Pantera Partner: Crypto VCs Return to Professionalism and Rationality; Where is the Next Investment Hotspot?

Compiled & edited by: Yuliya, PANews

Recently, Paul Veradittakit and Franklin Bi, partners at top venture capital firm Pantera Capital, analyzed the current state and changes in the crypto investment market in their first podcast episode. They reviewed the speculative frenzy surrounding altcoins over the past few years, analyzed the stark contrast between record-high funding amounts and a significant drop in trading volume this year, and engaged in a debate on project investment strategies and exit paths, as well as topics such as DAT, tokenization, and zero-knowledge proofs. PANews has compiled and translated this podcast episode.

Crypto investment is returning to professionalism and rationality; team execution and asset appreciation are key to DAT's competitiveness.

Host: Today we'll discuss the current state of crypto venture capital. Data shows that total funding this year reached a record high of $34 billion, but the number of deals has decreased by nearly half compared to 2021 and 2022 , and capital is flowing more towards later-stage projects. How do you two interpret this stark contrast?

Franklin: That's a very good question. To understand the current situation, we need to look back at 2021 and 2022, those two years were the "metaverse years." At that time, zero interest rates and abundant liquidity fueled a surge in speculative activity. However, many deals were not based on solid fundamentals; everyone was telling a story driven purely by imagination. Investors lacked a clear understanding of how metaverse projects could succeed, resulting in many projects that shouldn't have received investment . In retrospect, we should have asked a simple question first: how could everyone be brought into a completely digital metaverse world in an environment where even stablecoins lacked clear regulation? Logically, it doesn't make sense.

Paul: Another reason is the "altcoin bull market" of those two years, which we don't have now. The market is currently dominated by Bitcoin, Solana, and Ethereum. Without the altcoin frenzy, there wouldn't have been so many retail investors, family offices, and small business owners rushing in to invest in so many early-stage projects. Funding now primarily comes from more professional crypto funds; they are more institutionalized, conduct more rigorous due diligence, and concentrate their investments. This means lower transaction frequency, but higher quality and larger amounts per transaction. Especially with the emergence of real-world use cases like stablecoins and payments, traditional fintech venture capitalists have also entered the market, and their style is similarly focused on quality over quantity.

Host: Indeed, people are now more focused on "exit," that is, how to realize investment returns. Circle's IPO was a milestone, showing venture capitalists a clear exit path.

Franklin: Absolutely. Circle's IPO is significant. It finally completes the final piece of the investment story. Previously, everyone wondered how the public market would react after a crypto company went public. Now, with examples like Circle and Figure (a company that tokenizes real-world assets), investors have more confidence. VCs can now clearly see that the path from seed to Series A, and finally to an IPO, is viable. They can more clearly assess the likelihood of a project going from seed to IPO, and the overall sense of risk in the sector has decreased.

Paul: Yes, when I first entered the industry, I thought a Bitcoin ETF would definitely be approved within ten years, but it took more than ten years. Now, the infrastructure is finally in place, creating conditions for these massive exits. Furthermore, the exit strategy has shifted from issuing tokens (TGE) a couple of years ago to listing on the public market . Investing in equity and investing in tokens involve completely different investors and expectations. In the past two or three years, we've seen far more equity transactions than token transactions, which is a significant reason for the decline in transaction volume.

Host: Besides IPOs, new tools have emerged in the market, such as "Digital Asset Vaults" (DATs). They seem to have cooled down recently. What are your thoughts on their future?

Franklin: The emergence of DATs indicates a more mature understanding of digital assets in the market. You can think of DATs as a "machine." In the past, you could directly buy a barrel of crude oil or Exxon Mobile stock. Buying stocks yielded more profits because you were buying a "machine" that continuously extracts, refines, and creates value. DATs are that "machine" in the digital asset space; they don't statically hold assets but actively manage them to generate more returns. Now the market is cooling down, and people are realizing this isn't just simple hype and are starting to focus on the execution capabilities of management teams. This is a positive shift, indicating that the market is returning to rationality and pursuing quality.

I believe DATs will not be a flash in the pan; actively managed investment tools will always have their value. I even think that in the future, project-specific foundations could transform into DATs , using more professional capital market tools to manage their assets, instead of the current situation where many foundations are merely nominal.

Paul: I think the DATs creation boom in the US may be nearing its end, but there's still a lot of room for growth in regions like Asia Pacific and Latin America . In the future, this market will undergo a consolidation, and only those DATs with strong execution teams that can continuously increase asset value will ultimately prevail.

Crypto investment trends: Infrastructure needs verification, consumer applications need to break out of their niche.

Host : Now that we've discussed the current situation, let's look to the future. Data shows that finance, consumer goods, infrastructure, and AI were the most lucrative sectors over the past year. In your opinion, what will be the next investment hotspot?

Franklin: I'm particularly focused on two areas. The first is tokenization . While this is an old topic, it's a major trend that has been going on for decades and is only just beginning. I've been following this field since 2015, and it took a decade for it to go from an idea to where we have real institutions and clients participating. It's like the early days of the internet, when people simply moved newspapers online. Today, we're "copying and pasting" assets onto the blockchain, which is great in terms of efficiency and globalization, but the real potential lies in how 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." Simply put, blockchains have a "garbage in, garbage out" problem; if the data uploaded to the chain is incorrect, the blockchain itself is useless. ZK-TLS technology can verify the authenticity of off-chain data (such as your bank statements or ride-hailing records) and bring it onto the chain without exposing the data itself. This allows your behavioral data in applications like Robinhood and Uber to securely interact with on-chain capital markets, creating many cool new applications. Furthermore, JPMorgan Chase was one of the early partners of the Zcash and Starkware teams, indicating that the core insights into zero-knowledge proof technology have existed for some time, but it's only now beginning to meet the conditions for large-scale application. With the right infrastructure and talent joining, zero-knowledge proof technology is gradually maturing.

Paul: I'd like to add a few points. First, in the realm of tokenization, stablecoins are undoubtedly the killer application. As regulations become clearer, they are unleashing 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 around the world with genuine demand for cryptocurrencies. We discovered that in places like Latin America and Southeast Asia, stablecoins are the best stepping stone to getting ordinary people to accept the crypto world.

Secondly, I am very optimistic about consumer and prediction markets. From established players like Augur to current players like Polymarket, this field is booming. It allows anyone to create and place bets on any topic (such as company earnings reports or sporting events), which is not only a new form of entertainment but also an efficient and democratic mechanism for information discovery. The potential of prediction markets in terms of regulation, economics, and cost is gradually emerging, providing the possibility of creating markets on a wide range of topics, which will bring an unprecedented influx of information into the news and trading sectors.

Franklin: All of this demonstrates that on-chain capital markets are by no means simply a replica of traditional markets. For example, in Latin America, many people make their first investment in Bitcoin through platforms like Bitso. They may never have even bought stocks before, but they could soon be exposed to complex financial derivatives like perpetual contracts. This "generational leap in finance" means that they may never use traditional Wall Street tools again, because they see those tools as inefficient and difficult to understand.

Bullish or bearish? On exchanges, payment chains, and privacy.

Host: Next, let's play a game called "Bullish or Bearish." First question: If you had to hold for three years, would you buy Robinhood (HOOD) or Coinbase (COIN) stock?

Franklin: I choose Robinhood. Because I think the market hasn't fully grasped its ambitions yet. Robinhood doesn't want to be just a brokerage; it's vertically integrating clearing, trading, and all other aspects, aiming to become a unified financial technology platform that controls its own destiny. In contrast, Coinbase's vision (getting everyone on-chain) is much grander and requires 10 to 20 years; the market will hardly fully digest it within three years.

Paul: Then I have to choose Coinbase. I believe the market has underestimated Coinbase's potential in institutional business and international expansion. With global regulations becoming clearer, Coinbase can rapidly capture the global market through acquisitions and empower a large number of traditional financial institutions through its "crypto-as-a-service" model.

Host: I also favor Robinhood. It has proven itself by quickly launching new products and successfully monetizing them.

Host: Is the "dedicated payment chain" designed for stablecoin payments bullish or bearish?

Paul: I'm curious, but not bearish. Customizing a chain for a specific scenario (like payments) and optimizing it for scalability and privacy is valuable. For example, Stripe's Tempo chain, while not neutral, will definitely achieve significant scale thanks to Stripe's resources.

Franklin: I'm slightly bearish. Because in the long run, value will ultimately flow to users, not platforms that try to lock them in. Users will eventually choose the most open and liquid places, rather than being locked onto a single chain. In an open crypto world, the moat effect of channels will be greatly weakened.

Host: One last question, is privacy a sector worth investing in?

Franklin: I'm bearish. I think privacy is a feature, not a product. Almost all apps will eventually need privacy features, but the feature itself is difficult to capture value on its own because any technological breakthrough is likely to be open source.

Paul: I hold the opposite view. Ordinary users may not care, but for businesses and institutions, privacy is a fundamental necessity. Investment opportunities lie not in the technology itself, but in who can combine technology with compliance, provide commercially viable solutions, and make them industry standards.

Rejecting investor "privileges," the public blockchain war is not over yet.

Host: Let's talk about some trending topics on Twitter. The first is about the lock-up period for tokens. Some say it should be locked for four years, while others say it should be unlocked immediately. What's your opinion?

Franklin: I actually hate this topic. Because its premise is wrong; people always think, "I invested money, so it must be valuable." But the harsh reality of venture capital is that 98% of projects eventually go to zero. The fundamental reason a project fails is that it has no inherent value, not because its lock-up period is poorly designed.

Paul: I understand the founders' difficulties. Token price is important for incentivizing the community and for subsequent fundraising. But from the project team's perspective, a reasonable lock-up period (such as 2 to 4 years) is necessary. It gives the team enough time to develop the product, achieve its goals, and prevent the token price from collapsing prematurely.

Host: So should the lock-up period be the same for founders and investors?

Franklin: It has to be the same. Our philosophy is "one team, one dream." If an investor seeks special terms for an early exit, it means they never intended to be involved in the project long-term, and that's a devastating signal for the project.

Host: Last topic: Is the "L1 public chain war" over?

Paul: I think it will continue, but not as wildly as before. There won't be as many new L1 public chains emerging in the future, but existing public chains will continue to exist because of their respective communities and ecosystems.

Franklin: I think it's a good thing that people are starting to focus on how L1 public chains can capture value. It's too early to declare L1 dead, because technology is constantly evolving, and ways to capture value are still being explored. Like Solana back then, everyone said it was dead, but as long as you believed it still had a breath of fresh air, you could make a lot of money. As long as there's a lot of user activity on the chain, there will always be ways to capture value. Ultimately, "priority fees determine everything"—where there's competition, there's value.