Author: Yonkuro
I am pleased to announce that I became a partner in Skyland Ventures' Web3/Crypto fund in November 2024 and just published an article summarizing the Web3 and crypto landscape of 2024 from a venture capital perspective.
This year, Skyland invested in 15 projects, with 9 projects in our portfolio successfully listing and 2 projects becoming unicorns. The pace of development in this industry is incredible, and 2024 is no exception. In this article, I share insights from a VC perspective on the transformation in the Web3/crypto space and key players, highlighting 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 financial systems that previously relied on centralized institutions. Permissionless and stateless financial services, along with the infrastructure supporting them, are at the heart of this revolution. Just as the internet transformed various 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 completed instantly and at low cost via cryptocurrency. Bankless's title aptly summarizes this paradigm shift. By the way, speaking of cryptocurrency videos, Unchained is another channel you absolutely should watch. Despite this, challenges remain. The volatility in the space leads to excessive leverage and speculation during bull markets, while bear markets often see the liquidation of over-leveraged assets, leaving significant scars. The substantial financial losses caused by security vulnerabilities and hacks also remain a concern, leading governments and large companies to adopt a cautious stance. Despite these obstacles, the value of the cryptocurrency market still exceeds $3.3 trillion, surpassing the size of some national stock markets. While acknowledging these challenges, as a venture capitalist, my goal is to support the paradigm shift towards 'next-generation internet finance.'
Virtual Protocol
Proof of Entrepreneurial Resilience In 2024, the industry witnessed a landmark entrepreneurial story. Virtuals Protocol was initially launched in 2021 as a token-based gaming and community DAO project. However, during the bear market of 2022, its valuation plummeted, with its FDV falling to just $6 million. This situation would force many projects to retreat, but the founders of Virtuals chose to persist and explore new directions. Starting in 2023, amid the rise of artificial intelligence technologies, 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 surged to $3 billion, becoming a leading project in the AI agent field. This success highlights the importance of long-term vision and adaptability in changing market conditions. Evolution of the Ethereum Ecosystem In 2024, the Ethereum ecosystem made significant progress in infrastructure maturity. The long-discussed scalability issues saw substantial advancements with the emergence of Layer 2 (L2) solutions. zk-rollup-based technologies, such as Taiko, Scroll, and zkSync, have launched mainnets and listed tokens. Coinbase's Base L2 also gained attention, becoming the second-largest L2 in terms of users and TVL. Key contributors to this success include social applications like Warpcast in the first half of the year and DEX Aerodrome in the second half. Meanwhile, Uniswap announced its own L2, Unichain, which belongs to the Optimism Super Chain framework.
Additionally, under the leadership of EigenLayer, significant progress has been made in the field of restaking. Restaking allows assets like Lido's LST to be staked again, 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 significant network effects.
BTCFi
Unlocking the Potential of Bitcoin Bitcoin (BTC) accounts for about half of the cryptocurrency market but lacks smart contract functionality. The emergence 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 launched, leveraging the scalability and network effects of EVM. These initiatives mark the beginning of an era where previously dormant BTC assets are beginning to become active. Liquidity Fragmentation: Challenges and Solutions As the Ethereum modular ecosystem develops, competition among Layer 2 (L2) solutions intensifies, and liquidity fragmentation becomes a major challenge. Many L2s have built independent networks, leading to a struggle for liquidity. To address this issue, concepts such as intent and chain abstraction are widely adopted. Currently, using high-speed L2 bridges like Orbiter Finance and Owlto Finance has become mainstream for users. Furthermore, liquidity provision protocols have emerged, offering solutions to enhance liquidity flow. Notable projects include Solv and StakeStone, which deal with both BTC and ETH, acting as liquidity hubs with significant TVL. Additionally, Cycle Network and 0xastra are developing unique solutions to tackle these challenges.
The Revival of Solana
After the collapse of FTX in 2022, Solana experienced a dramatic recovery, with its token price soaring from less than $9 to $260 in 2024. The Solana Foundation and its developer community demonstrated unparalleled unity, successfully rebuilding the ecosystem. Their efforts even sparked debates about the competition between Ethereum (ETH) and Solana (SOL). The key to Solana's revival lies in major initiatives like Jito and Jupiter, which conducted large airdrop campaigns to attract users.
Additionally, the increasing use of meme coins for marketing has gained attention and attracted a large number of users. Solana has proven its ability to handle a large number of transactions with minimal issues, solidifying its position as a single L1 capable of further development.
