VC Paradigm Anxiety: From Asset Creation to Trading Orientation, What’s the Next Step?

Tether decides to step in to save the encryption VC industry.

On September 24, with the mediation of the Lutnik family, U.S. Secretary of Commerce, the issuer of USDT, Tether, intends to sell about 3% of its shares at a valuation of $500 billion, raising at least $15 billion.

Prior to this, in 2025, funding for stablecoin startups was less than $600 million. According to Rootdata, the overall funding for the encryption industry was only $13 billion.

There are opportunities in crises. In Q1 2025, Binance raised $2 billion in financing, Q2 appeared relatively quiet, in Q3, the DAT treasury strategy flourished, and in Q4, competition is expected to revolve around Tether.

The recovery has not occurred, and the difficulties in financing for encryption companies and investment from VC in encryption will continue.

The financing amount in the first half of 2025 has already surpassed the total for the entire year of 2024, which does not indicate that the situation in 2025 is better; 2024 was simply too poor. According to a report by The Block, in 2024, only 20 VC firms accounted for 60% of all LP capital, while the remaining 488 companies split the remaining 40%, reflecting the disorder and intensity of centralization.

The Collapse of the Asset Creation System

The DeFi Summer of 2020 originated in 2018, and the Perp DEX War in 2025 originated in 2022.

The Federal Reserve has begun a rate-cutting cycle, which in past narratives has been a positive factor for on-chain and DeFi, as the pressure for APR to outperform US Treasury yields diminishes, leading to capital flowing into high-yield products such as trading and lending.

However, in this round of the cycle, if there is another cycle, the situation may not be as optimistic as before.

On one hand, encryption products have been deeply tied to U.S. Treasury bonds and the U.S. dollar. For example, the underlying yield of a number of YBS (yield-bearing stablecoins) does not come from hedging ETH, but rather from U.S. Treasury interest plus self-subsidies. On the other hand, the valuation system of on-chain assets has essentially collapsed. The high FDV has shattered the pricing system of Binance's main site, and now only Binance Alpha is barely surviving.

Further thinking along the valuation logic, the encryption industry has only two scenarios that are the most profitable:

1. A relatively small number of participants with high capital liquidity, for example during the DeFi Summer, there were 1000 people on-chain and 100,000 to 1 million CEX buyers —> asset creation was the most profitable, and the wealth effect of issuing tokens could cover VC investments and project operations. A first-class ticket $Aave with a 1000x return rate was not extreme; it was just commonplace at that time.
2. An absolute large number of participants, unlimited capital liquidity, such as USDT, public chains ($BTC/$ETH) and exchanges (Binance/FTX/Hyperliquid), whose network effects diminish in sequence. Even when calculated with a user base of 1 billion for USDT, it still cannot compare to internet super applications.

Currently, it seems that family offices, pension funds, sovereign wealth funds, and internet giants will basically no longer invest heavily in asset creation fields, but will consider scale effects more. This also means that the imagination of blockchain as a productive technology has peaked and can only be valued as a large-scale financial technology.

Image description: Asset valuation market value comparison Image source: @zuoyeweb3 Correspondingly, the capital market still harbors fantasies about aerospace (SpaceX) and AI (OpenAI/Anthropic), rather than relying on transportation capacity and computing power for pricing.

Once the encryption company goes public with an IPO, its valuation will also collapse to fintech, and the market's way of validating network effects is continuously changing.

For example, Circle's USDC issuance is at the level of 70 billion US dollars, while Tether's 170 billion US dollars is 1.7 times that, but Tether's valuation of 500 billion US dollars is 16 times Circle's current market value of 30 billion.

For example, before its IPO, Coinbase raised about $500 million in 6 rounds of financing, which is far less than Binance's single financing amount of $2 billion this year.

If we calculate the market value of BTC/ETH, we will reach a conclusion that highly scalable encryption projects do not need to go public. However, this clearly does not align with the current popular trends. DAT, ETF, and IPO have become the exit strategies for current crypto VC and projects that seem unattainable.

