In the previous article, Portal Labs briefly discussed with everyone the topic of ABCDE stopping investing in new projects, and sorted out the main paths and participation mechanisms of Web3 investment for everyone.
In this article, let’s talk about the overall trend of current Web3 investment.
In fact, as early as the second half of 2024, many Web3 media and senior practitioners began to put forward a common view: the VC model of Web3 has become increasingly difficult to implement.
Although there are some opinions, such as Haseeb Qureshi, managing partner of Dragonfly Capital, who believes that the VC situation is not that pessimistic and the prospects of crypto VC are still promising, it is undeniable that judging from the data and market sentiment, the primary market is indeed undergoing a round of profound structural adjustments.
Moreover, this trend shows signs of further acceleration in 2025.
The ebb of the primary market
In the second half of 2024, when the Web3 secondary market is fascinated by MEMECoin and crazy about BTC, the primary market has already entered a cold winter.
Galaxy Digital data shows that crypto VC fundraising peaked at $33.7 billion in 2021, and still reached $27.7 billion in 2022. However, in 2023, the scale of fundraising dropped sharply to $10.1 billion, a year-on-year decline of more than 60%; in 2024, this figure further fell below $4 billion.
One of the important reasons for this dilemma is that crypto VC itself is only carried out in a small circle and has not yet been fully integrated with the mainstream financial market, and the amount of funds is limited. At the same time, crypto VC also needs to face a longer exit cycle. In the highly volatile crypto market, there is often a problem of "locking up for a year and losing half of the money".
According to data from STIX Co, from May 2024 to April 2025, the market value of multiple first-level locked tokens plummeted after being unlocked, with the average valuation shrinking by more than 50%. The declines of BLAST, EIGEN, and SCR tokens reached 88%, 75%, and 85%, respectively. According to crypto KOL @Anymose 96, among the projects that have issued coins invested by ABCDE, the highest decline in coin price was as high as 95.5%.
If lock-up is the nightmare of primary investors, then the fundamental problem of the primary market is the vicious cycle of financing-listing-dumping.
In the last bull market, primary investment had a clear value transmission chain: VCs entered the market at a low level, the project completed financing, and then the tokens were launched, the secondary market took over, and the token prices gradually rose under market consensus, and finally exited. However, in the current cycle, with the shrinking liquidity and weak narrative, this link has been completely broken.
In order to exit, project owners and VCs have to launch tokens in advance when market sentiment is low. However, after the launch, the token prices often collapse directly due to the lack of secondary market support. Once the lock-up period of primary investors ends, they will "cash out". The entire chain has become a game with no winners: primary investors lose money, project owners' reputation is damaged, and secondary investors are unwilling to take over.
According to SoSoValue data, from 2023 to 2024, the average decline of newly launched crypto projects in 90 days reached 45%, and 60% of the projects broke within half a year. Whether it is a star project or a second-tier project, almost all of them can't escape the collapse of this round of valuation system.
This is not just a problem of market heat, but also a failure of model design.
The revival of the incubation model
If the predicament of the primary market reveals the failure of the crypto VC approach, then the popularity of incubation-type investments is a microcosm of the current capital's search for a "breakthrough."
Du Jun's recent transformation is a clear example of this trend. After announcing that ABCDE Fund would no longer invest in new projects, he did not completely leave the market, but started a new business and launched an incubator called Vernal. Du Jun said it very bluntly: he wants to accompany those teams with a sense of mission and incubate companies that can truly create long-term value for the industry and society. In addition to incubating projects, he will also personally make secondary market allocations. In May, he will announce his buy list - industrial collaboration + secondary investment, and his ideas are very clear.
Of course, this is not just his choice.
In the past year, platform-based institutions such as Binance Labs, OKX Ventures, and Alliance DAO have been continuously increasing their investment in the incubator model. Compared with pure capital investment, they are more like "co-builders" of the project: from capital, technology to market, compliance, everything can be equipped. According to data from Business Research Insights, the global Bitcoin project incubator market size reached US$1.43 billion in 2024, and is expected to rise to US$5.7 billion in 2032, with a compound annual growth rate of 19.1%. This growth rate shows that the demand for crypto incubators is continuing to expand.
Why is the incubation model becoming popular?
- VC is more like "capital + companion", while incubator is involved in all aspects: from resources, market to product collaboration, and even technology stack, user acquisition path, exchange resources. The project party is almost "tied together" with the incubator, and the moat is much deeper.
