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 contacted over twenty investor friends in my address book, and more than half of them have already left. Some have moved on to AI, others have started their own ventures, and some funds have completely stopped investing.

If we turn back the clock to 2021 or 2024, the Web3 investment market was once so crazy that over a dozen, even nearly twenty, financing news items appeared in a single day, with tens of millions of dollars in funding being commonplace. Back then, many believed that Crypto would experience explosive growth. VCs raised funds frantically, projects issued tokens madly, and entrepreneurs charged ahead at a breakneck pace.

But by the second half of 2025, the entire industry cooled down rapidly. In the current Web3 market, often only one piece of financing news appears per day. The number of VCs that are truly active on the front lines and still consistently placing bets on Web3 is dwindling.

What exactly happened to Crypto VC in this cycle? During my investigation, I found several investors still active on the Web3 front line. Jocy, the founder of IOSG, revealed, "We still invest in about 15 Web3 projects annually, leading 30% of them, even during a bear market. Just in 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's most manic and bubble-driven times, and have also trudged through the industry's lowest troughs multiple times. In this bear market, Jocy told me his biggest feeling was: the logic of Crypto VC has completely changed.

Below is the first-person account of 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 in total. Back then, the entire industry was 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 also gradually adjusted our investment strategy over the past two years, continuously increasing the allocation ratio to Post-TGE (after the project's official token launch) and OTC (over-the-counter) projects. Currently, it roughly forms a portfolio of 50% primary market, 30% Post-TGE, and 20% OTC.

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

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

We currently have over a dozen people, with the team distributed across Asia and the US. Our strategy has always been global, allowing us to keenly sense the temperature changes of the entire industry worldwide. The current market is actually quite quiet, and good projects are very scarce. Look at the Web3 startup scene in Silicon Valley; there are fewer and fewer newcomers truly engaged in pure Crypto, with a large amount of talent being drawn to the AI track.

Currently, the entire market is still in a relatively pessimistic phase, and this pressure won't end anytime soon.

Every few years, the crypto industry undergoes an extremely brutal shakeout: institutions exit, projects go to zero, sentiment plummets from frenzy back to dead silence, and then it starts anew. For us, now is actually the best time to re-establish industry order and redefine value.

Every industry's lowest point is often the moment when the best projects are conceived.

Many people think VCs just provide money. But in reality, the institutions that truly stay for the 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 been consistently doing one thing: building an ecosystem. 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 that different projects can create synergies among themselves. This is something we have always valued 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 scrambling for allocation, sometimes the same project even offered three different valuations simultaneously.

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

With the market cooling down now, it actually gives opportunities to institutions that truly do their research. We can finally sit down and properly carry out DD (Due Diligence). We can spend three weeks, not three days, to thoroughly analyze a project.

So this cycle is a structural opportunity for research-driven funds. Because there is less money in the market, good projects will actively seek institutions that can truly provide non-financial value, rather than those that blindly offer 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. Although still a behemoth, it's smaller in size compared to its previous fund for them. Other large institutions like Benchmark are also shrinking their fund sizes.

American funds operate somewhat differently, many on a 10-year cycle. In the last cycle, a big part of their profits didn't necessarily come from investing in good primary market applications, but from heavy bets on major coins like Bitcoin. They used their abundant dollar capital to push market valuations to the ceiling, but didn't point the industry towards a real path to adoption.

In the phase of the bubble receding, American funds have ample reserves and many options left. But Asian funds, after being pushed up to the peak together, found themselves with no way out when they fell.

Over the past year, the VC fundraising market across Asia has been dismal. The vast majority of VCs have found it very difficult to raise money. Hardly any LP would say they must allocate 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 easiest to collapse.

The Biggest Problem in the Crypto Industry: TOKEN Disconnected from Value

In this cycle, we firmly avoid several types of projects: pure Narrative infrastructure lacking PMF, projects with excessive redundant construction and no cash flow, and projects purely built on visions and promises. The market has become completely immune to those 'high FDV, low float' infrastructure tokens. Now, if you are building Infra, institutions even prefer to invest in your equity rather than your token.

