In the previous year, a number of renowned venture capitals including Sequoia, Electric Capital, and Paradigm set up crypto arms. Why are these long-term capital investors optimistic about Web3?

In contrast to Web2, the token economies that support Web3 applications can produce outsized profits, especially in the current environment of rising inflation, rising interest rates, and startup valuation markdowns.

Startup equity investments traditionally are not liquid. In order to repay their limited partners and cash out, investors often need to wait for an exit event, such as a private sale or an IPO. On the other hand, most early-stage Web3 projects’ tokens can be traded at any moment on exchanges (provided they have issued a supply of tokens on a decentralised exchange).

Tokens also provide investors an opportunity to create passive income, rather than investing in equities with the intention of making a capital gain.

Additionally, Web2 entrepreneurs can gain access to funding, contacts, and insights through venture funds. But Web3 builders also require knowledge of token economics, governance mechanisms, blockchain development and smart contracts, community building, crypto laws, security, and other topics.

Since Web3 is largely community-driven, users object to a single investor huge ownership. In fact, it might be the final straw for the entire projects. Meanwhile, venture funds, especially larger ones, may be accustomed to having interests of about 20% in a later stage businesses.