As the year 2025 approaches, exploring market opportunities from the perspective of encryption VC.

With the new year approaching, the encryption industry is ushering in a new development phase. Over the past year, the market has experienced recovery, innovation, and adjustment, with leading projects continually solidifying their positions and emerging sectors quietly rising, laying the groundwork for the future. Throughout this year of fluctuations, VC has served as a barometer for industry development, witnessing market changes while shaping the direction of the industry through the intersection of capital, community, and technology.

Standing at the starting point of 2025, we invited several top VCs to share their observations and thoughts on the encryption industry. They reviewed the highlights of the past year, analyzed the current market opportunities and challenges, and made predictions about future development trends. In this rapidly changing field, which projects and tracks are becoming the focus of VCs? Let's step into the perspective of VCs and explore the "yesterday, today, and tomorrow" of the encryption industry.

Most Impressive Projects of 2024

In the past year, the encryption industry has welcomed a new wave of growth driven by both market recovery and technological innovation. From infrastructure upgrades to breakthroughs in emerging tracks, countless projects have emerged this year, showcasing strong vitality and innovative potential. Some of these projects, with their unique technological paths or business models, not only attracted significant attention but also left a profound mark both within and outside the industry.

James Wo, the founder and CEO of DFG, pointed out that Hyperliquid, as a high-performance decentralized exchange for perpetual contracts, has attracted a large number of users while maintaining fast execution speeds and liquidity. Furthermore, the token launched by Hyperliquid has become one of the most successful airdrops in crypto history. The platform is expanding its products and launching its own HyperEVM ecosystem, which includes many native decentralized applications to increase the usability of its spot ecosystem. The platform earns significant fees through on-chain clearing and market-making, gradually encroaching on the market share of leading DEXs and CEXs.

Chris, co-founder of Web3Port, also gave high praise to Hyperliquid, being impressed by its market share, community airdrops and distribution mechanism, and wealth effect. In addition, he mentioned Pump.fun – the most successful meme coin launch platform this year. Compared to existing platforms in the market, Pump.fun successfully elevated the concept of "meme launch platform" to a top narrative and ignited a frenzy in the meme market. Chris stated that the insight from Pump.fun is that Web3 projects can achieve success by building products that are genuinely practical, offer high user experience, and have market fit.

Ryan Rodenbaugh, CEO and co-founder of Wallfacer Labs, stated that the revival of mature lending protocols in the DeFi space like AAVE and Compound, along with the emergence of high-quality newcomers such as Morpho, Euler, and Ajna, is exciting. Although DeFi has not received as much attention in the current cycle as it has in the past, the understated success of these protocols is still very much worth noting and tracking.

Among the numerous answers provided by VCs, Pudgy Penguin is one of the most frequently mentioned projects. Joanna, the founder and CEO of Jsquare, praised Pudgy Penguin, believing that it has single-handedly driven the revival of the entire NFT sector. As an early investor and a holder of Pudgy NFTs, she has fully experienced the powerful energy emanating from Luca, a representative of the new generation of entrepreneurs, with his integrated thinking of Web2 and Web3. This has also reinforced her principle of investing in the next generation.

Jsquare partner Dinghan stated that Ethena has performed remarkably in the DeFi space with its USDE stablecoin, profiting from high funding rates by establishing 1x long and 1x short positions on centralized exchanges. The collaboration between Ethena and the BlackRock BUIDL fund ensures that USDE can maintain stable returns even when funding rates are negative, further reinforcing its long-term viability.

How will the market trend of Bitcoin unfold?

Bitcoin showed remarkable growth momentum in 2024. As of December 31, 2024, the price of Bitcoin has risen by a total of 119.1%. This increase is mainly attributed to institutional adoption of spot ETFs, the halving event in April, and market optimism following the U.S. elections. Looking ahead to 2025, Chris, co-founder of Web3Port, believes that the Bitcoin bull market is likely to continue, with a breakthrough of $200,000 next year being a high-probability event. He stated that as the market matures, the supply-demand relationship of Bitcoin will further strengthen, and Bitcoin priced below $50,000 may become history in future bull and bear cycles.

Ryze Labs research analyst Allen primarily uses the technical indicators Pi Cycle and 2Y MA Multiplier to determine market tops. He noted that historically, the times when these two indicators resonated were: December 5, 2013; December 16, 2017; and the most recent occurrence of the Pi Cycle top signal on April 12, 2021. According to historical data, these indicators have high reference value. Allen pointed out that based on the 2Y MA Multiplier estimation, Bitcoin's top could be around $200,000.

Waterdrip Capital investment manager Evan Lu takes a cautious perspective, predicting that Bitcoin's next peak could reach between $120,000 and $150,000, followed by fluctuations between $100,000 and $150,000. Based on Trump's statements regarding the establishment of a Bitcoin strategic reserve policy, assuming the market value of gold remains unchanged, as long as Bitcoin's market value does not surpass that of gold, Bitcoin can be regarded as a growth asset, with its price potentially reaching $600,000 per coin, but this process may take 5 to 10 years.

Evan stated that, unlike before, the current market dynamics will be profoundly influenced by multiple factors, among which the most critical include the external liquidity brought by the Bitcoin spot ETF and the continuous inflow of funds driven by future Bitcoin reserve policies. This means that from now until the peak next year, the Bitcoin market may not experience significant pullbacks, but instead maintain a trend of oscillating upward, gradually moving towards higher price levels.

Will the dispute between Meme and "VC currency" continue, and what is the good solution to resolve the dilemma?

