Author: Yonkuro
I am pleased to announce that I have become a partner in the Web3/Crypto fund of Skyland Ventures in November 2024, and I have just published an article summarizing the Web3 and crypto landscape in 2024 from a venture capital perspective.
This year, Skyland invested in 15 projects, 9 of which in our portfolio went public, and 2 became unicorns. The pace of development in this industry is incredible, and 2024 is no exception. In this article, I share insights on the transformation of the Web3/crypto space and key participants from a VC perspective, and highlight emerging areas to watch in 2025.
Decentralized Finance (DeFi)
Key to the new financial system What is Web3/crypto? Understanding its essence is crucial. In my view, it represents the democratization of finance brought about by the internet and blockchain technology. Particularly through Decentralized Finance (DeFi), this space is reimagining the financial system that previously relied on centralized institutions. Permissionless and borderless financial services, and the infrastructure supporting them, are at the core of this revolution. Just as the internet has fundamentally transformed sectors like information, retail, media, and hardware, blockchain is driving similar changes in finance. Transactions and remittances that once required banks or financial intermediaries can now be done instantly and at low cost through cryptocurrencies. The title of Bankless aptly captures this paradigm shift. By the way, when it comes to crypto videos, Unchained is another channel you should definitely watch. However, challenges remain. The volatility in this space has led to over-leveraging and speculative behavior during bull markets, and frequent liquidations of over-leveraged assets during bear markets, leaving significant scars. Security vulnerabilities and hacks resulting in massive fund losses are also persistent concerns, leading to cautious stances by governments and large corporations. Despite these hurdles, the crypto market is still valued at over $3.3 trillion, exceeding the size of some national stock markets. While acknowledging these challenges, as a venture capitalist, my goal is to support the paradigm shift towards the "next-generation internet finance".
Virtual Protocols
Proof of Entrepreneurial Resilience In 2024, the industry saw a landmark startup story. Virtuals Protocol, which initially launched in 2021 as a token-based gaming and community DAO project, saw its valuation plummet during the 2022 bear market, with its FDV dropping to just $6 million. This situation would have forced many projects to retreat, but the founders of Virtuals chose to persevere and explore new directions. Starting in 2023, against the backdrop of the rise of AI technology, they began researching AI and shifted their focus to AI agents. They developed a platform supporting tokenized AI agents, and by 2024, their FDV had skyrocketed to $3 billion, becoming a leading project in the AI agent space. This success highlights the importance of long-term vision and adaptability in the face of changing market conditions.
Evolution of the Ethereum Ecosystem In 2024, the Ethereum ecosystem made significant progress in terms of infrastructure maturity. The long-discussed scalability issues have seen major advancements with the emergence of Layer 2 (L2) solutions. Technologies based on zk-rollups (such as Taiko, Scroll, and zkSync) have launched their mainnet and listed their tokens. Coinbase's Base L2 also gained attention, becoming the second-largest L2 in terms of users and TVL.
Notable contributors to this success include the social app Warpcast in the first half of the year and the DEX Aerodrome in the second half. Meanwhile, Uniswap announced its own L2, Unichain, which is part of the Optimism Super Chain framework.
Furthermore, the re-staking domain has seen significant progress, led by EigenLayer. Re-staking allows assets like Lido's LST to be re-staked, enhancing Ethereum's security on EigenLayer's AVS while achieving shared security. Projects like EtherFi, Renzo, and Puffer have contributed to this thriving ecosystem.
Ethereum has evolved into a modular, scalable ecosystem with a massive network effect.
BTCFi
Unlocking Bitcoin's Potential Bitcoin (BTC) accounts for about half of the crypto market, but lacks smart contract functionality. The launch of BTC staking protocols like Babylon is addressing this limitation, allowing staked BTC to secure infrastructure.
Additionally, EVM-compatible BTC L2 solutions like MerlinChain, B²Network, Bitlayer, and BOB have emerged, leveraging the scalability and network effects of the EVM. These initiatives mark the beginning of a new era where previously dormant BTC assets are becoming more active.
Liquidity Fragmentation: Challenges and Solutions As the Ethereum modular ecosystem evolves, the competition between Layer 2 (L2) solutions is intensifying, with liquidity fragmentation becoming a major challenge. Many L2s have established independent networks, leading to a battle for liquidity. To address this, concepts like intentionality and chain abstraction have been widely adopted.
Currently, the use of high-speed L2 bridges like Orbiter Finance and Owlto Finance has become mainstream for users. Additionally, liquidity provisioning protocols have emerged, providing solutions to enhance liquidity flow. Notable projects include Solv and StakeStone, which deal with both BTC and ETH, serving as liquidity hubs with substantial TVL. Cycle Network and 0xastra have also developed unique solutions to tackle these challenges.
The Resurgence of Solana
Following the FTX collapse in 2022, Solana experienced a dramatic resurgence, with its token price soaring from under $9 to $260 by 2024. The Solana Foundation and its developer community have shown unparalleled unity, successfully rebuilding the ecosystem. Their efforts have even sparked debates about the competition between Ethereum (ETH) and Solana (SOL).
