Skyland Ventures Partner: An Overview of Emerging Crypto Areas to Watch in 2025
In this article, I share insights on the transformation of the Web3/Crypto space and key players from a VC perspective and highlight emerging areas to watch in 2025.
I am pleased to announce that I became a partner in Skyland Ventures' Web3/Crypto fund in November 2024 and have just published an article summarizing the Web3 and crypto landscape of 2024 from a venture capital perspective.
This year, Skyland invested in 15 projects, 9 of which from our portfolio successfully went public, and 2 became unicorns. The pace of development in this industry is incredible, and 2024 is no exception. In this article, I share insights on the transformation of the Web3/Crypto space and key players from a VC perspective and highlight emerging areas to watch in 2025.
Decentralized Finance (DeFi)
The 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 field is reimagining financial systems that previously relied on centralized institutions. Permissionless and stateless financial services, along with the infrastructure that supports them, are at the heart of this revolution. Just as the internet has radically transformed various fields such as information, retail, media, and hardware, blockchain is driving similar transformations in finance. Transactions and remittances that once required banks or financial intermediaries can now be completed instantly and at low cost using cryptocurrencies. The title 'Bankless' aptly summarizes this paradigm shift. By the way, speaking of cryptocurrency videos, Unchained is another channel you absolutely should watch. Nevertheless, challenges remain. The sector's volatility has led to excessive leverage and speculation during bull markets, while bear markets often see the liquidation of over-leveraged assets, leaving significant scars. Security vulnerabilities and massive fund losses from hacks are also ongoing concerns, leading governments and large companies to take 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
A Testament to Entrepreneurial Resilience In 2024, the industry witnessed an iconic startup story. Virtuals Protocol was initially launched in 2021 as a token-based gaming and community DAO project. However, during the bear market in 2022, its valuation plummeted, and its FDV fell to just $6 million. This situation would force many projects to retreat, but the founders of Virtuals chose to persevere and explore new directions. Starting in 2023, amid the rise of AI technology, they began to explore artificial intelligence and shifted their focus to AI agents. They developed a platform for tokenized AI agents, and by 2024, their FDV had soared to $3 billion, making it a leading project in the AI agent field. This success underscores the importance of long-term vision and adaptability in the face of changing market conditions. The 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 second-layer (L2) solutions. zk-rollup-based technologies (such as Taiko, Scroll, and zkSync) launched their mainnets and listed their 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 the social application Warpcast in the first half of the year and the DEX Aerodrome in the second half. Meanwhile, Uniswap announced its own L2, Unichain, which belongs to the Optimism Super Chain framework.
Additionally, significant progress has been made in the re-staking space, led by EigenLayer. Re-staking enables 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 tremendous network effects.
BTCFi
Unlocking Bitcoin's Potential Bitcoin (BTC) accounts for about half of the cryptocurrency market but lacks smart contract functionality. The launch of BTC staking protocols like Babylon is addressing this limitation, allowing staked BTC to secure infrastructure. Additionally, EVM-compatible BTC L2 solutions such as MerlinChain, B²Network, Bitlayer, and BOB have emerged, leveraging the scalability and network effects of EVM. These initiatives mark the beginning of an era where previously dormant BTC assets are coming to life. Liquidity Fragmentation: Challenges and Solutions As Ethereum's modular ecosystem develops, competition among second-layer (L2) solutions intensifies, with liquidity fragmentation becoming a major challenge. Many L2s have established independent networks, creating a scramble for liquidity. To address this issue, concepts like intent and chain abstraction are being widely adopted. Currently, using high-speed L2 bridges like Orbiter Finance and Owlto Finance has become mainstream for users. Additionally, liquidity provision protocols have emerged to offer solutions for enhancing liquidity. Notable projects include Solv and StakeStone, which deal with both BTC and ETH, acting as liquidity hubs with significant TVL. Furthermore, Cycle Network and 0xastra have developed unique solutions to tackle these challenges.
