Tether decides to step in to save the crypto VC industry.
On September 24, facilitated by the Luthnick family, U.S. Secretary of Commerce, Tether, the issuer of USDT, intends to sell about 3% of its shares at a valuation of $500 billion, raising at least $15 billion.
Prior to this, funding for stablecoin startups in 2025 was less than $600 million. According to Rootdata, the overall funding in the crypto industry was only $13 billion.
Amidst the crisis, Binance raised $2 billion in Q1 2025, Q2 was relatively quiet, and in Q3, DAT treasury strategies became prominent, with Q4 expected to revolve around Tether.
The recovery has not occurred; the difficulties in financing crypto enterprises and the challenges for crypto VCs will continue.
The financing amount in the first half of 2025 has already surpassed the total for all of 2024, which does not indicate a better situation for 2025, as 2024 was exceptionally poor. According to The Block, in 2024, only 20 VCs accounted for 60% of all LP capital, while the remaining 488 companies divided the remaining 40%, reflecting a concentration that demonstrates the disorder and intensity of the competition.
The Collapse of the Asset Creation System
The DeFi Summer began in 2018, and the Perp DEX War in 2025 originated in 2022.
The Federal Reserve has initiated a rate-cutting cycle, which in previous narratives would be a favorable factor for on-chain and DeFi, as the pressure for APR to outperform U.S. Treasury yields is lower, leading to a surge of funds into high-yield products like trading and lending.
However, in this cycle, if there is still a cycle, the situation may not be as optimistic as before.
On one hand, crypto products are now deeply tied to U.S. Treasuries and the dollar; for instance, the underlying yield of many YBS (yield-bearing stablecoins) does not hedge against ETH but comes from U.S. Treasury interest plus their own subsidies. On the other hand, the valuation system for on-chain assets has effectively collapsed, with high FDV crushing Binance's main pricing system, leaving only Binance Alpha barely surviving.
Further contemplating the valuation logic, there are only two scenarios in the crypto industry that are most profitable:
A very small number of participants with relatively high capital liquidity, such as during the DeFi Summer when there were 1,000 on-chain users and 100,000 to 1 million CEX buyers—> asset creation was the most profitable, and the wealth effect of issuing tokens could cover VC investments and project operations. A 1,000x return on $Aave was not extreme; it was merely commonplace at the time.
An absolute large number of participants with unlimited capital liquidity, such as USDT, public chains ($BTC/$ETH), and exchanges (Binance/FTX/Hyperliquid), where the network effects diminish sequentially. Even calculating with USDT's user base of around 1 billion, it still cannot compare to internet super applications.
Currently, family offices, pension funds, sovereign wealth funds, and internet giants are unlikely to invest heavily in the asset creation field, but will consider scale effects more, which also means that the imagination of blockchain as a productivity technology has peaked and can only be valued as a large-scale fintech.
Image Source: @zuoyeweb3
In contrast, the capital market still harbors fantasies about aerospace (SpaceX) and AI (OpenAI/Anthropic), rather than relying on transportation capacity and computing power for pricing.
Once crypto companies go public, their valuations will also collapse to fintech levels, and the market's validation methods for network effects are continuously changing.
For example, Circle's USDC issuance is at the $70 billion level, while Tether's $170 billion is 1.7x, but Tether's valuation of $500 billion is 16x Circle's current market cap of $30 billion.
Another example is that Coinbase raised about $500 million in six rounds before going public, far less than Binance's single $2 billion financing this year.
If we calculate the market cap of BTC/ETH, we will conclude that super-scaled crypto projects do not need to go public, but this clearly does not align with current trends. DAT, ETF, and IPO have become unattainable exit strategies for current crypto VCs and projects.
Continuing to break it down, the strong cycle of asset creation from 2017 to 2021 was a golden period for crypto VCs, but after 2021, the situation changed rapidly, with exchanges becoming the main axis of industry development, especially the competition between FTX and Binance attracting everyone's attention, including regulators.
