Traditional VCs Pivot Web3 Investments to Specific Sectors, Crypto Treasuries Amid Market Re-evaluation

The Evolving Landscape of Web3 Venture Capital

Traditional venture capital (VC) firms have navigated a complex and volatile trajectory within the Web3 ecosystem. Early engagement by firms such as Sequoia China and IDG Capital in foundational crypto companies like Coinbase, OKCoin, and Huobi marked an initial period of enthusiasm. This was followed by a significant withdrawal during the 2018 crypto winter, largely attributed to the collapse of numerous Initial Coin Offerings (ICOs), where approximately 81% were identified as scams or failures, eradicating trust and liquidity. Projects such as Pincoin/iFan and PlexCoin exemplify the speculative excesses of this period.

The narrative shifted in 2020-2021 with the "Web3 Renaissance," championed by firms like a16z, which reframed crypto as the "next-generation internet" and "financial technology." This re-engagement, fueled by the 2021 market boom and events like Coinbase's IPO, saw a renewed influx of traditional VC capital. However, the FTX collapse in 2022 resulted in substantial losses for major VCs and intensified skepticism, exacerbated by rapid narrative shifts and market volatility.

Strategic Re-evaluation and Capital Reallocation

Traditional VC activity in the broader crypto and blockchain sector remains depressed compared to prior bull markets. Q2 2025 marked the second smallest quarter for venture investment into crypto and blockchain startups since Q4 2020. Despite a Q1 investment of $4.8 billion, over 40% originated from a single sovereign-connected fund's $2 billion investment into Binance. Overall allocator interest has waned due to the macro environment, crypto market turmoil from 2022-2023, and increased competition for capital from artificial intelligence (AI) startups. In Q2 2025, a total of $1.7 billion was allocated across 21 crypto-focused venture funds. The venture stagnation is also influenced by higher interest rates and a declining interest in previously popular sectors such as gaming and NFTs.

Investment trends indicate a maturation of the space, with later-stage deals attracting more capital than younger ventures. Pre-seed deal counts have consistently decreased as a percentage of overall investments. This suggests a strategic shift towards more established companies and projects with clearer business models.

Financial Instruments and Targeted Investments

Current Web3 investment strategies for traditional VCs increasingly focus on specific sectors and financial instruments. Private Investment in Public Equity (PIPE) has emerged as a critical method for companies to raise funds directly from institutional investors, providing a quicker and less restrictive path to secure long-term capital. This approach is being utilized by corporations and projects to establish substantial, stable digital asset treasuries.

Examples include Ethena Labs' $360 million PIPE deal supporting its stablecoin initiative, StablecoinX, and the Sui Foundation's $450 million PIPE with Mill City Ventures III, Ltd., which established the first publicly traded SUI treasury. These transactions highlight a strategic move to strengthen treasuries and offer institutional investors exposure to native tokens in public markets.

Moreover, there is a pronounced focus on stablecoins and Real-World Assets (RWA) tokenization. The tokenization of RWAs (excluding stablecoins) accounted for over $22.6 billion as of May 2025, with projections estimating the industry could reach $16 trillion by 2030. Firms like Ondo Finance and Maple Finance are scaling solutions in this area, aiming to bridge traditional finance and decentralized finance (DeFi) in a compliant manner. VCs perceive stablecoins as a "killer app" for crypto, offering diversification and opportunities to back specialized issuers for payments, savings, or trade finance, moving DeFi beyond speculative yields to parallel financial infrastructure.

While general early-stage funding has decreased, some VCs continue to invest in foundational infrastructure. DappOS, a Web3 operating protocol, secured a seed funding round co-led by IDG Capital and Sequoia China at a $50 million valuation, aimed at enhancing user-friendly dApps through solutions like a unified account.

Broader Market Implications and Institutional Maturity

The shift in VC investment strategy underscores a broader maturation of the Web3 market. Regulations are becoming clearer, infrastructure is strengthening, and adoption is seen as essential. This evolution is attracting institutional capital, with 45% of high-value crypto transactions in North America exceeding $10 million in 2025. Spot ETFs, which have attracted $179.5 billion in assets under management, and corporate crypto treasuries are increasingly competing for institutional investment, offering liquid vehicles for exposure to digital assets.

Corporations are integrating digital assets into their balance sheets, with at least 26 publicly listed U.S. firms committing capital to crypto treasuries, valued at over $85 billion on-chain. This represents a significant evolution in corporate finance, moving from speculative interest to strategic institutional allocation. Institutional investors are also implementing sophisticated risk management frameworks for digital assets, with 72% using advanced crypto risk frameworks by 2025, prioritizing $16 billion in custodial security and AI-driven analytics, and aligning with compliance standards such as MiCA.

Outlook on Future Investments

The boundaries between traditional finance and crypto are blurring, driven by the convergence of AI, blockchain, and embedded finance within Fintech 3.0. While the scale of traditional VC involvement in early-stage, general Web3 projects remains uncertain, specific, more regulated sectors are gaining traction. VC strategies are increasingly focused on real-world utility, regulatory readiness, and foundational infrastructure. The synergy between AI agents and blockchain, particularly in areas like autonomous agents and infrastructure tools, is also emerging as a significant trend attracting VC interest. This suggests a future where Web3 investments are more integrated with established financial practices and driven by tangible applications and clear regulatory pathways.