The Bull Market Catalyzes the Web3 and AI Supercycle -- Paul Hsu, Founder and CEO, