The most important thing in Web3 primary market investment

Author: Future Little Brother

If the Web3 from 2017 to 2021 was a blue ocean, then the investment in the primary market of Web3 from the end of 2021 to the end of 2025 can be said to be a minefield everywhere. The investment logic and environment have shifted from purely "project future narrative-driven" to "economic model, further detailed, driven by both data and logic." The difficulty level has significantly increased, especially for primary capital, as the unlocking cycle aligns with the Cliff policy seen in Web2, greatly affecting the activity of new projects. Among the 70 new projects launched by the largest cryptocurrency exchange in 2025, 95% showed a consistent downward trend. What caused this? Based on the current market environment, we will elaborate on several key judgment factors for early rounds in this section.

1. Project Essence: Changes in Entrepreneurial Value and Judgment

In the Web3 field, the team is the only non-standardized variable and the soul of early projects. Judging entrepreneurs requires looking beyond their shiny resumes to penetrate their "crypto-native" level, the authenticity of technical delivery, and their moral bottom line in the face of extreme interests. Since many in the primary market are still in the budding stage, the capabilities, vision, and professional ethics of the entrepreneurial team are crucial. The ability to assess people has become one of the most important talents and skills for investors in this track.

• Github Submission Frequency: Don’t just listen to the technical vision in the Pitch Deck. ++In the AI era, many BP are even generated by AI with a single click, filled with AI fantasies.++ For technology-driven projects (such as Infra, ZK, L2), it is essential to have technical partners or other technical institutions review their underlying code on GitHub. However, since many early projects have not yet started building products, this step also ++heavily relies on the past capabilities and reputation of the entrepreneur++. For example, regarding Algorand's technical vision at the time, knowing that a Turing Award winner from MIT was behind the project naturally reduced the difficulty of conducting technical due diligence.
• But by 2026, ++as the number of high-quality projects led by++ ++top players++ ++gradually decreases++ and younger entrepreneurs emerge for new projects, the requirements for human judgment and technical review have reached a new height.
• Activity Trap: Beware of projects that rush to submit code before financing and remain silent for a long time after financing. Data from 2025 shows that projects that have not been audited or whose codebases have been inactive for a long time have an 80% higher risk of Rug Pull.
• Diversity of Contributors: Check whether the code is submitted by a single person or has diverse contributors. Large projects maintained by a single person often imply a very high "Bus Factor" risk. Although the number of OPC companies has increased in the AI era, the oversight of senior technical personnel and security risk screening for large projects is still very necessary.
• Risks of Web2 Executives Airlifted: Be cautious of "airlifted executives" with perfect resumes from large Web2 companies but no trace in Web3. This type of airlift can easily bring all the bad management practices from Web2 into the Web3 ecosystem, making it very easy to be out of place and causing the entire project to operate weakly later on. Unless there are other team members with rich Web3 experience to balance this, the risk factor will be too high at this critical juncture in 2025-2026. The decentralized governance and community culture of Web3 are vastly different from Web2, and they often lack practical experience in handling community crises (such as governance attacks, fork threats, economic models).
• Serial Entrepreneurs: Deep Attribution of Past Failures: Serial entrepreneurs enjoy a premium in Web3, but it is necessary to distinguish whether they are "honorably defeated," "maliciously harvesting," or "purely inexperienced." Soft Rug Detection: Investigate whether their previous project experienced a soft rug, meaning the team stopped development after fundraising, citing "poor market conditions," without refunding the funds. Treasury Abuse History: Check the multi-signature wallet records of previous projects to confirm whether there were any instances of misappropriating public funds for personal investments or high-risk financial management without community voting.

2. Judging Resources Behind the Project

Around 2026, the primary market of the Web3 industry also entered a new stage, with some confusing points. Major exchanges frequently launched meme and sentiment-based coins over the past year, causing many technically grounded projects that do not focus on marketing to be overlooked. This situation may gradually improve (Note: As of the end of March 2026, Binance has begun optimizing the quality of launched projects, reducing purely meme types, but the residual effects from the past two years will take time to detoxify. The new project valuation market is no longer enthusiastic, and the listing effect cannot be compared to that around 2020. If Binance is like this, the aftereffects for other major exchanges will be even more pronounced), but for new projects, it is still essential to judge the resources behind them. The ++core of resource judgment lies in distinguishing "value-added capital" from "scythe capital"++ ++and the level of advisors, as well as whether there are some acquaintances operating behind the scenes++ . In identifying the true value of partners, it is not only important to see who invested but also to understand "how they invested" and "what they do after investing."

