Why are Web2.5 projects more popular with institutions?

Author: Haotian

After observing the projects gaining popularity in the primary investment market recently, I've discovered a commonality: they all tend toward "hybrid innovation," leveraging Web3's infra technology to implement the proven business logic of Web2 models.

For example, @go_lightyear is applying traditional stock ETF investment logic to Web3, @HilbertCapital specializes in digital asset quantitative strategies, @bitcoin2100m specializes in crypto asset allocation, and @ElysiumLab_io is developing a Bitcoin wallet for everyday payments.

Most of these projects fall into the category of integrated innovation, essentially mirroring the operating logic behind some Web3 projects going public through backdoor listings and some US stock exchanges investing in crypto assets.

Why is this trend occurring? To be honest, there are three core reasons behind this: 1) Purely native on-chain innovation projects have hit a ceiling. Not only are they struggling to expand their user base, but their business models are also heavily reliant on tokenomic incentives. Crucially, their narratives and business designs have also fallen into a self-serving trap, which is clearly very disadvantageous in a sluggish market with relatively scarce liquidity. 2) The regulatory environment is becoming increasingly crypto-friendly. The availability of ETFs for BTC and ETH, the enactment of the GENIUS and CLARITY Acts, and the FOMO (fear of loss) from Wall Street financial institutions have transformed crypto assets from niche speculative targets into more mainstream financial derivatives. Undoubtedly, in this context, hybrid innovations such as those that actively embrace mature business models in traditional finance or actively explore usable Web3 technologies like infra will be highly sought after. 3) User investment needs are also maturing. Crypto users used to care about whether a product or protocol was decentralized and rated projects based on the strength of their consensus. However, with the massive influx of mainstream Web2 users, users are now more concerned with usability, security, and profitability. Therefore, products with a simpler experience and more direct results will find a stronger market. So, what will be the next investment direction? Following this line of thought, we can infer that the mainstream investment direction over the next 3-5 years will likely revolve around "encryption-based transformation of traditional businesses." First, a large number of projects combining "traditional business logic with underlying crypto technology" will emerge in niche financial markets such as investment, payments, asset management, insurance, credit reporting, supply chain finance, and cross-border trade settlement. Crypto infrastructure will tend to be hidden in the backend, solely to address cost, efficiency, and transparency issues, while the front-end experience perceived by users will be virtually identical to traditional products. Second, technological standardization and the "invisibility" of infrastructure will become key trends. The new infrastructure supporting the convergence and innovation of web3 and web2 is no longer limited to the original crypto-native scope, nor does it pursue flashy technical concepts. Instead, it focuses on providing reliable, efficient, and low-cost cryptographic technology support. Modularity and chain abstraction are no longer popular hot topics, but will become the foundation of some eye-catching products. 3. Traditional financial institutions will actively participate in the market. They will no longer simply purchase coins for storage or invest in Web3 projects, but will directly use their licenses, resources, and user base to localize their crypto businesses. For example, banks will launch stablecoin payments, insurance companies will issue on-chain policies, and securities firms will provide crypto asset custody. This entry of giants will bring in larger amounts of capital and users, intensify product development, and drive the gradual maturity of the industry.