Skyland Ventures Partner: A Look at Emerging Crypto Areas to Watch in 2025
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.
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 from a venture capital perspective in 2024.
This year, Skyland invested in 15 projects, with 9 of them successfully going public and 2 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)
The Key to the New Financial System: What is Web3/Crypto? Understanding its essence is crucial. In my view, it represents the financial democratization 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 and the infrastructure supporting them are at the heart of this revolution. Just as the internet has fundamentally changed 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 through cryptocurrencies. The title of Bankless aptly summarizes this paradigm shift. By the way, when it comes to cryptocurrency videos, Unchained is another channel you absolutely should watch. Nevertheless, challenges remain. The volatility in the field has led to over-leveraging and speculation during bull markets, while excessive liquidation of leveraged assets often occurs in bear markets, leaving significant scars. Security vulnerabilities and massive losses due to hacks are also ongoing concerns, prompting governments and large corporations to take a cautious stance. Despite these hurdles, the value of the cryptocurrency market still exceeds $3.3 trillion, surpassing the stock market sizes of some countries. While acknowledging these challenges, as a venture capitalist, my goal is to support the paradigm shift towards the 'next generation of 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 in 2022, its valuation plummeted, with its FDV dropping to just $6 million. This situation would have forced many projects to retreat, but the founders of Virtuals chose to persevere and explore new directions. Starting in 2023, in the context of the rise of artificial intelligence technology, they began researching AI and shifted their focus toward AI agents. They developed a platform to support tokenized AI agents, and by 2024, their FDV had skyrocketed to $3 billion, making them a leading project in the field of AI agents. This success highlights the importance of long-term vision and adaptability under changing market conditions. The Evolution of the Ethereum Ecosystem In 2024, the Ethereum ecosystem achieved significant progress in infrastructure maturity. The long-discussed scalability issue has seen major advancements with the emergence of Layer 2 (L2) solutions. zk-rollup-based technologies such as Taiko, Scroll, and zkSync launched mainnets and listed tokens. Coinbase's Base L2 also gained attention, becoming the second-largest L2 in terms of users and TVL. Notable 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, significant progress has been made in the field of restaking under the leadership of EigenLayer. Restaking allows assets like Lido's LST to be staked again, enhancing Ethereum's security on EigenLayer's AVS while achieving shared security. Projects such as EtherFi, Renzo, and Puffer have contributed to this thriving ecosystem. Ethereum has evolved into a modular, scalable ecosystem with enormous 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 such as Babylon is addressing this limitation, allowing staked BTC to secure infrastructure. Additionally, EVM-compatible BTC L2 solutions like MerlinChain, B²Network, Bitlayer, and BOB have been launched, leveraging the scalability and network effects of EVM. These initiatives mark the beginning of an era where previously dormant BTC assets are becoming active. Liquidity Fragmentation: Challenges and Solutions With the development of Ethereum's modular ecosystem, competition among Layer 2 (L2) solutions has intensified, and liquidity fragmentation has become a major challenge. Many L2s have established independent networks, leading to a scramble for liquidity. To address this issue, concepts such as 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 enhance liquidity, with notable projects such as Solv and StakeStone dealing 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 resurgence, 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 lies in significant events such as Jito and Jupiter, which conducted large-scale airdrop campaigns to attract users.
Moreover, the increasing use of meme coins for marketing has gained attention and attracted a large number of users. Solana has proven its capability to handle a large volume of transactions with minimal issues, solidifying its position as a single L1 that can further develop.
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 has ultimately sparked significant debates. Historically, meme coins were viewed as speculative assets. However, the tokens of projects supported by venture capital have continued to perform poorly after listing, changing public perception. Meme coins are beginning to be seen as 'fairer and more community-centered.' In contrast, venture capital-backed tokens have been criticized for benefiting only the 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, meaning that venture capital cannot immediately generate selling pressure. The fundamental role of venture capital remains to fund emerging projects and foster financial innovation.
There are many reasons for the decline in altcoin prices. The approval of the BTC spot ETF has attracted widespread attention, causing Bitcoin prices to soar as a benchmark for comparison. Increased competition among projects and frequent airdrops have led to a growing tendency for users to immediately sell the tokens they receive. Additionally, the rapid popularity of meme coins has further shifted 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 perpetual DEX that is building its own high-speed EVM Layer 1 chain. It is formulating a roadmap to establish a DeFi-centric ecosystem on this infrastructure. Since its product launch, its excellent user experience has attracted traders. Notably, even after the TGE, Hyperliquid did not list on CEX but chose to exclusively list on its own platform. The project did not raise funds from venture capital firms. Instead, it distributed 30% of tokens to early users, marking one of the largest airdrops in history, quickly garnering community attention. As a result, its FDV reached $35 billion.
This indicates that a beloved application can gain significant recognition by prioritizing its user community. Hyperliquid not only provides compelling answers to many of the debates that will arise 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 has been selected as the MVP for 2024 because it embodies the essential elements needed in today's industry. What will 2025 look like? What will the Web3/crypto industry be like in 2025? Here are five predictions for the coming year:
1. AI Agents The story of AI Agents began with $GOAT and is expected to expand into autonomous AI agents, further developing in 2025. Self-sufficient AI Agents are rapidly emerging in the crypto industry. Examples include AI investment agents, which have grown a $500 wallet over 8 times, and aixbt_agent, a crypto information agent on X. Efforts to integrate AI into the entertainment and creator economy are accelerating, such as Virtuals Protocol and Luna. This trend is driven by improved reasoning models and is a field that both Web2 and Web3 VCs should closely monitor.
2. New Ecosystems and Killer Applications In 2024, Sui achieved significant growth, reaching an FDV of $45 billion. This indicates that, similar to Solana, single-layer Layer 1s have the potential to make significant progress. Looking ahead to 2025, high-speed Layer 1s characterized by parallel processing, such as Monad and Berachain, are expected to be launched, the latter introducing a new consensus algorithm called proof of liquidity. These projects share a common focus on leading application development from an infrastructure standpoint, thereby creating robust ecosystems from the outset. In the ETH Layer 2 space, new high-speed chains built through parallel processing, such as MegaETH and Reddio, are also expected to be launched. Furthermore, ecosystems like MovementLabs, which integrates Move with EVM, and DuckChain, which combines TON with EVM, may attract attention. As Hyper Liquid has demonstrated, 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 The adoption and innovation of stablecoins will increase in 2025. 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. Leading 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. The combination of DeFi and payments, known as PayFi, will take center stage, emphasizing intelligent, 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. With the continuous growth of data volume and the number of token issuances, real-time asset management and analysis tools (such as KaitoAI, which visualizes market trends, and SoSoValue, known for its excellent user experience) will continue to be in demand. Halving Cycle Anomalies and 2025 Market Outlook The cryptocurrency market is affected 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 will profoundly impact 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 enterprises 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 during difficult bear markets, continuous growth and preparation for the next bull market are crucial for success in this field.
