In the previous article, Portal Labs briefly discussed the topic of ABCDE halting investment in new projects and outlined the main paths and participation mechanisms of Web3 investment.
In this article, we will discuss the overall trend of current Web3 investments.
In fact, as early as the second half of 2024, many Web3 media and seasoned practitioners began to voice a common perspective: the VC model in Web3 is becoming increasingly difficult.
Although some viewpoints, such as that of Haseeb Qureshi, managing partner at Dragonfly Capital, believe that the VC situation is not so pessimistic and the outlook for crypto VCs remains promising, it cannot be denied that, from the perspective of data and market sentiment, the primary market is indeed undergoing a profound structural adjustment.
Moreover, this trend has shown signs of further acceleration in 2025.
The retreat of the primary market
In the second half of 2024, while the Web3 secondary market is obsessed with MEMECoin and going crazy for BTC, the primary market has already entered a winter.
Galaxy Digital data shows that the peak of crypto VC fundraising reached $33.7 billion in 2021, with $27.7 billion still raised in 2022. However, in 2023, fundraising plummeted to $10.1 billion, a year-on-year decline of over 60%, and entering 2024, this figure further dropped below $4 billion.
One of the important reasons for this predicament is that crypto VCs operate only within a small internal circle and have not fully integrated with mainstream financial markets, resulting in limited capital. Meanwhile, crypto VCs also face longer exit cycles, often encountering the issue of 'locking for a year and losing half' in the highly volatile crypto market.
Data from STIX Co indicates that from May 2024 to April 2025, multiple primary lock-up tokens saw their market value plummet by over 50% after unlocking. Tokens like BLAST, EIGEN, and SCR experienced declines of 88%, 75%, and 85%, respectively. According to crypto KOL @Anymose 96, among the projects invested in by ABCDE, the highest drop in token price reached 95.5%.
If locking up assets is a nightmare for primary investors, then the fundamental problem in the primary market is the vicious cycle of financing - listing - crashing.
In the last bull market, primary investments had a clear value transmission chain: VCs entered at low prices, project teams completed financing, followed by token listing, and the secondary market took over, with token prices gradually rising under market consensus, ultimately achieving exit. However, in the current cycle, with liquidity shrinking and narratives weakening, this chain has been completely broken.
To exit, project teams and VCs are forced to list tokens early when market sentiment is weak. However, once listed, the lack of buying power in the secondary market often leads to a direct crash in token prices. As soon as the lock-up period ends for primary investors, they face a 'crash to cash out'. The entire chain becomes a game with no winners: primary investors incur losses, project teams suffer reputational damage, and secondary investors are unwilling to buy.
According to SoSoValue data, from 2023 to 2024, newly launched crypto projects had an average drop of 45% within 90 days, with 60% of projects breaking even within six months. Whether star projects or second-tier projects, almost none could escape the collapse of this round of valuation systems.
This is not just about market enthusiasm; it is also a failure of model design.
The Renaissance of the Incubator Model
If the challenges of the primary market reveal the failure of the crypto VC model, then the rise of incubator investments is a microcosm of capital seeking a 'breakthrough'.
Du Jun's recent transition can be seen as a prominent representation of this trend. After announcing that the ABCDE fund would no longer invest in new projects, he did not completely leave the field but instead started anew, launching an incubator named Vernal. Du Jun stated clearly: he wants to accompany teams with a sense of mission to incubate truly valuable companies for the industry and society in the long term. Moreover, in addition to incubating projects, he will personally engage in secondary market allocations, with his buying list set to be revealed in May—industry synergy + secondary investment, with a very clear strategy.
Of course, this is not just his choice.
Over the past year, platforms like Binance Labs, OKX Ventures, and Alliance DAO have been increasingly doubling down on the incubator model. Compared to pure financial investment, they act more like 'co-builders' of projects: providing everything from funding, technology, to market and compliance. According to Business Research Insights, the global Bitcoin project incubator market reached $1.43 billion in 2024, and is expected to rise to $5.7 billion by 2032, with a compound annual growth rate of 19.1%. This growth indicates a sustained demand for crypto incubators.
Why is the incubator model becoming popular?
VCs act more like 'capital + running alongside', while incubators are fully involved: from resources and markets to product synergy, even technology stacks, user acquisition paths, and exchange resources, project teams are almost 'tied together' with incubators, creating much deeper competitive moats.
