Skyland Ventures Partners: A Look at Emerging Crypto Areas to Watch in 2025

Author: Yonkuro

I am pleased to announce that I became a partner at Skyland Ventures' Web3/Crypto fund in November 2024. I have just published an article summarizing the Web3 and crypto landscape of 2024 from a venture capital perspective.

This year, Skyland invested in 15 projects, with 9 of them successfully going public and 2 becoming unicorns. The pace of development in this industry is incredible, and 2024 is no exception. In this article, I share insights on the transformation of the Web3/crypto space and key players from a VC perspective, highlighting emerging areas to watch in 2025.

Decentralized Finance (DeFi)

The key to a new financial system What is Web3/crypto? Understanding its essence is crucial. In my view, it represents the democratization of finance brought about by the internet and blockchain technology. Particularly through decentralized finance (DeFi), this field is reimagining financial systems that previously relied on centralized institutions. Permissionless and stateless financial services, along with the infrastructure supporting them, are at the heart of this revolution. Just as the internet has fundamentally changed various sectors such as information, retail, media, and hardware, blockchain is driving similar transformations in finance. Transactions and remittances that once required banks or financial intermediaries can now be completed instantly and at low cost using cryptocurrencies. The title "Bankless" aptly summarizes this paradigm shift. By the way, speaking of cryptocurrency videos, Unchained is another channel you should definitely check out. Nevertheless, challenges remain. The volatility in the sector has led to excessive leverage and speculation during bull markets, while bear markets often see the liquidation of over-leveraged assets, leaving significant scars. The substantial losses from security vulnerabilities and hacking incidents are also ongoing concerns, leading governments and large corporations to adopt a cautious stance. Despite these obstacles, the value of the cryptocurrency market still exceeds $3.3 trillion, surpassing the size of some national stock markets. While acknowledging these challenges, my goal as a venture capitalist is to support the paradigm shift towards "next-generation internet finance."

Virtual Protocol

A testament to entrepreneurial resilience In 2024, a landmark entrepreneurial story emerged in the industry. Virtuals Protocol was initially launched in 2021 as a token-based gaming and community DAO project. However, during the bear market of 2022, its valuation plummeted, with its FDV dropping to just $6 million. This situation would have forced many projects to retreat, but the founders of Virtuals chose to persevere and explore new directions. Starting in 2023, against the backdrop of the rise of artificial intelligence technology, they began researching AI and shifted their focus to AI agents. They developed a platform supporting tokenized AI agents, and by 2024, their FDV had soared to $3 billion, making it a leading project in the AI agent space. This success underscores the importance of long-term vision and adaptability in the face of changing market conditions. The evolution of the Ethereum ecosystem In 2024, the Ethereum ecosystem made significant strides in infrastructure maturity. The long-discussed scalability issues saw substantial progress with the emergence of Layer 2 (L2) solutions. Technologies based on zk-rollup, such as Taiko, Scroll, and zkSync, launched mainnets and listed tokens. Coinbase's Base L2 also gained attention, becoming the second-largest L2 in terms of users and TVL. Notable contributors to this success included the social application Warpcast in the first half of the year and the DEX Aerodrome in the second half. Meanwhile, Uniswap announced its own L2, Unichain, which belongs to the Optimism Super Chain framework.

Additionally, significant advancements were made in the restaking domain, led by EigenLayer. Restaking allows assets like Lido's LST to be staked again, enhancing Ethereum's security on EigenLayer's AVS while achieving shared security. Projects like EtherFi, Renzo, and Puffer have contributed to this thriving ecosystem. Ethereum has evolved into a modular, scalable ecosystem with tremendous network effects.

BTCFi

Unlocking Bitcoin's potential Bitcoin (BTC) accounts for about half of the cryptocurrency market but lacks smart contract functionality. The launch of BTC staking protocols like Babylon is addressing this limitation, allowing staked BTC to secure infrastructure. Furthermore, EVM-compatible BTC L2 solutions such as MerlinChain, B²Network, Bitlayer, and BOB have emerged, leveraging the scalability and network effects of EVM. These initiatives mark the beginning of an era where previously dormant BTC assets are becoming active. Liquidity fragmentation: challenges and solutions As the Ethereum modular ecosystem develops, competition among Layer 2 (L2) solutions has intensified, making liquidity fragmentation a major challenge. Many L2s have established independent networks, leading to a competition for liquidity. To address this issue, concepts like intent and chain abstraction have been widely adopted. Currently, using high-speed L2 bridges such as Orbiter Finance and Owlto Finance has become mainstream among users. Additionally, liquidity provision protocols have emerged to enhance liquidity solutions. Notable projects include Solv and StakeStone, which deal with both BTC and ETH, acting as liquidity hubs with substantial TVL. Moreover, Cycle Network and 0xastra have developed unique solutions to tackle these challenges.

The Resurgence of Solana

Following the FTX collapse in 2022, Solana experienced a dramatic resurgence, with its token price soaring from under $9 to $260 in 2024. The Solana Foundation and its developer community demonstrated unparalleled unity, successfully rebuilding the ecosystem. Their efforts even sparked debates about the competition between Ethereum (ETH) and Solana (SOL). The key to Solana's revival lay in major events like Jito and Jupiter, which conducted large-scale airdrop campaigns to attract users.

Additionally, the increasing use of meme coins for marketing has gained attention and attracted a large user base. Solana proved its ability to handle a high volume of transactions with minimal issues, solidifying its position as a single L1 capable of further development.

