Interview with IOSG’s Founder: As Asian Crypto VCs enter “hell mode,” high-quality projects often emerge from the low points nobody believes in

Article by: Joe Zhou, Foresight News

A large number of Asian Crypto VCs have disappeared.

In the past week, I contacted more than twenty investors in my contacts, and more than half have already left. Some shifted to AI, some went into entrepreneurship personally, and some funds have completely stopped investing.

If we turn back time to 2021 or 2024, the Web3 investment market was once crazy, with more than ten, even nearly twenty financing news reports in a single day, and multi-million dollar fundraisings were commonplace. Back then, many believed that Crypto would experience explosive growth. VCs desperately raised funds, projects issued tokens frantically, and entrepreneurs ran wildly.

But by the second half of 2025, the entire industry cooled rapidly. Today’s Web3 market often sees only one financing news per day. The number of VCs actively on the front lines and still continuously betting on Web3 has become increasingly small.

In this cycle, what exactly has Crypto VC experienced? During my investigation, I found several investors still active on the front lines of Web3. Among them, Jocy, founder of IOSG, left a deep impression with a sentence: “We still invest in 15 Web3 projects every year, 30% of which are lead investments, even in a bear market. Just in the first half of this year, we completed three primary investments.”

This surprised me a bit. In a bear market, are there still Crypto VCs going against the trend? What exactly are they investing in? And how do they remain active after nine years in an industry where liquidity is retreating rapidly?

Below is a self-report from IOSG founder Jocy.

I’ve been in Web3 VC for nine years, experiencing three bull and bear cycles

I’ve been doing Crypto VC for nine years.

Since founding IOSG in 2017, we’ve experienced three bull and bear cycles in this industry, investing in nearly a hundred projects in total. Back then, the industry was still very small. Bitcoin had just broken through $1,000, Ethereum was less than $10, and most people didn’t even know what “blockchain” was.

At that time, about 80%-90% of our positions were allocated to early-stage primary projects.

But now, with the changing crypto environment, over the past two years, we’ve gradually adjusted our investment strategy, increasing allocations to Post-TGE (projects that have officially issued tokens) and OTC (over-the-counter) projects. Currently, our portfolio roughly consists of 50% primary, 30% Post-TGE, and 20% OTC.

For us, the early primary market remains the core source of alpha. But increasingly, we find that some Post-TGE and OTC assets are significantly misvalued, and secondary markets are starting to present opportunities with better cost-performance ratios than primary ones.

Meanwhile, this strategy also gives us better liquidity management space, providing LPs (investors) with clearer DPI (realized return) exit paths. I believe the future pattern is: the top 20% of VCs who can clearly explain DPI exit paths to LPs will take 80% of the market’s funds, while the remaining funds will split the leftover 20%.

Our team now has over ten people, distributed across Asia and the US. Our strategy has always been global, so we can keenly sense the industry’s temperature worldwide. The current market is actually very cold, with excellent projects extremely scarce. Looking at Silicon Valley’s Web3 startup scene, the number of newcomers doing pure Crypto is decreasing, as many talents are being pulled into the AI track.

The entire market remains in a somewhat pessimistic phase, and this pressure won’t end in the short term.

Every few years, the crypto industry undergoes a fierce reshuffle—institutions exit, projects go to zero, sentiment drops from frenzy back to silence, then it starts over. For us, now is actually the best time to rebuild industry order and redefine value.

Every bottom in the industry is often the best time for nurturing great projects.

Many think VCs are just about investing money. But in fact, the institutions that truly stay long-term are those capable of helping entrepreneurs solve problems. One of our biggest accumulations over the past nine years is post-investment capabilities. Additionally, we’ve been doing one thing: building an ecosystem. From Infra to DeFi, to Consumer, and crossing into AI and Crypto, we’ve been continuously working on a complete ecosystem map.

We hope different projects can form synergies. This is something we have always valued deeply.

Crypto VCs are entering “hell mode”

At the peak of the last bull market, how crazy was the industry? A seed-stage project could be finalized in 3 days, with five institutions fiercely competing for quotas, and even the same project could have three different valuations at the same time.

We’ve never participated in this game. That’s not investing.

Now that the market has cooled, it actually provides opportunities for research-driven institutions. We can finally sit down and do due diligence properly. We can spend three weeks, not three days, carefully analyzing a project.

So, this cycle actually presents a structural opportunity for research-driven funds. Because there’s less money in the market, good projects will actively seek institutions that can provide real non-financial value, rather than just blindly offering high valuations to institutions. Our alpha comes from deep judgment, not from speed in grabbing quotas.

Looking around, the entire industry’s capital is shrinking.

Recently, a16z raised a $2.6 billion fund—still huge, but smaller than their previous fund. Benchmark and other big institutions are also reducing their scale.

The US fund model is quite different; many operate on a 10-year cycle. In the last cycle, their big gains didn’t necessarily come from investing in top-tier applications in the primary market, but from heavily holding large coins like Bitcoin. They used their strong dollar reserves to push market valuations to the ceiling, but didn’t provide clear real-world application paths for the industry.

