Author: Mason Nystrom
Compiled by: Deep Tide TechFlow
Providing insights for founders about the current state of cryptocurrency financing, as well as my personal predictions for the future of crypto VC.
To be clear: the financing environment is tough due to upstream DPI (Deep Tide Note: a market-cap weighted index used to track the performance of decentralized finance (DeFi) assets in the cryptocurrency market) and LP funding challenges, and across the VC landscape, funds have returned less capital to LPs in the same time frame compared to the past.
This in turn leads to a decrease in net capital obtained by existing and new VCs, ultimately making the financing environment more challenging for founders.
What does this mean for crypto enterprises?
Transaction slowdown in 2025, but matching the pace of capital deployment in 2024.
- The slowdown in transaction numbers may be related to many VCs nearing the end of their funds, leading to less capital available for deployment.
- Some large transactions are still completed by large funds, so the capital deployment rate is on par with the previous two years.
Over the past two years, cryptocurrency merger and acquisition transactions have continued to improve, signaling a good development of liquidity and exit opportunities. Recent large M&A transactions, including NinjaTrader, Privy, Bridge, Deribit, and HiddenRoad, signal a good omen for the integration and underwriting of more crypto equity venture investments.
Over the past year, the number of transactions has remained relatively stable, with some larger, later-stage transactions expected to be completed (or announced) in Q4 2024 and Q1 2025.
This is mainly due to more transactions belonging to early Pre-seed, seed, and accelerator stages, where funding is always relatively abundant.
Accelerators and Launchpads lead the transaction volume at various stages
Since 2024, a large number of accelerators and Launchpad platforms have emerged in the market, reflecting a more challenging capital environment and founders opting to launch tokens earlier.
The median transaction size at early stages has rebounded
Pre-seed financing scale continues to grow year-on-year, indicating that the market still has ample funds at early stages. The median for seed, Series A, and Series B financing has nearly returned to or rebounded to 2022 levels.
Predictions for the next stage of crypto VC
1: Tokens will become the main investment mechanism
Transitioning from a dual structure of tokens and equity to a unified structure of single asset appreciation. One asset, one story of value appreciation.
Original tweet link: Click here
2: The integration of fintech and crypto VC
Every fintech investor is transforming into a cryptocurrency investor, as they seek to invest in the next generation of payment networks, new banks, and tokenized platforms, all built upon cryptocurrency rails.
The competition in crypto VC is about to arrive, and many crypto VCs that have not yet invested in stablecoins/payment sectors will struggle to compete with experienced fintech VCs.
3: The rise of liquidity venture capital
"Liquidity Venture Capital" - Venture capital opportunities in the liquidity token market.
Liquidity - The liquidity of public assets/tokens means faster liquidity.
Accessibility - In private venture capital, gaining access is not easy, while liquidity venture capital means that investors do not always need to win deals; they can buy assets directly. Over-the-counter options are also available.
Position adjustment - With companies issuing tokens earlier, it means that small funds can still build meaningful positions, and large funds can similarly deploy into larger liquidity assets.
Capital allocation - Many of the best-performing VCs historically have held their risk capital as tokens like BTC and ETH, which have generated excess returns. I personally believe that during bear market cycles, it will become more common for VCs to call on more capital in advance.
Cryptocurrency will continue to lead the frontier of VC
The convergence of public and private capital markets is the direction of venture capital development, as companies delay going public, more traditional VCs choose to invest in liquidity markets (holding instruments after IPO) or secondary markets. Cryptocurrency is at the forefront of venture capital.
Cryptocurrency continues to innovate in terms of forming new capital markets. Moreover, as more assets move on-chain, more companies will focus on on-chain-first capital formation.
Finally, the returns of cryptocurrencies tend to be more power-law like than traditional venture capital (Deep Tide Note: In a power-law distribution, the probability of most events occurring is low, while the probability of a very few events occurring is high.), with top crypto assets competing to become the underlying of sovereign digital currencies and new financial economies. This decentralization will be greater, but the super-power-law nature and volatility of cryptocurrencies will continue to drive capital into the field of cryptocurrency venture capital in search of asymmetrical returns.
