Author: Richard Chen
Translated by: PANews
“Crypto-Related” Enterprises Will Replace “Crypto-Native” Projects in the Mainstream
It is now 2025, and cryptocurrency is moving into the mainstream. The “GENIUS Act” has been officially signed into law, providing us with a clear regulatory framework for stablecoins. Traditional financial institutions are increasingly adopting cryptocurrencies. Cryptocurrency has won!
As cryptocurrency crosses the divide, this trend signifies for early venture capitalists that we are witnessing crypto-related projects gradually surpassing crypto-native projects. The term “crypto-native projects” refers to initiatives built by crypto experts within the crypto space, while “crypto-related projects” denote the application of crypto technology in other mainstream industries. This is the first time in my career that I have witnessed such a transformation, and this article aims to delve into the core differences between constructing crypto-native projects and crypto-related projects.
Building for Crypto-Native
To date, the most successful cryptocurrency products have almost all been designed for crypto-native users: Hyperliquid, Uniswap, Ethena, Aave, etc. Like any niche cultural movement, cryptocurrency technology is so ahead of its time that ordinary users outside the crypto sphere find it challenging to “understand its essence,” let alone become enthusiastic daily active users. Only those crypto-native players who have struggled on the industry front lines possess sufficient risk tolerance and are willing to invest time in testing each new product, surviving amid various risks such as hacking attacks and project failures.
Traditional Silicon Valley venture capitalists once refused to invest in crypto-native projects because they believed the overall effective market was too small. This viewpoint was understandable, as the crypto space was indeed in its very early stages at that time. On-chain applications were few and far between, and the term DeFi was only coined in a San Francisco group chat in October 2018. However, you had to bet on faith and hope for an overall economic dividend to propel the market size of crypto-native projects to new heights. Indeed, with the liquidity mining frenzy of the DeFi summer in 2020 and the dual support of the zero-interest rate policy in 2021, the crypto-native market experienced exponential expansion. In an instant, all Silicon Valley venture capitalists rushed into the crypto space, asking me for advice to make up for their four years of cognitive gap.
As of now, the total addressable market size for crypto-native users is still limited compared to traditional non-crypto markets. I estimate that the number of Twitter users in the crypto space is at most only a few tens of thousands. Therefore, to achieve a nine-figure (hundred million dollars) annual recurring revenue (ARR), the average revenue per user (ARPU) must remain at an extremely high level. This leads to the following key conclusion:
Crypto-native projects are built entirely for experts.
Every successful crypto-native product follows a user usage pattern that adheres to the extreme power law distribution. Last month, the top 737 users on the OpenSea platform (accounting for only 0.2%) contributed nearly half of the total trading volume; similarly, the top 196 users on the Polymarket platform (accounting for only 0.06%) also accounted for 50% of the platform’s trading volume!
As a founder of a crypto project, the real worry that should keep you awake at night is how to retain top core users, rather than blindly pursuing user growth, which is in stark contrast to Silicon Valley’s traditional philosophy of “user engagement above all else.”
User retention in the crypto space has always been a challenge. Top users are often profit-driven and easily swayed by incentive mechanisms. This allows emerging competitors to quickly rise by poaching a few core users, as seen in the competition between Blur and OpenSea, Axiom and Photon, as well as LetsBonk and Pump.fun.
In short, compared to Web2, the moat for crypto projects is much shallower, and with all code being open source and projects easy to fork, native crypto projects often have a fleeting existence, with lifespans rarely exceeding a market cycle, occasionally lasting only a few months. Those founders who became wealthy after the TGE often choose to “lay flat” and retreat, turning to angel investing as a retirement side job.
The only way to retain core users is to continuously drive product innovation and stay one step ahead of the competition. The reason Uniswap has remained steadfast amidst seven years of fierce competition lies in its constant rollout of groundbreaking features from 0 to 1. Innovations like V3 concentrated liquidity, UniswapX, Unichain, and V4 hook design continuously meet the needs of core users. This is especially commendable, as the decentralized exchange space it operates in is arguably the most fiercely contested area among all red ocean markets.
Building for Crypto-Related
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 premature timing. While Fortune 500 companies experimented with blockchain technology in their research and development labs, they did not seriously scale it for actual production. Remember those buzzwords from back in the day? “We want blockchain, not Bitcoin,” “distributed ledger technology,” and so on.
Now we see a complete shift in attitude from traditional institutions towards cryptocurrency. Major banks and corporate giants are launching their own stablecoins, and the regulatory clarification during the Trump administration has opened policy space for the mainstreaming of cryptocurrency. Cryptocurrency is no longer a lawless financial wilderness.
