In the previous article, Portal Labs and everyone had a brief chat about the topic of ABCDE stopping investment in new projects, and sorted out the main paths and participation mechanisms of Web3 investment.

In this article, let's talk about the overall trend of current Web3 investment.

In fact, as early as the second half of 2024, many Web3 media and senior practitioners began to put forward a common point of view: The VC model of Web3 has become increasingly difficult to do.

Although there are some opinions, such as Haseeb Qureshi, managing partner of Dragonfly Capital, who believes that the VC situation is not so pessimistic and the prospects for crypto VC are still promising. But it is undeniable that from the perspective of data and market sentiment, the primary market is indeed undergoing a round of profound structural adjustments.

Moreover, this trend has shown signs of further acceleration in 2025.

The ebb of the primary market

In the second half of 2024, when the Web3 secondary market is fascinated by MEMECoin and crazy about BTC, the primary market has already entered a cold winter.

Galaxy Digital data shows that the peak of crypto VC fundraising in 2021 reached US$33.7 billion, and there was still US$27.7 billion in 2022. However, in 2023, the scale of fundraising dropped sharply to US$10.1 billion, a year-on-year decline of more than 60%; in 2024, this figure further fell below US$4 billion. One of the important reasons for this dilemma is that crypto VC itself is only carried out in a small internal circle and has not yet been fully integrated with the mainstream financial market, and the amount of funds is limited. At the same time, crypto VC also needs to face a longer exit cycle. In the highly volatile crypto market, there is often a problem of "locking up for a year and losing half of the money". According to STIX Co's data, from May 2024 to April 2025, the market value of multiple first-level locked tokens plummeted after being unlocked, and the average valuation shrank by more than 50%. The declines of BLAST, EIGEN, and SCR tokens reached 88%, 75%, and 85% respectively. According to crypto KOL @Anymose 96, among the projects that have issued coins invested by ABCDE, the highest decline in coin prices was as high as 95.5%.

If lock-up is the nightmare of primary investors, then the fundamental problem of the primary market is the vicious cycle of financing-listing-dumping.

In the last bull market, primary investment had a clear value transmission chain: VC entered the market at a low level, the project party completed financing, and then the token was listed, the secondary market took over, and the token price gradually rose under the market consensus, and finally exited. However, in this round of cycle, with the shrinking liquidity and weak narrative, this link has been completely broken.

In order to complete the exit, the project party and VC have to launch the tokens in advance when the market sentiment is low. However, after the launch, the token price often collapses directly due to the lack of secondary market takeover power. Once the lock-up period of primary investors ends, they will usher in "dumping and cashing out". The entire chain has become a game with no winners: primary investors lose money, the reputation of the project party is damaged, and secondary investors are unwilling to take over.

According to SoSoValue data, from 2023 to 2024, the average decline of newly launched crypto projects within 90 days reached 45%, and 60% of the projects broke within half a year. Whether it is a star project or a second-tier project, it is almost impossible to escape the collapse of this round of valuation system.

This is not just a problem of market heat, but also a failure of model design.

The revival of the incubation model

If the dilemma of the primary market reveals the failure of the crypto VC approach, then the popularity of incubation investment is a microcosm of the current capital's search for a "breakthrough".

Du Jun's recent transformation is a clear representative of this trend. After announcing that ABCDE Fund would no longer invest in new projects, he did not completely leave the market, but started a new business and launched an incubator called Vernal. Du Jun said it very bluntly: I want to accompany those teams with a sense of mission and incubate companies that can truly create long-term value for the industry and society. In addition to incubating projects, he will also personally make secondary market allocations. In May, he will announce his buying list - industrial collaboration + secondary investment, and his ideas are very clear.

Of course, this is not just his choice.

In the past year, platform-based institutions such as Binance Labs, OKX Ventures, and Alliance DAO have been continuously increasing their incubator models. Compared with pure capital investment, they are more like "co-builders" of projects: from capital, technology to market and compliance, everything can be equipped. According to data from Business Research Insights, the global Bitcoin project incubator market size reached $1.43 billion in 2024, and is expected to rise to $5.7 billion in 2032, with a compound annual growth rate of 19.1%. This growth rate shows that the demand for crypto incubators is continuing to expand.

Why is the incubation model becoming popular?

1. VC is more like "capital + running", while incubators are involved in all aspects: from resources, markets to product collaboration, even technology stacks, user acquisition paths, and exchange resources, the project party is almost "tied together" with the incubator, and the moat is much deeper.

2. Incubators do not need to rely on high valuations to exit: in addition to issuing coins, there are also multiple exit methods such as internal digestion of the ecosystem, product profitability, and token phased circulation. The gameplay is more flexible and not easily dragged down by the market.

