Why are Web2.5 projects more favored by institutions?

The mainstream investment direction in the next 3-5 years may revolve around the "encryption transformation of traditional businesses".

Written by: Haotian

After observing the recently favored projects in the primary investment market, I found a commonality: they tend to favor "hybrid innovation," using web3 technology infrastructure to support the proven mature business logic of web2 business models.

For example, @go_lightyear brings traditional stock ETF investment logic to Web3, @HilbertCapital specializes in digital asset quantitative strategies, @bitcoin2100m focuses on encryption asset professional allocation, and @ElysiumLab_io creates a Bitcoin daily payment wallet, etc.

Most of these projects fall under the category of integrated innovation, which is essentially consistent with the operating logic behind some web3 projects "backdoor listing" and some U.S. stocks reserving encryption assets to enter the Crypto space.

Why is this trend occurring? To be honest, there are three core reasons behind it:

1. Purely native on-chain innovative projects encounter a ceiling. Not only is it difficult for the user base to break through the barrier, but the business model also highly relies on Tokenomics incentives. The key issue is that the narrative and business design have also fallen into a "self-hype" predicament, which will obviously be very passive in a sluggish market with relatively scarce liquidity.

2. The "encryption-friendly" characteristics of the regulatory environment are becoming evident. The establishment of spot ETFs for BTC and ETH, the GENIUS and CLARITY acts, and the FOMO entry of Wall Street financial institutions, among others, have turned encryption assets from a niche speculative target into more mainstream financial derivatives. Undoubtedly, in this situation, actively embracing the mature business models of traditional finance or actively seeking hybrid innovation directions such as web3 applicable technological infrastructure will be highly sought after.

3. Users' investment demands are also becoming more mature. Originally, encryption users often cared whether products or protocols were decentralized and rated projects based on the strength of consensus. However, with the influx of mainstream web2 users, they actually only care about whether it is easy to use, safe, and profitable. Therefore, products that are simpler to experience and have more direct benefits will be more marketable.

So, what will the next investment direction be? Following this line of thought, one can make a judgment that the mainstream investment direction in the next 3-5 years may revolve around the "encryption transformation of traditional businesses"?

1. Investment, payment, asset management, insurance, credit reporting, supply chain finance, cross-border trade settlement and other segmented financial markets will see a surge of projects that integrate "traditional business logic + encryption technology infrastructure". The encryption infrastructure will tend to be hidden in the backend, only to solve cost, efficiency, and transparency issues, while the front-end experience perceived by users will be almost indistinguishable from traditional products.

2. The "invisibility" of technical standardization and infrastructure will become an important trend. The new infrastructure supporting the integration and innovation of web3+web2 is no longer confined to the original Crypto Native realm, nor does it pursue the coolness of technical concepts, but rather focuses on providing reliable, efficient, and low-cost encryption technology support. "Modularization, chain abstraction, etc." will no longer be the popular hot tracks, but will indeed become the foundation of some outstanding products.

3. Traditional financial institutions will turn to "active participation." It will no longer be as simple as buying currency reserves or investing in Web3 projects, but rather directly using their own licenses, resources, and user bases to localize encryption business. For example, banks launching stablecoin payments, insurance companies creating on-chain policies, and brokerages providing custody for crypto assets. The entry of these giants will bring larger scales of capital and users, as well as increase the internal competition of productization, driving the gradual maturation of the industry.