Analysis of the Three Major Trends in Crypto Venture Capital: From Token Dominance to Liquidity Venture Capital

Original text: Mason Nystrom, investor at Pantera Capital

Compiled by: Zen, PANews

Financing has become difficult now because upstream DPI (Distributions to Paid-In) and LP (Limited Partner) funds are facing challenges.

In the broader venture capital sector, the funds returned to LPs by each fund during the same period have decreased compared to the past. This, in turn, has led to a reduction in the "dry powder" available for investment by existing and newly established VCs, thereby exacerbating the financing difficulties for founders.

What does this mean for crypto venture capital?

The number of transactions will slow down in 2025, but the pace of capital deployment will remain the same as in 2024. The decrease in transaction volume may be related to many VC funds nearing the end of their life cycle and a reduction in available "dry powder." However, some large funds are still completing significant transactions, so the pace of capital deployment is consistent with the previous two years.

In the past two years, merger and acquisition activities in the crypto sector have continued to improve, benefiting liquidity and exit opportunities. Recent large-scale mergers and acquisitions, including NinjaTrader, Privy, Bridge, Deribit, and HiddenRoad, have provided more assurance for industry consolidation and crypto equity venture capital exits.

Over the past year, the overall number of transactions has remained stable, with some larger-scale later-stage transactions announced to be completed in the fourth quarter of 2024 and the first quarter of 2025. This is mainly due to more transactions being concentrated in the Pre-seed, Seed, and accelerator stages, where capital has been relatively abundant.

By financing stage, accelerators and launch platforms rank first in terms of transaction volume. Since 2024, there has been a surge of accelerators and launch platforms in the market, which may reflect a tightening funding environment, leading founders to prefer launching projects by issuing tokens earlier.

The median size of early-stage financing rounds has rebounded. The scale of Pre-seed round financing has continued to grow year-on-year, indicating that funds in the earliest stages are still sufficient. The median financing for seed, Series A, and Series B rounds has approached or rebounded to the levels of 2022.

Crypto VC Prediction 1: Tokens will become the primary investment mechanism.

The market will shift from a "token + equity" dual structure to a model of "single asset carrying value." One asset, one set of value accumulation logic.

Crypto Venture Capital Prediction Two: The Acceleration of the Integration of Fintech Venture Capital and Crypto Venture Capital

Every fintech investor is becoming a crypto investor, focusing on the next generation of payment networks, new digital banks, and blockchain-based asset tokenization platforms. Crypto VCs are facing competitive pressure, and those that have not positioned themselves in the stablecoin/payment sector will find it difficult to compete with fintech VCs that have extensive payment experience.

Crypto VC Prediction Three: The Rise of "Liquid Venture"

"Liquidity Venture Capital" refers to seeking venture capital-like opportunities in the liquid token market:

• Liquidity - Publicly traded assets/tokens have higher liquidity, meaning a faster exit path.
• Accessibility - Private VC investment has a high entry threshold, while liquid venture capital allows investors to purchase tokens directly without having to "compete for projects", and can also trade through over-the-counter (OTC) transactions.
• Position Management - The company issues tokens in advance, allowing small funds to establish meaningful positions, while large funds can also invest in high market-cap circulating tokens.
• Capital operation - The best-performing crypto VC funds usually allocate reserve assets to mainstream tokens such as BTC and ETH, achieving excess returns. I personally expect that during bear market cycles, VC funds will more often call on funds in advance and invest in quality tokens.

The cryptocurrency sector will continue to be at the forefront of venture capital. The integration of public and private capital markets is a trend in the development of venture capital, with more traditional VC funds choosing to position themselves in liquid markets (such as post-IPO holding tools) or the secondary equity market, while the crypto space has already been on this path. Cryptocurrency continues to lead in innovation within the capital markets. As more assets are brought on-chain, more companies will choose an "on-chain first" approach to fundraising.

Finally, the results of the crypto market often present a "power law distribution" compared to traditional venture capital — top crypto assets are not only competing to become digital sovereign currencies, but also to be the foundational layer of the new financial economy. Although the return distribution is more extreme, it is precisely for this reason that crypto venture capital will continue to attract a large influx of capital in pursuit of asymmetric returns.