Will Wang, a partner at Generative Ventures, proposed a novel perspective and viewpoint, stating that once the scale of a first-tier market VC fund exceeds 30-50 million USD, it becomes difficult for LPs to achieve excess returns. Will Wang believes that only a sufficiently agile scale can compel VCs to delve into the early stages and truly support entrepreneurs in urgent need of help, thereby nurturing genuine "myths." In contrast, those large-scale VC funds often fall into the trap of managing scale expansion, participating in later rounds, and launching the market-criticized "VC tokens." This practice is actually an old problem of Web2 VCs, and in the past few years, Web3 VCs have not been spared either.

Chris, co-founder of Web3Port, pointed out that the essence of the competition between Meme and VC coins ultimately boils down to the competition for market liquidity and existing funds. In an environment with limited new funds, VC coins, due to their low circulation and high FDV characteristics, along with the continuous emergence of new VC coin projects, make it difficult for market funds to sustain, significantly reducing retail investors' willingness to take over. The advantage of Meme coins lies in their full circulation and fair distribution mechanism, aligning with the psychology of market investors and becoming a "new weapon" for retail investors to fight back against institutional advantages.

However, the PVP (player versus player) nature of Meme coins is essentially unsustainable, as most Meme coins, apart from a few top Meme projects, struggle to have long-term value support. Chris stated that from the overall landscape of the encryption market, apart from BTC and ETH, as well as a very small number of DeFi infrastructure projects with stable income sources, most other projects' tokens are PVP, with market participants competing against each other, resulting in mutual gains and losses. Regarding the current predicament of VC coins, he believes there are no good solutions in the short term. In the context of tight market liquidity and the increasingly strengthened advantages of institutional investors, alleviating the issues surrounding VC coins requires going through a complete bull-bear cycle, allowing the market to naturally clear and rebuild trust and fairness.

Evan Lu, an investment manager at Waterdrip Capital, believes that issuing tokens is not the end point but rather the true starting point of the project's operation. The project team needs to seriously consider whether they can genuinely have practical application scenarios, whether they can maintain more stable cash flow income, and whether the project can still have active users and a real community after the token issuance.

Jiawei, the investment principal at IOSG Ventures, admitted that the "VC coin project" needs to think better about Token Market Fit, whether it is necessary to launch the token, what its purpose is, and what kind of tokens the community will pay for, in order to engage a broader community and disperse chips to strengthen interest binding.

Which ecosystems, tracks, projects, or standout performances will become the rising stars of the industry?

Will Wang, a partner at Generative Ventures, believes that the essence of RWA (Real World Asset) is to enable blockchain to account for mainstream financial assets globally. Currently, the penetration rate of this "on-chain accounting" is less than 0.1%. Even if the penetration rate increases by just one order of magnitude, it could give rise to multiple secondary assets similar to ONDO and USUAL.

Jiawei, the investment principal at IOSG Ventures, stated that re-staking is the main narrative for 2024, which has not yet been reflected in the cryptocurrency prices. As AVS gradually goes online, it may reach a peak in 2025. Additionally, ZK projects (such as RiscZero and hardware-accelerated Ingonyama) will also gradually showcase their market potential.

Ryze Labs research analyst Allen stated that AI Agent is expected to become the next star of the encryption industry. The AI Agent has the ability to process massive amounts of market data, enabling it to make precise trading decisions in real-time in the future, with a response speed far exceeding that of traditional human traders; in the DeFi space, the AI Agent can optimize lending rates and liquidity pool pricing mechanisms, significantly improving the efficiency of capital utilization; furthermore, it opens up new possibilities for the intelligent management of crypto assets, redefining the boundaries of asset management.

The PayFi track has been mentioned multiple times by various institutions, undoubtedly making it a focus of market attention. With the popularity of cryptocurrencies, ecosystems that can achieve seamless, low-cost payments are experiencing rapid development. Jsquare partner Dinghan predicts that projects that connect traditional finance with cryptocurrencies (such as Layer 2 solutions and stablecoin issuers) will receive widespread attention in the future. Payment protocols that can be deeply integrated with mainstream services and facilitate convenient conversion between cryptocurrencies and fiat will become key forces in promoting the integration of cryptocurrencies into daily life.

The integration of AI and blockchain is also regarded as an important development direction for the future. Dinghan stated that with the rapid rise of decentralized AI infrastructure and AI agents, this field is welcoming a new growth cycle. Projects that aim to build decentralized AI networks or AI-driven applications are poised to emerge and are expected to become new highlights in the industry. Blockchain provides a trustworthy foundational layer for AI interactions and transactions, enhancing not only the transparency and security of data but also opening up new opportunities for the widespread implementation of autonomous AI applications, further accelerating the pace of innovation in this field.

The old saying "mass adoption" is expected to usher in a breakthrough? Who will hold up the Holy Grail?

James Wo, founder and CEO of DFG, stated that vertical fields such as DePIN are attracting Web2 users by providing value to their ecosystems through additional resources. For example, Helium connects existing Web2 telecom giants through 5G networks, while Render offers low-cost GPUs to support gaming, rendering, and AI sectors. James believes that the next area to drive larger-scale adoption may be the payment sector. Infrastructure that can provide efficient encryption payment and fiat settlement solutions for physical stores will drive a new wave of users, and as retail investors begin to invest in and hold crypto assets, this trend will accelerate further.

Zeke, the investment research manager at YBB Capital, believes that based on the recent trends discussed in the industry, the payment sector is likely to become the first track for blockchain "Mass Adoption." Stablecoins have already demonstrated their ability to surpass traditional banking financial efficiency in non-US dollar countries, and for residents of third-world countries, they offer various utilities such as protection against local currency inflation, virtual service subscriptions, and financial investments. Once a compliance framework is established, the potential of this sector is equivalent to the trillion-dollar traditional payment systems of Web2.