Author: Catrina
Compiled by Jiahuan, ChainCatcher
Crypto venture capital is at a crossroads. Over the past three cycles, token exits have been the primary driver of outsized returns, but they are now undergoing a major reset. The definition of token value is being rewritten in real time, yet industry-standard evaluation frameworks have yet to emerge.
What exactly happened?
This time, the cryptocurrency market structure has been simultaneously disrupted by multiple unprecedented forces:
1. The emergence of HYPE has revitalized the token market, demonstrating that token prices can be supported by real revenue—over 97% of its nine- to ten-digit revenue is generated on-chain.
This has completely dispelled the illusion surrounding governance tokens that relied solely on narratives and lacked solid fundamentals—think of the L1s and "governance tokens" that existed primarily to circumvent the ambiguity of securities laws, which made direct revenue distribution unfeasible. HYPE has nearly overnight reset market expectations: today, revenue is subject to much stricter scrutiny and has become a basic requirement for entry.
2. Ripple effects on other token projects
Before 2025, if you had on-chain income, you were considered a security; after HYPE, if you ask most hedge funds, they’ll tell you that if you don’t have on-chain income, you’ll go to zero. This has left most projects, especially non-DeFi projects, in a bind, forced to scramble to adapt.
3. PUMP caused a remarkable supply shock to the system.
The surge in supply driven by meme coin mania has fundamentally undermined market structure by diverting attention and liquidity. On Solana alone, the number of newly minted tokens skyrocketed from around 2,000 to 4,000 per year to a peak of 40,000 to 50,000. This effectively sliced the already stagnant liquidity pie into roughly one-twentieth. Similarly, in pursuit of excess returns, the same group of buyers has shifted their attention and capital toward speculative meme coins rather than holding altcoins.
4. Retail speculative funds are accelerating their分流.
Prediction markets, stock perpetuals (perps), and leveraged ETFs are now directly competing for the same pool of capital that would otherwise flow to altcoins. Meanwhile, the maturation of tokenization technology has made it possible to trade leveraged positions on blue-chip stocks, which carry no risk of going to zero unlike most altcoins and are subject to far stricter regulation, greater transparency, and lower information asymmetry risk.
As a result, the token lifecycle has been drastically compressed: the time from peak to trough has sharply shortened, retail investors' willingness to hold tokens has plummeted, replaced by faster capital rotation.
Every VC is asking themselves and their peers some big questions.
Are we underwriting equity, tokens, or a combination of both?
The biggest challenge here is that we have no new best practices manual for value accumulation in token projects—even the most successful projects like Aave still face controversy between DAOs and equity.
2. What are the best practices for on-chain value accumulation?
The most common is token buybacks, but that doesn’t mean it’s right. We have long opposed the prevailing trend of token buybacks: it is toxic and puts founders with real revenue in a difficult position.
This motivation is entirely misguided: stock buybacks occur after a company has completed its investments in growth, whereas cryptocurrency buybacks are increasingly demanded immediately due to retail/public sentiment (a completely fickle and irrational force).
You could waste $10 million that could have been reinvested, only for that value to vanish the next day due to a random market maker being liquidated.
Public companies repurchase shares when they are undervalued. Token buybacks, however, are often preempted at various stages, leading to executions that frequently occur at local peaks.
This is especially pointless if you're a B2B business generating off-chain revenue. In my view, when your revenue is under $20 million, there’s absolutely no reason to conduct buybacks solely to appease retail investors instead of reinvesting the funds into growth.
I really like this report from fourpillars, which shows that buybacks in the billions have almost no effect on helping the project establish a long-term price floor.
In addition, to satisfy retail investors and hedge funds, you must consistently and transparently conduct buybacks like HYPE. Any failure to do so will be punished, as seen with PUMP, whose P/E ratio (based on fully diluted valuation) is only 6x due to public "distrust"—despite the fact that they have genuinely burned $1.4 billion in revenue that could have otherwise gone to the treasury.
Here is additional reading material on "On-chain value accumulation mechanisms that work without burning money."
3. Will the crypto premium disappear completely?
This means that in the future, all projects will be valued at multiples similar to public stocks—approximately 2 to 30 times revenue. Take a moment to consider what this implies—if true, we would see the prices of most L1 blockchains fall by more than 95% from current levels, with exceptions such as TRON, HYPE, and other revenue-generating DeFi projects. This is even before accounting for token vesting.
Personally, I don’t think things will unfold this way—HYPE has set an exceptionally exceptional expectation, causing many investors to grow impatient with the "first-day revenue/user traction" of early-stage startups. For ongoing innovations like payment and DeFi companies, yes, this is a reasonable expectation.
But disruptive innovation takes time to build, launch, grow, and then achieve exponential revenue growth.
Over the past two cycles, we exhibited excessive patience and blind optimism toward so-called "disruptive technologies"—new L1 blockchains and obscure Flashbots/MEV concepts that raised funds all the way to the 8th or 9th round—now we’ve swung too far in the opposite direction, willing to support only DeFi projects.
The pendulum will swing back. While evaluating DeFi projects based on "quantitative" fundamentals is indeed a net positive for the industry’s maturity, for non-DeFi categories, "qualitative" fundamentals must also be considered: culture, technological innovation, disruptive concepts, security, decentralization, brand equity, and industry connectivity. These traits are not simply reflected in TVL or on-chain buybacks.
What should I do now?
The expected returns for token projects have been significantly compressed, while equity businesses have not experienced a comparable decline. This divergence is particularly evident among early-stage and growth-stage projects.
Early investors have become much more price-sensitive when underwriting projects that may exit via tokens. Meanwhile, appetite for equity businesses has increased, particularly in a favorable M&A environment. This is vastly different from the 2022–2024 period, when token exits were the preferred liquidity path, based on the assumption that token valuation premiums would persist.
Later-stage investors, those with the strongest brand assets and added value within the crypto-native context, are increasingly moving away from purely "crypto-native" trades. Instead, they are shifting toward supporting more "Web2.5" companies whose underwriting is anchored by revenue traction.
This thrusts them into unfamiliar territory, directly competing with institutions like Ribbit and Founders Fund, which have deeper roots in traditional fintech, stronger portfolio synergies, and better visibility into early-stage deals outside of crypto.
The crypto VC space is entering a period of value validation. Survival depends on VCs finding their own PMF (product-market fit) among founders, where the "product" is a combination of capital, brand alignment, and added value.
For the best deals, VCs need to pitch themselves to founders to earn a place on the cap table, especially since some of the most successful projects in recent years have needed little to no institutional capital (e.g., Axiom) or none at all (e.g., HYPE). If capital is the only thing VCs can offer, they are almost certainly going to be left behind.
VCs eligible to remain in this game must clearly understand what they can offer in terms of brand alignment (which motivates top founders to engage in the first place) and added value (which ultimately determines their right to win the deal).