I have been a VC in Web3 for nine years: Asian funds are experiencing "hell mode"

Original author: Joe Zhou, Foresight News

A large number of Asian Crypto VCs have disappeared.

In the past week, I reached out to over twenty investor friends in my contacts, and more than half of them have already left. Some have shifted to AI, some have started their own ventures, and a few funds have completely halted investments.

If we turn back the clock to 2021 or 2024, the Web3 investment market was once so frenzied that a dozen or even nearly twenty funding news items would appear in a single day, with multi-million dollar rounds being commonplace. Back then, many believed Crypto would experience explosive growth. VCs frantically raised funds, projects frantically issued tokens, and entrepreneurs rushed headlong.

But by the second half of 2025, the entire industry had cooled down rapidly. In today's Web3 market, it's common to see only one funding announcement in an entire day. The number of VCs that are truly active on the front lines and still consistently betting on Web3 is dwindling.

What exactly have Crypto VCs experienced during this cycle? In my research, I found several investors still active on the Web3 front lines. Jocy, founder of IOSG, revealed, "We still invest in about 15 Web3 projects annually, leading 30% of them, even during the bear market. In just the first half of this year, we completed 3 primary market investments."

Over nine years and three bull-bear cycles, they have witnessed the industry at its most frenzied and bubbly, and have waded through its lowest ebbs multiple times. In this bear market, Jocy told me his biggest feeling is this: the logic of Crypto VC has fundamentally changed.

Below is the first-person account from Jocy, founder of IOSG.

I've Been a VC in Web3 for Nine Years, Through Three Bull-Bear Cycles

I have been a Crypto VC for nine years now.

Since founding IOSG in 2017, we have experienced three bull-bear cycles in this industry, investing in nearly a hundred projects. Back then, the entire industry was still very small. Bitcoin had just broken through $1,000, Ethereum was under $10, and most people didn't even know what "blockchain" was.

At that time, about 80%-90% of our portfolio was allocated to early-stage primary market projects.

But now, with the changing crypto environment, we have gradually adjusted our investment strategy over the past two years, continuously increasing the allocation to Post-TGE (Token Generation Event) and OTC (over-the-counter) projects. Currently, our portfolio roughly consists of 50% primary market, 30% Post-TGE, and 20% OTC investments.

For us, the early primary market remains the core source of Alpha. However, increasingly, we find obvious value mispricing in some Post-TGE and OTC assets, with the secondary market beginning to offer more cost-effective opportunities than the primary market.

At the same time, this strategy also provides us with better liquidity management, offering LPs (Limited Partners) a clearer DPI (Distributed to Paid-In Capital) exit path. I believe the future landscape will be: the top 20% of VCs that can clearly articulate a DPI exit path to LPs will capture 80% of the market's capital, while the remaining funds will fight over the meager scraps of the remaining 20%.

We currently have a team of over a dozen people, distributed across Asia and the US. Our strategy has always been global, allowing us to keenly perceive changes in the industry's temperature worldwide. The market is very quiet right now, and good projects are extremely scarce. Look at the Web3 startup scene in Silicon Valley; there are fewer and fewer newcomers genuinely focused on pure Crypto, with a large amount of talent being absorbed into the AI track.

The entire market is currently in a phase of relatively pessimistic sentiment, and this pressure won't let up anytime soon.

Every few years, the crypto industry experiences an extremely intense shakeout. Institutions leave, projects go to zero, sentiment plunges from euphoria back to desolate silence, and then it starts all over again. For us, this is actually the best time to re-establish industry order and redefine value.

The deepest trough of each cycle is often the moment when the best projects are born.

Many people think VCs only provide money. But in reality, institutions that truly last long-term are those that can help entrepreneurs solve problems. One of our biggest accumulations over the past nine years is our post-investment capabilities. Additionally, we have always been doing one thing: building ecosystems. From Infra to DeFi, to Consumer, and then to the intersection of AI and Crypto, we have been piecing together a complete ecosystem map.

We hope different projects can synergize with each other. This is something we have always valued highly in the long term.

Crypto VC is Entering 'Hell Mode'

How crazy was the industry at the peak of the last bull run? A seed-stage project could be finalized in 3 days, with 5 institutions frantically competing for allocation. Sometimes, the same project would offer three different valuations at the same time.

We never participated in that kind of game. That's not investing.

Now that the market has cooled down, it actually provides opportunities for institutions that do genuine research. We can finally sit down and properly conduct DD (due diligence). We can spend three weeks, not three days, to carefully scrutinize a project.

So this cycle is actually a structural opportunity for research-driven funds. With less money in the market, good projects will actively seek institutions that can provide genuine non-financial value, rather than just blindly offering high valuations. Our Alpha comes from deep judgment, not the speed of grabbing allocations.

Looking around, capital across the entire industry is shrinking.

Not long ago, a16z raised a $2.6 billion fund. While still a behemoth, it's smaller in scale compared to their previous fund. Major institutions like Benchmark are also scaling back.

The approach of US funds is a bit different; many operate on a 10-year cycle. In the last cycle, their main profits didn't necessarily come from picking good applications in the primary market, but from heavy positions in major coins like Bitcoin. They used their substantial dollar capital to push market valuations to the ceiling, but they didn't provide the industry with a clear path to real-world implementation.

As the bubble recedes, US funds have ample reserves and plenty of options. But Asian funds, after being pushed up alongside them, found they had nowhere to go when they fell.

Over the past year, the VC fundraising market across Asia has been dismal. The vast majority of VCs have found it extremely difficult to raise money. Almost no LP insists on allocating to Crypto VC.

Therefore, this cycle is an extremely painful 'hell mode' for Asian funds.