In my career, I am beginning to see more and more crypto-related projects instead of crypto-native projects. 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 projects. The scale of IPOs is expanding to the hundreds of billions of dollars, while TGE scales are typically limited to hundreds of millions to billions of dollars. Examples of crypto-related projects include:
– Fintech companies using stablecoins for cross-border payments
– Robotics companies incentivizing data collection through DePIN
– Consumer companies using zkTLS to authenticate private data
The commonality here is that crypto is merely a feature rather than the product itself.
For industries that heavily rely on crypto technology, professional users are still crucial, but their extreme tendencies have moderated. When cryptocurrency exists solely as a functionality, the key to success rarely hinges on the crypto technology itself but more on whether practitioners have deep expertise in the crypto-related field and insight into the core elements of the industry. The fintech sector illustrates this point well.
The core of fintech lies in acquiring users with good unit economics (user acquisition cost/user lifetime value). Emerging crypto fintech startups are constantly facing fears that established non-crypto fintech giants with larger user bases could easily crush them by simply adding cryptocurrency as a functional module or raise industry customer acquisition costs, rendering them uncompetitive. Unlike pure crypto projects, these startups cannot sustain operations by issuing highly sought-after tokens.
Ironically, the cryptocurrency payment sector has long been a neglected market; I mentioned this during my speech at the 2023 Permissionless conference! However, the period before 2023 was the golden age for establishing crypto fintech companies, allowing them to seize opportunities and build network pathways. Now, with Stripe’s acquisition of Bridge, founders in the crypto-native space are shifting from DeFi to payments, but they will ultimately be outmaneuvered by former Revolut employees who are well-versed in fintech’s rules of engagement.
What does “crypto-related” mean for crypto venture capital? The key is to avoid reverse screening for founders rejected by non-specialized venture capitalists, and not let crypto venture capital turn into a backstop. A significant portion of reverse screening stems from choosing native crypto founders who have recently transitioned from other fields into “crypto-related.” A harsh reality is that, generally speaking, founders in the crypto space are often those who have not succeeded in Web2 (although the top 10% of founders differ).
Crypto venture capital institutions have historically been a valuable value gap, uncovering potential founders outside the Silicon Valley network. They may not have impressive elite resumes (such as Stanford degrees or Stripe work experience) and may not excel at pitching projects to venture capital institutions, yet they deeply understand 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 writing Uniswap was merely to learn the programming language Vyper; Stani Kulechov began creating Aave (formerly ETHLend) just before graduating with a law degree in Finland.
Successful founders of crypto-related projects will starkly contrast with successful founders of crypto-native projects. They will no longer be the wild-west financial cowboys who understand speculative psychology and can build personal charisma around their token networks. Instead, they will be more mature and seasoned founders with a business mindset, typically from the crypto-related space, possessing unique market entry strategies to achieve user coverage. As the crypto industry matures and develops steadily, a new generation of successful founders will also emerge.
Conclusion
The Telegram ICO event in early 2018 vividly showcased the cognitive divide between Silicon Valley venture capital institutions and crypto-native venture capital institutions. KPCB, Benchmark, Sequoia Capital, Lightspeed Venture Partners, and Andreessen Horowitz all invested because they believed Telegram had the user base and distribution channels to become a dominant application platform. Almost all crypto-native venture capital institutions, however, chose to abstain from investing.
My counterpoint regarding the crypto industry is that consumer applications are not scarce. In fact, the vast majority of consumer projects cannot secure venture backing because their revenue-generating capabilities are unstable. Founders of such projects should not seek venture capital but should instead be self-reliant and achieve profitability, rapidly capitalizing on the current consumer craze. They must seize the time window of these few months before the tide turns to complete their initial accumulation.
Brazil’s Nubank enjoys an unfair competitive advantage because it pioneered this category before the “fintech” concept became mainstream. More importantly, it only had to compete for users against Brazil’s traditional banking giants, without facing competition from emerging fintech startups. As the Brazilian public’s patience with existing banks reached its limit, there was an immediate collective shift to Nubank after its product launch, allowing the company to achieve an unusually low customer acquisition cost and perfect product-market fit simultaneously.
If you are going to build a stablecoin digital bank aimed at emerging markets, why remain in San Francisco or New York? You need to engage with users on the ground. Surprisingly, this has become the paramount standard for screening startup projects.
This article is collaboratively reprinted from: PANews