Author: Ada & Liam, TechFlow
Original title: Boom, fall and escape: the history of Web3 disillusionment of traditional VC
“All in Crypto”!
In 2021, Sequoia China's head Neil Shen typed a few words in a WeChat group, and the screenshot was quickly forwarded to countless investment groups, like a war drum, pushing the market's enthusiasm to a higher point.
The market atmosphere at that time was almost excited. Coinbase had just been listed on the Nasdaq, FTX was hailed as the "next Wall Street giant", and almost all traditional VCs were scrambling to be labeled "crypto-friendly".
"This is a technology wave that comes only once every thirty years," someone described it as. Sequoia's declaration became the most iconic footnote to that bull market.
However, just four years later, this statement sounds ironic. Many institutions that once vowed to "all in on Web3" have quietly withdrawn, drastically reduced their operations, or turned to pursue AI.
The repeated jumps of capital are essentially a harsh reminder of the cycle.
How are those classic Asian VCs who entered Web3 back then doing now?
Pioneers of the Savage Era
In 2012, Coinbase was founded by Brian Armstrong and Fred Earlsom, a pair of young entrepreneurs in San Francisco. Back then, Bitcoin was still considered a geek's toy, priced at just over a dozen dollars.
At the YC roadshow, IDG Capital cast an angel round vote for Coinbase. By the time Coinbase was listed on Nasdaq in 2021, the return on this investment was estimated to be thousands of times.
China's story is equally exciting.
In 2013, OKCoin received investments from Tim Draper and Mike Mak; in the same year, Huobi also received investment from ZhenFund, and the following year it received investment from Sequoia China. According to the information disclosed by Huobi in 2018, Sequoia China holds a 23.3% stake in Huobi, making it the second largest shareholder after founder Li Lin.
Also in 2013, Lightspeed Venture Partners partner Cao Darong first introduced Bitcoin to a man named CZ at a poker game. “You should invest in Bitcoin or blockchain entrepreneurship,” Cao Darong said to CZ.
CZ sold his house in Shanghai and went all in on Bitcoin. Everyone knows the story that followed. He founded Binance in 2017. In just 165 days, Binance became the world's largest cryptocurrency spot trading platform. CZ later became the richest Chinese in the crypto world.
Compared with the other two exchanges, Binance's early financing journey was not smooth. It mainly received investments from Pancheng Capital under the founder of Kuaidi Dache Chen Weixing, Black Hole Capital under the son of R&F Properties Zhang Liang, and several Internet and blockchain founders.
A little story is that in August 2017, Sequoia China had the opportunity to acquire about 10% of Binance's equity at a valuation of US$80 million, but the investment was not completed due to reasons on Binance's side. Afterwards, Sequoia Capital sued Binance, and the two companies had a very unpleasant quarrel for a while.
Also in 2014, angel investor Wang Lijie invested 200,000 yuan in the domestic blockchain NEO (Ant), which became the most important investment in his life.
From 2012 to 2014, when crypto-native VC was still in its infancy, it was traditional VC that supported half of Web3. Whether it was the three major exchanges, Bitmain, or imToken... behind them were traditional capitals such as Sequoia Capital and IDG.
Things got crazy in 2017.
Under the ICO wave, countless tokens saw a surge in value. Wang Lijie, who had already made a lot of money, chose to sell NEO at the price of 1.5 yuan. As a result, NEO's upward momentum continued, rising to a high of over 1,000 yuan, with a cumulative increase of more than 6,000 times in three years.
Deeply stimulated, Wang Lijie began to bet frantically on blockchain, claiming he "went to bed at 1 a.m., woke up at 5 a.m., met with project developers and read white papers from morning till night, and invested an average of $2 million worth of Ethereum every day." So much so that when someone invited him for tea, he retorted, "You're delaying my ability to make money."
In January 2018, Wang Lijie said at a blockchain summit in Macau: "I made more money in the past month than in the past seven years."
Also in early 2018, Xu Xiaoping, founder of Zhen Fund, delivered a speech in an internal WeChat group of 500 people, urging them not to spread it outside. He said: Blockchain is a great technological revolution in which those who follow it will prosper and those who go against it will perish. It will be faster and more thorough than the Internet and mobile Internet, and he called on everyone to learn and embrace this revolution.
The two people's speeches also became the most well-known peak symbol of that bull market cycle.