• Signal Noise from Top VCs: Although investments from a16z, Paradigm, Polychain, and Coinbase are strong signals, it is essential to note the difference between lead and follow investments. Moreover, due to the previously mentioned Cliff dilemma, the actual returns of top VCs have also significantly decreased, and many VCs in the industry have faced bankruptcy or been forced to initiate larger rounds of financing. Many VCs' investments over the past four years have likely been underwater. Thus, the follow-up from top VCs may be more of a directional assist, and true value judgment still relies on the investors themselves.
• Follow Investment Judgment: If a top VC only follows with a very small share (such as $30k - $100k) and does not enter the board (Note: But it is also necessary to pay attention to the entry round and valuation, ++if entering at a very low valuation, such as 3M, then even a few tens of thousands of U is a very high proportion++), this is often a quota given by the project party to "add gold" or purely a personal favor, which general investment institutions cannot obtain at such a cheap valuation. If they only participated in a small portion of subsequent high-valuation investments, then this type of "Logo investment" does not represent that the VC will provide actual resource support (such as recruitment, legal affairs, token model design). However, for particularly sought-after projects, a small share of low-valuation tokens may bring strong endorsements, which needs to be judged based on specific circumstances.
• Grant Value of Public Chain Foundations: Compared to VC investments, obtaining grants from the Ethereum Foundation, Solana Foundation, or NEAR, BSC Foundation, etc., usually represents relatively more hardcore technical recognition. The due diligence process for these grants often focuses more on code implementation than VCs. However, this is only relative, ++because with the increase in application volume due to industry heat and the influx and repeated movement of new Web2 personnel, the judgment level of foundation personnel can also vary greatly. The same brand may have drastically different levels due to changes in the main leader.++ For example, Binance Labs (now renamed: YZI Labs) and Algorand have both experienced investment quality dilemmas due to large-scale personnel changes. However, Binance, due to its strong cash flow from exchange operations, can afford a level of trial and error that general VCs do not possess.
• Direct Access to Exchange Relationships: Assess whether there are early investors with direct relationships with Binance, Coinbase, Upbit, etc. Institutions with strong ties to exchanges often have priority in trust and review. These resources can significantly increase the probability of a project being listed on Tier 1 exchanges, which is key to solving exit liquidity.
• Identification of Scythe Capital and Advisors: Conduct thorough research on some VC brands and individuals whose reputations have fluctuated in the past. Although there are no insider listings in the Web3 industry, there are still individual cases where personal relationships lead to listings. In such cases, it is crucial to understand whether the participating projects have institutions with poor reputations or those that continuously harvest investors, and to avoid them as early as possible. (Note: However, due to the emergence of the Cliff, the VC layer has actually decreased, replaced by a higher proportion of irresponsible project ecosystems, token scamming, and airdrop rats, which are less constrained and more hidden tokens, leading to a situation where both investors and VCs are harvested by projects, causing a continuous negative impact on the industry.)

3. Judgment of the Heat in the Respective Track

Investment timing and track selection are key to determining the upper limit of investment return on investment (ROI). This dimension of judgment cannot rely solely on market sentiment; it requires a comprehensive use of Gartner curve positioning, on-chain data falsification, and macro-geopolitical arbitrage strategies to identify real value valleys amidst the noise.

