The Future of VC Participation in Web3: How New Tokenomics Models Can Reshape the Ecosystem

As the Web3 ecosystem matures, the dynamics of financing, Tokenomics, and venture capital (VC) participation are undergoing drastic changes.

The dynamics of financing, Tokenomics, and venture capital (VC) participation in Web3 are undergoing drastic changes. From the early frenzy of ICOs (initial coin offerings), to the rise of low-volume models, to the re-emergence of high-volume structures today, Web3 capital markets have been in a state of experimentation.

Founders, investors, and communities are thinking about the role of VCs, the sustainability of token structures, and how to achieve growth through the best mechanisms in an increasingly competitive environment.

This article integrates insights from the past, present, and future of VC participation in Web3 and explores how the new Tokenomics model can reshape the entire ecosystem.

ICO Frenzy: Historical Background of Web3 Fundraising

The ICO craze of 2017-2018 was a pivotal moment in crypto funding, marked by:

Minimal lock-up and huge returns: VCs enter projects at lower valuations than regular investors and without a lock-up period, resulting in huge returns (e.g., @Zilliqa achieved 50x growth after its ICO in January 2018).

Liquidity concentration: At the time, only a small number of tokens were issued each week in the market, and investors had limited choices. This scarcity drove demand and amplified returns.

VC as a signal: The attraction of VC is not mainly its capital (most ICO projects do not need much capital in the stage without products), but its signaling effect. Projects raise millions of funds by attracting a few well-known VCs, thereby attracting more ICO investors to participate.

However, this period was not sustainable. Scams, money flight and unclear regulation undermined market trust.

By 2019, regulation began to shape a more structured funding environment. Characteristics of this period include:

Longer lock-up period: VCs need to accept longer lock-up periods when entering private rounds. The market can no longer support the hype-driven “same-day unlocking” behavior of VCs in the early days.

Fragmented liquidity: The market is oversaturated with too many ICO projects launching at the same time. Investor demand is no longer concentrated in a few projects, and the hype that early success relied on begins to wane.

VC as a source of funding for builders: Founders need VC funding to develop products before launching tokens. This marks a shift in the funding landscape from speculative ICOs to a more product-focused approach.

After 2019, the market transitioned to what is now often referred to as a “low circulation, high FDV (fully diluted valuation)” environment, where token issuances typically have low circulating supply at launch and high FDV valuations.

Challenges facing VCs today

Despite the important role VC has played in history, it faces increasing challenges in today’s market:

1. Tokenomics Mismatch

Historically, VCs have entered at low valuations and with short lock-up periods, which is inconsistent with the interests of ordinary investors. This has led to reputational issues and a lack of trust.

Poorly designed Tokenomics (e.g., low circulation, high FDV) lead to projects experiencing “sustained and expected sell-offs” after launch.

2. Reduced demand for VC funding

Wealthier founders: Successful founders no longer rely on VCs, but instead use their personal resources to launch projects.

Retail-driven models: Memecoin and high liquidity offerings (see @HyperliquidX) show that some projects can succeed without VC involvement.

Weakened signaling effect: Although some mainstream VCs still have influence in infrastructure projects, their influence in application-layer projects has declined significantly.

3. Product-market mismatch

For most Web3 projects, community and users are the driving force for success. However, VCs are not good at reaching out to the community.

As a result, the role of traditional VCs is gradually being replaced by well-known angel investors, who often have closer connections with end users and are better able to drive community-driven growth.

The Future Role of VCs

While the need for VC funding may be uncertain, VC remains relevant in certain contexts:

1. Deeply participate in the ecosystem

VCs need to actively participate in ecosystem activities, such as mining, Memecoin trading and other retail-level operations.

To stay relevant, VCs need to exist not only as institutions, but also as players deeply embedded in the trenches. This involvement enables them to provide unique insights into evolving growth hacking strategies, Tokenomics designs, and market strategies.

2. Provide strategic value

Founders increasingly value VCs that can provide real value (e.g., operational support, Tokenomics guidance, market expertise).

While angel investors can help, they are not as focused on portfolio management as VCs.

VCs need to transform from passive financiers to active strategic partners.

3. Selective participation

VCs can focus on a small number