The momentum of meme coins has significantly increased, with platforms like Pump.fun generating $3.5 million in cumulative revenue within 10 months of launch. Meme coins vs. VC coins The rise of meme coins has ultimately sparked significant debates. Historically, meme coins have been viewed as speculative assets. However, the continued poor performance of tokens from VC-backed projects post-listing has changed public perception. Meme coins are beginning to be seen as "fairer and more community-centric." In contrast, VC-backed tokens have been criticized for benefiting only venture capital firms. From a venture capital perspective, it is important to note that the lock-up period for tokens post-listing is typically 6 months to 1 year, meaning that VCs cannot immediately create selling pressure. The fundamental role of venture capital remains to fund emerging projects and foster financial innovation.

There are many reasons for the decline in altcoin prices. The approval of BTC spot ETFs has garnered widespread attention, causing Bitcoin prices to soar as a benchmark for comparison. Increased competition among projects and frequent airdrops have led to a trend where users immediately sell the tokens they receive. Additionally, the rapid popularity of meme coins has further diverted attention from altcoins. As the altcoin season arrives and altcoin prices begin to rise, these debates gradually subside. Hyperliquid Hyperliquid is a permanent DEX that has built its own high-speed EVM Layer 1 chain. It is developing a roadmap to establish a DeFi-centric ecosystem on this infrastructure. Since its product launch, its exceptional user experience has attracted traders. Notably, even after the TGE, Hyperliquid did not list on CEX but chose to exclusively list on its own platform. The project did not raise funds from venture capital firms. Instead, it distributed 30% of its tokens to early users, marking one of the largest airdrops in history, quickly capturing the community's attention. As a result, its FDV reached $35 billion.

This indicates that a beloved application can achieve significant recognition by prioritizing its user community. Hyperliquid not only provides compelling answers to many debates emerging in the industry in 2024 but also has the potential to become a legendary project in crypto history. Although it is a non-venture-backed project, it has been selected as the MVP of 2024 because it embodies the essential elements needed in today's industry. What will 2025 look like? What will the Web3/crypto industry look like in 2025? Here are five predictions for the coming year:

1. AI Agents The story of AI Agents begins with $GOAT, expected to expand into autonomous AI agents and further develop in 2025. Self-sufficient AI Agents are rapidly emerging in the crypto industry. Examples include AI investment agents that have grown a $500 wallet over 8 times, and aixbt_agent, a crypto information agent on X. Efforts to integrate AI into the entertainment and creator economy are accelerating, such as Virtuals Protocol and Luna. This trend is driven by improved reasoning models and is a field that both Web2 and Web3 VCs should closely monitor.

2. New ecosystems and killer applications In 2024, Sui achieved significant growth, with its FDV reaching $45 billion. This indicates that single-layer Layer 1s have the potential for significant progress, similar to Solana. Looking ahead to 2025, high-speed Layer 1s characterized by parallel processing, such as Monad and Berachain, which introduces a new consensus algorithm called proof of liquidity, are expected to launch. These projects share a common focus on leading application development from an infrastructure perspective, thereby creating robust ecosystems from the outset. In the ETH Layer 2 space, high-speed chains built through parallel processing, such as MegaETH and Reddio, are also expected to be launched. Additionally, ecosystems like MovementLabs, which integrates Move with EVM, and DuckChain, which combines TON with EVM, may attract attention. As demonstrated by Hyper Liquid, while many ecosystems will emerge in 2025, the ability to launch a killer application will also be a key factor. Identifying and supporting such applications will remain a critical task for venture capital firms.

3. The evolution of stablecoins In 2025, the adoption and innovation of stablecoins will increase. Projects like Ethena and Usual introduced novel stablecoin concepts in 2024, marking high FDV. Compared to BTC, stablecoins can generate stable returns (10-15%) without the volatility of the crypto market, which may make them an attractive entry point for enterprises. The leading project in this trend appears to be Level.

4. Payment advancements With the increasing use of stablecoins, payment systems are expected to mature, providing liquidity exits and facilitating the integration of new finance with the real economy. PayFi, which combines DeFi with payments, will be a focal point, emphasizing smart, intermediary-free, and transparent payment systems.

5. On-chain dashboards and data The key to advancements in AI lies in datasets, and better data management is crucial for improving algorithm performance. As the volume of data and the number of token issuances continue to grow, real-time asset management and analysis tools, such as KaitoAI, which visualizes market trends, and SoSoValue, known for its excellent user experience, will continue to be popular. Halving cycle anomalies and the 2025 market outlook The cryptocurrency market is influenced by a phenomenon known as the halving cycle, where market trends shift between bullish and bearish phases during Bitcoin halving events. Historically, these cycles have driven seemingly predictable market movements. If this pattern continues, the current bull market trend may end by the end of 2025, ushering in a bear market. This will have profound implications for projects, necessitating careful planning and strategy formulation. However, it is worth noting that these patterns may not always persist. Factors such as the approval of BTC spot ETFs and the large-scale entry of governments and corporations into the market to purchase Bitcoin may positively impact traditional market cycles. The key is to view the 4-year halving cycle as a short-term indicator and focus on building long-term resilience.

When challenges arise, remember the story of Virtuals Protocol. Even in a difficult bear market, sustained growth and preparation for the next bull market are crucial for success in this field.