Asset creation quickly shifted towards trading, with the core of all competition being the coin listing effect. The hot financing and rising effects of CeFi and altcoin seasons were all spillovers from the advantageous position of exchanges. However, the collapse of FTX in mid-2022 changed everything, and VCs holding out until 2024 to exit gracefully has become a reality.
Perhaps, the shift towards trading is precisely a byproduct of the FTX collapse in 2022. Hyperliquid seized its opportunity, and refusing VC investment was merely an excuse; embracing market makers and institutions became the main focus. During the $USDH voting phase, No Limit Holdings/Infinite Field/CMI all "self-exploded" by participating in HL market making.
Before the complete explosion of DAT in Q3 2025, Galaxy Research had previously analyzed the Q2 financing situation, revealing that companies established in 2018 accounted for most of the raised funds, while companies founded in 2024 held the largest share of trading volume. This means that startups can secure small amounts of funding for experimentation, but large amounts of capital flow to companies that have been validated by the market, making it more "crypto" to "cross cycles."
Money ultimately flows to the bulls that do not lack funds, while suffering ultimately flows to the horses that can endure hardship.
However, after Scroll's "runaway," the tech infra startup season has basically come to an end. The concept stacking of ZK+ETH+L2 cannot ensure returns, and there seems to be nothing that can guarantee the future.
Adding to the woes, current flows do not equate to future viability. For instance, while Perp DEX is set to launch in 2025, if one did not invest in 2022, there is no point in following up now. The war for trading has already ended, and this will not be the market consensus moving forward.
Binance will have direct contact with all retail investors, and Hyperliquid does not mind outsourcing the front end to Phantom; liquidity is its own moat, and network effects are continuously evolving.
At this point, we can piece together the disfocus in industry development and VC investment. The crypto industry is cyclically much stronger than traditional internet industries, completing a small cycle in just 2-3 months, while VC investments in infra often take 2-3 years to yield results. This means that after at least 10 small cycles, the sectors VCs invest in must become mainstream, and the projects they invest in must become mainstream in that sector, making a double hit comparable to a roller coaster.
The Impact of the Trading-Oriented System
The collapse of valuation logic requires a long time for reconstruction.
Perhaps everyone is a VC, or perhaps mergers and acquisitions are also exits.
Currency has a time cost, and VCs are the funding parties for primary and secondary information asymmetries. The liquidity of information ultimately translates into excess profits. Classic IPOs or Binance's main site are places where money and tokens flow, but now one either helps projects go public or directly pivots to Alpha; a thought can lead to heaven or hell, and ABCED can directly close down.
Whether it is DAT, ETF, or mergers and acquisitions, the role of VCs is no longer that of "dream makers," but more like funding providers. For instance, this year, DAT's total financing reached $20 billion (excluding Strategy), but Peter Thiel's U.S. stock ETH, Huaxing can only buy BNB on the Hong Kong stock market, and Summer Capital can only be the main operator of $SOL DAT.
This is actually abnormal; trading is concentrated in BTC/ETH, while DAT has begun to spread to smaller coins. Perhaps altcoins are a rigid demand; beyond the primary market, there are more ways to play. The only problem is that most DAT and VC funding parties cannot artificially create a 1,000x return.
Image Source: @Strategy
A deeper crisis lies in the fact that financing does not necessarily require VC participation, especially non-U.S. VCs. Polymarket's acquisition of the CFTC-registered exchange QCEX marks its return to the U.S. market, and Tether's launch of the Genius Act compliant stablecoin USAT also marks its return to the U.S. market. ETFs and DAT have also primarily occurred in U.S. stocks, which is the U.S. market.
The trading orientation is no longer a competition between higher-quality matching engines but rather the maturity of capital operations. The so-called compliant exchanges resemble the entry barriers for newcomers, with high walls and high fees.
