I have been a VC in Web3 for nine years: Asian funds are currently in '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 switched to AI, some have started their own businesses, and some funds have completely stopped investing.

If you go back to 2021 or even 2024, the Web3 investment market was so crazy that there would be a dozen or even nearly twenty financing news stories a day, with tens of millions of dollars in financing being commonplace. Back then, many believed Crypto would experience explosive growth. VCs were frantically raising funds, projects were frantically issuing tokens, and entrepreneurs were running wild.

But by the second half of 2025, the entire industry had cooled down rapidly. In the current Web3 market, you're lucky to see even one piece of financing news a day. There are fewer and fewer VCs who are truly active on the front lines and still continuously betting on Web3.

What exactly have Crypto VCs experienced in this cycle? During my investigation, I found a few investors who are still active on the front lines of Web3. Jocy, founder of IOSG, revealed: "We still invest in about 15 Web3 projects every year, with 30% being lead investments, even during the bear market. In the first half of this year alone, we completed 3 primary market investments."

Nine years, three bull and bear cycles. They have witnessed the industry's craziest, most bubble-filled times and have also waded through the industry's lowest troughs multiple times. In this bear market, Jocy told me his biggest feeling is: the logic of Crypto VC has completely changed.

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

I've been a VC in Web3 for nine years, experiencing three bull and bear cycles

I have been a Crypto VC for nine years now.

Since founding IOSG in 2017, we have experienced three bull and 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 positions were allocated to early-stage primary market projects.

But now, with changes in the crypto environment, we have gradually adjusted our investment strategy in the past two years, continuously increasing the allocation to Post-TGE (after project token generation event) and OTC (over-the-counter) projects. Currently, it has formed an investment portfolio of roughly 50% primary market, 30% Post-TGE, and 20% OTC.

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

At the same time, this strategy also gives us better liquidity management space, providing LPs (limited partners) with 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 explain the DPI exit path to LPs will take 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 teams distributed across Asia and the US. Our strategy has always been global, allowing us to keenly perceive the changing temperature 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 truly new people doing pure Crypto, as a large amount of talent has been drawn 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 intense shakeout. Institutions leave, projects go to zero, emotions plummet from frenzy back to silence, and then it starts anew. For us, this is actually the best time to re-establish industry order and redefine value.

The lowest point of each industry cycle is often the moment when the best projects are conceived.

Many people think VCs just throw money around. 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 capability. Additionally, we have been doing one thing consistently: building the 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 different projects can create synergies. This is something we have valued highly for a long time.

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, and the same project could even be offered at three different valuations simultaneously.

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

Now that the market has cooled down, it actually creates opportunities for institutions that truly do research. We can finally sit down and do proper DD (due diligence). We can spend three weeks, not three days, to seriously 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 actively seek institutions that can truly provide non-financial value, rather than institutions that only blindly offer high valuations. Our Alpha comes from deep judgment, not the speed of grabbing allocations.

Looking around, the entire industry's capital is shrinking.

Not long ago, a16z raised a $2.6 billion fund. Although it's still a behemoth, for them, the scale is smaller than the previous fund. Large institutions like Benchmark are also shrinking their scale.

US funds operate somewhat differently, often on a 10-year cycle. In the last cycle, their big profits didn't necessarily come from investing in good primary market applications, but rather from heavily weighting large coins like Bitcoin. They used their massive dollar capital to push market valuations to the ceiling, but they didn't point the industry towards a real path to adoption.

Now that the bubble is receding, US funds have plenty of dry powder and many paths to choose from. But Asian funds, after being pushed up to the highs together, found they had nowhere to go when they crashed down.

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. Almost no LP will 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. Because bullets are limited, every shot must hit. Internally, we have always emphasized: don't do middle-of-the-pack 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 and value are decoupled

In this cycle, we have resolutely avoided several types of projects: pure Narrative plays lacking PMF (Product-Market Fit) infrastructure, overly redundant constructions with no cash flow, and projects that just make empty promises. 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 had a persistent and major ailment: Tokens are in a state of long-term decoupling from real value.

In the past, many projects played a "shell game" – the truly profitable business revenue and core equity were firmly locked up in real-world company entities. The tokens they issued were merely used as interest-free financing tools, liquidity exits, or even chips to manipulate market sentiment.

Simply put, while the protocol earned real money on-chain, token holders couldn't even get a piece of the pie. They had no substantive claim on the value created by the project. This extreme misalignment of interest structures caused a large number of investors to lose their shirts over the past few cycles. Because what they bought with their money was never a true "asset," but rather an empty symbol with no rights.

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

High-quality projects are proactively seeking transparency, clearly and strongly binding the token to the protocol's value. This will become a key differentiating competitive advantage in the next cycle. Projects like Uniswap, Hyperliquid, Polymarket, and Morpho, which we have invested in, are vigorously promoting this trend.

Take Morpho as an example. They publicly committed to the market that the value generated by the protocol will be programmatically directed back to the token, and will never flow to a separate company or equity. Similarly, Uniswap, following the easing of the US regulatory environment, is also adapting to the trend and moving in this direction. Hyperliquid demonstrated the immense power of "token buybacks" through concrete action.

To be clear, buybacks themselves are not a perfect metric for measuring interest alignment, but from a structural standpoint, they truly give the token core support. By continuously reducing the circulating supply, building long-term interest alignment with holders, combined with a transparent and programmatic buyback schedule, projects can forge a solid price floor 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, with their scarcity and intrinsic value steadily increasing over time.

Only tokens that truly possess a value capture mechanism, have buyback and cash flow generation capabilities, and a solid support floor, are qualified to transcend bull and bear cycles and become a long-term financial asset, 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 only at the most pessimistic points of each cycle

Over the past few years, Crypto has actually undergone a massive "falsification" process, hurtling towards the worst outcomes: Which products have no real demand? Which narratives simply couldn't hold up? Which directions were inevitably inferior to Web2?

This process of falsification has buried countless fortunes and top-tier talent, but it has also gradually clarified the answers. 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 rather 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 looking at projects, we must break them down to the finest granularity: scrutinizing Consumer project retention rates, Customer Acquisition Cost (CAC), and Lifetime Value (LTV); decomposing the ARR (Annual Recurring Revenue) of projects that have already issued tokens, stripping out sustainable real income.

As Crypto transitions from a storytelling alternative circle to a true financial industry, a huge value gap has appeared on the flip side of the frenzy.

In the current market, people are more willing to pay for ethereal "imagination," yet mistakenly undervalue projects that genuinely have revenue, users, and cash flow. Examples include Morpho, Sky, or even Uniswap, which recently explicitly abandoned its IPO plan to stick with its token ecosystem. These veteran protocols that have experienced full bull-bear cycles lost attention during the deep retracements of the bear market, but their fundamentals haven't deteriorated; instead, they have become healthier along with the improving industry environment and income capabilities.

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

• Real Yield and Financial Infrastructure: Including stablecoin payments, clearing and settlement, Neo-banks, and on-chain credit. For example, Ether.fi, Morpho, Centrifuge, and RedotPay, in which we have invested, have extremely clear user demand and positive cash flow.
• The Intersection of AI and Crypto: We have reserved 20% to 30% of our ammunition, not for general-purpose large models, but strictly 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 internally is equipped with a dedicated AI Bot to handle tedious data backtesting and cross-time zone coordination. However, dealing with people and making judgments based on human nature remains an irreplaceable moat for us.

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

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

I still believe that the truly important things in this industry have only just begun. After the bubble recedes, the people who remain will truly determine what the next world looks like.