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

Original text by 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 pivoted to AI, some have started their own companies, and others have completely ceased investing.

Looking back at 2021 or early 2024, the Web3 investment market was so frenzied that there could be over a dozen, even nearly twenty, fundraising news items in a single day, with multi-million dollar rounds being commonplace. Back then, many believed Crypto would experience explosive growth. VCs raised funds frantically, projects issued tokens aggressively, and founders sprinted relentlessly.

But by the second half of 2025, the entire industry rapidly cooled down. Now in the Web3 market, many days you can only find one fundraising announcement. The number of VCs who are truly active on the front lines and still consistently betting on Web3 is dwindling.

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

Over nine years and three market cycles, they have witnessed the industry's most euphoric and bubbly moments and trudged through its lowest valleys. In this current bear market, Jocy told me his biggest feeling is: 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 market cycles

I have been a Crypto VC for nine years.

Since founding IOSG in 2017, we have experienced three market cycles in this industry and invested in nearly a hundred projects. Back then, the entire industry was still very small. Bitcoin had just broken $1000, Ethereum was under $10, and most people didn't even know what "blockchain" was.

At that time, about 80%-90% of our positions were 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. We have been increasing our allocation to Post-TGE (after the official token launch) and OTC (over-the-counter) projects, currently forming a portfolio structure of roughly 50% primary market, 30% Post-TGE, and 20% OTC.

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

At the same time, this strategy gives us better liquidity management, allowing us to provide 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 who can clearly articulate the DPI exit path to LPs will capture 80% of the market's capital, while the remaining funds will fight over the scraps.

We currently have over a dozen people, with teams distributed across Asia and the US. Our strategy has always been global, allowing us to keenly perceive the temperature changes of the industry worldwide. The market is actually quite quiet now; good projects are very scarce. Look at the Web3 startup scene in Silicon Valley — there are fewer and fewer genuinely new people doing pure Crypto, and a large amount of talent has been attracted to the AI track.

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

Every few years, the crypto industry undergoes an extremely violent shakeout. Institutions leave, projects go to zero, sentiment plummets from euphoria to deathly silence, and then the cycle restarts. For us, this is actually the best time to re-establish industry order and redefine value.

The lowest point of each cycle is often when the best projects are born.

Many people think VCs just provide money. But truly, institutions that last long-term must be those that can help entrepreneurs solve problems. One of our biggest accumulations over the past nine years is our post-investment capability. Additionally, we have been consistently 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 ecological map.

We hope different projects can create synergies. This is something we have always valued highly.

Crypto VC is Entering 'Hard 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 madly competing for allocation, and sometimes the same project would even offer three different valuations at the same time.

We never participate in such games. That's not investing.

Now that the market has cooled down, it actually gives an opportunity to institutions that do real research. We can finally sit down and properly conduct DD (Due Diligence). We can spend three weeks, not three days, to thoroughly scrutinize a project.

So, this cycle is actually a structural opportunity for research-driven funds. Because there is less money in the market, good projects will proactively seek institutions that can truly provide non-financial value, rather than those that just 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 compared to their previous fund. Major institutions like Benchmark are also downsizing.

The game plan for US funds is somewhat different; many operate on a 10-year cycle. In the last cycle, a big part of their profit didn't necessarily come from hitting good primary market applications, but from heavily weighting large tokens like Bitcoin. They used their strong dollar funds to push market valuations to the ceiling, but they didn't show the industry a clear path to real-world adoption.

As the bubble deflates, US funds have ample reserves and many options. But Asian funds, after being pushed up to the high point together with the market, found themselves with no way out when it crashed.

Over the past year, the VC fundraising market across Asia has been abysmal. Most VCs have found it extremely difficult to raise money. Hardly any LP explicitly says they must allocate to Crypto VCs.

So, for Asian funds, this cycle is an extremely painful 'hard mode'.

But looking at it from another angle, this also means Asian funds must be more precise. With limited bullets, every shot must hit. We have always emphasized internally: don't invest in 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 collapses most easily.

The Biggest Problem in Crypto: Token Disconnect from Value

In this cycle, we have resolutely avoided several types of projects: purely narrative-driven infrastructure lacking PMF (Product-Market Fit), overly redundant projects without cash flow, and projects that rely solely on hype and roadmaps. The market has become completely immune to those "high FDV, low float" infrastructure tokens. Now, 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 have been in a long-term state of disconnect from real value.

In the past, many project teams played a "shell game" — the real profitable business revenue and core equity were firmly locked within a real-world company entity, while the issued token was merely used as an interest-free financing tool, a liquidity exit, or even a tool to manipulate market sentiment.

Simply put, the protocol generates real cash on-chain, but token holders don't get a share. They have no substantial claim on the value created by the project. This extreme misalignment of incentive structures caused a large number of investors to lose everything over the past few cycles. Because what they paid for was never a true "asset," but merely an empty symbol without rights.

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

High-quality projects are proactively seeking transparency, creating a clear and strong binding between the token and the protocol's benefits. This will become a key competitive advantage in the next cycle. Projects like Uniswap, Hyperliquid, Polymarket, and Morpho, which we invested in, are all strongly driving this trend.

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

Frankly, buybacks themselves are not a perfect metric for measuring interest alignment, but from a structural standpoint, they truly provide a core support floor for the token. By continuously reducing the circulating supply, building long-term interest alignment with holders, and complementing this with a transparent and programmatic buyback schedule, projects can forge a solid price foundation for their token. For long-term holders, the nature of such tokens is undergoing a qualitative change — they are increasingly resembling treasury bonds or yield-bearing assets, whose scarcity and intrinsic value steadily increase over time.

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

Perhaps, precisely because the industry has hit its most painful bottom, Crypto can truly begin this hardcore evolution of "separating the wheat from the chaff."

Truly great projects are born during the most pessimistic moments of each cycle

Over the past few years, Crypto has actually undergone a massive "falsification" process, hurtling towards its worst outcomes: Which products have no real demand? Which narratives simply cannot hold? 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 the answers into focus. For VCs, investment logic must completely change — it's no longer about betting on the industry's Beta or the cyclical tide, but must return to business fundamentals.

We no longer treat 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 projects, we must break them down to the finest granularity: meticulously scrutinize Consumer projects' retention rates, Customer Acquisition Cost (CAC), and Lifetime Value (LTV); dissect the ARR (Annual Recurring Revenue) of launched projects layer by layer to strip out sustainable, real revenue.

As Crypto transitions from a narrative-driven alternative circle to a true financial industry, a significant value gap has emerged on the flip side of the frenzy.

In the current market, people are more willing to pay for ethereal "imagination" while incorrectly undervaluing projects that have real revenue, users, and cash flow. Examples include Morpho, Sky, and even Uniswap, which recently explicitly abandoned its IPO plans to stick with its token ecosystem. These veteran protocols, having survived complete cycles, lost attention during the deep retracements of the bear market. But their fundamentals haven't worsened; in fact, they've become healthier as the industry environment and their revenue capabilities have improved.

This is precisely why we now allocate about 50% of our positions to such launched projects with real revenue. We are highly concentrated on two directions:

• Real Yields and Financial Infrastructure: This includes stablecoin payments, clearing and settlement, Neo-banks, and on-chain credit. For example, our investments in 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 firepower. We are not investing in general large language models. We are absolutely focusing on crypto-native AI infrastructure, such as data training and collection.

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

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

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

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