Written by: Richard Chen

Translated by: Tim, PANews

It is now 2025, and cryptocurrency is moving towards the mainstream. The (GENIUS Act) has been officially signed into law, and we finally have a clear regulatory framework for stablecoins. Traditional financial institutions are increasingly accepting cryptocurrencies. Cryptocurrency has triumphed!

When cryptocurrency crosses the chasm, this trend means for early-stage venture capital: we see that crypto-related projects are gradually surpassing crypto-native projects. The so-called 'crypto-native projects' refer to projects built by crypto experts for the crypto space; while 'crypto-related projects' refer to the application of crypto technology in other mainstream industries. This is the first time I have witnessed such a transformation in my career, and this article aims to explore the core differences between building crypto-native projects and crypto-related projects.

Building for crypto-native

The most successful cryptocurrency products to date have almost all been built for crypto-native users: Hyperliquid, Uniswap, Ethena, Aave, etc. Just like any niche cultural movement, cryptocurrency technology is so ahead of its time that ordinary users outside the crypto circle find it hard to 'understand its essence,' let alone become enthusiastic daily active users. Only those crypto-native players who have been through the trenches in the industry have sufficient risk tolerance and are willing to spend effort testing each new product, surviving amid risks like hacker attacks and project collapses.

Traditional Silicon Valley venture capitalists once refused to invest in crypto-native projects because they believed the overall effective market was too small. This is understandable, as the crypto field was indeed in a very early stage at that time. On-chain applications were few and far between, and the term DeFi was only coined in a chat group in San Francisco in October 2018. But you had to bet your faith and pray for macro benefits to arrive, allowing the market size of crypto-native projects to leap forward. Sure enough, with the liquidity mining boom of the summer of DeFi in 2020 and the dual support of the zero interest rate policy in 2021, the crypto-native market achieved exponential expansion. In an instant, all Silicon Valley venture capitalists rushed into the crypto field, all asking me for advice to try to make up for the four years of cognitive gaps they had missed.

As of now, the total addressable market size for crypto-native users remains limited compared to traditional non-crypto markets. I estimate that the number of Twitter users in the crypto space is at most only tens of thousands. Therefore, to achieve a nine-figure (hundred million dollar) annual recurring revenue (ARR), the average revenue per user (ARPU) must maintain a very high level. This leads to the following key conclusion:

Crypto-native projects are entirely built for experts.

Each successful crypto-native product follows an extreme power-law distribution in user usage patterns. Last month, the top 737 users on the OpenSea platform (accounting for only 0.2%) contributed to half of the total transaction volume; similarly, the top 196 users on the Polymarket platform (accounting for only 0.06%) also accounted for 50% of the platform's transaction volume!

As a founder of a crypto project, what should truly keep you awake at night is how to retain top core users, rather than blindly pursuing growth in user numbers, which is in stark contrast to the traditional Silicon Valley philosophy of 'daily active user count supremacy.'

User retention in the crypto space has always been a challenge. Top users often act solely out of profit, making them easy to lure away by incentive mechanisms. This means that emerging competitors only need to poach a few core users to suddenly emerge and eat into your market share, as seen in the competition between Blur and OpenSea, Axiom and Photon, LetsBonk and Pump.fun, etc.

In short, compared to Web2, the moats of crypto projects are much shallower, and with all code being open-source and projects being easy to fork, native crypto projects often bloom briefly, with lifecycles rarely exceeding a market cycle, sometimes lasting only a few months. Those founders who became rich after TGE often choose to 'lie flat' and retire to engage in angel investing as a side job.

To retain core users, the only way is to continuously drive product innovation and always stay one step ahead of competitors. The reason Uniswap has remained resilient through seven years of fierce competition is its continuous launch of breakthrough features from 0 to 1, such as V3 concentrated liquidity, UniswapX, Unichain, and V4 hook designs, which continuously meet core user needs. This is especially commendable, as it operates in the decentralized exchange space, which is arguably the most fiercely contested area among all red ocean markets.

Building for crypto-related

There have been many attempts to apply blockchain technology to broader real-world markets, such as supply chain management or interbank payments, but they all failed due to being too early. Fortune 500 companies have tried blockchain technology in their research and innovation labs, but did not seriously invest it for large-scale production. Remember those buzzwords from back in the day? 'We want blockchain, not Bitcoin,' 'distributed ledger technology,' etc.

Currently, we see a complete shift in attitude toward cryptocurrency among many traditional institutions. Major banks and large enterprises are launching their own stablecoins, and the regulatory clarification during the Trump administration opened up policy space for the mainstreaming of cryptocurrencies. Now, cryptocurrencies are no longer a financial wilderness lacking norms.

