Web3 VCs in Asia Face 'Hell Mode' as Market Cools

Original author: Joe Zhou, Foresight News

A large number of Asian crypto VCs have disappeared.

Over the past week, I reached out to over twenty investor friends in my contacts, and more than half have already left. Some have moved into AI, others have started their own ventures, and some funds have completely stopped investing.

If we rewind to 2021 or 2024, the Web3 investment market was so frenzied that dozens—nearly twenty—funding announcements would emerge in a single day, and multi-million-dollar raises were commonplace. Back then, many believed crypto was on the verge of explosive growth: VCs raced to raise funds, projects rushed to launch tokens, and entrepreneurs sprinted forward without pause.

But by the second half of 2025, the entire industry rapidly cooled down. Today, the Web3 market often sees only one funding announcement per day. The number of VCs actively operating on the front lines and still betting on Web3 continues to shrink.

What has the crypto VC landscape been through in this cycle? During my research, I connected with several investors still actively engaged on the front lines of Web3. Jocy, founder of IOSG, revealed: “We continue to invest in 15 Web3 projects each year, with 30% of them as lead investors—even during bear markets. So far this year alone, we’ve completed three early-stage investments.”

Nine years, three bull and bear cycles—they have witnessed the industry’s most疯狂 and most bubble-driven moments, and have repeatedly navigated through its deepest troughs. During this bear market, Jocy told me that his biggest realization was: the logic behind crypto VC has fundamentally changed.

Here is the personal account of Jocy, founder of IOSG.

I've been in crypto venture capital for nine years.

Since founding IOSG in 2017, we have experienced three full market cycles in this industry and invested in nearly a hundred projects. At that time, the entire industry was still very small: Bitcoin had just broken $1,000, Ethereum was under $10, and most people didn’t even know what “blockchain” meant.

At that time, we allocated approximately 80% to 90% of our position to early-stage primary projects.

However, as the crypto landscape has evolved, we have gradually adjusted our investment strategy over the past two years, increasing our allocation to Post-TGE (post-token generation event) and OTC projects. Our portfolio now consists of approximately 50% primary, 30% Post-TGE, and 20% OTC investments.

For us, the early primary market remains a core source of alpha. However, we are increasingly finding that assets post-TGE and in OTC markets are significantly mispriced, with secondary markets beginning to offer more compelling value than primary markets.

At the same time, this strategy provides us with greater flexibility in liquidity management and offers LPs a clearer path to realizing DPI (realized return on investment). I believe the future landscape will be such that the top 20% of VCs who can clearly articulate a DPI exit strategy to LPs will capture 80% of the market’s capital, while the remaining funds will compete for the leftover 20%.

We currently have a team of over a dozen people, distributed across Asia and the U.S., and our strategy has always been global, enabling us to keenly sense shifts in industry sentiment worldwide. The market is currently very quiet, and high-quality projects are extremely scarce. Look at Silicon Valley’s Web3 startup scene—fewer and fewer new entrants are focusing purely on crypto, as a large portion of talent is being drawn into the AI space.

The entire market is still in a somewhat pessimistic phase, and this pressure is unlikely to ease in the short term.

Every few years, the crypto industry undergoes a dramatic shakeout—institutional players exit, projects vanish, sentiment plunges from frenzy to silence, before eventually restarting. For us, this moment is now the ideal time to rebuild industry order and redefine value.

Each industry trough often marks the moment when the best projects are born.

Many people think VCs simply invest money. But the institutions that truly endure over the long term are those that actively help entrepreneurs solve problems. One of our greatest strengths over the past nine years has been our post-investment capabilities. Additionally, we’ve consistently focused on building an ecosystem—from infrastructure to DeFi, to consumer applications, and now to the intersection of AI and crypto—working to piece together a complete and cohesive ecosystem map.

We hope that different projects can work together synergistically. This is something we have long valued deeply.

At the peak of the last bull market, how wild was the industry? A seed-stage project could be finalized in three days, with five institutions fiercely competing for allocation, and sometimes even three different valuations being offered for the same project simultaneously.

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

After the market cooled down, it has actually created opportunities for institutions that truly do their research. We can finally sit down and conduct proper DD (due diligence), taking three weeks instead of three days to thoroughly examine a project.

So this round represents a structural opportunity for research-driven funds. With less capital in the market, high-quality projects will proactively seek out institutions that can truly deliver non-financial value, rather than those that simply offer high valuations blindly. Our alpha comes from deep judgment, not from speed in securing allocations.

Looking across the entire industry, funds are shrinking.

Recently, a16z raised a $2.6 billion fund, which, while still massive, is smaller than its previous fund by their own standards. Major institutions like Benchmark are also reducing their fund sizes.

The investment approach of U.S. funds is different; many operate on a 10-year cycle. During the last cycle, their primary profits didn’t come from investing in top-tier applications in the early stage, but rather from heavily weighting large cryptocurrencies like Bitcoin. They used their substantial U.S. dollar capital to push market valuations to their ceiling, yet failed to outline a realistic path for industry adoption.

During the deflation phase, U.S. funds still have ample resources and many options available. But Asian funds, pushed up together with the bubble, find themselves with nowhere to go once they fall.

Over the past year, the VC funding market across Asia has been dismal. The vast majority of VCs have struggled to raise capital, and hardly any LPs claim they are committed to allocating funds to crypto VC.

So this round has been an extremely painful hell mode for Asian funds.

