for a few days. Naturally, it has an emotional transmission effect on the primary market, but a more worrying thing is - have we entered a stage where the "low-hanging fruits" have been roughly picked, and since then we have entered a long window period of adjustment, exploration, transformation, and corresponding severe pain? I will expand on this topic at the end, because the current state of Western VCs is somewhat different from that of the East.
The reason is that a Defi project that we invested in the Pre-seed round last year is raising the Seed round recently. I originally thought that I would be satisfied if I could raise enough in the current primary and secondary markets. Unexpectedly, it over-raised several million US dollars, and several European and American VCs rushed to put money in. This result surprised me. The project itself is good, but it is not of S-level quality. Why are we in Asia "silent" while Europe and the United States are still "firing", and why do they dare to pull the trigger at this valuation?
We discussed it internally and made some irresponsible guesses, such as
1. The time when European and American VCs were established is different from that in Asia, so the exit cycles are different, which leads to different investment decisions
2. Asian VCs have more or less the temperament of "small town test-takers". In terms of yield, they either want to beat their peers or at least beat BTC (but I believe that few can do it in the current market situation - -). European and American peers are more idealistic and long-term. In other words, as long as they can explain to LPs logically why I invested in this project at this valuation, the persistence in yield is secondary.
3. Pure Deployment Fund needs, after investing in this round, they can quickly raise funds for the next round, mainly collecting management fees
The specific reason is unknown and we can only guess at the moment. So in the next few weeks, I have arranged to chat with a group of partners and researchers from European and American VCs. In addition to exchanging views on the market, I also want to ask them about the above question in person. After collecting information, I will update on Twi.
Then let’s go back to the low-hanging fruit issue. I also want to take this opportunity to discuss with you where the future of Crypto lies.
First of all, whether it is me or ABCDE, our belief in the long-term bullishness of Crypto has never wavered. This can even be regarded as a kind of "belief", otherwise we would not be engaged in this career full-time. But in the short and medium term, we are indeed at a crossroads, a crossroads that I am not sure is similar to the one before Defi Summer in 2019, so I put it up here to share with you.
The reason is that I have been listening to the Podcast of AllianceDAO recently. The three points mentioned in it resonated with me a lot.
1. Qiao said that his current feeling is similar to that in 2019. He didn’t know what would happen to Crypto next. Until the emergence of Defi Summer in 2020, his eyes lit up and he found the direction.
2. They believe that Crypto has only found one PMF in all these years, which is finance, to be more specific, it is trading (Dex, Cex, Perp), lending, stablecoin, Mint (asset issuance, eg Pumpfun)
3. They gave a lot of suggestions for their AI x Crypto startups. If the Crypto element in the project is too far-fetched, it is better to remove Crypto and go straight to pure AI. As a result, 30% of the projects really removed Crypto and became pure Web2 projects.
About 1 - Although I had entered the circle in 2019, I was just speculating in cryptocurrencies. To be honest, I’m not sure if the VCs at that time felt as “bored” as they do now, but in my impression, at least IEO was still popular, EOS was exploring directions, Starkware proposed the ZK concept, and many projects in Defi Summer in 2020 should have been established and invested in 2018-2019. In theory, the physical experience of the primary market should be better than it is now. In other words, at that time, everyone’s belief in the fact that “big things are coming” should be higher than it is now?
Regarding 2 - it is an echo of 1, and is also my biggest concern in the short and medium term, namely - whether we have reached a crossroads different from 2019, where the low-hanging fruits have been largely picked.
If the biggest PMF of Crypto in terms of utility is finance, then Defi Summer + the continuous iterative micro-innovation in the following years has basically reached a boundary today.
The opposite of utility is also what Crypto is good at - narrative direction. Meme is undoubtedly the best representative. Pump.FUN has also pushed this direction to a limit in 2024.
In addition, in the past few years, when utility and narrative were not sure what to do, our circle could at least roll out Infra. From ETH to EOS to Solana, and then to Aptos and Sui... I am thinking, Solana has Firedancer this year, and Monad and MegaETH will probably be launched on the mainnet. Have we also reached the limit in terms of blockchain Infra expansion?
About 3 - At a crossroads, all three roads have reached the boundary, so is there only one road left, namely "blockchain modularity", which is related to the third point mentioned above. I also heard a similar insight in the YC Podcast
The modularity mentioned here is not the modularity of Celestia, but the abstraction of the blockchain technology as a whole into a module, which is inserted into a Start-Up as a function, similar to AI.
Most of the Crypto projects we see now are completely based on Crypto, or Crypto for the sake of Crypto, and are not intended to solve a problem in the real world. To put it nicely, it is called Crypto Native, but to put it bluntly, it is not out of the circle at all, and is only for the fun of the circle.
The Web2 AI venture capital circle is likely to have similar problems. Many projects appear to be “AI for the sake of AI” rather than trying to solve a specific real-world problem.
Will there be a fusion or encounter between Web2 and Web3 in the primary market in the future? A project must exist to solve a problem in the real world. In the process of solving the problem, if Crypto is needed, then Crypto elements will be added; if AI is needed, then AI elements will be added. However, the original intention and purpose have nothing to do with Crypto and AI. Just as Meituan Waimai uses 5G, platform software, big data, AI task allocation... but it is essentially a project born to solve the problem of eating.
If the next big stage of Crypto is like this, will you feel bored? Can the current forms of Crypto VC, exchanges, studios, etc. based on the Crypto Native industry chain continue?
At present, there are more and more Payment and RWA related projects in the primary market, which more or less conform to the idea of 3. I just studied Ondo's Global Market recently and talked about several RWA projects. The next article will talk about the new direction of the RWA track.
