Author: Catrina , Partner at Portal Ventures
Compiled by: Jia Huan, ChainCatcher
Crypto venture capital is at a watershed moment. Token exits have been a major driver of excess returns for the past three cycles, but are now undergoing a significant reset. The definition of token value is being rewritten in real time, yet an industry-standard valuation framework has yet to emerge.
What exactly happened?
This time, the structure of the crypto market was simultaneously impacted and completely overturned by multiple unprecedented forces:
1. The emergence of HYPE awakened the token market, proving that token prices can be backed by real revenue, with over 97% of its nine- to ten-figure revenue generated on-chain.
This has completely demystified governance tokens that rely on narratives and have hollow fundamentals—think of L1 and "governance tokens" that once existed primarily to circumvent the ambiguity of securities laws (which made direct revenue distribution infeasible). HYPE reset market expectations almost overnight: now, revenue is under much stricter scrutiny and has become a basic requirement for entry.
2. The cascading backlash on other token projects
Before 2025, if you had on-chain revenue, you were considered a security; but after HYPE, if you ask most hedge funds, they'll tell you that if you don't have on-chain revenue, you'll go to zero. This has put most projects, especially non-DeFi projects, in a dilemma, forcing them to hastily adapt.
3. The PUMP caused a significant supply shock to the system.
The supply explosion fueled by the meme coin craze fundamentally disrupted the market structure by diverting attention and liquidity. On Solana alone, the number of newly generated tokens surged from approximately 2,000-4,000 per year to a peak of 40,000-50,000. This effectively eroded the already limited liquidity pie by about one-twentieth. The same group of buyers, also seeking excess returns, shifted their attention and funds to speculating on memes rather than holding altcoins.
4. Speculative funds from retail investors are being diverted at an accelerated pace.
Prediction markets, stock perpetual tokens (perps), and leveraged ETF trading are now directly competing for the same pool of liquidity that would otherwise flow to altcoins. Meanwhile, the maturity of tokenization technology has made it possible to leverage trading in blue-chip stocks, which, unlike most altcoins, do not face the risk of going to zero and are subject to much stricter regulation, greater transparency, and lower information disadvantage risk.
The result is a significant compression of the token's lifecycle: the time from peak to trough is drastically shortened, retail investors' willingness to "hold" tokens plummets, and faster capital rotation occurs instead.
Every VC is asking themselves and their peers some big questions.
1. Are we underwriting equity, tokens, or a combination of both?
The biggest challenge here is that we don't have a new best practice manual for value accumulation in token projects—even the most successful projects like Aave still face controversy over DAOs and equity.
2. What are the best practices for on-chain value accumulation?
The most common example is token buybacks, but that doesn't mean it's the right thing to do. We have long opposed the prevalent token buyback trend: it's toxic and puts founders with real revenue in a difficult position.
This motivation is completely wrong: stock buybacks occur after a company has completed its investment in growth, while cryptocurrency buybacks are increasingly being pressured to be immediate by retail/public perception (something completely fickle and irrational).
You might burn through $10 million that could have been reinvested, only to have that value vanish the next day because some random market maker gets liquidated.
Listed companies typically repurchase shares when their stock is undervalued. However, token buybacks are often rushed at various stages, resulting in them being executed at localized peaks.
Especially if you're a B2B business generating off-chain revenue, this is tantamount to wasting time. In my opinion, when your revenue is less than $20 million, there is absolutely no reason to conduct buybacks just to please retail investors instead of reinvesting the money in growth.
I really liked this report from FourPillars, which showed that buybacks in the tens of figures do almost nothing to help a project set a long-term price floor.
In addition, to keep retail investors and hedge funds satisfied, you must conduct buybacks consistently and transparently, just like HYPE. Any failure to do so will be punished, just as PUMP's price-to-earnings ratio (based on a fully diluted valuation) is only 6, because the public "distrusts" them—even though they have actually burned through $1.4 billion in revenue that could have gone into the national treasury.
Here is further reading material on "On-chain value accumulation mechanisms that can work without burning money".
3. Will the "crypto premium" disappear completely?
This means that in the future, all projects will be valued at multiples similar to public stocks (approximately 2 to 30 times revenue). Take a moment to consider what this means—if it comes true, we will see most L1 public chains' prices fall by more than 95% from now, with the exceptions of TRON, HYPE, and other revenue-generating DeFi projects. This is even without considering token ownership.
Personally, I don't think that's the case—HYPE sets an extremely exceptional expectation that makes many investors impatient with the "day 1 revenue/user traction" of early-stage startups. For sustained innovation like payments and DeFi companies, yes, that's a reasonable expectation.
However, disruptive innovations take time to build, launch, and grow before they can generate exponential revenue growth.
In the past two cycles, we have had too much patience and blind optimism for so-called "disruptive technologies"—new L1 public chains and the esoteric concepts of Flashbots/MEV have raised funds all the way to the 8th or 9th round, and now we have gone too far and are only willing to support DeFi projects.
The pendulum will swing back. While assessing DeFi projects based on quantitative fundamentals is indeed a net positive for the industry's maturity, qualitative fundamentals also need to be considered for non-DeFi categories: culture, technological innovation, disruptive concepts, security, decentralization, brand equity, and industry connectivity. These qualities are not simply reflected in TVL and on-chain buybacks.
What should we do now?
Expected returns for token projects have been significantly compressed, while equity businesses have not experienced a similar decline. This divergence is particularly evident in early-stage and growth-stage projects.
Early investors have become far more price-sensitive when underwriting projects that may exit via tokens. At the same time, their appetite for equity business has increased, especially in a favorable M&A environment. This is a stark contrast to 2022-2024, when token exits were the preferred liquidity path, based on the underlying assumption that token valuation premiums would persist.
Later-stage investors—those with the strongest brand equity and added value in the crypto-native context—are increasingly moving away from purely "crypto-native" deals. Instead, they are turning to more "Web 2.5" companies, whose underwriting is anchored to revenue traction.
This puts them in unfamiliar territory, directly competing with institutions like Ribbit and Founders Fund—who have deeper backgrounds in traditional fintech, stronger portfolio synergies, and better visibility into early-stage trading flows outside of crypto.
The crypto VC space is entering a period of value validation. The right to survive depends on VCs finding their own PMF (product-market fit) among founders, and here "product" is a combination of capital, brand recognition, and added value.
For the best deals, VCs need to market themselves to the founders to earn the right to be included in the capitalization structure, especially in some of the most successful cases in recent years where projects required little to no institutional capital (e.g., Axiom) or none at all (e.g., HYPE). If capital is the only thing a VC can offer, it will almost certainly be eliminated.
Those VCs who are qualified to stay in this game need to be very clear about what they can offer in terms of brand recognition (which is the driving force that makes the best founders willing to reach out in the first place) and added value (which ultimately determines their right to win a deal).