Incubators do not rely on high valuations to exit: in addition to token issuance, there are various exit methods such as internal ecosystem digestion, product profitability, and phased token circulation, making the approach more flexible and less susceptible to market downturns.
Capital requirements are also flexible: unlike VCs that often start at millions of dollars, incubators can reduce cash input through 'resource exchange for equity/token', saving liquidity and achieving higher capital efficiency.
Of course, the incubator model is not something 'anyone can play'. It has much higher requirements for investors: they need to understand technology, the market, and how to help projects grow; having money alone is not enough. Du Jun's transition from VC to incubation relies on years of accumulated industrial resources and team capabilities, which can truly help projects succeed.
Development of the secondary market
If the incubator model provides a 'reconstruction path' for the primary market, then the secondary market is undoubtedly the most realistic safe haven for current capital.
The Block Research data shows that the total volume of spot trading in the crypto secondary market has rebounded to nearly $13 trillion in 2024, a year-on-year increase of about 40%. Among them, mainstream assets like BTC and ETH still account for a large share, but you will find that narrative-driven, high-volatility mid-small cap assets like Meme coins, AI, and DePIN are increasingly becoming new focal points for capital.
However, this round of secondary market 'heat' is quite different from the last one:
Institutional entry, strategy-driven
In this round of market activity, retail investors are not the main players; what truly supports the market is a set of increasingly mature institutional strategies.
CoinShares data shows that the total assets under management (AUM) for crypto assets rose to $67.4 billion in 2024, a year-on-year increase of 160%. Especially after the approval of the BTC spot ETF, significant funds from traditional financial institutions flowed in, pushing BTC steadily upward and stabilizing the market's fundamentals. However, with the influx of these funds, the rhythm of the crypto market also changed.
The market is no longer just fluctuating based on retail investor sentiment as it did in the previous round but resembles a game with rhythm and strategy—arbitrage, hedging, options, and other old tricks from the financial circle have become mainstream plays.
Liquidity dominates, narratives are sidelined
Sectors like MEMECoin, AI, and RWA, which have strong liquidity and high volatility, have become key focus areas in the secondary market, reflecting the secondary market's extreme pursuit of liquidity.
Although many voices currently criticize speculative behavior, it cannot be denied that the current crypto market still prioritizes speculation (after all, who doesn't want to make quick money?).
According to CoinGecko data, from Q4 2024 to Q1 2025, the daily trading volume of the MEMECoin sector reached $1.5 billion, accounting for 13% of the overall crypto market trading volume. Emerging narrative assets like RWA and AI, despite having a market cap share of less than 10%, exhibit an average volatility more than twice that of mainstream coins.
The logic behind this is that investors are no longer betting on long-term value but are instead trying to recoup funds and achieve higher profits in the short term by chasing liquidity.
Options for Web3 investors
Although we see that the VC model is currently facing a heavy blow, the existence of market cycles has never changed—crypto VCs are not experiencing winter for the first time, and it won't be the last.
Reviewing historical data from PitchBook, during the 2018 crypto winter, the total global crypto VC investment was only $2 billion, but by 2021, this figure soared to $33.7 billion, increasing nearly 17 times in three years. As cycles repeat, the paths of capital flow will change with time and circumstances, and VCs will eventually reappear as the market warms up.
However, for high-net-worth investors today, choosing what path to take remains a real issue.
The advantage of the incubator model lies in deep collaboration, helping projects grow through binding resources, technology, and markets, with potential returns far exceeding traditional VCs. However, this also means that more industrial resources and collaborative capabilities are needed, making it suitable for investors who can deeply participate in project development.
The secondary market offers higher liquidity and strategic flexibility. The institutionalized and strategic secondary market allows high-net-worth investors to flexibly participate through structured products and custodial allocations, without being tied down by lock-up periods.
However, whether choosing primary, secondary, or incubation, each path revolves around a core issue: compliance.
Especially as global crypto regulations become increasingly strict, the compliance requirements, legal risks, and tax arrangements of different paths vary greatly. For example, fundraising compliance in the primary market, choice of token issuance location, cross-border trading, tax compliance in the secondary market, and related party transactions and benefit disclosures in the incubation model; every step impacts the safety of investors' bottom line.
According to Portal Labs, compliance is not only a necessary course for risk prevention but also a protective moat for stable positioning across cycles.
Therefore, in the next article, we will continue to discuss the compliance issues behind investment paths—what are the differences in compliance requirements for different investment paths? In the current rapidly evolving regulatory environment, how should high-net-worth investors respond prudently? Stay tuned.
