Original text: Pantera Capital

Compiled & organized by: Yuliya, PANews

Recently, two partners from the top venture capital firm Pantera Capital, Paul Veradittakit and Franklin Bi, analyzed the current state and changes in the crypto investment market in their first podcast episode. They reviewed the speculative wave of altcoins over the past few years, analyzed the phenomenon of record-high funding this year alongside a significant drop in transaction volume, and engaged in a debate around project investment strategies and exit paths, as well as topics like 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, let's talk about the current state of crypto venture capital. Data shows that the total funding amount this year reached a historic high of $34 billion, but the number of transactions has decreased by nearly half compared to 2021 and 2022, with more capital flowing into later-stage projects. How do you interpret this "ice and fire" phenomenon?

Franklin: That's a great question. To understand the current situation, we need to 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 transactions were not solid; everyone was telling a story driven purely by imagination. Investors did not have a clear judgment on how metaverse projects could succeed, leading to a lot of projects that should not have received investment getting funded. In hindsight, we should have asked a simple question: in an environment where even stablecoins lack clear regulation, how could we possibly bring everyone into a fully digital metaverse world? Logically, it doesn't make sense.

Paul: Another reason is that there was a "bull market for altcoins" during those two years, and there isn't one now. The market is currently dominated by Bitcoin, Solana, and Ethereum. Without the frenzy for altcoins, there wouldn't be so many retail investors, family offices, and small entrepreneurs rushing in to invest heavily in early-stage projects. Now, the funding mainly comes from more professional crypto funds, which are more institutionalized, conduct stricter due diligence, and focus their investments. This means transaction frequency has decreased, but the quality and amount of each transaction have increased. Especially with the emergence of stablecoins and real use cases for payments, traditional fintech venture capital has also entered the scene, adopting a similar style of being selective and precise.

Related article: Goodbye to Building Towers on Sand, the Transformation Moment for Crypto VCs

Host: Indeed, there is now more focus 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 investment story. Previously, everyone was guessing 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 a project can successfully transition from seed round to Series A and then to an eventual IPO. They can more accurately assess the likelihood of a project moving from seed round to final listing, which reduces the overall risk perception in the field.

Paul: Yes, when I first entered the industry, I thought a Bitcoin ETF would definitely be approved within ten years, but it took over a decade. Now, the infrastructure has finally been laid out, creating conditions for these massive exits. Additionally, the exit methods have shifted from token generation events (TGE) in the past two years to going public. Investing in equity and investing in tokens face completely different investors and expectations. Over the past two to three years, we have seen far more equity transactions than token transactions, which is also a significant reason for the decline in transaction volume.

Host: Besides IPOs, new tools have emerged in the market, such as "Digital Asset Treasuries" (DATs). It seems to have experienced some cooling recently; what are your thoughts on 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 oil or buy stock in Exxon Mobile. Buying stock yields more because you are purchasing a "machine" that can continuously extract, refine, and create value. DATs are this "machine" in the digital asset space; they do not just hold assets statically but actively manage them to generate more returns. The market is currently cooling, and people are realizing that this is not just simple speculation; they are starting to pay attention to 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 passing trend; actively managed investment tools will always have their value. I even think that in the future, project teams' own foundations could transform into DATs, using more professional capital market tools to manage their assets, rather than many foundations being virtually ineffective as they are now.

Paul: I think the creation boom of DATs may be nearing its end in the U.S., but there is still a lot of room 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 team execution and the ability to continuously appreciate assets will ultimately prevail.

Crypto Investment Trends: Infrastructure Needs Validation, Consumer Applications Need to Break Out

Host: After discussing the current situation, let's look ahead to the future. Data shows that over the past year, finance, consumer, infrastructure, and AI have been the most lucrative sectors. What do you think the next investment trend will be?

