Starting from a16z's retreat in Asia, let's discuss the decline of the VC empire and the rise of new kings

Written by: Anita

On December 10, 2025, a16z Crypto announced the opening of an office in Seoul. The press release described it as an “offensive,” but if you look deeper, seeing a16z’s extreme reliance on liquidity exits, regulatory liabilities surging, etc., you’ll realize this might be a16z’s “escape.”

U.S. extraterritorial jurisdiction has cornered Crypto.

SEC’s ongoing lawsuits against Uniswap Labs and large-scale blocking of DeFi frontends have turned Silicon Valley from an innovation hotbed into a compliance prison. In contrast, Paradigm had already established a shadow network in Singapore two years earlier, and Binance has never left its Asian main stage.

In 2011, Marc Andreessen wrote the Silicon Valley Bible, proclaiming “Code is Law” and “Software is eating the world.” The geek fund is dead; replaced by a traditional asset management giant skilled in calculations, solely investing in “regulatory arbitrage plays.”

一、Prediction Markets: High-priced compliant casinos with liquidity fragmentation

Kalshi’s victory is not a technological victory but a franchise victory. The cost is that users must endure extremely low capital efficiency.

a16z backing Kalshi is essentially going long on regulatory barriers. But compliance comes at a price, paid by users.

1. Spread = Justice

Comparing Kalshi (compliant) and Polymarket (offshore) order books reveals obvious structural differences.

Bid-Ask Spread (: Bid-ask spread ): Polymarket: During active periods in popular markets, typical spreads are around 1%–3%, with high liquidity books sometimes compressing to near 1%. In less active or unpopular periods, spreads widen significantly (relying on AMM + high-frequency arbitrage). Kalshi: In macro and election markets, typical spreads are around 2%–5%, with narrower spreads for niche contracts, generally slightly higher than Polymarket, reflecting the structure where designated/professional market makers bear liquidity and compliance costs under regulation.

Kalshi’s liquidity is artificially created by institutions, not organically generated. For retail traders, every trade on Kalshi is effectively paying an invisible “compliance tax.”

Publicly, Kalshi admits that most participants are retail (advanced retail), but also has dedicated market-making entities (like Kalshi Trading and later professional institutional market makers). To make the market “user-friendly,” there must be 24/7 order placements, continuous bid/ask updates, and retail order matching, typically handled by professional market makers or affiliates, not retail traders naturally forming the liquidity. Early institutional market makers like Susquehanna are cited as examples.

2. Data’s walled garden

a16z describes Kalshi as a price discovery and hedging infrastructure for real-world events, akin to a “regulated oracle layer.” From the author’s perspective, calling a centralized, licensed exchange “Oracle 2.0” confuses oracle functions with exchange functions, more like narrative packaging than a strict “oracle upgrade.”

Polymarket’s API is open, allowing any DeFi protocol to call its odds data to build derivatives. But Kalshi’s data is closed, attempting to sell it as SaaS to Bloomberg and traditional hedge funds.

This is not Web3’s open interoperability but a Web2 data monopoly model. a16z is not investing in Crypto but in a blockchain-keeping CME.

二、RWA: Yield traps caused by non-composability

RWA (Real-World Assets) are the “dead weight assets” in DeFi. They look attractive but are nearly illiquid on-chain.

In “State of Crypto 2025,” a16z notes “on-chain RWA has reached hundreds of millions or even billions of dollars,” but almost no discussion of their on-chain turnover rate (Asset Velocity), utilization, or how much DeFi actually calls them. This creates an impression of “large scale” but downplays the key dimension of capital efficiency.

1. Collateral dilemma: Why doesn’t MakerDAO fully hold RWA? MakerDAO has significantly increased RWA (including government bonds, bank deposits, etc.) in collateral pools in recent years, but governance always limits single RWA types and emphasizes diversification and counterparty risk management. This indicates mainstream DeFi protocols do not believe assets can be infinitely replaced by off-chain assets.

The biggest issue with RWA is the non-instantaneous liquidation (T+1/T+2).

ETH / WBTC: 24/7 trading, liquidation time <12 seconds (block time). LTV (Loan-to-Value) can reach over 80%. Tokenized T-Bills (Ondo/BlackRock): Closed on weekends and bank holidays. In a black swan event over the weekend, on-chain protocols cannot liquidate collateral. LTV is limited to 50%-60% or requires licensed counterparties.

2. Real data: Idle rates are astonishing

Based on multiple 2025 RWA reports and Dune dashboards, the total on-chain RWA is roughly in the range of tens of billions of dollars TVL (depending on whether stablecoins are included). However, only a small portion, about 10% or less, is actively used in DeFi lending, structured products, and derivatives—high-turnover scenarios.

Issued RWA total: ~$53B

Actual RWA in DeFi lending/derivatives: <$3.5B (, only 6.6% )

This means most RWA assets are still mainly used for “tokenized deposits/notes”—quietly earning yields on-chain or in custody wallets, not being multi-layered reused in open finance. Asset turnover (Asset Velocity) is far below native on-chain collateral. They are largely not truly “financialized” nor have significant credit or liquidity multiplier effects.

