Crossing the chasm, “crypto-related” companies will replace “crypto-native” projects and move towards the mainstream

Author: Richard Chen

Compiled by Tim, PANews

It's 2025, and cryptocurrencies are going mainstream. The GENIUS Act has been signed into law, and we finally have a clear regulatory framework for stablecoins. Traditional financial institutions are embracing cryptocurrencies. Crypto has won!

As cryptocurrencies cross the chasm, this trend means for early-stage venture capital investors: we're seeing crypto-related projects gradually surpass crypto-native projects. "Crypto-native" projects are those built by crypto experts for the crypto world, while "crypto-related" projects are those that leverage crypto technology from other mainstream industries. This is the first time I've witnessed this shift in my career, and this article aims to delve into the core differences between building crypto-native and crypto-related projects.

Built natively for crypto

To date, almost all of the most successful cryptocurrency products have been built for crypto-native users: Hyperliquid, Uniswap, Ethena, Aave, and others. Like any niche cultural movement, cryptocurrency technology is so advanced that it's difficult for ordinary users outside the crypto community to "grasp its essence," let alone become enthusiastic daily users. Only crypto-native players, hard-working on the front lines of the industry, have the risk tolerance and the willingness to invest in testing each new product, surviving various risks, such as hacker attacks and project owners' absconding.

Traditional Silicon Valley venture capitalists once refused to invest in crypto-native projects because they believed their total effective market was too small. This was understandable, as the crypto space was indeed in its very early stages. On-chain applications were few and far between, and the term DeFi wasn't coined until October 2018 in a San Francisco group chat. But you have to bet on faith, praying for a macro dividend to arrive and allow the crypto-native market to leap forward. Sure enough, with the dual support of the liquidity mining craze of the DeFi summer of 2020 and the zero interest rate policy period of 2021, the crypto-native market has expanded exponentially. Suddenly, every Silicon Valley venture capitalist rushed to enter the crypto space, seeking my advice, trying to make up for the four years of knowledge they had missed.

As of now, the total addressable market size of crypto-native users remains limited compared to the traditional non-crypto market. I estimate the crypto Twitter user base to be in the tens of thousands at most. Therefore, to achieve nine-digit (hundreds of millions of dollars) annual recurring revenue (ARR), average revenue per user (ARPU) must remain extremely high. This leads to the following key conclusions:

Crypto-native projects are built from the ground up for experts.

Every successful crypto-native product follows an extreme power-law distribution of user usage. Last month, the top 737 users on OpenSea (just 0.2%) accounted for half of all trading volume, while the top 196 users on Polymarket (just 0.06%) also accounted for 50% of the platform's trading volume!

As the founder of a crypto project, what really keeps you awake at night should be how to retain top core users, rather than blindly pursuing user growth. This is completely contrary to the traditional Silicon Valley concept of "daily active users first".

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 simply poach a few core users and erode market share. Witness the battles between Blur and OpenSea, Axiom and Photon, and LetsBonk and Pump.fun, among others.

In short, compared to Web2, crypto projects have a much shallower defense system. Furthermore, with all code open source and projects prone to forking, native crypto projects are often short-lived, rarely lasting more than a single market cycle, and sometimes lasting only a few months. Founders who become incredibly wealthy after a TGE often choose to retire, turning to angel investing as a sideline in retirement.

The only way to retain core users is to continuously drive product innovation and stay one step ahead of competitors. Uniswap's ability to remain resilient amidst seven years of fierce competition stems from its continuous rollout of groundbreaking features, from zero to one. Innovations like V3 centralized liquidity, UniswapX, Unichain, and V4 hook design consistently meet the needs of core users. This is particularly commendable, considering its deep involvement in the decentralized exchange market, arguably the most competitive of all.

Build for encryption

Numerous attempts to apply blockchain technology to broader, real-world markets, such as supply chain management and interbank payments, have failed prematurely. Fortune 500 companies have experimented with blockchain technology in their R&D and innovation labs, but haven't taken it seriously enough to implement it in production at scale. Remember those buzzwords back then? "Blockchain, not Bitcoin," "distributed ledger technology," and so on.

We're currently witnessing a radical shift in attitudes towards cryptocurrencies among a large number of traditional institutions. Major banks and corporations are launching their own stablecoins, and regulatory clarity during the Trump administration has opened up policy space for the mainstream adoption of cryptocurrencies. Cryptocurrencies are no longer an unregulated financial wilderness.