- Incubators do not need to rely on high valuations to exit: in addition to issuing coins, there are also multiple exit methods such as internal digestion of the ecosystem, product profitability, and token phased circulation. The gameplay is more flexible and not easily dragged down by market conditions.
- Funding requirements are also flexible: Unlike VCs that often start with millions of dollars, incubators can reduce cash investment and save liquidity through the "resources for equity/token" approach, which is more capital efficient.
Of course, incubation is not something that “everyone can play.” It places much higher demands on investors: they must understand technology, the market, and how to help projects grow. Money alone is not enough. Du Jun dared to transform from VC to incubation because of the industry resources and team capabilities accumulated over the years, which enabled him to bring projects to fruition.
Development of the secondary market
If the incubation model provides a "reshaping path" for the primary market, then the secondary market is undoubtedly the most realistic safe haven for current funds.
The Block Research data shows that the total spot trading volume of the secondary crypto market has rebounded to nearly $13 trillion in 2024, an increase of about 40% year-on-year. Among them, mainstream assets such as BTC and ETH are still the big players, but you will find that narrative-driven, highly volatile small and medium-sized market value assets such as Meme coins, AI, and DePIN are increasingly becoming the new focus of capital pursuit.
However, this round of secondary market "heat" is different from the previous round:
Institutional entry, strategy driven
In this round of market, retail investors are not the protagonists. What really supports the market is a set of increasingly mature institutional strategies.
According to CoinShares data, the scale of crypto asset management (AUM) will rise to $67.4 billion in 2024, a year-on-year increase of 160%. Especially after the approval of the BTC spot ETF, a large amount of funds from traditional financial institutions poured in, pushing BTC to rise steadily and stabilizing the market's fundamentals. However, with the entry of these funds, the rhythm of the crypto market has also changed.
The market is no longer driven by the ups and downs of retail investors' emotions as in the last round, but is more like a rhythmic and strategic game - arbitrage, hedging, options and other old tricks in the financial circle have become the mainstream way of playing.
Liquidity reigns, narrative takes a back seat
Hot sectors with strong liquidity and high volatility such as MEMECoin, AI, and RWA have become the focus of attention in the secondary market, and also reflect the secondary market's extreme pursuit of liquidity.
Although many voices are currently criticizing speculation, it is undeniable that the current crypto market is still a strategy that focuses on speculation (after all, who doesn’t want to make quick money?).
According to CoinGecko data, the average daily trading volume of the MEMECoin sector reached US$1.5 billion from Q4 2024 to Q1 2025, accounting for 13% of the total crypto market volume. Although emerging narrative assets such as RWA and AI account for less than 10% of the market value, their average volatility is more than twice that of mainstream currencies.
The logic behind this is that investors no longer bet on long-term value, but instead try to recover funds or even obtain higher profits in a short period of time by chasing liquidity as much as possible.
Web3 Investor Choice
Although we see the VC model taking a hit right now, the existence of market cycles has never changed - this is not the first time crypto VC has fallen into a cold winter, and it will not be the last.
Looking back at PitchBook historical data, during the Crypto Winter of 2018, the total global crypto VC investment was only US$2 billion, but by 2021, this figure soared to US$33.7 billion, an increase of nearly 17 times in three years. The cycle is cyclical, and the path of capital flow will change with the times and circumstances. VC will eventually re-emerge as the market recovers.
But for today's high-net-worth investors, choosing which path to take is still a realistic problem.
- The advantage of the incubation model is deep collaboration, which helps projects grow through the full chain of resources, technology, and market, and the returns may far exceed those of traditional VC. However, this also means that more industrial resources and collaboration capabilities are required, and it is suitable for investors who can deeply participate in the development of projects.
- The secondary market provides higher liquidity and strategic flexibility. The institutionalized and strategic secondary market allows high-net-worth investors to participate flexibly through structured products, custody configurations, etc., without having to lock up their positions.
However, no matter whether you choose primary, secondary, or incubation, there is a core issue behind each path: compliance.
Especially as global crypto regulation becomes increasingly stringent, compliance requirements, legal risks, and tax arrangements for different paths are also different. For example, fundraising compliance in the primary market, selection of token issuance locations, cross-border transactions and tax compliance in the secondary market, and related transactions and interest disclosure in the incubation model, each step affects the bottom line safety of investors.
In the view of Portal Labs, compliance is not only a compulsory course for risk prevention and control, but also a moat for crossing cycles and making a stable layout.
Therefore, in the next article, we will continue to explore the compliance issues behind investment paths - what are the differences in compliance requirements for different investment paths? In the current environment of accelerated regulation, how should high net worth investors respond prudently? Stay tuned.
