It is said that the current business environment is not good. The unemployed cannot find jobs, and the employed are easily laid off; not to mention the bosses. Most of the startups have gone bankrupt, and even the investment growth has slowed down. Some venture capital companies even announced that they had stopped their investment activities at the end of last year.
Then, as expected, something unexpected happened. Web3 was like a wild horse that had run away from its reins. The overall market value of the crypto market represented by BTC soared rapidly, and BTC once broke through the 100,000 US dollar mark.
At the same time, from the perspective of the entire Web3 industry, financing data is also in the red. According to statistics from Messari, a crypto investment research institution, in the first half of 2024, the global financing amount in the Web3 field has exceeded US$8 billion, an increase of nearly 25% year-on-year. Not only that, the key tracks favored by capital have gradually become clear. From DeFi to ZK technology, from the financialization of NFT to the emerging RWA, a group of star projects with great potential have emerged. The future of Web3 does not seem to have stopped because of the chill of the external environment.
However, opportunities and risks always coexist. For many ordinary investors, how to seize the real opportunities behind this seemingly bright wave is still a difficult problem. According to a survey by TechFlow, many VCs in the cryptocurrency circle have fallen into investment difficulties, and the investments they participated in rarely received positive returns. A few VCs have even started to defend their rights. At the same time, many investment institutions in the crypto industry not only have to face problems such as inflated valuations and lack of liquidity when participating in new projects, but also have to bear the risk of not getting any returns after years of token lock-up.
Therefore, how to avoid those "pie-in-the-sky" projects and find Web3 investment targets that can generate long-term value has become the most concerning issue for every participant.
The pitfalls we have experienced and the lessons we cannot avoid
In the field of Web3 investment, many people regard the success of a project as a "horse race bet", believing that as long as they catch a project, they can reap huge returns. However, this luck-driven way of thinking often leads investors into the abyss of failure. As a practitioner in the blockchain industry for 6 years, I have seen many glamorous but "minefield-hidden" projects. Their failure not only brought losses to investors, but also left a profound warning for the entire industry.
Hot spot chasers: hot concepts but no real implementation
In the field of Web3, market hot spots are always emerging, such as "AI+Web3" and "RWA (real asset tokenization)" which are particularly popular this year. Some projects seize the opportunity and quickly attract funds and attention through packaging, but the technical capabilities and market strategies behind them often cannot stand up to scrutiny.
Take a certain "AI+Web3" project as an example. In early 2024, the team made a high-profile publicity, combining artificial intelligence and blockchain, claiming to launch the world's first decentralized AI content creation platform. The project depicted a grand vision of "decentralized storage and efficient edge computing" in the white paper, and obtained more than 20 million US dollars in early financing. However, the subsequent development progress lagged far behind the plan, and the team's technical capabilities were questioned, especially in the feasibility assessment in actual application scenarios. In the end, the project announced that it would stop operating due to a broken capital chain after just 6 months, and its token price also plummeted 90% from its high point, causing heavy losses to investors.
Rapid coin issuance: From dream to harvest, the Web3 scam
As the saying goes, "a project that does not issue tokens is not a good project", but in some areas, issuing tokens has long become synonymous with cutting leeks. Some project teams raise funds by quickly issuing tokens, regard token issuance as their core goal, and quickly withdraw after achieving short-term capital gains, with little actual development progress. This short-sighted behavior has caused many investors to be harvested in the fantasy of getting rich overnight, and the project team turns around and starts a new business, repeating the same routine.
Take the popular MEMECoin project in 2024 as an example. This token with the theme of "Trump's victory" attracted a lot of speculators in a short period of time and raised more than 10 million US dollars. However, the white paper of this token is empty, using meme culture and political events as marketing gimmicks, and completely lacking product landing or technical support. As the news of Trump's victory settled, the market heat dropped sharply, and the token price plummeted by more than 95% in just a few days. Many investors did not even recover their initial costs, while the project team quickly made a profit at the time of listing through a high proportion of pre-sale shares allocated, and announced that the project was "suspended".
The illusion of high valuation: pseudo-prosperity in the bubble
Web3's highly valued projects are often packaged as "future unicorns" by exaggerating the market size, inflating user data or fabricating revenue sources to create an illusion that investment opportunities cannot be missed. However, the actual operational capabilities of such projects are often seriously out of line with their high valuations, resulting in a rapid decline in market value after launch and heavy losses for investors.
The most direct example is the dispute between market value and FDV. In the past two years, many projects have always set their total token amount to billions or even tens of billions when issuing coins, and then publicized their total market value to be millions or even tens of millions. However, this data is often calculated using FVD, which is calculated based on the total token amount. On average, a single token may not even have 0.1 US dollars, not to mention the market circulation. Therefore, many investors are criticizing whether the so-called market value is calculated based on the amount of tokens that have been unlocked, the market circulation, or the total issuance. If it is calculated based on FDV, it often causes a large information error.
Compliance risks: a regulatory vortex amid high risk
Compliance issues are a core consideration that cannot be avoided in the virtual asset industry. Many projects are developed first, because the regulation of Web3 is not very clear and definite, and Web3 projects may still belong to the gray area in some regions. In order to avoid strict regulatory review, some other projects choose to operate in regions with loose policies or unclear legal frameworks to attract users and funds. However, with the gradual tightening of international regulatory policies, such projects face the risk of business interruption due to lack of compliance, and even cause investors to suffer significant losses.
The most typical examples are some so-called Web3 projects in China, especially those under the banner of Web3, which are actually engaged in illegal operations. Once they go bankrupt, it will cause a chain reaction: some investors in fraud schemes will lose all their money, and some who actively or passively participate in pyramid schemes may also be involved in legal issues.
Improve your ability to identify and grasp industry trends
In the field of Web3 investment, the key to avoiding pitfalls is to improve the ability to discern projects. Investors need to keep in mind the principles of not believing in exaggerated propaganda and not blindly chasing hot spots. At the same time, keeping a keen eye on industry dynamics and gaining an in-depth understanding of the latest technological advances, market trends, and regulatory policies can also help investors establish more comprehensive judgment criteria.
Through this article, we have sorted out the common "pitfalls" in the field of Web3 investment, including chasing hot spots, inflated valuations, and rapid coin issuance. Each type has its own "packaging" to attract investors, but also hides risks that cannot be ignored. These lessons sounded the alarm for investors: not all projects are worth participating in. Some projects are not only difficult to deliver on their promises, but may also become a nightmare for investors.
In the next article, Portal Labs will share how to screen Web3 projects from the perspectives of track selection, project background assessment, business model considerations, and compliance review, combined with actual cases. We hope that these methods can help investors avoid projects of poor quality or with obvious problems, and explore a more robust path for Web3 investment.
