The two partners of top venture capital firm Pantera Capital analyzed the current state and future trends of the crypto investment market in a podcast.
Author: Yuliya
Source: PANews
Recently, the two partners of top venture capital firm Pantera Capital, Paul Veradittakit and Franklin Bi, dissected the current state and changes in the crypto investment market in their first podcast episode. They reviewed the speculation wave of altcoins over the past few years, analyzed the phenomenon of 'ice and fire' this year with record high financing amounts and a significant drop in transaction volume, and engaged in a debate around project investment strategies and exit paths, as well as themes such as DAT, tokenization, and zero-knowledge proofs. PANews has compiled and translated this blog post.
Crypto investment returns to professionalism and rationality; team execution and asset appreciation are key to DAT competition.
Host: Today, we are discussing the current state of crypto venture capital. Data shows that the total funding amount has reached a historic high of $34 billion this year, but the number of deals has dropped by nearly half compared to 2021 and 2022, and capital is flowing more towards later-stage projects. How do you interpret this phenomenon of 'ice and fire'?
Franklin: That's a great question. To understand the current situation, we must look back at 2021 and 2022, which were the 'metaverse years.' At that time, zero interest rates and abundant liquidity fueled a surge in speculative activity. However, the foundations of many trades were not solid; everyone was telling a story purely driven by imagination. Investors had no clear judgment on how metaverse projects could succeed, leading to a lot of projects that should not have received funding getting money. In hindsight, we should have asked a simple question: how could we possibly bring everyone into a fully digital metaverse in an environment where even stablecoins lack clear regulation? Logically, that doesn't make sense.
Paul: Another reason is that those two years saw a 'altcoin bull market,' which hasn't happened yet. Currently, the market is mainly dominated by Bitcoin, Solana, and Ethereum. Without the frenzy of altcoins, there wouldn't be so many retail investors, family offices, and small entrepreneurs rushing in to invest large amounts in early projects. Now, the funding mainly comes from more professional crypto funds, which are more institutionalized, with stricter due diligence and concentrated investments. This means that trading frequency decreases, but the quality and amount of each transaction are increasing. Especially after real use cases like stablecoins and payments emerge, traditional fintech VCs have also entered the market, and their style is similarly focused and refined.
Host: Indeed, everyone is now more focused on 'exits', meaning how investments can be monetized. The IPO of Circle is a milestone that has provided venture capitalists with a clear exit path.
Franklin: That's right, Circle's IPO is significant. It finally completes the last piece of the entire investment story. Previously, everyone was guessing how the public market would react after crypto companies went public. Now with examples like Circle and Figure (a company that tokenizes real-world assets), investors have a clearer understanding. VCs can now clearly see that a project can go from seed round to Series A, and then to an eventual IPO. They can better assess the likelihood of a project going from seed round to eventual IPO, thus lowering the overall risk perception in the entire field.
Paul: Yes, when I first entered the industry, I thought Bitcoin ETFs would definitely pass within ten years, but it took more than a decade. Now, the infrastructure is finally in place, creating conditions for these large exits. In addition, the exit methods have also shifted from the token generation events (TGE) of the previous two years to public market listings. Investing in equity and investing in tokens face completely different investors and expectations. In the past two or three years, we have seen far more equity transactions than token transactions, which is also an important reason for the decline in transaction numbers.
Host: Besides IPOs, new tools have also emerged in the market, such as 'Digital Asset Trusts' (DATs). It seems to have experienced some cooling recently; what do you think about its future?
Franklin: The emergence of DATs indicates that the market's understanding of digital assets has matured. You can think of DATs as a 'machine.' In the past, you could directly buy a barrel of crude oil or buy stock in Exxon Mobile. Buying stocks yields more profit because you are purchasing a 'machine' that continuously extracts, refines, and creates value. DATs are this 'machine' in the digital asset field; they are not about holding assets statically but about actively managing them to generate more returns. Now the market is cooling down, and people realize that it's not just simple speculation; they are starting to pay attention to the execution capabilities of management teams. This is a good shift, indicating that the market is returning to rationality and pursuing quality.
I believe that DATs will not be a flash in the pan; actively managed investment tools always have their value. I even think that in the future, project parties' own foundations can transform into DATs, using more professional capital market tools to manage their assets, rather than many foundations currently being essentially dormant.
Paul: I believe the creation craze of DATs may be nearing its end in the United States, but there is still a lot of room for growth in regions like Asia-Pacific and Latin America. In the future, this market will undergo a round of consolidation, and only those DATs with strong execution capabilities that can continuously increase asset value will ultimately prevail.
Crypto investment direction: Infrastructure needs to be validated, consumer applications need to break out.
Host: Having discussed the current situation, let's look ahead to the future. Data shows that over the past year, finance, consumer, infrastructure, and AI are the most lucrative sectors. What do you think will be the next investment trend?
Franklin: I am particularly focused on two directions. The first is tokenization. Although this is an old topic, it is a long-term trend that has just begun. I have been paying attention to this field since 2015, and it took ten years to transition from an idea to a stage where real institutions and customers are involved today. It is like the early days of the internet, where people simply moved newspapers online. Today, we are 'copying and pasting' assets onto the blockchain, which is fantastic in terms of efficiency and globalization, but the real potential lies in the fact that these assets can be 'programmed' by smart contracts, creating entirely new financial products and risk management models.
