Bridging the gap, "encryption-related" enterprises will replace "encryption-native" projects to go mainstream.

Author: Richard Chen

Compiled by: Tim, PANews

It is now 2025, and cryptocurrency is becoming mainstream. The "GENIUS Act" has been officially signed into law, and we finally have a clear regulatory framework for stablecoins. Traditional financial institutions are increasingly embracing cryptocurrency. Cryptocurrency has triumphed!

As cryptocurrency crosses the chasm, this trend means for early-stage venture capital: we see crypto-related projects gradually surpassing crypto-native projects. The so-called "crypto-native projects" refer to those built by cryptocurrency experts within the cryptocurrency field; while "crypto-related projects" refer to the application of cryptocurrency technology by other mainstream industries. This is the first time I have witnessed such a transformation in my career, and this article aims to delve into the core differences between building crypto-native projects and crypto-related projects.

is built natively for encryption

The most successful cryptocurrency products to date have almost all been built for native crypto users: Hyperliquid, Uniswap, Ethena, Aave, etc. Just like any niche cultural movement, cryptocurrency technology is so ahead of its time that ordinary users outside the crypto circle find it difficult to "understand its essence," let alone become enthusiastic daily active users. Only those native crypto players who have been through the trenches on the front lines of the industry possess enough risk tolerance and are willing to spend energy testing each new product, surviving amidst various risks such as hacking attacks and project team exits.

Traditional Silicon Valley venture capitalists once refused to invest in native crypto projects because they believed the overall effective market was too small. This is understandable, as the crypto space was indeed in a very early stage at that time. On-chain applications were few and far between, and the term DeFi was not coined until October 2018 in a group chat in San Francisco. However, you had to bet on faith and pray for a macro dividend to arrive, allowing the market size of native crypto to leap forward. Sure enough, with the liquidity mining boom of the summer of DeFi in 2020 and the dual support of the zero interest rate policy period in 2021, the native crypto market experienced exponential expansion. In an instant, all Silicon Valley venture capitalists rushed to enter the crypto space, asking me for advice, trying to make up for their four-year cognitive gap.

As of now, the total addressable market size for native crypto users is still limited compared to the traditional non-crypto market. I estimate that the number of Twitter users in the crypto space is at most only tens of thousands. Therefore, to achieve a nine-digit (hundred million level) annual recurring revenue (ARR), the average revenue per user (ARPU) must be maintained at a very high level. This leads to the following key conclusion:

Crypto-native projects are built entirely for the experts.

Every successful crypto-native product follows an extreme power-law distribution in user usage patterns. Last month, the top 737 users on the OpenSea platform (accounting for only 0.2%) contributed to half of the total transaction volume; similarly, the top 196 users on the Polymarket platform (accounting for only 0.06%) completed 50% of the platform's transaction volume!

As the founder of a cryptocurrency project, what should truly keep you up at night is how to retain top core users, rather than blindly pursuing an increase in user numbers, which is in stark contrast to the traditional philosophy of "daily active user count supremacy" upheld in Silicon Valley.

User retention in the cryptocurrency space has always been a challenge. Top users often prioritize profit and can easily be lured away by incentive mechanisms. This allows emerging competitors to capture a few core users and thereby create a market presence, eating into your market share. The competition between Blur and OpenSea, Axiom and Photon, and LetsBonk and Pump.fun are prime examples of this.

In short, compared to Web2, the bastion of crypto projects is much shallower. With all the code being open source and projects easily forking, native crypto projects often appear for a brief moment, with lifecycles rarely exceeding a market cycle, and sometimes lasting only a few months. Those founders who become wealthy after the TGE often choose to "lie flat" and retreat, opting to engage in angel investing as a retirement side job.

To retain core users, the only method is to continuously drive product innovation and always stay one step ahead of competitors. The reason Uniswap has stood strong amid seven years of fierce competition lies in its constant introduction of groundbreaking features from 0 to 1, such as V3 concentrated liquidity, UniswapX, Unichain, and V4 hook design, which continuously meet the needs of core users. This is especially commendable, as the decentralized exchange sector it delves into is arguably the most fiercely contested area among all red ocean markets.

is built for crypto-related purposes

There have been many attempts to apply blockchain technology to broader real-world markets, such as supply chain management or interbank payments, but they all failed due to being ahead of their time. Although Fortune 500 companies have experimented with blockchain technology in research and innovation labs, they have not seriously implemented it into large-scale actual production. Do you remember those buzzwords from back in the day? "We want blockchain, not Bitcoin," "distributed ledger technology," and so on.

Currently, we are witnessing a complete shift in the attitude of many traditional institutions towards cryptocurrency. Major banks and giant enterprises are launching their own stablecoins, and the regulatory clarity established during the Trump administration has opened up policy space for the mainstreaming of cryptocurrency. Today, cryptocurrency is no longer a regulatory wild west.

