The Great Attrition of Crypto VCs
Has Begun
Crypto venture is at a watershed moment. Over the past 3 cycles, token exits have been the primary driver of outsized returns but are now undergoing a meaningful reset. The definition of what makes a token valuable is being rewritten in real time, yet an industry-standard evaluation framework has not emerged.
So what exactly happened?
Crypto’s market structure was disrupted by a confluence of forces unseen in any of the prior cycles:
1/ HYPE came out of left field and jolted the token market awake by proving that token prices can have real revenue support, with 97%+ of its nine- to ten-figure revenue accrued onchain. This triggered a sharp disillusionment with narrative-driven but fundamentally weak governance tokens—think the L1s and “governance tokens” that primarily existed to skirt security law ambiguity back then that made direct revenue sharing infeasible. HYPE reset market expectations almost overnight: revenue are now scrutinized far more aggressively and have become table stakes.
2/ Knock-on whiplash to other token projects: prior to 2025, if you have onchain revenue, you are a security; post-HYPE, if you ask most hedge funds, if you don’t have onchain revenue, you are going to 0. This put most projects, especially the non-defi ones, between a rock and a hard place scrambling to adapt
3/ PUMP delivered a spectacular supply shock to the system. The explosion of supply from memecoin mania fundamentally disrupted market structure by fragmenting attention and liquidity. On Solana alone, the number of new tokens generated ballooned from roughly 2–4k per year to 40–50k at peak. This effectively divided the liquidity pie, which did not grow much, by roughly 20x. Attention and capital from the same buyer base seeking outsized upside rotated toward flipping memecoins rather than holding altcoins.
4/ Alternative outlets for retail risk capital proliferated. Prediction markets, equity perps, and leveraged ETF trades now compete directly for the same pool of retail risk capital that would previously have gone to alts. In parallel, the maturation of tokenization technology makes it possible to lever up blue-chip stocks that do not carry the same risk of going to zero as most alts and are far more regulated and transparent, with lower information-disadvantage risk.
The result is the compression of the token lifecycle: the lead time from peak to trough has shrunk dramatically, and retail appetite to “hold” tokens has dropped precipitously, replaced by faster rotation.
Some of the biggest questions every VC is asking themselves and their peers:
1/ Are we underwriting equity, tokens, or some combination of the two? The biggest challenge here is that we have no new playbook of best practice in value accrual for token projects—even some of the most successful projects like Aave still face controversy across DAO and equity.
2/ What is best practice for onchain value accrual? Most common is token buyback but doesn’t mean it’s right. We’ve been long against the prevailing token buyback trend: it is toxic & puts founders with real revenue between a rock and a hard place.
The motivation is completely wrong: stock buyback happens when they are done investing in growth vs. crypto buyback is increasingly forced to be immediate by retail/public perception—something completely mercurial & irrational. You could be literally burning 10M of what could have been reinvested and the next day it gets wiped because some random MM gets liquidated.
Public companies buy back stocks when they are undervalued. Token buybacks get front-run left and right and so often executed at local peaks.
You are spitting into the wind especially if you are a B2B biz generating offchain revenue. Imo there is 0 reason to buy back when you are doin less than 20M in rev just to please retail instead of reinvesting in growth. I liked this report/screenshot by fourpillars showing how 10-fig buyback barely made a dent to help projects set a long term price floor.
On top of that, to make retail and hedge funds happy, you also gotta buy back consistently and transparently like HYPE. Anything short of that, you get punished like PUMP trading at 6x P/F (fully diluted) because the public “doesn’t trust” them—despite the fact they’ve literally burned $1.4B in revenue that could have gone to the treasury. Here’s further read of what COULD work as a onchain value-accrual mechanism without burning money:
3/ Will “crypto premium” completely go away? What this means is that going forward, everything will be valued based on a similar multiple (something between 2–30x revenue) as public equity. Take a second to sit on what this means—if true, we will see a 95%+ further price drop for most L1s from here, with exceptions like TRON, HYPE, and other revenue-generating DeFi projects. This is before even taking vesting into consideration.
https://tokenterminal.com/explorer/markets/blockchains-l1
Personally, I do not believe this would be the case—HYPE has set an outlier expectation that made many investor impatient about “day one revenue/user traction” for early-stage companies. For sustaining innovations like payments and DeFi companies—yes, that’s a fair expectation. But disruptive innovations take time to build, ship, grow, and then hit the rev hockey stick. We went from having way too much patience and hopium for “disruptive technology” through 8–9 funding rounds for new L1s, Flashbots/MEV esotericism over the past 2 cycles, to now an overcorrection and only backing DeFi projects.
The pendulum will swing back. While it’s indeed a net positive for the maturity of the industry to value on “quantitative” fundamentals for DeFi projects, but for non-DeFi categories, “qualitative” fundamentals also need to be accounted for : culture, technological innovation, disruptive concepts, security, decentralization, brand equity, and industry connectivity. And these qualities will not reflect purely on TVL and onchain buy-back.
So... what now?
Return expectations for token projects have meaningfully compressed, while equity businesses have not seen the same degree of dampening. This nuance is playing out differently across early-stage versus growth.
Early stage investor have become far more price-sensitive when underwriting projects that are likely to exit via a token. Concurrently, the appetite for equity businesses has grown, especially given the favorable M&A environment. This is a complete departure from 2022–2024, when token exits were the preferred liquidity path, underpinned by the assumption that token valuation premiums would persist.
Late stage investor whose brand equity and value-add are strongest within crypto-native contexts, are increasingly drifting away from purely “crypto-native” deals. Instead, they are backing more “web2.5” companies where underwriting is anchored to revenue traction. This puts them in uncharted territory, competing directly with crossover and Web2 fintech funds—firms like Ribbit or Founders Fund—that have deeper context in traditional fintech, stronger portfolio synergies, and better visibility into early-stage deal flow outside of crypto.
The crypto VC landscape is heading into an attribution period. Right to survival hinges on VCs finding their own “product-market fit” among founders, with the product being a combination of capital, brand identity, and value-add.
For the best deals, VCs need to sell themselves to founders to win the right to be on the cap table, especially given that some of the most successful outcomes in recent years required very little institutional capital (e.g., Axiom) or none at all (e.g., HYPE). If capital is the only thing a VC offers, it will almost certainly get shed.
The VCs that deserve a right to stay in the game need to be crystal clear about what they have to offer in terms of brand identity—which drives why the best founders would engage in the first place—and value-add, which ultimately determines their right to win the deal.
Further reading on
My mental model for “value-add”
Why pre-seed investing is a different sport
Pattern Matching the Impossible
As a venture nerd, one of my favorite conference activities is walking into a founder mixer and challenging myself to spot a “killer” just by reading the room. It’s a three-step process: 1. identify the potential killer, 2. drift into their proximity and listen to their conversations, and 3. initiate a conversation for validation.
Best piece on the state of crypto VC this year. One thing I'd add: every major crypto innovation has already surfaced. It's getting exponentially harder to invent something new. Similar to gaming industry, after 10 years of speedy growth — genres matured, mechanics exhausted, hardware peaked, monopolies formed. Distribution innovation is key imho. It's time to finally find that mass adoption.