In the phase after the bubble burst, US funds still have ample dry powder and many options. But Asian funds, after being pushed to high points together, fell and found themselves with no way out.

Over the past year, the entire Asian VC fundraising market has been disastrous. Most VCs find it very difficult to raise funds. Almost no LPs say they must allocate to Crypto VCs.

So, for Asian funds, this is an extremely painful hell mode.

But from another perspective, this also means Asian funds must be more precise. Because bullets are limited, every shot must hit. Internally, we emphasize: don’t do mid-tier projects. Invest only in the top 1 or top 2 in the industry, or don’t invest at all. Because in a bear market, the middle layer is the most prone to collapse.

The biggest problem in the Crypto industry: TOKEN and value are disconnected

In this cycle, we are firmly avoiding several types of projects: infrastructure projects that only tell narratives but lack PMF (product-market fit), over-redundant projects without cash flow, and projects that rely solely on ideas and pie-in-the-sky visions. The market has become completely immune to “high FDV, low circulation” infrastructure tokens. Now, if you’re doing Infra, institutions are even more inclined to invest in your equity rather than tokens.

For a long time, a major chronic issue in Crypto has been the long-term disconnection between tokens and real value.

In the past, many project teams played a “escape artist” game—real profitable business revenues and core equity are tightly locked in the real-world company; meanwhile, the issued tokens are merely used as interest-free financing tools, liquidity exits, or even as market manipulation chips.

In short, the protocol earns real money on-chain, but token holders get nothing—no share of the value created. This extreme misalignment of interests has caused many investors to lose everything in several cycles. Because what they buy isn’t truly an “asset,” but just an empty symbol without rights.

After several brutal reshuffles, the industry is finally waking up: Good tokens must be able to carry real value.

High-quality projects are actively seeking transparency, clearly binding token interests with protocol benefits, which will become a key differentiator in the next cycle. Projects like Uniswap, Hyperliquid, Polymarket, and our investment Morpho are all pushing this trend.

Take Morpho as an example: they publicly promise that the value generated by the protocol will be directly accumulated into the token through programmed mechanisms, and will never flow to independent companies or equity. Similarly, after the US regulatory environment loosened, Uniswap is also adjusting in this direction; Hyperliquid demonstrates the power of “token buybacks” with real actions.

Frankly, buybacks are not a perfect indicator of interest binding, but from a structural perspective, they truly give the token core support. By continuously reducing circulating supply, establishing long-term interests with token holders, and maintaining transparent, programmed buyback rhythms, projects can create a solid price floor for their tokens. For long-term holders, these tokens are increasingly becoming like bonds or income-generating assets, with scarcity and intrinsic value steadily increasing over time.

Only tokens with real value capture mechanisms, buyback capabilities, and bottom support can cross bull and bear markets and become long-term financial assets, not just gambling chips.

Perhaps, it’s precisely because the industry has hit its lowest point that Crypto can truly begin this “deception removal and genuine evolution.”

Every time the industry is at its most pessimistic, truly great projects are born

In the past few years, Crypto has undergone a massive “disproof” of the worst-case scenario: which products lack real demand? Which narratives are fundamentally unsustainable? Which directions will inevitably fall behind Web2?

This disproof process has buried countless funds and top talents, but it has also gradually clarified the answers. For VCs, investment logic must change fundamentally—no longer betting on industry beta or cycles, but returning to the core of business.

We no longer see Crypto as an isolated island but as “the digitization of finance.” The industry finally realizes that what truly matters is never the illusory “big numbers,” but the real value behind them. When analyzing projects now, we must break them down into extremely granular details: scrutinize retention, CAC, and LTV of consumer projects; dissect the ARR (annual recurring revenue) of token projects, stripping out sustainable real income.

As Crypto transitions from a storytelling alternative circle to a genuine financial industry, the opposite of frenzy reveals enormous value gaps.

Currently, people are more willing to pay for intangible “imagination,” while undervaluing projects with real income, users, and cash flow. Examples include Morpho, Sky, and even Uniswap, which recently abandoned IPO plans and stuck to its token ecosystem. These veteran protocols, having gone through full bull and bear cycles, lost attention during the deep retracement of the bear market, but their fundamentals haven’t worsened—in fact, they’ve become healthier as industry conditions and revenue capabilities improve.

This is why we are now allocating about 50% of our positions to these projects with real income and issued tokens. Our focus is concentrated on two directions:

In the face of such disorderly and violent reshuffling, VCs themselves must evolve. Now, every team member internally is equipped with an AI bot to handle tedious data backtesting and cross-timezone collaboration. But human interaction and bottom-line judgment remain our irreplaceable moat.

After nine years, my biggest realization is: truly great companies are rarely born at the industry’s hottest moments, but during times when many believe the industry is finished.

In this cycle filled with layoffs, disillusionment, and confusion, many are leaving or even questioning whether Web3 still has a future. But only in the troughs do you get forced to think: what do users really need? What can survive long-term?

I still believe that the truly important things in this industry are just beginning. After the bubble deflates, the people who remain will truly determine what the next world will look like.