The Revival of Solana
Following the dramatic collapse of FTX in 2022, Solana experienced a remarkable revival, with its token price soaring from under $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 lay in large events like Jito and Jupiter, which conducted significant 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 volume of transactions with minimal issues, solidifying its status 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 their launch. Meme Coins vs. VC Coins The rise of meme coins has ultimately sparked significant debate. Historically, meme coins have been seen as speculative assets. However, the tokens of VC-backed projects have consistently underperformed after listing, changing public perception. Meme coins are starting to be viewed as 'more equitable and community-centric.' In contrast, VC-backed tokens have been criticized for only benefiting venture capital firms. From the perspective of venture capital, it is important to note that the lock-up period after token listing is typically 6 months to 1 year, meaning VCs cannot immediately create sell-off pressure. The fundamental role of venture capital remains to fund emerging projects and promote 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. Increased competition among projects and frequent airdrops have led to a growing trend of users immediately selling the tokens they receive. Additionally, the rapid rise of meme coins has further diverted attention away from altcoins. With the arrival of altcoin season and the beginning of price increases for altcoins, these debates have gradually subsided. 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 outstanding user experience has attracted traders. Notably, even after its TGE, Hyperliquid chose not to list on CEX, opting instead 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, making it one of the largest airdrops in history, quickly attracting community attention. As a result, its FDV reached $35 billion.
This indicates that a beloved application can achieve significant recognition by prioritizing its user community. Hyperliquid not only provides compelling answers to many debates arising in the industry in 2024 but also has the potential to become a legendary project in crypto history. Despite being a no-risk investment project, it has been selected as the MVP for 2024 because it embodies the fundamental elements that today’s industry requires. What will 2025 look like? What will the Web3/Crypto industry be like in 2025? Here are five predictions for the upcoming year:
1. AI Agents The story of AI Agents began with $GOAT, and it is expected to expand into autonomous AI agents and further develop in 2025. Self-sufficient AI Agents are rapidly emerging in the crypto industry. Examples include AI investment agents that have increased 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 pay close attention to.
2. New Ecosystems and Killer Applications In 2024, Sui achieved significant growth, reaching an FDV of $45 billion. This indicates that single-layer Layer 1s, similar to Solana, have the potential for major advancements. Looking ahead to 2025, high-speed Layer 1s characterized by parallel processing, such as Monad and Berachain, which introduces a new consensus algorithm called proof of liquidity, are expected to be launched. These projects share a common focus on leading application development from an infrastructure perspective, thus creating robust ecosystems from the outset. In the ETH Layer 2 space, high-speed chains built through parallel processing, such as MegaETH and Reddio, are also expected to launch. Additionally, ecosystems that integrate Move with EVM, like MovementLabs, and those combining TON with EVM, like DuckChain, may also receive attention. As Hyper Liquid has demonstrated, while many ecosystems will emerge in 2025, the ability to launch a killer application will also be a critical factor. Identifying and supporting such applications will remain a key 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, potentially making them an attractive entry point for businesses. 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 exits and facilitating the integration of new finance with the real economy. PayFi, which combines DeFi with payments, will take center stage, emphasizing smart, intermediary-free, and transparent payment systems.
5. On-chain Dashboards and Data The key to advancements in artificial intelligence lies in datasets, with better data management being crucial for enhancing 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, which visualizes market trends, and SoSoValue, renowned for its superior user experience) will continue to be in demand. Halving Cycle Anomalies and Market Outlook for 2025 The cryptocurrency market is influenced by a phenomenon known as the halving cycle, during which market trends shift between bullish and bearish phases as Bitcoin halving events occur. 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 a BTC spot ETF and widespread government and corporate entry into the market to purchase Bitcoin could positively influence traditional market cycles. The key is to view the 4-year halving cycle as a short-term indicator and focus 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 achieving success in this field.