For the first time in my career, I'm starting to see more crypto-related projects rather than crypto-native ones. And for good reason, the biggest success stories in the coming years will likely be crypto-related rather than crypto-native. IPOs are scaling into the tens of billions of dollars, while TGEs 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 using DePIN to incentivize data collection
• Consumer companies using zkTLS to authenticate private data

The common rule here is: encryption is a feature, not the product itself.

For industries heavily reliant on crypto, professional users remain crucial, but their extreme nature has been tempered. When cryptocurrencies exist solely as a function, the key to success lies less in the technology itself and more in whether practitioners possess deep expertise in crypto-related fields and a deep understanding of the industry's core elements. This is evident in the fintech sector.

Fintech's core is user acquisition with favorable unit economics (user acquisition cost/user lifetime value). Emerging crypto fintech startups face a constant fear that established, non-crypto fintech giants with larger user bases could easily crush them by simply adding cryptocurrency as a functional module, or drive up customer acquisition costs and render them uncompetitive. Unlike pure crypto projects, these startups cannot sustain operations by issuing market-driven tokens.

Ironically, the cryptocurrency payments space has long been a largely uncharted territory. I stated this in my 2023 Permissionless conference speech! However, the period before 2023 is prime for launching crypto fintech companies, allowing them to seize the initiative and build distribution networks. Now, with Stripe acquiring Bridge, crypto-native founders are shifting from DeFi to payments, but they will ultimately be defeated by former Revolut employees who understand the fintech landscape.

What does "crypto-related" mean for crypto VCs? The key is to avoid reverse screening founders who were rejected by non-specialized VCs, preventing crypto VCs from becoming shills due to their unfamiliarity with the relevant fields. Much of this reverse screening stems from selecting crypto-native founders who have recently transitioned from other fields to "crypto-related." A harsh truth is: crypto founders are generally considered to be Web2 losers (though this is not the case for the top 10% of founders).

Crypto venture capital firms have always found a niche, discovering promising founders outside Silicon Valley networks. These founders lack impressive resumes (like a Stanford degree or experience at Stripe) and are not adept at pitching their projects to VCs. However, they possess a deep understanding of crypto-native culture and know how to build passionate online communities. Hayden Adams, laid off from his mechanical engineering job at Siemens, initially wrote Uniswap simply to learn the programming language Vyper. Stani Kulechov started building Aave (formerly ETHLend) shortly before graduating from his law degree in Finland.

Successful founders of crypto-related projects will stand in stark contrast to successful founders of crypto-native projects. No longer will they be the Wild West financial cowboys who understand speculator psychology and build charisma around their token networks. Instead, they will be more sophisticated and business-savvy founders, often from crypto-related fields, with unique go-to-market strategies to achieve user reach. As the crypto industry matures and steadily develops, a new generation of successful founders will emerge.

at last

The Telegram ICO in early 2018 vividly demonstrated the mindset gap between Silicon Valley and crypto-native venture capital firms. Firms like Kleiner Perkins Caufield & Byers, Benchmark, Sequoia Capital, Lightspeed Venture Partners, and Redpoint Ventures invested heavily, believing Telegram had the user base and distribution channels to become a dominant application platform. Meanwhile, nearly all crypto-native venture capital firms chose to forgo investment.

2. My contrarian view on the crypto industry is this: there's no shortage of consumer applications. In fact, the vast majority of consumer projects simply can't secure venture capital funding due to their unstable revenue generation capabilities. Entrepreneurs of these projects shouldn't seek venture capital at all. Instead, they should bootstrap profitability and capitalize on the current consumer boom. They must seize this few-month window to accumulate initial capital before the tide turns.

3. Brazil's Nubank enjoyed an unfair competitive advantage because it pioneered the "fintech" category before the concept became widespread. More importantly, in its early days, it only had to compete with Brazil's traditional banking giants for users, not with emerging fintech startups. As Brazilians' patience with existing banks reached its limit, they immediately flocked to Nubank after the product's launch, enabling the company to achieve a rare combination of near-zero customer acquisition costs and perfect product-market fit.

4. If you want to build a stablecoin digital bank for emerging markets, why stay in San Francisco or New York? You need to be deeply involved in local conversations with users. Surprisingly, this has become the number one criterion for screening startups.