In 2018, the ICO bubble burst, sending thousands of tokens plummeting to near zero, wiping out the market capitalization of once-hyped star projects. Bitcoin also plummeted from a high of nearly $20,000 to just over $3,000, a drop of over 80%.
At the end of that year, the crypto became a dirty word in the investment circle.
“I was attending a venture capital event in Beijing when a VC partner joked, ‘It doesn’t matter if your business fails, the worst that can happen is you can just issue a new coin.’ The audience burst into laughter, but I just blushed and panicked,” recalls Leo, a former blockchain entrepreneur.
In the second half of 2018, the entire industry seemed to have hit pause. Bustling WeChat groups went silent overnight, and project discussion groups were filled with links to Pinduoduo's "cut-off" deals. On March 12, 2020, the market experienced another single-day devastation, with Bitcoin prices plummeting by 50% in a single day. It felt like the end of the world.
“Don’t even mention that classic VCs looked down on the crypto. I myself felt that the industry was dead at that time,” said Leo.
Both entrepreneurs and investors were made fun of by the mainstream narrative. As Justin Sun recalled, he will never forget Wang Xiaochuan looking at him as a "swindler."
In 2018, the crypto fell from the center of the wealth-making myth to the bottom of the contempt chain.
Classic VC re-enters the market
Looking back, March 12, 2020 was the darkest point in the crypto industry in nearly a decade.
The circle of friends was filled with blood-red K-lines, and people thought this was the final blow and the industry would end.
But the turnaround was unexpected and dramatic. The Federal Reserve's flood of money pushed the previously moribund market to its peak. Bitcoin took off from its lows, increasing more than sixfold in a year, transforming itself into the most dazzling asset after the pandemic.
But what really made traditional VCs take the crypto industry seriously again was perhaps the listing of Coinbase.
In April 2021, the nine-year-old exchange rang the Nasdaq bell. It proved that "crypto companies can also go public" and allowed early investors such as IDG to reap a thousand-fold return.
The bell of Coinbase echoed between Wall Street and Liangmaqiao. According to crypto media person Liam, many traditional VC practitioners approached him afterwards to communicate offline and learn about the overall situation of cryptocurrency.
But in Leo's view, the return of classic VC is not just due to the wealth effect.
"This group of people naturally wear the mask of elitism. Even if they secretly bought some coins in the bear market, they would not admit it publicly." What really helped them take off the mask was the upgrade of the narrative: from Crypto to Web3.
This is a shift in perspective, driven by Chris Dixon, head of crypto at a16z. Many equate simply "investing in cryptocurrency" with speculation, while the phrase "investing in the next generation of the internet" instantly lends a sense of purpose and moral legitimacy. Deploring the monopolies of Facebook and Google while emphasizing decentralization and fairness garners support and applause. The craze of DeFi and the explosion of NFTs can easily be incorporated into this grand narrative.
The popularity of Web3 narratives has relieved many traditional VCs of their moral burdens.
Will, a crypto-fintech investor working for a leading institution, recalled: "We experienced a cognitive shift. In the early days, we viewed it as an extension of the consumer internet, but this logic was disproven. It was fintech that really changed our perspective."
In his view, the explosion of Web3 enthusiasm coincided with the end of the mobile internet era and the early days of AI. Capital needed a new story, so it shoehorned blockchain into the internet framework. However, what truly lifted the industry out of its death spiral was the awakening of its financial nature. "Look at successful projects; which one isn't related to finance? Uniswap is an exchange, Aave is lending, Compound is wealth management. Even NFTs are essentially the financialization of assets."
Another catalyst comes from FTX.
Founder SBF emerged as a "financial prodigy," captivating nearly every major traditional VC firm. His positive image and rapidly expanding valuation ignited FOMO (Fear of Momentum) among VCs worldwide.
At a venture capital drinking party in Beijing, investment tycoons were asking around, "Who can buy old shares of FTX and Opensea?" and envied those lucky ones who had already bought them.
During this period, an interesting phenomenon also emerged: the flow of talent between traditional VCs and crypto VCs.
Some left Sequoia and IDG to join emerging crypto funds; others left crypto VCs and joined traditional institutions, taking on the title of "Head of Web3." This two-way flow of capital and talent allowed the crypto market to truly enter the narrative of mainstream investors for the first time.
The bull market in 2021 is like a carnival.