But looking at it from another perspective, this also means Asian funds must be more precise. With limited bullets, every shot must hit. Internally, we have always emphasized: Don't do middle-of-the-road projects. Either invest in the industry's Top 1 or Top 2, or don't invest at all. Because in a bear market, the middle layer is the most likely to collapse.

The Biggest Problem in Crypto: Tokens Divorced from Value

In this cycle, we have firmly avoided several types of projects: infrastructure projects that rely purely on Narratives but lack PMF (Product-Market Fit), projects with excessive duplication and no cash flow, and projects that are purely based on visionary promises. The market has become completely immune to those "high FDV, low float" infrastructure tokens. Nowadays, if you build Infra, institutions might even prefer to invest in your Equity rather than your token.

For a long time, the Crypto industry has suffered from a major chronic ailment: Tokens are in a state of long-term decoupling from real value.

In the past, many project teams played a "shell game" – the revenue and core equity from the actual profitable business were firmly locked within the real-world corporate entity. The tokens they issued were merely used as interest-free financing tools, liquidity exits, or even chips to manipulate market sentiment.

Simply put, the protocol generates real revenue on-chain, but token holders don't get a penny of it. They have no substantive claim on the value created by the project. This extreme misalignment of incentive structures has caused countless investors to lose their shirts over the past few cycles. Because what they bought with their money was never a true "asset," but merely an empty symbol without any rights.

After several rounds of brutal shakeouts, the industry is finally waking up today: A good Token must be one that can carry real value.

High-quality projects are actively seeking transparency, strongly binding tokens with protocol benefits. This will become a key competitive differentiator in the next cycle. Projects like Uniswap, Hyperliquid, Polymarket, and Morpho, which we invested in, are vigorously driving this trend.

Take Morpho as an example. They publicly committed to the market that the value generated by the protocol will be programmatically accumulated onto the token, and will never flow to a separate company or equity. Similarly, Uniswap, after the easing of the US regulatory environment, is also adjusting in this direction in line with the trend. Hyperliquid, meanwhile, has demonstrated the immense power of "token buybacks" to the market through concrete actions.

Frankly speaking, buybacks themselves aren't a perfect metric for measuring interest alignment, but from a structural standpoint, they truly endow the token with core support. By continuously reducing circulating supply, establishing long-term interest alignment with holders, complemented by transparent and programmatic buyback schedules, project teams can forge a solid price floor for their token. For long-term holders, the nature of such tokens is undergoing a qualitative change – they increasingly resemble government bonds or yield-bearing assets, with their scarcity and intrinsic value steadily increasing over time.

Only tokens that truly possess a value capture mechanism, the capability for buybacks and cash flow generation, and a solid price floor are qualified to transcend bull-bear cycles and become long-term financial assets, rather than pure gambling chips.

Perhaps, precisely because the industry has hit its most painful bottom, Crypto can truly begin this hardcore evolution of "discarding the false and retaining the true."

Truly Great Projects Are Born in the Most Pessimistic Times

Over the past few years, Crypto has actually undergone a massive "falsification" process, spiraling towards the worst outcomes: Which products have no real demand? Which narratives simply cannot hold up? Which directions are destined to be inferior to Web2?

This process of falsification has buried countless sums of money and top talent, but it has also gradually brought clarity to the answers. For VCs, the investment logic must change completely – it's no longer about betting on industry Beta or cycles; it must return to business fundamentals.

We no longer view Crypto as an isolated island, but as the "digitization of finance." The industry is finally realizing that what truly matters has never been illusory "big numbers," but the real value behind them. When evaluating projects now, we must deconstruct them down to the finest granularity: rigorously scrutinizing Retention Rate, CAC (Customer Acquisition Cost), and LTV (Lifetime Value) for Consumer projects; and dissecting the ARR (Annual Recurring Revenue) of projects that have already issued tokens, stripping away unsustainable components to reveal genuine recurring income.

As Crypto transitions from a storytelling niche to a genuine financial industry, on the flip side of the frenzy, a huge value gap has emerged.

In the current market, people are more willing to pay for ethereal "imagination," while mistakenly undervaluing projects that have actual revenue, users, and cash flow. Examples include Morpho, Sky, and even Uniswap, which recently clearly abandoned its IPO plan to stick with its token ecosystem. These established protocols that have weathered complete bull-bear cycles lost attention during the deep retracements of the bear market. However, their fundamentals haven't deteriorated; on the contrary, they are becoming healthier due to improved industry conditions and income capabilities.

This is precisely why we are now allocating about 50% of our portfolio to these token-issuing projects with genuine revenue. We are concentrating our firepower heavily in two directions:

• Real Yield and Financial Infrastructure: This includes stablecoin payments, clearing and settlement, Neo-banks, and on-chain credit. For instance, our investments like Ether.fi, Morpho, Centrifuge, and RedotPay have extremely clear user demand and positive cash flow.
• The Intersection of AI and Crypto: We have reserved 20% to 30% of our ammunition. We aren't investing in general-purpose large models but are absolutely focused on crypto-native AI infrastructure (such as data training and collection).

Facing this disorderly and violent reshuffling, VCs themselves must also evolve. Now, every colleague in our firm has a dedicated AI Bot to handle tedious backtesting and cross-timezone coordination. But dealing with people and making judgments about human nature remain our irreplaceable moat.

After nine years, my strongest feeling is this: Truly great companies are almost never born during the most exciting times, but rather when many people believe the industry is over.

In this cycle filled with layoffs, disillusionment, and confusion, many people are leaving, even beginning to doubt whether Web3 has a future. But only during the trough are you forced to think: What do users really need? What can survive and thrive in the long term?

I still believe that the truly important things in this industry are just beginning. After the bubble recedes, the people who remain are the ones who will truly determine what the world looks like in the next cycle.