The key to Solana's revival has been large-scale airdrops conducted by initiatives like Jito and Jupiter, which have attracted a significant user base. Additionally, the increased use of meme coins for marketing has gained attention and drawn in a large number of users. Solana has proven its ability to handle a high volume of transactions with minimal issues, solidifying its position as a thriving single L1.
The momentum of meme coins has significantly strengthened, with platforms like Pump.fun generating $3.5 million in cumulative revenue within 10 months of launch.
The rise of meme coins has ultimately sparked major debates. Historically, meme coins have been viewed as speculative assets. However, the poor performance of tokens backed by VCs after listing has changed public perception. Meme coins are now seen as "more fair and community-centric". In contrast, VC-backed tokens have been criticized for only benefiting venture capital firms.
From a venture capital perspective, it's important to note that the lock-up periods for tokens after listing are typically 6 months to 1 year, meaning VCs cannot immediately create selling pressure. The fundamental role of venture capital remains to fund emerging projects and drive financial innovation.
Altcoin prices have declined for a variety of reasons. The approval of a BTC spot ETF has attracted widespread attention, making the surge in Bitcoin prices a benchmark for comparison. Intensified competition between projects and frequent airdrops have led to an increasingly evident trend of users immediately selling the tokens they receive. Furthermore, the rapid popularity of meme coins has further diverted attention from Altcoins. As the Altcoin season arrives and Altcoin prices begin to rise, these debates have gradually subsided.
Hyperliquid is a perpetual DEX that has built its own high-speed EVM Layer 1 chain. It is formulating a roadmap to establish a DeFi-centric ecosystem on this infrastructure. Since its product launch, its excellent user experience has attracted traders. Notably, even after the TGE, Hyperliquid has chosen to list exclusively on its own platform rather than on a CEX. The project did not raise funds from venture capitalists. Instead, it distributed 30% of the tokens to early users, one of the largest airdrops in history, quickly attracting community attention. As a result, its FDV reached $35 billion.
This shows that a beloved application can gain significant recognition by prioritizing its user community. Hyperliquid not only provides compelling answers to many of the debates that will emerge in the industry in 2024, but also has the potential to become a legendary project in crypto history. Although it is a risk-free investment project, it has been selected as the MVP for 2024 because it embodies the fundamental elements required by the industry today. What will 2025 be like? What will the Web3/crypto industry look like in 2025?
1. AI Agents The story of AI Agents began with $GOAT and is expected to expand into autonomous AI agents, further developing in 2025. Self-sufficient AI Agents are rapidly emerging in the crypto industry. Examples include AI investment agents that have grown a $500 wallet by over 8 times, and aixbt_agent, a crypto information agent on X. Efforts to integrate AI into the entertainment and creator economy are accelerating, such as Virtuals Protocol and Luna. This trend is driven by improved reasoning models and is an area that both Web2 and Web3 VCs should closely monitor.
2. New ecosystems and killer applications In 2024, Sui achieved significant growth, reaching an FDV of $45 billion. This suggests that, similar to Solana, monolithic Layer 1s have the potential to make major breakthroughs. Looking ahead to 2025, high-speed Layer 1s with parallel processing capabilities, such as Monad and Berachain, which introduces a new consensus algorithm called Liquidity Proof, are expected to be released. A common feature of these projects is their focus on leading application development from the infrastructure side, thereby creating a strong ecosystem from the start. In the ETH Layer 2 domain, MegaETH and Reddio, which build high-speed chains through parallel processing, are also expected to be launched. Additionally, ecosystems that integrate Move with EVM, such as MovementLabs, and those that combine TON with EVM, such as DuckChain, may also receive attention.
3. The evolution of stablecoins In 2025, the adoption and innovation of stablecoins will increase. Projects like Ethena and Usual introduced novel stablecoin concepts in 2024, marking high FDVs. Compared to BTC, stablecoins can generate stable returns (10-15%) without the volatility of the crypto market, which may make them an attractive entry point for enterprises. The project leading this trend appears to be Level.
4. Payment progress As the use of stablecoins becomes more widespread, payment systems are expected to mature, providing liquidity outlets and facilitating the integration of new finance with the real economy. PayFi, which combines DeFi with payments, will be a focus, emphasizing smart, disintermediated, and transparent payment systems.
5. On-chain dashboards and data The key to AI progress lies in datasets, and better data management is crucial for improving algorithm performance. As data volumes and token issuance quantities continue to grow, real-time asset management and analysis tools, such as KaitoAI that visualizes market trends and SoSoValue known for its excellent user experience, will continue to be popular.
Halving cycle anomalies and the 2025 market outlook The crypto currency market is influenced by a phenomenon called the halving cycle, where market trends shift between bullish and bearish phases around Bitcoin halving events. Historically, these cycles have driven seemingly predictable market movements. If this pattern continues, the current bull market trend may end at the end of 2025, ushering in a bear market. This will have far-reaching impacts on projects, requiring careful planning and strategic formulation. However, it is worth noting that these patterns may not always persist. Factors such as the approval of a BTC spot ETF and large-scale purchases of Bitcoin by governments and enterprises could have a positive impact on traditional market cycles.
The key is to view the 4-year halving cycle as a short-term indicator and focus on building long-term resilience. When challenges arise, remember the story of Virtuals Protocol. Even in a difficult bear market, sustained growth and preparation for the next bull market are crucial for success in this field.