In my career, I am starting to see more and more crypto-related projects instead of crypto-native projects for the first time. There are good reasons for this, as the biggest success stories in the coming years are likely to be crypto-related projects rather than crypto-native ones. The scale of IPOs is expanding to the hundreds of billions, while TGEs are typically limited to hundreds of millions to billions. Examples of crypto-related projects include:

• Fintech companies using stablecoins for cross-border payments
• Robot companies using DePIN incentives for data collection
• Use zkTLS to authenticate private data for consumer companies

The common rule here is: Cryptocurrency is just a feature, not the product itself.

For industries that heavily rely on cryptographic technology, professional users remain crucial, but their extreme tendencies have eased. When cryptocurrency exists merely as a function, the key to success seldom depends on the cryptographic technology itself, but rather on whether practitioners possess deep expertise in crypto-related fields and understand the core elements of the industry. This can be exemplified by the fintech sector.

The core of fintech lies in achieving user acquisition through good unit economics (user acquisition cost/user lifetime value). Nowadays, emerging crypto fintech startups are constantly facing fear, worrying that established non-crypto fintech giants with larger user bases can easily crush them by simply adding cryptocurrency as a functional module, or drive up industry customer acquisition costs, making them lose competitiveness. Unlike pure crypto projects, these startups cannot sustain operations by issuing tokens that are in high demand in the market.

Ironically, the cryptocurrency payment sector has long been an uninteresting track, and I mentioned this during my speech at the Permissionless conference in 2023! However, the period before 2023 was the golden age for founding crypto fintech companies, allowing for a first-mover advantage in building distribution networks. Now, with Stripe acquiring Bridge, founders in the crypto-native space are shifting from DeFi to the payment sector, but ultimately, they will be crushed by former Revolut employees who are well-versed in fintech strategies.

What does "crypto-related" mean for crypto venture capital? The key is to avoid reverse filtering founders who have been rejected by non-professional venture capitalists, and not let crypto venture capitalists become the ones picking up the pieces due to their unfamiliarity with related fields. A large amount of reverse filtering comes from choosing native crypto founders who have recently transitioned from other fields to "crypto-related". A harsh reality is that, generally speaking, founders in the crypto space are often the underachievers from the Web2 space (although the top 10% of founders are different).

Cryptocurrency venture capital firms have traditionally found a quality value gap in uncovering potential founders outside of the Silicon Valley network. They may lack impressive elite resumes (such as a Stanford degree or experience at Stripe) and are not skilled at pitching projects to venture capitalists, but they have a deep understanding of the essence of crypto-native culture and know how to rally passionate online communities. When Hayden Adams was laid off from his position as a mechanical engineer at Siemens, his initial motivation for creating Uniswap was merely to learn the programming language Vyper; Stani Kulechov was already working on creating Aave (formerly known as ETHLend) just before graduating with a law degree in Finland.

The founders of successful crypto-related projects will stand in stark contrast to those of successful crypto-native projects. Gone are the days of the wild west financial cowboys who deeply understand the psychology of speculators and can build personal charisma around their token networks. In their place will be more mature and savvy founders with business acumen, often coming from crypto-related fields and possessing unique market entry strategies for user coverage. As the crypto industry matures and develops steadily, a new generation of successful founders will also emerge.

finally

1. The Telegram ICO event at the beginning of 2018 vividly showcased the mental divide between Silicon Valley venture capital firms and crypto-native venture capital firms. Firms like Andreessen Horowitz, Benchmark, Sequoia Capital, Lightspeed Venture Partners, and Redpoint Ventures all invested because they believed Telegram had the user base and distribution channels to become a dominant application platform. Meanwhile, almost all crypto-native venture capital firms chose to forgo investment.

2. My contrarian view on the crypto industry is that consumer applications are not lacking. In fact, the vast majority of consumer projects cannot obtain venture capital support at all because their revenue-generating capabilities are unstable. Entrepreneurs of such projects should not seek venture capital but instead be self-reliant to achieve profitability, quickly making money while the current consumption boom lasts. It is essential to seize this few-month time window to complete the original accumulation before the trend shifts.

3. The reason why Nubank in Brazil has an unfair competitive advantage is that it pioneered this category before the concept of "fintech" became widespread. More importantly, in its early days, it only needed to compete for users against traditional banking giants in Brazil, without having to face competition from emerging startup fintech companies. As the Brazilian public's patience with existing banks has reached its limit, there was an immediate collective shift towards Nubank after its product launch, allowing the company to achieve an exceptionally low customer acquisition cost and a perfect product-market fit.

4. If you want to create a stablecoin digital bank aimed at emerging markets, why stay in San Francisco or New York? You need to engage deeply with local users. Surprisingly, this has become the primary criterion for filtering startup projects.