In my career, I am starting to see more and more crypto-related projects rather than crypto-native projects. There is ample reason for this, as the biggest success stories in the coming years are likely to be crypto-related projects rather than crypto-native projects. The scale of IPOs is expanding to hundreds of billions, while TGE scales are generally limited to hundreds of millions to billions. Examples of crypto-related projects include:

  • Fintech companies using stablecoins for cross-border payments

  • Robotic companies using DePIN incentives for data collection

  • Consumer companies using zkTLS to authenticate private data

The common rule here is: encryption is just a characteristic, not the product itself.

For industries that heavily rely on crypto technology, professional users are still crucial, but their extreme inclination has eased. When cryptocurrency exists merely as a function, the key to success rarely depends on the crypto technology itself, but more on whether practitioners have deep expertise in crypto-related fields and whether they grasp the core elements of the industry. This is evident in the field of fintech.

The core of fintech lies in achieving user acquisition with good unit economics (user acquisition cost / customer lifetime value). Emerging crypto fintech startups today are constantly facing fear, worried that traditional non-crypto fintech giants with larger user bases can easily crush them by merely adding cryptocurrency as a functional module or raise industry customer acquisition costs to render them uncompetitive. Unlike pure crypto projects, these startups cannot sustain operations by issuing tokens that are in demand in the market.

Ironically, the cryptocurrency payment sector has long been a neglected track; I've said this at the 2023 Permissionless conference! However, the period before 2023 was the golden age for founding crypto fintech companies, as it allowed for seizing opportunities to build distribution networks. Now, with Stripe acquiring Bridge, founders from the crypto-native space are shifting from DeFi to payments, but they will ultimately be crushed by ex-Revolut employees who are familiar with fintech strategies.

What does 'crypto-related' mean for crypto venture capital? The key is to avoid reverse screening founders who have been rejected by non-professional venture capitalists, and not to let crypto venture capital become a fallback for those unfamiliar with related fields. A lot of reverse screening comes from selecting native crypto founders who have recently transitioned from other fields to 'crypto-related' ones. A harsh reality is that, generally speaking, founders in the crypto space are often the unsuccessful ones from the Web2 field (although the top 10% of founders are different).

Crypto venture capital firms have always had a high-quality value gap, discovering potential founders outside the Silicon Valley network. They neither have impressive elite backgrounds (such as Stanford degrees or experience at Stripe) nor excel at pitching their projects to venture capital firms, but they deeply understand the essence of crypto-native culture and know how to gather passionate online communities. When Hayden Adams was laid off from his position as a mechanical engineer at Siemens, his initial intention in writing Uniswap was simply to learn the programming language Vyper; Stani Kulechov began creating Aave (formerly known as ETHLend) just before graduating with a law degree in Finland.

Successful founders of crypto-related projects will stand in stark contrast to successful founders of crypto-native projects. They are no longer the wild west financial cowboys who understand the psyche of speculators and can build personal charisma around their token networks. Instead, they will be more mature and commercially savvy founders, usually from the crypto-related field, who possess unique market entry strategies to achieve user coverage. As the crypto industry gradually matures and develops steadily, a new generation of successful founders will also emerge.

Lastly

1. The Telegram ICO incident in early 2018 vividly showcased the cognitive gap between Silicon Valley venture capital firms and crypto-native venture capital firms. Firms such as Andreessen Horowitz, Benchmark, Sequoia Capital, Lightspeed Venture Partners, and Redpoint Ventures all invested because they believed Telegram had a user base and distribution channel to become a dominant application platform. Almost all crypto-native venture capital firms chose to forgo investment.

2. My counterintuitive view of the crypto industry is that there is no shortage of consumer applications. In fact, the vast majority of consumer projects cannot obtain venture capital support due to their unstable revenue-generating capabilities. Founders of such projects should not seek venture funding but should become self-sufficient and profitable, capitalizing on the current consumer trend to make quick profits. They must seize the time window in the coming months before the tide turns to build their initial accumulation.

3. The reason Brazil's Nubank holds an unfair competitive advantage is that it pioneered this category before the concept of 'fintech' became mainstream. More importantly, in its early days, it only had to compete for users with traditional banking giants in Brazil, without facing competition from emerging fintech startups. As the Brazilian public's patience with existing banks reached its limit, they collectively turned to Nubank after its product launch, allowing the company to uniquely achieve nearly zero customer acquisition costs and perfect product-market fit.

4. If you want to build a stablecoin digital bank targeting emerging markets, why are you still in San Francisco or New York? You need to engage deeply with local users. Surprisingly, this has become the primary criterion for filtering entrepreneurial projects.