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

In the past, many project teams played a trick of 'slipping away by casting off the shell' – locking the revenue and core equity from their actual profitable business operations tightly within the real-world company entity, while the issued token was merely used as an interest-free fundraising tool, a liquidity exit, or even a chip for manipulating market sentiment.

Simply put, the protocol earns real money on-chain, but token holders cannot get even a share of it. They have no substantive claim on the value created by the project. This extreme misalignment of interest structures has caused massive losses for numerous investors over the past few cycles. Because what they bought with their money was never a real 'asset,' but only an empty symbol with no defined rights.

After experiencing 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 proactively seeking transparency, creating clear and strong links between their tokens and protocol benefits. This will become a key differentiating competitive advantage in the next cycle. Projects like Uniswap, Hyperliquid, Polymarket, and Morpho, which we invested in, are all strongly promoting this trend.

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

Frankly, buybacks themselves are not a perfect indicator of interest alignment, but from a structural perspective, they truly give the token core support. By continuously reducing the circulating supply, establishing long-term interest alignment with holders, and supplementing it with transparent and programmatic buyback schedules, project teams can forge a solid price floor for their tokens. For long-term holders, the nature of such tokens is undergoing a qualitative change – they are increasingly resembling government bonds or yield-bearing assets, whose scarcity and intrinsic value steadily appreciate over time.

Only tokens with a genuine value capture mechanism, the ability to generate cash flow for buybacks, and underlying support are qualified to transcend bull and bear markets and become long-term financial assets, rather than pure speculative chips.

Perhaps, precisely because the industry has hit its most painful bottom, Crypto can truly begin this 'shedding the fake, preserving the real' hardcore evolution.

Truly Great Projects Are Born in the Most Pessimistic Times of Each Cycle

Over the past few years, Crypto has actually undergone a massive 'falsification' process, plummeting towards the worst possible outcome: which products have no real demand? Which narratives simply cannot hold up? What directions are destined to lose against Web2?

This process of falsification has buried countless fortunes and top-tier talent, but it has also gradually brought the answers into focus. For VCs, the investment logic must completely change – no longer betting on industry beta or cycles, but must return to business fundamentals.

We no longer view Crypto as an isolated island, but as the 'digitization of finance.' The industry has finally realized that what truly matters is never the illusory 'big numbers,' but the real value behind them. Now, when evaluating a project, we must break it down to an extremely fine granularity: scrutinize Consumer projects' retention rates, Customer Acquisition Cost (CAC), and Lifetime Value (LTV); dissect the ARR (Annual Recurring Revenue) of projects that have already issued tokens, peeling away layers to isolate sustainable, real revenue.

As Crypto transitions from a storytelling alternative circle to a genuine financial industry, massive value gaps have emerged on the opposite side of the frenzy.

In the current market, people are more willing to pay for intangible 'imagination,' while wrongly undervaluing projects that have real revenue, users, and cash flow. Examples include Morpho, Sky, and even Uniswap, which not long ago explicitly gave up its IPO plans to stick with its token ecosystem. These veteran protocols that have experienced complete bull-bear cycles have lost attention during the deep pullbacks of the bear market, but their fundamentals haven't worsened; instead, they have become increasingly healthy alongside improvements in the industry environment and their income capabilities.

This is why we are now allocating about 50% of our portfolio to these already-issued token projects with real revenue. We are concentrating our firepower heavily on two directions:

• Real Yield and Financial Infrastructure: Including stablecoin payments, clearing and settlement, Neo-banks, and on-chain credit. For example, 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 are not 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 shakeout, VCs themselves must also evolve. Currently, every colleague internally is equipped with a dedicated AI Bot, which handles tedious data backtesting and cross-timezone coordination. However, dealing with people and making judgments about human nature remain our unmatchable moat.

After nine years, my biggest takeaway is: truly great companies are almost never born during the most bustling times, but when many people think the industry is finished.

In this cycle filled with layoffs, disillusionment, and confusion, many people are leaving, even starting to doubt whether Web3 has a future. But it is only during the downturn that you are forced to think: what do users really need? What can survive in the long run?

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