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 following this since 2015, and it has taken a decade for this field to evolve from an idea to a stage where real institutions and clients are involved. It's like the early days of the internet when people simply moved newspapers online. Today, we are "copying and pasting" assets onto the blockchain, which is great for 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 "zero-knowledge proofs." Simply put, blockchain has a "garbage in, garbage out" problem; if the data on-chain is incorrect, then no matter how powerful the blockchain is, it won't help. ZK-TLS technology can verify the authenticity of off-chain data (like your bank statements or ride-sharing records) and bring it on-chain without exposing the data itself. This way, your behavioral data in applications like Robinhood and Uber can safely interact with on-chain capital markets, creating many exciting new applications. Additionally, 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, but only now are the conditions for large-scale application beginning to materialize. With the right infrastructure and talent coming in, zero-knowledge proof technology is gradually maturing.

Paul: I would like to add a few points. First, in tokenization, stablecoins are undoubtedly the killer application. As regulation becomes clearer, it is unlocking 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 search globally for markets with real demand for cryptocurrencies. We found that in places like Latin America and Southeast Asia, stablecoins are the best entry point for 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 information discovery mechanism. The potential of prediction markets in terms of regulation, economics, and costs is gradually becoming apparent, providing the possibility to create markets on various topics, which will lead to a massive influx of unprecedented information into news and trading fields.

Franklin: All of this indicates that on-chain capital markets are not just a replica of traditional markets. For example, in Latin America, many people make their first investment through platforms like Bitso, starting with Bitcoin; they may never have bought stocks but could soon be exposed to complex financial derivatives like perpetual contracts. This "financial generational leap" means they may never use traditional Wall Street tools again, as they find those tools inefficient and hard to understand.

Bullish or Bearish? On Exchanges, Payment Chains, and Privacy Tracks

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 believe the market has not fully understood its ambitions. Robinhood does not want to be just a brokerage; it aims to vertically integrate clearing, trading, and all aspects, 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; the market will find it hard to fully digest in three years.

Paul: Then I must choose Coinbase. I believe the market is underestimating Coinbase's potential in institutional business and international expansion. As global regulations become 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 already proven its ability to quickly launch new products and successfully monetize them.

Host: For a "dedicated payment chain" born for stablecoin payments, are you bullish or bearish?

Paul: I hold a curious attitude; I am not bearish. Customizing a chain for specific scenarios (like payments) and optimizing it for scalability and privacy is valuable. For example, the Tempo chain launched by Stripe, while not neutral, can certainly achieve significant 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 users 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: Last question, is privacy a worthwhile investment track?

Franklin: I am bearish. I believe privacy is a feature, not a product. Almost all applications ultimately require privacy features, but it is difficult to capture value from this feature alone, as 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. The investment opportunity lies not in the technology itself, but in who can combine the technology with compliance to provide commercial solutions and make it an industry standard.

Rejecting Investor "Privileges," the Battle of Public Chains is Not Over

Host: Let's talk about the hot topic 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 fully unlocked immediately. What are your thoughts?

Franklin: I actually dislike this topic. Because its premise is wrong; everyone always thinks, "I invested money, so it must be worth something." But the harsh reality of venture capital is that 98% of projects will ultimately go to zero. A project's failure is fundamentally due to its lack of value, not because its lock-up period was poorly designed.

Paul: I understand the difficulties faced by founders. The token price is important for incentivizing the community and for subsequent financing. However, from the project'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 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 an 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: Last topic: "Has the battle of L1 public chains ended?"

Paul: I believe it will continue, but it won't be as crazy as before. In the future, there won't be as many new L1 public chains emerging, but the existing public chains will continue to exist due to their respective communities and ecosystems.

Franklin: I think it's a good phenomenon that people are starting to focus on how L1 public chains capture value. It is still too early to declare L1 dead, as technology is constantly evolving, and ways to capture value are still being explored. Just like Solana back in the day, everyone said it was dead, but as long as you believe it still has a pulse, 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"; wherever there is competition, there is value.

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