The brutal selection of Web3 has just begun: how VCs are changing the face of the toughest cycle

The death of VCs is an exaggeration; the reality is much more complex. What we are experiencing is not the end of venture capitalists, but a structural transformation similar to the internet bubble of 2000, where only the strongest survive and the sector restarts with more solid foundations.

The real problem: an excessive cycle has left behind ruins

In the last two years, the VC market has entered a visible contraction phase. In Asia, major venture capital funds have closed or drastically reduced their operations; those still active have virtually halted investments, focusing entirely on exits from existing portfolios. Raising new capital has become almost impossible.

In Europe and the United States, mid-tier VCs initially resisted thanks to their LP structures and fund sizes, but since mid-year, the situation has sharply reversed. Investment managers privately admit: “It has become too difficult, we can’t exit our investments.” Investments have decreased drastically, some funds have turned into pure liquidity vehicles.

The October-November crash dealt a lethal blow to altcoin liquidity, and this backlash directly affects VC confidence in the sector.

What caused this situation? The real issue is that the previous cycle’s bear market never truly hit the primary market. In 2022, when Luna collapsed and the secondary market entered recession, project valuations and VC fundraising remained surprisingly high. This created a “anchoring” effect on valuations: even in bear markets, funding rounds remained inflated compared to market reality.

Many new VCs emerged right after Luna’s crash with seemingly solid logic: the best projects from DeFi Summer like MakerDAO and Uniswap were born during the 2018-2019 bear market, and VCs from that era made astronomical gains in the 2021 bull market. The formula seemed simple: invest in the right projects during the bear market, wait for the bull, enjoy the returns.

But this time, the plan failed on three fronts.

First: the four-year cycle is broken

In 2025, the anticipated “altseason” did not occur. There are many reasons: macroeconomic factors, excess of altcoins, retail liquidity scarcity, loss of narrative magnetism, investors’ reluctance to pay for presentations or VC backing. Capital is focusing more on AI and genuine value investments in the US markets.

The pattern no longer repeats. Dreaming of replicating the 2019-2021 success has become illusory.

Second: exit times have become hellish

The contractual terms of VCs in this cycle are completely different from the past. Portfolios built at the beginning of 2023 have not yet launched tokens after 2-3 years. Even after the TGE, there are lock-ups of one year, followed by gradual releases over another 2-3 years.

An investment made in 2023 might receive the last tranches of tokens only in 2028-2029, going through a cycle and a half. In Web3, how many projects survive that long? Practically none.

This is the legacy left by the previous crazy cycle: completely misaligned return expectations with the operational reality of projects.

VCs will not die: the market always needs them

Despite current difficulties, VCs will continue to exist because the sector cannot function without them. Who will fund new ideas, embryonic technologies, still unexplored directions? Certainly not ICOs or KOL rounds.

ICOs mainly serve to involve retail and community to create hype; KOL rounds spread the project. But both only come in intermediate or advanced phases.

In the initial phase, when there are only two founders and a presentation, only VCs have the expertise and capital to truly evaluate and invest.

A major VC analyzed over 1000 projects in two years, funding only 40. Of these 40, about 50-75% will probably still fail. The projects you see on the market today and consider “junk” are already the survivors of this brutal selection. If all those 1000 projects did ICOs, would retail and KOLs be able to evaluate them? Obviously not.

Look at the phenomena of each cycle: Uniswap, AAVE, Solana, OpenSea, Polymarket, Ethena. Except for rare cases like Hyperliquid, which had a major VC behind it? The sector advances only thanks to the structural collaboration between founders and VCs.

Even today, good projects continue to attract interest. A radically different prediction market from Polymarket/Kalshi, with real innovative mechanisms, generated immediate enthusiasm among influential VCs and KOLs, despite the bear market.

The entry threshold rises: towards the Web2 model

For VCs: reputation becomes an insurmountable barrier

Reputation, capital, and professionalism are converging into a dynamic where the strong get stronger. The true metric of a VC is not notoriety among retail, but that founders and developers choose your money over a competitor’s. This is the real barrier to entry.

In this cycle, VCs are increasingly structuring themselves like centralized exchanges: less a horizontal pyramid, more a concentrated vertical hierarchy.

For projects: from whitepapers to real revenues

The evolution of project valuation is revealing:

• 2017: an idea was enough to raise 100 million
• 2021: TVL, VC backing, narrative, transaction volume mattered
• Today: real users and actual protocol revenues count

The market is finally aligning with the US stock exchange model.

An industry founder summarized the problem: most crypto projects have a single business model: token sales. At TGE, there is nothing—only a mainnet without an ecosystem, without users, without revenues. Imagine a company listed on Nasdaq with only an office, employees, and a factory, but no customers or revenues: unthinkable. Yet in Web3, we did it for years.

The best current examples overturn this paradigm:

Polymarket spent years building a base of real users and concrete revenue streams, creating a new sector, before thinking about the token.

Hyperliquid used airdrops as incentives to attract early users, but the product was so strong that the token launch did not interrupt adoption. It became a cash cow where 99% of revenues go into token buybacks.

When projects have real users (non farmer) and real revenues, then TGE and listing will make sense. Only then will the sector truly be on the right track.

For talents: the concentration of intelligence remains

Web3 concentrates some of the brightest minds in the world. Out of 1000 projects analyzed, nearly 50% of founders and core teams are Ivy League graduates. Among Chinese founders, almost all come from Tsinghua or Peking University, rarely from other top universities like Zhejiang or Shanghai Jiao Tong.

Of course, the degree alone does not matter. But statistically, when so much intelligence is concentrated in a sector, even just due to the wealth generated, useful and interesting innovations emerge.

Current entrepreneurial directions are clear: stablecoins, Perp, on-chain everything, prediction markets, Agent Economy. All have confirmed PMF. Good founders and good VCs can build excellent products—Polymarket and Hyperliquid prove it. In the coming years, you will see other similar successes.

For ordinary people, Web3 remains the place with the most hope for the leap from anonymity to relevance—always comparing this hope with the now insurmountable difficulty in Web2. The difficulty has shifted from “easy” to “hard.”

The final conclusion

Pessimists are always right, but optimists keep moving forward.

The current cycle does not represent the death of VCs, but a “cleansing” and natural selection. It is the price the sector pays for the previous excessive cycle. After some years of adjustment, Web3 will enter a new growth phase, but with a much higher entry threshold, much tougher selection, and much more solid foundations than before.

VCS will not die. But many VCs will die. And thanks to this brutal selection, the sector will finally become mature.