Beyond financing, industry brands themselves are also beginning to couple, reflecting the merger cycle of 2024-2025. Coinbase acquired Deribit to fill the options market gap, Phantom acquired the wallet tool Bitski, security product Blowfish and trading tool SolSniper, and even Stripe is acquiring wallet service Privy and stablecoin tool Bridge.
Image Description: Crypto M&A Activities
Image Source: @zuoyeweb3
Whether it's Coinbase's vision of Everything Exchange or Hyperliquid's slogan of House All Finance, the distinction between CEX and DEX has become less significant. The focus of trading is no longer about connecting with retail investors, but rather about providing more mainstream or long-tail trading options, as well as liquidity! Liquidity is still liquidity!
Thus, Coinbase will partner with Circle to issue USDC, and Hyperliquid will manage $USDH on its own. What they value is not the scale effect of stablecoins, but rather the customer acquisition and retention capabilities of stablecoins, which is their biggest difference from USDT.
From the VC perspective on USDT, investing in Tether may be expensive, but it is a surefire profit;
USDT's current fundraising:
Open fundraising during a low-interest period to utilize external funds for developing its diversified business.
Provide opportunities for entities related to the "Chuanbao" (川宝), referencing Binance's completion of financing using USD1.
Anticipate a more intense competition in the stablecoin market, especially regarding the profit-sharing mechanism of YBS, which requires countering Circle and addressing Ethena.
Trading orientation has become a common characteristic of capital flow in 2025, but this is not the future. DAT, financing, LPs, stablecoins, and RWA all lack imagination; participating in Perp DEX or stablecoins is merely a choice for workers without significant impact.
At the end of the day, VCs are manual operations that must bet on future "feelings" and "trends," demystifying underlying technologies, network effects, and current hotspots, seeking PMF over long cycles.
A thousandfold return depends on the next "global application." What else is there beyond stablecoins, exchanges, and public chains?
Mining has reached a critical point; the future of mining lies in data centers or altering the Bitcoin economic model. Simply put, it means collecting transfer fees, which differ from trading fees that maintain the Bitcoin network; transfer fees maintain user interests.
The various links in the trading orientation have already been encircled by existing giants. Challenging Coinbase, Hyperliquid, and Binance is nearly impossible; it is more feasible to engage in peripheral activities around them or become part of their ecosystem.
It is worth noting that the strength of exchanges and market makers is an illusion, effective only within the Binance ecosystem. In higher-dimensional capital flows, they also become weaker. In dimensions like ETFs, DAT, and M&A, market makers are not strong, especially regarding the secondary return rates of BTC/ETH; exchanges and market makers are not smarter than others.
If there is enthusiasm for stablecoin financing, the only question is how they plan to counter USDT's first-mover advantage and network effects. This is not a difference in capital volume, but rather a change in consumer behavior.
Traditional internet companies can burn money to gain market share in ride-hailing, food delivery, and local services, but how to get people to switch financial assets is still an unsolved problem. The current awkward situation is that trading orientation will not be the focus of future innovation, but we have yet to come up with interactive forms beyond trading.
Conclusion
The crypto industry is undergoing a split and must transcend the fintech valuation framework. Embracing global applications is the way forward, but we are now at a crossroads. Will the future be more, more frequent, and more mainstream trading, or broader uses (blockchain, stablecoins, RWA, Web3)?
A preliminary summary of the VC industry in 2025:
Cycles are fragmented, trading is mainstream (BTC/ETH), and investment is concentrated.
Crypto enterprises face financing difficulties, crypto VCs struggle to raise funds, and the valuation system has collapsed.
Transitioning from investment to financing, the intermediary attributes are enhanced, with reduced interaction with the secondary market.
The main axis is dispersed: Q1 Binance, Q2 dispersed, Q3 DAT, Q4 stablecoins.
The current situation resembles the collapse of the crypto bubble at the beginning of the century. People need to reorganize the old landscape. Facebook, Google, and Apple are products of the summer after the bubble. Perhaps counter-cyclical investment looks to Arthur Hayes?
In short, we need a Peter Thiel of the crypto era, not an a16z of the internet era.
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