3. The funding requirements are also flexible: Unlike VCs that start with millions of dollars, incubators can reduce cash investment and save liquidity by "exchanging resources for equity/Tokens", which is more capital efficient.

Of course, incubation is not "anyone can play". It has much higher requirements for investors: they must understand technology, understand the market, and know how to help projects grow. Money alone is not enough. Du Jun dared to transform from VC to incubation, relying on the industrial resources and team capabilities accumulated over the years, and was able to bring the project to fruition.

The development of the secondary market

If the incubation model gives the primary market a "reshaping path", then the secondary market is undoubtedly the most realistic safe haven for funds at present.

According to data from The Block Research, the total volume of spot transactions in the secondary market of cryptocurrencies has rebounded to nearly 13 trillion US dollars in 2024, an increase of about 40% year-on-year. Among them, mainstream assets such as BTC and ETH are still the big ones, but you will find that narrative-driven, highly volatile small and medium-sized market value assets such as Meme coins, AI, and DePIN are increasingly becoming the new focus of capital pursuit.

However, this round of "heat" in the secondary market is different from the previous round:

Institutional entry, strategy-driven

In this round of market, retail investors are not the protagonists. What really supports the market is a set of increasingly mature institutional strategies.

According to CoinShares data, the scale of crypto asset management (AUM) will rise to US$67.4 billion in 2024, a year-on-year increase of 160%. Especially after the approval of the BTC spot ETF, a large amount of funds from traditional financial institutions have poured in, pushing BTC to rise steadily and stabilizing the market's basic disk. But with the entry of these funds, the rhythm of the crypto market has also changed.

The market is no longer just based on the ups and downs of retail investors' emotions as in the last round, but more like a rhythmic and strategic game - arbitrage, hedging, options and other old tricks in the financial circle have become the mainstream gameplay.

Liquidity is dominant, narrative is sidelined

Hot sectors with high liquidity and volatility such as MEMECoin, AI, and RWA have become the focus of the secondary market, which also reflects the secondary market's extreme pursuit of liquidity.

Although many voices criticize speculation at present, it is undeniable that the current crypto market is still a strategy of speculation (after all, who doesn't want to make quick money).

According to CoinGecko data, from Q4 2024 to Q1 2025, the average daily trading volume of the MEMECoin sector reached US$1.5 billion, accounting for 13% of the total crypto market trading volume. Although emerging narrative assets such as RWA and AI account for less than 10% of the market value, their average volatility is more than twice that of mainstream currencies.

The logic behind this is that investors no longer bet on long-term value, but try to recover funds and even obtain higher profits in a short period of time by chasing liquidity as much as possible.

Choices for Web3 Investors

Although we see that the VC model has suffered a heavy blow at the moment, the existence of market cycles has never changed - this is not the first time that crypto VC has fallen into a cold winter, and it will not be the last.

Looking back at PitchBook historical data, during the 2018 crypto winter, the total global crypto VC investment was only US$2 billion, but by 2021, this figure soared to US$33.7 billion, an increase of nearly 17 times in three years. Cycles are cyclical, and the path of capital flow will change with the times and circumstances, and VC will eventually re-emerge as the market recovers.

But for today's high-net-worth investors, choosing which path is still a realistic problem.

• The advantage of the incubation model lies in deep collaboration. By binding the entire chain of resources, technology, and markets, it helps projects grow, and the returns may far exceed those of traditional VCs. But this also means that more industrial resources and collaboration capabilities are needed, which is suitable for investors who can deeply participate in project development.

• The secondary market provides higher liquidity and strategic flexibility. The institutionalized and strategic secondary market allows high-net-worth investors to participate flexibly through structured products, custody configurations, etc., without having to stick to lock-up positions.

However, no matter you choose primary, secondary, or incubation, behind each path, there is a core issue that cannot be avoided:Compliance.

Especially as global crypto regulation becomes increasingly stringent, the compliance requirements, legal risks, and tax arrangements of different paths are also different. For example, fundraising compliance and token issuance location selection in the primary market, cross-border transactions and tax compliance in the secondary market, and related transactions and interest disclosure in the incubation model, each step affects the bottom line safety of investors.

In the view of Portal Labs, compliance is not only a compulsory course for risk prevention and control, but also a moat that crosses cycles and has a steady layout.

Therefore, in the next article, we will continue to explore the compliance issues behind the investment path - what are the differences in the compliance requirements of different investment paths? In the current environment of accelerated supervision, how should high net worth investors respond prudently? Stay tuned.