The WeChat group is bustling with activity. Unlike in the past, this time there are more people from traditional VCs, family offices and major Internet companies.
NFTs are trending, and VC leaders are switching their profile pictures to high-net-worth NFTs like monkeys and punks. Even Zhu Xiaohu, once known for his bearish stance on crypto, has adopted a monkey. At offline conferences, alongside crypto-native entrepreneurs, elite, classic VC partners are also starting to appear.
Traditional VCs are entering the Web3 market in a variety of ways: directly investing in crypto projects, driving valuations skyrocketing; investing in crypto VCs as an LP. Sequoia China, which previously engaged in a legal battle with Binance, became an LP of Binance Labs after the two parties settled; and directly buying Bitcoin in the secondary market.
Crypto VC, classical VC, exchanges and project parties are intertwined, project valuations continue to rise, and everyone is looking forward to a more glorious bull market, but behind the hustle and bustle, risks are quietly brewing.
VC Falls
If the bull market in 2021 was heaven, then 2022 instantly turned into hell.
FTX was both its success and its failure. The collapse of LUNA and FTX not only shattered market confidence but also dragged down a number of established venture capital firms. Institutions like Sequoia Capital and Temasek suffered heavy losses, and Temasek, a state-owned enterprise, was even held accountable in the Singapore Parliament.
After the bull market bubble burst, many once-highly valued crypto projects were reduced to their original state. Unlike crypto-native VCs who experimented with small investments, traditional VCs have traditionally made large bets, often reaching tens of millions of dollars per investment. They also purchased large quantities of SAFTs from crypto VCs, becoming a key source of exit liquidity for crypto VCs during the previous cycle.
Even more frustrating for traditional VCs is the rapid shift in the crypto industry narrative, outpacing their investment logic. Projects once held high hopes can be completely abandoned by the market within a matter of months, often leaving investors with only deeply trapped equity and liquidity problems.
Ethereum's L2 sector is a prime example. In 2023, Scroll completed a funding round at a valuation of $1.8 billion, with Sequoia China and Qiming Venture Partners among its investors. However, on September 11th of this year, Scroll announced the suspension of DAO governance and the resignation of its core team, leaving its total market capitalization at just $268 million and a VC investment loss of 85%.
At the same time, the strong position of exchanges and market makers makes VCs increasingly redundant.
Investor Zhe bluntly stated, “For projects valued below $30-40 million, if they manage to list on Binance, they can still make some money, potentially doubling or tripling their value after the lock-up period. If they’re more expensive, they’ll only be able to list on OKX or smaller exchanges, and that’s a loss.”
In his opinion, the logic of making money has nothing to do with the project itself and depends on only three things:
Can it be listed on Binance?
Is the chip structure favorable?
Whether the project party is willing to "feed meat".
"Anyway, the exchange has the most say and gets the biggest piece of the pie. As for how much of the rest you get, it all depends on luck."
Zhe's words reveal the pain of many classic VCs.
They find themselves increasingly acting like "porters" in the primary market: investing in projects, only to have the greatest value reaped by exchanges, leaving them with only scraps. Some investors even lament, "There's really no need for a primary market anymore. Projects can make money on their own by listing on Binance Alpha. Why should they share profits with VCs?"
As capital logic faltered, the focus of traditional VCs shifted. As Will noted, the rise of Web3 coincided with the end of the mobile internet era and the early days of AI, a period of inactivity. However, when ChatGPT emerged, the true North Star emerged.
Funding, talent, and narratives suddenly shifted, heading towards AI. In WeChat Moments, VC practitioners who once actively shared news about Web3 financing quickly adopted the identity of "AI investors."
According to Zac, a former classical VC investor, many classical VCs were looking at Web3 projects during the industry's peak in 2022-2023. However, 90% of them have now stopped looking. He also predicts that if the Asia-Pacific cryptocurrency primary market remains as quiet as it is for another six months to a year, even more investors will give up.
No more gambles
The Web3 primary market in 2025 looks like a shrinking chess game overall.
The excitement has faded, and only a few players remain, but the landscape is being reshaped in secret.
As a bellwether of classic VC, Sequoia Capital's moves are still worth paying attention to.
According to Rootdata data, Sequoia China has invested in a total of 7 projects in 2025, including OpenMind, Yuanbi Technology, Donut, ARAI, RedotPay, SOLO, and SoSoValue, followed by IDG Capital, GSR Ventures, and Xiangfeng Investment. The previously active Qiming Venture Partners made its last web3 investment in July 2024.
