Most token generation events have posted weak trading after launch in recent months, according to Paul Klay, venture partner at Begin Capital. He said the few projects that rise against that trend often end up facing questions from the market over compliance.
Klay described the investment logic behind SAFT-based crypto deals as a break from the traditional venture model, one that looks in some ways like prediction markets and gambling. A SAFT, or Simple Agreement for Future Tokens, is an early-stage fundraising tool in crypto that gives investors the contractual right to receive tokens after mainnet launch or a TGE.
Token issuance created a different kind of exit path
In Web2, venture firms and founders usually make money through an exit or an initial public offering, Klay said. Both are rare and difficult. Crypto opened another route: even if a project itself did not succeed, the team could still issue a token. If retail buyers stepped in, the project got liquidity right away.
He said that in a traditional venture portfolio, 1 out of 10 projects may return the entire fund, while the other 9 can go to zero. In crypto, at least in theory, all 10 projects could produce some return.
That sounds attractive on the surface. Klay said the system carries three fatal weaknesses.
Problem one: wealth does not appear out of nowhere
Klay contrasted token issuance with the IPO process, which he said follows a clear structure. Companies go through strict review, financials are checked, regulators are involved, and valuations are tied in broad terms to current profitability and expectations for future earnings.
Crypto worked almost in the opposite direction, he said. Until recently, getting listed on a top-tier exchange could require surprisingly little scrutiny. If trading volume was there, listing was possible. Token market capitalizations often had little to do with the business fundamentals of the project itself.
He added that investors held token exposure while the project team kept all operating revenue, leaving the economic interests of the two sides disconnected. What was once treated as a simplified version of an IPO turned into a casino, in his view. Retail investors lost money, lost interest, and eventually left.
Klay said the market is only now refocusing on basic questions: Can the company make money? Does the product have real users? And are those users actual people or bots and airdrop farmers?
Problem two: a lack of transparency
Klay said this may be the biggest issue. The people controlling the process are often the only ones who know what is really going on.
Outside investors cannot verify whether key opinion leaders were actually paid for promotion, he said. They cannot tell why a market maker acted one way rather than another. They often have no explanation for why large amounts of supply hit the market within 1 minute of a token listing. They also cannot trace where marketing budgets were spent, and much of what project teams say is hard to verify.
Unless someone is directly involved in operating the project, Klay said, they are left choosing whether to believe the story they are being told.
He also said many crypto venture investors ignored this for years. They did not seriously check the facts, motives, or fund flows behind events. They just needed the token to launch, until many of them ended up going bankrupt one after another.
Problem three: the process is extremely complex
Klay said the sector used to be driven more by hype than by real enterprise value. To make money, participants had to understand a long list of variables: marketing, KOLs, exchanges, market makers, launch platforms, liquidity, listing arrangements, and token allocation.
One decision could produce a 500% return, he said. Another could wipe out the return entirely. Telling the difference usually required years of industry experience and a full run through the token issuance process.
That is nothing like an IPO, he argued. In crypto, the game was often not about figuring out what an asset was worth, but about finding a way to sell it at a price far above its real value. Some people became very good at that.
How crypto venture capital is changing
Klay said the industry is slowly accepting that the old model no longer works. He pointed to several shifts already underway.
- SAFE and SAFT agreements have become close to standard.
- Investors are placing more weight on real revenue and business models that are clear and easy to understand.
- Due diligence is moving closer to Web2 norms.
- More capital is going to sectors that have already shown product-market fit, including gambling and prediction markets, meme coin launchpads, payments, digital neo-banks, fiat on- and off-ramps, and AI.
- DePIN and RWA are drawing relatively less capital.
SAFE stands for Simple Agreement for Future Equity, a common early-stage financing tool in Web2. Klay said mixed SAFE-and-SAFT structures are now increasingly common in Web3 financing rounds, with some investors taking equity and others taking rights to future tokens instead of relying only on SAFTs and betting on post-listing token arbitrage.
He said Web3 fundraising used to be close to a frontier market. Now, if a project can raise capital in Web3, it should in theory also be able to raise money in Web2.
The middle ground is disappearing
On where the market is headed next, Klay said the industry is maturing. Venture firms that once sprayed capital blindly have either already left the market or learned painful lessons. Those still active are building stricter investment processes.
He said that is healthy for the sector because it raises the odds of producing crypto applications and products that are actually used.
Retail investors have also become more rational, in his view. What remains now are two approaches: either participants know they are dealing with pure gambling and trade in and out quickly, or they back projects with real products, real users, and real revenue, where holding the asset has a clearer logic.
Klay said the middle ground is fading. Pitches such as 「We are about to release an amazing product」, 「Everything is progressing smoothly」, and 「Big positive news is coming next month」 once worked well. Now they are getting much harder to sell.