But from another perspective, this means Asian funds must be more precise—since ammunition is limited, every shot must hit its target. We consistently emphasize internally: avoid mid-tier projects. Either invest in the industry’s Top 1 or Top 2, or don’t invest at all. In a bear market, the mid-tier is most vulnerable to collapse.

During this cycle, we strictly avoid certain types of projects: infrastructure projects that rely solely on narrative without product-market fit, those with excessive duplication and no cash flow, and those based purely on speculative visions without substance. The market has become completely immune to infrastructure tokens with "high FDV and low circulation." Now, if you're building infrastructure, institutions are even more inclined to invest in your equity rather than your token.

For a long time, the crypto industry has been plagued by a major issue: tokens have been consistently disconnected from their true value.

In the past, many project teams played a game of "smoke and mirrors"—the profitable business revenues and core equity were tightly locked within real-world corporate entities, while the issued tokens were merely used as interest-free fundraising tools, liquidity outlets, or even pawns to manipulate market sentiment.

In short, the protocol has generated real revenue on-chain, but token holders have received none of it—they have no legitimate claim to the value created by the project. This severe misalignment of incentives has caused countless investors to lose their money over the past several cycles, because what they paid for was never a true “asset,” but merely an empty symbol without defined rights.

After several rounds of brutal consolidation, the industry is finally waking up today: a good token must be one that can承载 real value.

High-quality projects are proactively seeking transparency by clearly and strongly aligning tokens with protocol incentives, which will become a key differentiating competitive advantage in the next cycle. Projects like Uniswap, Hyperliquid, Polymarket, and Morpho, which we have invested in, are strongly driving this trend.

Taking Morpho as an example, they have publicly committed to the market that value generated by the protocol will be directly accumulated onto the token through programmed mechanisms, never flowing to independent companies or equity holders. Similarly, Uniswap is aligning with this trend following a relaxation in the U.S. regulatory environment; meanwhile, Hyperliquid has demonstrated to the market the immense power of token buybacks through concrete action.

To be honest, buybacks themselves are not a perfect measure of alignment of interests, but from a structural standpoint, they truly provide tokens with fundamental support. By continuously reducing the circulating supply, establishing long-term alignment with token holders, and supplementing this with transparent, programmatic buyback schedules, projects can forge a solid price floor for their tokens. For long-term holders, the nature of such tokens is undergoing a qualitative shift—they are increasingly resembling government bonds or yield-bearing assets, with their scarcity and intrinsic value steadily growing over time.

Only tokens with genuine value capture mechanisms, repurchase and self-sustaining capabilities, and strong bottom support are qualified to transcend bull and bear markets and become long-term financial assets, rather than mere speculative instruments.

Perhaps it was precisely because the industry hit its lowest point that Crypto was able to truly embark on this rigorous evolution of separating truth from falsehood.

Over the past few years, crypto has undergone a massive "falsification" toward its worst-case scenario: Which products had no real demand? Which narratives were fundamentally untenable? And where did it inevitably fall short of Web2?

This process of falsification has buried countless funds and top talent, but it has also gradually clarified the answers. For VCs, the investment logic must be completely transformed—no longer betting on industry beta or market cycles, but returning to the fundamentals of business itself.

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 has never been illusory "big numbers," but the underlying real value. Today, when evaluating projects, we must break them down to the finest granularity: meticulously analyzing consumer project retention rates, customer acquisition cost (CAC), and lifetime value (LTV); and deconstructing the ARR (annual recurring revenue) of tokenized projects layer by layer to isolate sustainable, genuine revenue.

As crypto transitions from a storytelling subculture to a legitimate financial industry, a significant value gap has emerged on the opposite side of the hype.

In today’s market, people are more willing to pay for vague notions of “imagination,” while unfairly undervaluing projects that actually generate revenue, have users, and maintain cash flow—such as Morpho, Sky, and even Uniswap, which recently abandoned its IPO plans to remain committed to its token ecosystem. These established protocols, having weathered full bull and bear cycles, have lost attention during the deep corrections of the bear market. Yet their fundamentals have not deteriorated; on the contrary, they have become healthier as the industry environment and revenue capabilities improve.

This is also why we are currently allocating approximately 50% of our position to established projects with real revenue. We are focusing our efforts intensely on two areas:

• Real yields and financial infrastructure: including stablecoin payments, clearing and settlement, neobanks, and on-chain credit. For example, our investments in Ether.fi, Morpho, Centrifuge, and RedotPay address clearly defined user needs and generate positive cash flow.
• The intersection of AI and Crypto: We have reserved 20% to 30% of our capital not for general-purpose large models, but exclusively for crypto-native AI infrastructure—such as data training and collection.

Faced with this chaotic and turbulent reshuffling, VCs themselves must evolve. Now, every colleague internally is equipped with a dedicated AI bot to handle tedious data backtesting and cross-time-zone collaboration. But interacting with people and making judgments at the fundamental human level remain our irreplaceable moat.

After nine years, my biggest takeaway is that truly great companies are rarely born during the busiest times, but rather when many people believe the industry is finished.

In this cycle filled with layoffs, disillusionment, and uncertainty, many are leaving—and even beginning to question whether Web3 has a future. But it’s only during the lows that you’re forced to ask: What do users truly need? What will endure in the long term?

I still believe that what truly matters in this industry has only just begun. The people who remain after the bubble bursts will truly shape what the next world looks like.