The momentum of meme coins has significantly increased, with platforms like Pump.fun generating $3.5 million in cumulative revenue within 10 months of launch. Meme Coins vs. VC Coins The rise of meme coins ultimately sparked significant debate. Historically, meme coins have been seen as speculative assets. However, tokens from venture-backed projects have continued to perform poorly after listing, changing public perception. Meme coins have begun to be seen as 'fairer and more community-centered.' In contrast, venture-backed tokens have been criticized for only benefiting venture capital firms. From a venture capital perspective, it is important to note that the lock-up period for tokens after listing is typically 6 months to 1 year, which means venture capital cannot immediately generate selling pressure. The fundamental role of venture capital remains to fund emerging projects and facilitate financial innovation.
There are many reasons for the decline in altcoin prices. The approval of the BTC spot ETF has garnered widespread attention, causing Bitcoin prices to soar as a benchmark for comparison. Increased competition among projects and frequent airdrops have led to a trend of users immediately selling the tokens they receive. Additionally, 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 gradually subside. Hyperliquid is a permanent DEX that has built its own high-speed EVM Layer 1 chain. It is developing a roadmap to establish a DeFi-centered ecosystem on this infrastructure. Since its product launch, its exceptional user experience has attracted traders. Notably, even after the TGE, Hyperliquid chose not to list on CEX but opted for an exclusive listing on its own platform. The project did not raise funds from venture capital firms. Instead, it distributed 30% of its tokens to early users, marking one of the largest airdrops in history and quickly capturing the community's attention. As a result, its FDV reached $35 billion.
This indicates that a beloved application can gain significant recognition by prioritizing the user community. Hyperliquid not only provides compelling answers to many debates emerging in the industry in 2024 but also has the potential to become a legendary project in crypto history. While it is a no-risk investment project, it was selected as the MVP for 2024 because it embodies the fundamental elements required in today's industry. What will 2025 look like? What will the Web3/crypto industry look like in 2025? Here are five predictions for the coming year:
1. AI Agents The story of AI Agents began with $GOAT, expected to expand into autonomous AI agents and develop further in 2025. Self-sufficient AI Agents are rapidly emerging in the crypto industry. Examples include AI investment agents that have multiplied a $500 wallet by more than 8 times, and aixbt_agent, a crypto information agent on X. Efforts to integrate AI into entertainment and the 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, with a valuation reaching $45 billion FDV. This indicates that, similar to Solana, single-architecture Layer 1 has the potential for significant progress. Looking ahead to 2025, high-speed Layer 1 projects characterized by parallel processing, such as Monad and Berachain, are expected to be launched, with the latter introducing a new consensus algorithm called Proof of Liquidity. These projects share a common focus on leading application development from an infrastructure perspective, thereby creating robust ecosystems from the outset. In the ETH Layer 2 space, MegaETH and Reddio, which build high-speed chains through parallel processing, are also expected to launch. Furthermore, ecosystems like MovementLabs, which integrate Move with EVM, and DuckChain, which combines TON with EVM, may attract attention. As demonstrated by Hyper Liquid, while many ecosystems will emerge in 2025, the ability to launch a killer application will also be a key factor. Identifying and supporting such applications will remain a critical task for venture capital firms.
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 FDV. Compared to BTC, stablecoins can generate stable returns (10-15%) without the volatility of the crypto market, making them an attractive entry point for enterprises. The leading project in this trend seems 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 focal point, emphasizing smart, intermediary-free, and transparent payment systems.
5. On-Chain Dashboards and Data The key to advancements in artificial intelligence lies in datasets, and better data management is crucial for improving algorithm performance. As the volume of data and the number of token issuances continue to grow, real-time asset management and analytics tools, such as KaitoAI for visualizing market trends and SoSoValue, known for its exceptional user experience, will continue to be in demand. Halving Cycle Anomalies and 2025 Market Outlook The cryptocurrency market is influenced by a phenomenon known as the halving cycle, where market trends shift between bullish and bearish phases during Bitcoin halving events. Historically, these cycles have driven seemingly predictable market movements. If this pattern continues, the current bull market trend may end by the end of 2025, ushering in a bear market. This would have profound implications for projects, necessitating careful planning and strategy formulation. However, it is worth noting that these patterns may not always persist. Factors such as the approval of BTC spot ETFs and the large-scale entry of governments and corporations into the market to purchase Bitcoin could positively impact traditional market cycles. The key is to view the four-year halving cycle as a short-term indicator while focusing on building long-term resilience.
When challenges arise, remember the story of Virtuals Protocol. Even in a tough bear market, sustained growth and preparation for the next bull market are crucial for success in this field.
