Author: Jocy Lin, Founder of IOSG Ventures Source: X, @JinzhouLin
The scale of the Token2049 exhibition has taken shape, with twice as many people as last year, exceeding 20,000. Even Grab drivers lamented that the number of people participating in crypto events this week seemed to exceed the number of tourists who came to watch the F1 race. In many activities, overseas audiences and speakers accounted for more than half. There is no doubt that this exhibition may become the most successful and profitable one in the history of Token2049.
Why are American GP and "king-level" projects pouring in?
Why do so many American GPs come to Asia? Why do so many "king-level" projects come from afar? Because there is a source of fresh water. Faced with a tight market environment, many top GPs and projects have also come to Asia, hoping to achieve their financing goals with the help of the Asian community.
During this week, many LPs were able to meet with three US GPs on average every day. We have also seen that the size of the new phase of the PM Fund has been reduced to US$800 million, the fundraising target of another P Fund has been reduced from US$800 million to US$200 million, and the initial fundraising of the D Fund is also expected to be set at US$250 million. This is enough to show that global crypto funds are facing a new round of financing difficulties: due to the poor performance of DPI in the previous cycle, the size of funds has generally shrunk, and LPs have become more cautious. LPs are affecting the VC GP market. The VC market is more stringent in requiring and selecting early entrepreneurs, and the difficulty of entrepreneurs in financing is more prominent. At the same time, the listing requirements of exchanges such as Binance will be further improved.
Funds that have been making rapid progress in the first half of this year (some of them have achieved three valuations in the same financing round) have basically been asked by LPs to reflect on themselves in the recent cycle. Funds and large investors who were crazy about buying OTC/doing secondary transactions at the beginning of the year have begun to doubt this industry. The volatility and reflexivity of the crypto industry are awe-inspiring. The financing market is getting worse, even very bad, and most of the active investment deals only occur in low valuations and new directions.
Projects with a valuation of around 100m and that have not yet completed TGE have given up their plans to list on Binance due to the difficulty. Infra, with a valuation of 300m to 500m, is still struggling to raise funds (basically, it can be said that it accepts all investors). For projects that have completed TGE, if the initial launch strategy is not good, the FDV has fallen by an average of 80% compared to the last round of VC valuation. Projects with liquidity on Binance are still looking forward to the turnaround opportunity in the bull market, while projects that have not been listed on Binance have already begun planning new projects or the next stage of work.
Industry confidence is severely damaged and innovation support is at risk
Everyone in this industry is busy. Some people make false data and income to deceive exchanges and investors. Some people continue to have academic discussions in the technical community but forget that good infrastructure is to obtain applications and users. Exchanges have become the biggest winners because of their good income model, providing the best working environment and income level in the short term, but making it more difficult for startups to obtain excellent talents. This is a bit like the prosperity of the 2049 conference. In the prosperous era, few people are discussing how to obtain real users and income, as well as a stable and sustainable business model.
The performance of Altcoin may be worse than expected, forcing industry participants to re-examine innovation and real application cases. The interests of VCs, exchanges, project owners, and retail investors are inconsistent, and all participants have become the party hurt by the market. There is no trust and cooperation between the four parties. Without reform, they can only go into a dead end and cannot attract new money and talents/users. Even if Bitcoin succeeds, the entire Web3 industry will still fail.
Here I advocate adjustments to the practicality and unlocking terms of tokens. The traditional IPO investment lock-up period only requires 6 months to a year. For investments in crypto's ultra-early seed round companies, the overall liquidity lock-up is as long as 3 to 4 years.
Most project tokens have no utility. In the first six months after going online, there are market makers willing to make markets and adjust prices, but after that, no one on the project side/exchange cares about the price, and no one is responsible for VCs and retail investors who buy in the secondary market. After countless injuries and losses, more people’s support and confidence in innovation will be greatly damaged.
If everyone is deceiving themselves and expecting a big bull market rebound, but does not think about what kind of application scenarios will allow real users to enter, they will fall into a situation of eating up all the resources. People who enjoy the early dividends of the industry do not understand the suffering of the world. The largest 16-letter fund in the United States is a school of its own. The 10-year cycle of 10 billion US dollars allows them to live well without cooperating with any institutions/market forces, while most successful founders do not care about young entrepreneurs like them 5/10 years ago. But the industry is in a difficult stage, and we need these successful forces to point out the direction and bring faith to everyone, so that more people can persist and see the dawn of the next bull market.
Where should Ethereum go from here?
Ethereum is experiencing an unprecedented level of doubt. Since the launch of the ETF, it has been selling net/funds outflow of more than 1.2 billion US dollars. From Ethereum core researchers/EF to developer community organizations, to Consensys-related commercial companies and external investors, a huge crisis of trust is emerging. V God needs to better point out the direction and goals for different participants, because Ethereum is already a very large decentralized business entity in the entire crypto market and even in the traditional market. There has never been such a business entity in history. The test for the entire Ethereum community and V God will continue to become more and more severe, even to the point where there is no way to break or build. After "The Merge" turned to PoS, due to the significant reduction in ETH issuance and the existence of the burning mechanism, Ethereum actually entered a 20-month deflationary cycle. Due to the sluggish L1 transactions in the past few months, the gas price of L1 has been in the single digit for a long time, causing ETH to return to the inflationary trend, and the total supply may return to the level of "The Merge" in the near future.
