Pantera Partner: Crypto VC Returns to Professionalism and Rationality, Where is the Next Investment Hotspot?

Original: Pantera Capital

Translation & Compilation: Yuliya, PANews

Recently, two partners of 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 “ice and fire” phenomenon of this year’s record-high funding amounts alongside a significant decline in transaction volume, and debated topics such as project investment strategies, exit paths, DAT, tokenization, and zero-knowledge proofs. PANews has organized and translated this blog post.

Crypto investment is returning to professionalism and rationality; team execution and asset appreciation are key to DAT competition

Host: Today, we’re talking about the current situation of crypto venture capital. Data shows that this year’s total funding reached a record high of $34 billion, but transaction volume has nearly halved 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 very good question. To understand the current situation, we need to look back at 2021 and 2022, which were the “Metaverse years.” Back then, zero interest rates and abundant liquidity fueled a speculative frenzy. However, many transactions were based on shaky foundations, all driven by stories of pure imagination. Investors lacked clear judgment on how to succeed with metaverse projects, leading to a lot of investments in projects that shouldn’t have received funding. Reflecting on it now, we should have asked a simple question: in an environment where even stablecoins lack clear regulation, how can we possibly bring everyone into a fully digitalized metaverse world? Logically, that doesn’t add up.

Paul: Another reason is that there was a “altcoin bull market” in those two years, which is not the case now. Currently, the market is mainly dominated by Bitcoin, Solana, and Ethereum. Without the frenzy around altcoins, there wouldn’t be so many retail investors, family offices, and small entrepreneurs rushing into 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 fewer transactions overall, but higher quality and larger amounts per deal. Especially as real use cases like stablecoins and payments emerge, traditional fintech venture capitalists are also entering, with a style that is equally selective and focused.

Related reading: Farewell to building castles on sand — the transformation moment of crypto VCs

Host: Indeed, now everyone is more focused on “exits,” or how to realize investments. The IPO of Circle is a milestone that shows risk investors a clear exit path.

Franklin: Exactly, Circle’s IPO is significant. It finally completes the last piece of the investment story. Previously, everyone speculated on how the market would react after crypto companies went public. Now, with Circle and Figure (a company that tokenizes real-world assets), investors have more confidence. Venture capitalists can now clearly see that a project can go from seed round to Series A, and then to a successful IPO — this path is viable. They can better assess the likelihood of a project reaching the final stage, reducing the overall perceived risk in the field.

Paul: Yes, when I first entered the industry, I thought Bitcoin ETFs would definitely be approved within ten years, but it took over a decade. Now, infrastructure is finally in place, creating conditions for these huge exits. Additionally, the exit methods have shifted from token generation events (TGE) in the past two years to going public on traditional markets. Investing in equity versus tokens involves completely different investors and expectations. Over the past two or three years, we’ve seen far more equity transactions than token deals, which is a major reason for the decline in transaction volume.

Host: Besides IPOs, new tools like “Digital Asset Vaults” (DATs) have appeared. Recently, they seem to have cooled off a bit. What do you see as their 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 Exxon Mobile stock. Buying stocks earns more because you’re buying a “machine” that can continuously extract, refine, and create value. DATs are the “machine” in the digital asset space; they don’t just hold assets statically but actively manage them to generate more returns. Now that the market is cooling, people realize this isn’t just hype; they’re starting to focus on the execution capabilities of management teams. This is a positive shift, indicating the market is returning to rationality and emphasizing quality.

I believe DATs won’t be a flash in the pan; actively managed investment tools will always have 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 the current situation where many foundations are essentially inactive.

Paul: I think the boom in DAT creation in the US might be nearing its end, but there’s still huge potential in Asia-Pacific and Latin America. In the future, this market will undergo consolidation, and only those DATs with strong execution and continuous asset appreciation will ultimately succeed.

Crypto investment trend: infrastructure needs to verify authenticity, consumer applications must go viral

Host: After discussing the current situation, let’s look ahead. Data shows that over the past year, finance, consumer, infrastructure, and AI have been the most capital-attracting sectors. What do you think will be the next investment hotspot?

Franklin: I’m particularly interested in two directions. The first is tokenization. Although it’s an old topic, it’s a long-term trend spanning decades, and it’s just beginning now. I’ve been paying attention since 2015, and it took ten years for this field to evolve from a mere idea to a stage where real institutions and clients are involved. It’s like the early internet era, when people simply moved newspapers online. Today, we “copy and paste” assets onto the blockchain, which is efficient and globalized, but the real potential lies in these assets being programmable via smart contracts, enabling the creation of entirely new financial products and risk management models.