Continuing to segment, the strong cycle of asset creation from 2017 to 2021 brought both fame and fortune to the encryption VC golden period. However, after 2021, the situation changed rapidly, with exchanges becoming the main axis of industry development, especially the conflict between FTX and Binance, which attracted everyone's attention, including regulators.

Asset creation rapidly shifts towards trading, and at the core of all competition is the token listing effect. The hot financing and rising effects of CeFi and altcoin seasons are all spillovers of the exchange's advantageous position. However, the collapse of FTX in mid-2022 changed everything, and VC holding out until the collapse in 2024 is already a decent exit.

Perhaps, directional trading is precisely a byproduct of the FTX collapse in 2022. Hyperliquid seized its opportunity, and refusing VC investment is just an excuse; embracing market makers and institutions is the main focus. During the $USDH voting phase, No Limit Holdings/Infinite Field/CMI all "self-exploded" by participating in HL market making.

Before the complete outbreak of DAT in Q3 2025, Galaxy Research analyzed the financing situation in Q2, revealing that companies established in 2018 accounted for the majority of the raised funds, while companies established in 2024 accounted for the largest share of transaction volume. In other words, startups can receive small amounts of funding for experimentation, but large amounts of funding flow to companies that have been validated by the market, which is more Crypto in essence: "crossing cycles."

Money ultimately flows to the rich ox, while suffering ultimately goes to the hardworking horse.

However, after Scroll "ran away," the tech Infra startup season has basically come to an end. The concept stacking of ZK + ETH + L2 cannot guarantee returns, and there probably isn't anything that can ensure the future.

What makes it even worse is that the current flow does not equal what will be acceptable tomorrow. For example, Perp DEX will start in 2025, but if you did not invest in 2022, there is no point in following up now. The war of directed trading has ended, and this will not be the consensus of the market moving forward.

Binance will have direct contact with all retail investors, Hyperliquid does not mind outsourcing the front end to Phantom, liquidity is its own moat, and the network effect is also constantly evolving.

At this point, we can piece together the disorientation between industry development and VC investment. The encryption industry has a much stronger cyclicality compared to the traditional internet industry, completing a small cycle in just 2-3 months. However, VC investment in Infra often takes 2-3 years to see results, which means that at least after 10 small cycles, the sectors that VCs invest in must become mainstream during that period, and the projects they invest in must become mainstream in those sectors, making the dual success comparable to a roller coaster.

Impact on the Directed Trading System

The collapse of valuation logic requires a long time for reconstruction.

Perhaps everyone is a VC, and perhaps mergers and acquisitions are also exits.

Currency has a time cost, VC is the financing party of the primary and secondary information gap, the liquidity of information ultimately translates into excess profits. Classic IPOs or the Binance main site are places where money and coins flow, but now it is either helping projects with IPOs or directly turning left to Alpha. A thought can lead to heaven or hell, and ABCED has directly shut down.

Whether it's DAT, ETF, or mergers and acquisitions, the role of VC is no longer that of a "dream maker", but rather resembles that of a funding provider. For instance, this year's total financing for DAT reached 20 billion USD (excluding Strategy), but Peter Thiel can only buy ETH on the US stock market, Huaxing can only buy BNB on the Hong Kong stock market, and Summer Capital can only act as the main manager for $SOL DAT.

This is actually not normal; trading is concentrated on BTC/ETH, while DAT has begun to spread to smaller altcoins. Perhaps altcoins are a rigid demand; beyond the first tier, there are more ways to play. The only problem is that most DAT and VC financing parties cannot manually create a 1000-fold return.

Image description: Strategy fundraising is approaching 19 billion USD. Image source: @Strategy. The deeper crisis is that financing does not necessarily require VC participation, especially non-US VCs. Polymarket's acquisition of the CFTC-registered exchange QCEX is returning to the US market, Tether's launch of the Genius Act compliant stablecoin USAT is returning to the US market, and ETFs and DAT are also fundamentally occurring in the US stock market, which is also the US market.

Guided trading is no longer a competition between higher quality matching engines, but rather the maturity of capital operations. The so-called compliant exchanges are more like creating entry barriers for newcomers, with high walls and high fees to collect.