About 5 years ago, when we visited the official website of Ethereum, we could see a list of several other L1 competitors at the end, which allowed everyone to understand the shortcomings or problems of Ethereum in a completely open, transparent and comparative manner. Ethereum is now more powerful than ever before, but how to make this network more open and diversified is an issue that we urgently need to solve.
Emphasizing its position, IOSG continues to be optimistic about Ethereum in its investment strategy. We have not found a more successful technology ecosystem than Ethereum. The TVL of the overall Ethereum ecosystem has increased from about $34b a year ago to $88b, a growth rate of 159.5%; this significant growth further demonstrates the possibility of Ethereum promoting new innovative projects in the future.
The crypto industry needs to return to actual application scenarios and avoid false prosperity
The latest metamask monthly active user data shows that it has dropped from 30 million at the peak of the bull market to 1 million, marking a significant decline. The user activity of EVM-compatible L1/L2 chains has also dropped by more than 50%. This dispersion of liquidity has led to a wide dispersion of applications, developers (asset issuers), and users. Developers and users are rapidly flowing to chains with subsidies and memes. The liquidity between different chains and L2 is too fragmented, and high-performance chains do not bring high-performance applications.
The real user scale brought by airdrops and incentives is relatively limited, and people have begun to dislike the airdrop customer acquisition strategy. A third-party study shows that the user churn rate is as high as 80% after the airdrop, which is not good for the founders and projects. Take Friendtech as an example. This was a relatively influential and eye-catching project in the market before, but after the subsequent token launch and the lack of price maintenance, all users are abandoning this application. The restaking track has also encountered a similar bottleneck. After the airdrop, TVL evacuated or switched to a new protocol.
Western funds are not optimistic about the Ton and Web2 platforms. They believe that Russia and the Ton chain still have some underlying problems. They are not optimistic but have not answered the question of whether to invest or not. However, it is obvious that in this difficult cycle, Ton has brought new vitality to the crypto market. Among the 900 million monthly active Telegram users, there are about 3 million real gamers. The cost of acquiring each Ton user is $0.7. In the future, it is highly likely that Ton's model of bringing new users from Web2 to Web3 will also be used in the growth of new L1/L2. It can be expected that these platforms will give a special budget to subsidize this part of user growth. At the same time, we can also see an opportunity. After the strategic deployment of the crypto-financial ETF is completed, the United States will begin to consider allowing technology companies' applications to access and penetrate web3, and the one-stop experience of users not perceiving the chain will become a new standard.
In the gaming sector, we talked with several gaming funds, including Bitkraft and Makers Fund, which switched from Web2 to Web3. Their positions and performance in Web3 were not as good as expected. Compared with the more mature Web2 gaming industry, they are still more willing to raise a new round of Web3 funds from LPs, and still look at the emerging gaming paradigm of Web3. The gaming track has become extremely difficult, and participants with long-term visions are thinking about what's next after listing? Most funds that originally invested in crypto games have a harder time. In the past two years, 90% of gamefi projects broke after listing (compared with the valuation of the last round of VC investment). It seems that 3A games/full-chain games/Degen gaming community platforms are being abandoned by retail investors. Of course, Pirate nation, which Paradigm invested in at the beginning of the year, and Small Brain, which recently completed financing, still have a good community foundation. The gaming track has become extremely difficult, and all participants are losing confidence. Crypto games are forcing participants to leave or create more innovative products and fun games in a more difficult mode. Of course, we are still looking for teams that have faith in games and a consensus on the crypto market.
This time, I talked with the person in charge of listing at a leading exchange and learned that their biggest principle and consensus within the exchange is to find long-term entrepreneurs. In the past, some founders who had faked data listed on exchanges chose to cash out and stay put after the successful launch, leaving a pile of debts to the community. Entrepreneurs with long-term concepts are committed to growth and finding more reliable, effective and sustainable business scenarios at any stage.
At the same time, in this 2049, we also saw more founders who switched from traditional AI to Web3 entrepreneurship.
Computing represented by @gensynai and @hyperbolic_labs, Web2 type All-in players represented by @SchellingAI, and http://Title.xyz, which is dedicated to making Midjourney art style image/video generation models, AI+Consumer+DePin is becoming a new track for industry funds to actively bet on. More talents will definitely bring better efforts and growth to the industry. Stay optimistic and Move Forward positively!
I hereby call on more successful people who have benefited from the industry to pay more attention to the root problems currently encountered in this industry, support the construction of public goods, and create a better business innovation environment for these long-term entrepreneurs. IOSG will take the lead in setting an example and provide support from 0 to 1 for early entrepreneurs in the industry. It will also continue to reflect on and iterate its investment thesis, and guide entrepreneurs to think about new business models and ways to acquire customers.