Based on this reality, the narrative of “deep integration of RWA and DeFi, unleashing multiplier effects” remains more a visionary prospect than a fact. Structurally, current mainstream RWA models often introduce USD sovereign and traditional finance timelines and compliance restrictions on-chain but support limited permissionless, composable open finance—more like “digitizing USD assets onto the chain” rather than fully leveraging blockchain’s advantages.

三、a16z vs. Paradigm

a16z tries to be “the agent of government,” while Paradigm aims to be “the agent of code.”

Their alpha generation logic has somewhat decoupled: the former relies more on policy and networks, the latter emphasizes technical depth and infrastructure innovation.

a16z’s script: Political Capital expenditure structure: huge funds for lobbying in Washington, legal counsel, media control. Moat: licenses and relationships. Their investments (like Worldcoin, Kalshi) often require strong government ties to survive. Weakness: if regulatory winds shift (e.g., SEC chair change), their moat could collapse overnight.

Paradigm’s script: Technical Capital expenditure structure: top-tier research team (Reth, Foundry developers). Moat: mechanism design and code efficiency. Their investments (like Monad, Flashbots) focus on solving underlying throughput and MEV issues. Advantage: regardless of policy changes, high-performance trading demand always exists.

a16z is like the East India Company, profiting from franchises and trade monopolies; Paradigm is like TCP/IP, profiting from becoming the underlying standard.

In the 2025 wave of decentralization, the East India Company’s fleet appears clumsy and vulnerable, while protocol layers are ubiquitous.

四、 Retail traders flip the table, VC no longer matters

Retail traders finally realize they are not users but exit liquidity. So they flip the table.

The biggest black swan of 2025 is not macroeconomics but the complete breakdown of valuation inversion between VCs and retail traders.

1. Valuation inversion: the FDV scam

Comparing 2025’s top VC-backed L2s with fair launch perp DEXs’ financial ratios is more convincing than any words.

Typical VC-backed L2 projects (like top optimistic rollups or similar):

FDV (Fully Diluted Valuation): about $10–20 billion (current top L2 market cap range)

Monthly Revenue: about $200k–$1M (on-chain fee income after sequencer costs)

Price-to-Sales (P/S): roughly 1000x–5000x

Tokenomics: circulation rate usually 5–15%, remaining 85–95% locked (mostly VC/team shares, linearly or cliff released over 2–4 years)

Hyperliquid FDV: about $3–5 billion (mid-2025 typical market cap)

Monthly Revenue: about $30–50 million (mainly from trading fees, high turnover)

Price-to-Sales (P/S): roughly 6x–10x

Tokenomics: nearly 100% circulating, no pre-mined VC shares, no unlock selling pressure

2. Refusing to buy the dip

In Q3 2025, high FDV VC-backed new tokens launched on Binance and other CEXs generally saw sharp corrections within 3 months, with most dropping over 30–50% (some extreme cases 70–90%). Meanwhile, on-chain fair launch projects (like Hyperliquid ecosystem, some utility memes) performed strongly, with average gains of 50–150%, and top projects even returning 3–5 times.

The market is punishing projects with high FDV, low circulation, and VC unlock pressures. The traditional game of “institutions buy low, retail buy high” is failing. a16z and others still try to sustain valuation bubbles with polished research reports and compliance narratives, but the rise of fair launch projects like Hyperliquid proves: when the product is strong enough and tokenomics fair, VC backing is no longer necessary to dominate the market.

The market is punishing the VC model.

The game of “institutions enter at $0.01, retail take over at $1.00” is over. a16z still tries to maintain the bubble with glossy reports and compliance backing, but Hyperliquid’s rise shows: when the product is good enough, you don’t need VC.

The 2025 crypto landscape is not simply “East vs. West,” but “Privileged vs. Free.”

a16z is building a moat in Seoul, trying to turn the crypto world into a compliant, controllable, low-efficiency “on-chain Nasdaq.”

Meanwhile, Paradigm and Hyperliquid are outside the city walls, building a wild, high-efficiency, even risky “free market” with code and math.

For investors, there’s only one choice: do you want to earn meager returns inside a16z’s walled garden after compliance costs? Or dare to step outside the walls into the real wilderness to seek the Alpha belonging to the brave?

References:

“Kalshi Wins CFTC Approval…” (2025-08-18)

“Trading Fees” (2025-12-08)

“Kalshi Hits $4.4 Billion Volume…” (2025-11-05)

“Kalshi Leads Surging Crypto…” (2025-12-10)

“Polymarket vs Kalshi - Sacra” (2024-10-31)

“Andreessen Horowitz - Wikipedia” (2010-11-02)

“RWA Tokenization 2025…” (2025-11-29)

“Ten Real-World Asset Projects…” (2025-03-05)

“Tracking Top Crypto VC Funds…” (2025-09-26)

“Top Blockchain Data Platforms…” (2025-11-24)

“Investing in Top VCs with Four Years of Principal Loss…” (2025-11-11)

“Comparison of Digital Asset Treasury and Crypto Venture Capital in 2025” (2025-08-24)