According to Zac’s observation: “The number of traditional VCs still looking at Web3 projects can be counted on one hand.”
In his opinion, the quality of crypto projects has seriously declined.
"Teams that strive to find PMF and create long-term value for users receive far less positive feedback than teams that delve into the attention economy and active market making," said Zac.
In addition, crypto treasury companies represented by MicroStrategy and BMNR have become a new investment option, but this has once again created a blood-sucking effect on the increasingly depleted crypto primary market.
"Do you know how many PIPE projects there are in the market right now?" said Draper Dragon partner Wang Yuehua. "There are at least 15, and each one requires an average of $500 million. That's $7.5 billion. Almost all the big money in the market is on Wall Street, and they're participating in PIPEs."
PIPE (Private Investment in Public Equity) refers to a listed company issuing stocks or convertible bonds to specific institutional investors at a discounted price to achieve rapid financing.
Many listed companies that were originally not related to the cryptocurrency business have obtained large amounts of financing through PIPE, and then purchased large amounts of BTC, ETH, SOL and other assets, transforming themselves into crypto treasury companies. Investment companies that entered the market at a discount often made considerable profits.
"That's why there's no money in the primary market," Wang Yuehua said. "Big funds are all going to PIPEs, which offer higher certainty. Who's willing to take the risk of investing in early-stage companies?"
Some people left, some stayed, but Will still chose to believe and stick to it. He believed in Web3 and AI, and was even willing to invest in public goods that seemed to have "no business model."
“Not everyone wants to do business,” Will said. “Really great projects often start with a simple public good. Just like when Satoshi Nakamoto created Bitcoin, he didn’t pre-mine or raise funds, yet he created the most successful financial innovation in human history.”
The dawn of the future
Several major events happening in 2025 are changing the rules of the game.
Circle’s listing is like a spark that ignites stablecoins and RWA (Real-World Assets).
This stablecoin issuer listed on the New York Stock Exchange with a valuation of approximately $4.5 billion, providing a long-awaited example of a "non-tokenized" exit for traditional VCs. Subsequently, Bullish, Figure, and other companies went public, giving even more investors confidence.
"We don't touch the primary and secondary markets of pure tokens, but we will look at stablecoins and RWAs," several traditional VC investors echoed. The reason is simple: there's ample room for growth, visible cash flow, and a clearer regulatory path.
The business model of stablecoins is more "bank-like", with reserve fund spreads, issuance/redemption and settlement fees, service fees of compliant custody and clearing networks, etc., which naturally have the potential for sustainable profitability.
RWA moves receivables, government bonds, mortgages/real estate, fund shares, etc. "on the chain", and its income comes from fees and interest rate spreads in multiple links such as issuance/matching/custody/circulation.
If the previous generation of crypto companies listed on the U.S. stock market were mainly exchanges, mining companies, and asset management companies, then the new generation of prospectuses belong to stablecoins and RWAs.
At the same time, the boundaries between stocks and tokens are becoming blurred.
The "MicroStrategy"-style treasury strategy has attracted a group of imitators. Listed companies have allocated top assets such as BTC/ETH/SOL through equity financing or PIPE issuance, turning themselves into "coin stocks."
Behind the leaders of this track, we can see a large number of classic VCs such as Peter Tiel, and even some institutions have personally entered the market. For example, Huaxing Capital announced that it would buy $100 million in BNB and chose to participate in the allocation of crypto assets through the open market.
"The traditional financial world is embracing crypto," Wang said. "Look at Nasdaq investing $50 million in Gemini. This isn't just a capital move; it's a shift in attitude."
This shift is also reflected at the LP level. According to multiple interviewees, traditional LPs such as sovereign funds, pension funds, and university endowment funds are beginning to reassess the value of allocating crypto assets.
The past decade of capital markets has seen a surge and a decline. Asia's established VCs, once championing exchanges and shouting "all in" during bull markets, have ultimately become marginalized players in the crypto world.
Although the reality is bleak at the moment, there may be hope in the future.
As Will firmly believes: "Classic VC will definitely allocate more to crypto-related fintech investments."
Will traditional VCs enter the market en masse again in the future? No one can predict. The only certainty is that the crypto world's pace of progress will not stop.
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