The second is ZK-TLS technology, or “proof of network.” Simply put, blockchain has a “garbage in, garbage out” problem: if the data on-chain is wrong, then no matter how advanced the blockchain is, it’s useless. ZK-TLS can verify the authenticity of off-chain data (like bank statements, ride-hailing records) and bring it on-chain without exposing the data itself. This allows behavior data from apps like Robinhood and Uber to interact securely with on-chain capital markets, enabling many cool new applications. Moreover, JPMorgan was an early partner of Zcash and Starkware teams, indicating that the core insights of zero-knowledge proofs have long existed, but only now are they ready for large-scale application. With the right infrastructure and talent, zero-knowledge proof technology is gradually maturing.

Paul: I’d add a few points. First, in tokenization, stablecoins are the undisputed killer app. As regulation becomes clearer, they are unleashing the true potential of “money on IP,” making global payments extremely cheap and transparent. When I first entered the industry, my first task was to find markets worldwide with real demand for crypto. We found that in Latin America and Southeast Asia, stablecoins are the best entry point for ordinary people to accept the crypto world.

Second, 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 bet on any topic (like corporate earnings or sports events). This is not only a new form of entertainment but also an efficient, democratized information discovery mechanism. The potential of prediction markets in regulation, economics, and cost efficiency is gradually emerging, enabling the creation of markets on various topics, which will bring unprecedented information flows into news and trading sectors.

Franklin: All these indicate that on-chain capital markets are not just a replica of traditional markets. For example, in Latin America, many people make their first investment in Bitcoin via platforms like Bitso. They might have never bought stocks, but soon they could be trading perpetual contracts and other complex derivatives. This “financial generational leap” means they may never use traditional Wall Street tools again, as they see those tools as inefficient and hard to understand.

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

Host: 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’d choose Robinhood. Because I think the market still doesn’t fully understand its ambitions. Robinhood doesn’t want to be just a broker; it’s vertically integrating clearing, trading, and all other aspects, aiming to become an independent, integrated fintech platform. In contrast, Coinbase’s vision (bringing everyone on-chain) is grander and would take 10 to 20 years; the market can’t fully digest that in three years.

Paul: Then I’d have to pick Coinbase. I believe the market underestimates Coinbase’s potential in institutional business and international expansion. As global regulation clarifies, Coinbase can rapidly capture markets through acquisitions and empower traditional financial institutions via “crypto-as-a-service” models.

Host: I also lean toward Robinhood. It has proven it can quickly launch new products and successfully monetize.

Host: What about the “exclusive payment chain” built for stablecoin payments — bullish or bearish?

Paul: I’m curious but not bearish. Custom chains optimized for specific scenarios (like payments), with scalability and privacy enhancements, are valuable. For example, Stripe’s Tempo chain, though not neutral, can grow significantly with Stripe’s resources.

Franklin: I’m slightly bearish. Because in the long run, value will flow to users, not platforms trying to lock them in. Users will choose the most open, liquid places, not be locked into a single chain. In the open crypto world, the moat effect of channels will be greatly diminished.

Host: Last question: is privacy a track worth investing in?

Franklin: I’m bearish. Privacy is a feature, not a product. Almost all applications will eventually need privacy features, but the feature itself is hard to monetize because technological breakthroughs can be open-sourced.

Paul: I hold the opposite view. Ordinary users may not care much, but at the enterprise and institutional level, privacy is a necessity. Investment opportunities lie not in the technology itself but in who can combine it with compliance to provide commercial solutions and set industry standards.

Rejecting investor “privileges,” the public chain war is not over

Host: Let’s discuss a hot topic on Twitter. First, about token lock-up periods. Some say four years, others say immediate unlock. What’s your view?

Franklin: I actually dislike this topic. Because the premise is wrong — people always think “I invested money, so it must be worth something.” But the harsh reality of venture capital is that 98% of projects will eventually go to zero. When a project fails, it’s because it has no intrinsic value, not because of the lock-up period design.

Paul: I understand founders’ difficulties. Token prices are crucial for incentivizing communities and subsequent fundraising. 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 and achieve goals, preventing early token price crashes.

Host: Should founders and investors have the same lock-up periods?

Franklin: They should be the same. Our philosophy is “one team, one dream.” If investors seek special early exit terms, it indicates they never intended to go long-term with the project, which is a destructive signal.

Host: And finally, is the “L1 public chain war” over?

Paul: I think it will continue, but not as wildly as before. No more new L1 chains will emerge in the same way, but existing chains will persist because of their communities and ecosystems.

Franklin: I believe that now people are starting to focus on how L1 chains can capture value, which is a good sign. Declaring L1 dead now is premature, as technology keeps evolving and ways to capture value are being explored. Like Solana back then — everyone said it was dead, but if you believe it still has life, you can make big money. As long as there’s active user activity on-chain, there’s always a way to capture value. Ultimately, “priority fees decide everything”: where there’s competition, there’s value.