Beyond financing, industry brands have started to couple with each other, manifested in the 2024-2025 merger cycle. Coinbase acquired Deribit to complete the options market, Phantom acquired the wallet tool Bitski, security product Blowfish, and trading tool SolSniper, and even Stripe is acquiring the wallet service Privy and the stablecoin tool Bridge.

Image description: Encryption merger activity image source: @zuoyeweb3 Whether it's Coinbase's Everything Exchange vision or Hyperliquid's House All Finance slogan, the distinction between CEX and DEX has become less significant, and the focus of trading is no longer on connecting with retail investors, but rather on providing more mainstream or long-tail trading options, as well as liquidity! Liquidity is still liquidity!

So Coinbase will bind Circle to issue USDC, while Hyperliquid needs to manage $USDH on its own. What they value is not the scale effect of stablecoins, but the customer acquisition and retention capabilities of stablecoins, which is the biggest difference between them and USDT.

The perspective of VC on USDT is that investing in Tether, although expensive, is a sure win.

USDT This round of fundraising:

1. Open fundraising during low interest rate periods to develop diverse business using external funds.
2. Provide opportunities for entities related to Chuanbao, referencing Binance's completion of financing using USD1.
3. It is expected to face more intense competition in the stablecoin market, especially with YBS's profit-sharing mechanism, which needs to counter Circle and also address Ethena.

Guided trading will become a common feature of capital flows in 2025, but this is not the future. DAT, leverage, LP, stablecoins, and RWA all lack imagination, and participating in Perp DEX or stablecoins are just the choices of workers without merit.

VC is ultimately manual work, requiring bets on future "feelings" and "trends," demystifying underlying technologies, network effects, and current hot topics, and seeking PMF over a long cycle.

To achieve a thousandfold return, we need to look at the next "global application". What else is there besides stablecoins, exchanges, and public chains?

Mining has reached a critical point, and the future of mining lies in data centers, or changing the Bitcoin economic model. Simply put, it is about collecting transfer fees, which differ from transaction fees that maintain the Bitcoin network; transfer fees maintain user interests.

The various aspects of guided trading have already been encircled by existing giants, making it nearly impossible to challenge Coinbase, Hyperliquid, and Binance; it is more feasible to engage in peripheral activities around them or become part of their ecosystem.

It is worth noting that the strength of the exchanges and market makers is an illusion, effective only within the Binance ecosystem. In higher dimensions of capital flow, they also become weak. In dimensions such as ETF, DAT, and M&A, market makers are not strong, especially regarding the secondary return rates of BTC/ETH; exchanges and market makers are not smarter than others.

If there is enthusiasm for stablecoin financing, then the only question is how they are prepared to counteract the first-mover advantage and network effects of USDT, which is not a difference in funding volume, but a change in consumer behavior.

Traditional internet can burn money to gain market share in ride-hailing, food delivery, and local services, but we have yet to come up with a good solution for how to get people to switch to financial assets. The current awkward situation, where trading is not the focus of future innovation, suggests that we have not yet thought of interactive forms beyond trading.

Conclusion

The encryption industry is undergoing a bifurcation, and it must transcend the Fintech valuation framework to embrace global applications for a future. However, it has now reached a crossroads: will the future be characterized by more, more frequent, and more mainstream transactions, or will it be defined by broader use cases (blockchain, stablecoins, RWA, Web3)?

A preliminary summary of the VC industry in 2025:

1. Period fragmentation, mainstreaming of transactions (BTC/ETH), concentration of investments
2. Encryption enterprise financing is difficult, encryption VC fundraising is difficult, valuation system collapses.
3. From investment to financing, the intermediary attributes are enhanced, and interaction with the secondary market is reduced.
4. Main axis dispersion, Q1 Binance, Q2 dispersion, Q3 DAT, Q4 stablecoin

The situation now is very similar to the collapse of the encryption bubble at the beginning of the century. People need to reorganize the old landscape. Facebook, Google, and Apple are all products of the summer after the bubble. Perhaps consider counter-cyclical investments like Arthur Hayes?

In short, we need a Peter Thiel of the encryption era, not a16z of the internet era.