The second is ZK-TLS technology, also known as 'network proof.' In simple terms, blockchain has a 'garbage in, garbage out' problem; if the data put on-chain is wrong, then no matter how powerful the blockchain is, it is useless. ZK-TLS technology can verify the authenticity of off-chain data (like your bank statements or ride-hailing records) and bring it onto the chain without exposing the data itself. This way, your behavioral data in applications like Robinhood or Uber can safely interact with on-chain capital markets, creating many cool new applications. Moreover, JPMorgan was one of the early partners of the Zcash and Starkware teams, indicating that the core insights of zero-knowledge proof technology have existed for a long time; however, it has only begun to have the conditions for large-scale application now. With the right infrastructure and talents coming in, zero-knowledge proof technology is gradually maturing.
Paul: I'd like to add a few points. First, in tokenization, stablecoins are undoubtedly the killer application. As regulations become clearer, it is releasing the true potential of 'currency on top of IP', making global payments extremely cheap and transparent. When I first entered the industry, my boss's first task for me was to find markets with real demand for cryptocurrency worldwide. We found that in places like Latin America and Southeast Asia, stablecoins are the best stepping stone to get ordinary people to accept the crypto world.
Secondly, I am very optimistic about consumer and prediction markets. From the established Augur to the current Polymarket, this field is exploding. It allows anyone to create markets and place bets on any topic (like company earnings reports or sports events), which is not only a new form of entertainment but also an efficient and democratized mechanism for information discovery. The potential of prediction markets in terms of regulation, economy, and cost is gradually becoming apparent, providing the possibility to create markets on various themes, which will lead to a massive influx of unprecedented information into the news and trading fields.
Franklin: All of this shows that on-chain capital markets are definitely not just a replica of traditional markets. For instance, in Latin America, many people make their first investment through platforms like Bitso, and their first investment is Bitcoin; they may have never bought stocks, but they might soon be exposed to complex financial derivatives like perpetual contracts. This 'financial intergenerational leap' means they may never use traditional Wall Street tools again, as they view those tools as both inefficient and difficult to understand.
Bullish or bearish? About exchanges, payment chains, and privacy tracks.
Host: Next, let's play a game called 'Bullish or Bearish.' The first question: If you had to hold for three years, would you buy stocks of Robinhood (HOOD) or Coinbase (COIN)?
Franklin: I choose Robinhood. Because I believe the market has not fully understood its ambitions. Robinhood does not want to be just a brokerage; it aims to vertically integrate all aspects like clearing and trading, wanting to become an integrated fintech platform that controls its own destiny. In contrast, Coinbase's vision (to get everyone on-chain) is grander and will take 10 to 20 years, making it difficult for the market to fully digest it within three years.
Paul: So I must choose Coinbase. I precisely believe that the market underestimates Coinbase's potential in institutional business and international expansion. With global regulations becoming clearer, Coinbase can quickly capture the global market through acquisitions and empower many traditional financial institutions through a 'crypto-as-a-service' model.
Host: I also lean towards Robinhood. It has proven itself capable of quickly launching new products and successfully monetizing them.
Host: A 'dedicated payment chain' created for stablecoin payments, bullish or bearish?
Paul: I hold a curious attitude and am not bearish. Customizing a chain for specific scenarios (like payments) and optimizing it in terms of scalability, privacy, etc., is valuable. For example, the Tempo chain launched by Stripe, although not neutral, can definitely achieve considerable scale with Stripe's resources.
Franklin: I am slightly bearish. Because in the long run, value will ultimately flow to users, not to platforms that try to lock them in. Users will ultimately choose the most open and liquid places, rather than being locked into a specific chain. In the open crypto world, the moat effect of channels will be greatly weakened.
Host: Is privacy a worthy investment track?
Franklin: I'm bearish. I believe privacy is a feature, not a product. Almost all applications eventually require privacy features, but it's hard for this feature to capture value on its own since any technological breakthrough could be open-sourced.
Paul: I hold the opposite view. Ordinary users may not care, but at the enterprise and institutional level, privacy is a necessity. Investment opportunities do not lie in the technology itself, but in who can combine technology with compliance to provide commercial solutions and make them industry standards.
Refusal of investor 'privileges'; the battle of public chains is not over yet.
Host: Let's talk about the hot topic on Twitter. The first one is about the lock-up period for tokens. Some say it should be locked for four years, while others think it should be unlocked immediately. What do you think?
Franklin: I actually hate this topic. Because its premise is wrong; everyone thinks, 'I invested money, it must be worth something.' But the harsh reality of venture capital is that 98% of projects will ultimately go to zero. If a project fails, the root cause is that it has no value in itself, not because its lock-up period is poorly designed.
Paul: I understand the founders' difficulty. The token price is important for incentivizing the community and subsequent financing. But from the project's perspective, a reasonable lock-up period (like 2 to 4 years) is necessary; it gives the team enough time to develop products, achieve goals, and prevent the token price from collapsing too early.
Host: Should the lock-up period for founders and investors be the same?
Franklin: It must be the same. Our philosophy is 'one team, one dream.' If an investor seeks special terms for early exit, it indicates that they never intended to stay with the project long-term from the beginning, and this signal is devastating for the project.
Host: Finally, the last topic: Is the 'L1 public chain battle' over?
Paul: I think it will continue, but it won't be as crazy as before. There won't be as many new L1 public chains emerging in the future, but existing public chains will continue to exist due to their respective communities and ecosystems.
Franklin: I think people are starting to pay attention to how L1 public chains capture value, which is a good phenomenon. It is still too early to declare that L1 is dead because technology continues to evolve, and the methods of capturing value are also being explored. Just like Solana back in the day, when everyone said it was dead, as long as you believe it still has a breath left, you can make a lot of money. As long as there is significant user activity on-chain, there will always be ways to capture value. Ultimately, 'priority fees determine everything'; where there is competition, there is value.