• The essence of investment is cognitive realization, and the level of cognition depends on the judgment of cycles. Recovery Phase Tracks (Stable Growth Type): Tracks such as DeFi lending and RWA (Real World Assets) have passed the concept FOMO bubble burst phase and entered the "enlightenment climbing phase." The characteristics of these areas are generating real income (Real Yield), clear business models, and having sticky professional users. ++At this time, the primary market, including some secondary market investment strategies, should focus on finding undervalued leaders or middleware with a large user base that has not conducted sufficient Web3 promotion or is dedicated to solving specific efficiency issues, mainly pursuing relatively high certainty Beta returns.++
• Expectation Inflation Phase Tracks (High-Risk Gaming Type): AI x Crypto (decentralized computing power/agents), DePIN (decentralized physical infrastructure) are at the peak of the typical "expectation inflation phase" in 2024-2025. Current valuations generally contain huge narrative premiums, with severe capital crowding. Investing in such tracks requires extremely strong quick in-and-out capabilities, pursuing high explosive Alpha returns, but due to the current cliff cycle, it is better to participate in projects with long-term leading potential that can withstand the test of time and bull-bear cycles. At the same time, one must always be vigilant about the risk of narrative bubble bursts.
• Distinguishing Technical Moats from Narrative Moats: In heat judgment, it is necessary to distinguish whether the project builds barriers through hardcore technology (such as new proof mechanisms of ZK-Rollup) or maintains heat through marketing rhetoric (such as "intention-driven architecture"). The former still has survival space after the heat recedes, while the latter often fades quickly.
• Deep Penetration of On-Chain Data and Narrative Falsification: Social media noise is often a reverse indicator; only on-chain data does not lie, though there can also be false short-term data that misleads.
• Structural Differences Between True and False Heat: When using Dune Analytics or Nansen to track capital flows, one should not only look at the absolute value of TVL but also at the composition and retention of TVL.
• Structural Heat is reflected in: When token incentives stop or the market declines, TVL and the number of active wallets still maintain growth or stability (such as the Layer 2 track in 2024-2025, relying on the real demand of the Ethereum ecosystem).
• Characteristics of False Prosperity: If data fluctuates violently with token prices or is mainly supported by a few whale addresses, it is mostly a false prosperity built up by marketing activities (such as "vampire attack" mining). It is essential to focus on retention rate analysis (Cohort Analysis): ++What is the retention rate of the first batch of users who came for airdrops after three months? If it is below 5%, it indicates that the product lacks real use value (Product-Market Fit).++
• Monitoring the Flow of Smart Money: Track wallets marked as "Smart Money" or those of well-known institutions. If they are quietly building positions in a certain track, this is usually a leading indicator that the track is about to explode, more effective than any research report.
• Regulatory Arbitrage and Timing of Macro Liquidity Cycles: Web3 is a global market, and geopolitical and macroeconomic factors profoundly affect the ceiling of tracks. Regulatory Sensitivity and Geopolitical Arbitrage: Different tracks have vastly different sensitivities to regulation. Privacy Tracks (Privacy Pools, Mixers) face high-pressure crackdowns from global anti-money laundering (AML) efforts in 2025, with extremely high compliance risks, and investments must be extremely cautious, ++but by the end of 2025, some compliance regulations may stimulate additional heat and market for certain privacy tracks;++
• On the other hand, the RWA track benefits from the compliance framework of traditional financial institutions entering the market, enjoying a "compliance premium." Additionally, attention should be paid to policy dividends in different regions (such as changes in policies in Hong Kong and mainland China, the US, EU, Dubai, Singapore), as investing in projects that align with local policy directions can provide a policy safety net.
• Precise Positioning in Macro Liquidity Cycles: Primary market investments have long cycles, and it is essential to predict the macro environment 2-3 years ahead. Avoid making heavy investments during the "distribution period" (the peak of a bull market, the eve of an interest rate hike), as valuations in the primary market are severely overdrawn, and the probability of listing immediately falling below the issue price is very high. The best layout point is often at the end of the "accumulation period" (early in the interest rate cut cycle or the initial phase of QE), when market noise is minimal, valuations return to rationality, and projects have enough time to refine products in a low-cost environment, waiting for the right opportunity. (Note: This point should be deeply felt by VCs who made significant investments in 2021.)

4. Judgment of Experience in Successful Investments or Large Project Operations

The mortality rate of Web3 projects is extremely high, and the "survival skills" of the founding team—namely, operational capabilities, crisis management experience, and understanding of Web3-specific gameplay—are key to determining the project's lifespan. The current market situation in 2026 has undergone tremendous changes. Between 2013 and 2019, many were merely exploring the blockchain industry, and there were numerous inexperienced personnel transitioning into the field. However, by 2026, the entire market business has gradually matured regionally, and the pace of hot topics and dissemination has also changed rapidly. If entrepreneurs do not have relevant Web3 entrepreneurial, investment, or hands-on operational experience, the difficulty level and probability of project failure will significantly increase.

• The success rate premium of serial entrepreneurs shows the "second-time effect," indicating that the success rate of founders in their second venture is significantly higher than that of first-time entrepreneurs (about 18% vs. below 10%). Teams that have experienced a complete bull-bear cycle (4-year cycle) have a stronger grasp of cyclical risks and capital management. If the founder has previous successful listing and operational experience and their prior project did not experience a rug pull or collapse, then their understanding of compliance structures, listing processes, and market cap management, along with their reputation in the industry, will be a significant hidden asset, allowing them to avoid 90% of compliance and financial pitfalls.
• Operational Metrics and Go-To-Market (GTM) Execution: Assess whether the team has "cold start" capabilities, such as acquiring real users through well-designed growth strategies (like Galxe tasks), convenient and quick networks, and KOL relationships, rather than merely attracting "freebie hunters." At the same time, teams with operational experience will engage in diversified reserve management, holding stablecoins (USDC/USDT) sufficient for 12-24 months of operations to ensure survival in extreme market conditions and bear markets.
• Community Governance and Crisis Public Relations: If team members have experience, it is essential to examine how the team responded to significant price drops in past projects. Did they choose transparent compensation and active communication (Post-mortem), or did they shut down comments and go silent? Transparency is the cornerstone of community trust and a talisman for project survival in bear markets.

5. Judgment of Valuation Rationality

• Risk Discount and Audit of Anonymous Teams: While anonymity is part of the spirit of crypto, in the current institutionally dominated primary market, fully anonymous teams are usually seen as a red flag (Red Flag), increasing the risk of rug pulls.
• Discount Logic: Projects led by anonymous teams should generally be valued 20%-40% lower than those led by identified teams to compensate for trust risks.
• Compliance Requirements: If a team insists on remaining anonymous to the public, they must undergo private real-name authentication (Private KYC) through trusted third-party audit institutions (such as CertiK, SlowMist) to ensure that there is a possibility of legal recourse in the event of malicious rug pulls.
• Valuations of projects in different tracks can also fluctuate significantly. Projects in hot tracks during a bull market that are highly sought after will have their quotas quickly snatched up, often requiring a solid network to secure them in advance. However, some projects, upon closer inspection, may have excellent potential but may not have been recognized by some institutions and individuals in the short term. These are generally the value valleys and treasure zones in the primary market, heavily relying on investors' grasp of long-term value and inspiration.

6. Judgment of Unlocking Cycles and Release Model Quality

Tokenomics not only concerns incentives but also directly relates to the exit returns of investors. Poor models can lead to token prices falling into a "death spiral" or long-term negative selling pressure.

• Cliff Lockup Period and Linear Release is a lock-up cycle that has been commonly added to market projects after the 2020 bull market, typically consisting of 1-2 years of Cliff (lock-up period) + 3-4 years of linear release. Linear releases (monthly/block) are significantly better than quarterly or annual large releases, as the latter can cause periodic panic selling, but it also depends on specific circumstances, as fixed-period releases mean there is little selling pressure before the release. The most dangerous is daily releases, which can create anxiety for secondary investors due to daily selling pressure, thus affecting their interest in directly participating in the project and stimulating nodes and private investors to sell tokens daily. A classic case is Algorand's early daily linear unlocking, which caused long-term selling pressure, leading the project party to change the incentive release model to alleviate it. (Although I really like Algorand and have many fond memories of the industry, I avoid daily unlocking models.)
• If the Cliff for the team or early investors is shorter than 6 months, or if the TGE unlocking ratio is too high (>20%), it creates a significant "supply wall" risk. However, I personally believe that early massive TGE selling pressure can be a good thing for particularly high-quality projects, as it provides secondary investors who did not have the opportunity to participate in the private placement phase with a chance to enter at a relatively low cost, and the subsequent selling pressure will also decrease. (The most obvious example is Solana's private placement release mechanism, which essentially gave VCs 100% TGE, and then many VCs directly dumped, giving secondary investors an opportunity to enter at $1, while Solana later peaked around $300.)
• Inflation Rate and Distribution Structure Inflation Pressure Testing is crucial: If a project mainly relies on high emissions to attract users without a revenue destruction mechanism, the token will go to zero due to malignant inflation. In terms of distribution ratio, the community/project pool should be >50% to ensure long-term incentives; investors and the team typically each account for 15%-20%. If the investor proportion is too high (>30-40%), the project is likely to become a "VC token" and be resisted by the community. However, all release ratios also need to be adjusted based on specific circumstances; there is no perfect model, only responsible project parties and the most suitable models. (Note: In 2026, it is rare for projects to be resisted due to VC tokens; most are due to garbage project parties and irresponsible project parties being dissed, as seen in the recent backpack incident.)
• The key is still the moral level of the team itself: In the 2022-2026 cycle, new projects launched have hardly shown particularly good trends. A key reason is that although VCs' tokens are locked by Cliff, the opening price was driven to a very high FDV, stimulating project parties to dump ecological shares or airdrop "rat trading" tokens into the market early, leading to a difficult situation for investors being harvested. Many new projects in recent years have this problem. Aside from the project parties and exchanges (transaction fees), almost no one is making a profit, which undoubtedly leads to a vicious cycle that is detrimental to the healthy development of the industry.

Article Summary:

In summary, the primary market of Web3 in 2026 has long since bid farewell to the "blind investment and frantically eating narrative dividends" era. The current market environment resembles a ruthless "mirror of truth": extremely high FDV, complex Cliff unlocking dilemmas, and hidden rat trading have shifted investment logic from simply "looking at the track and institutions" to a deep "human nature and economic model game." In this hellishly difficult cycle, the logos of major institutions are no longer a golden ticket, and the heat of narratives often hides dangers. For investors, only by returning to common sense—rigorously examining the moral bottom line of founding teams, dissecting the supply-demand dynamics of token releases, and penetrating the truth of on-chain data—can they filter out truly valuable targets amidst the minefield. There is no perfect model, only builders who respect the market and act responsibly.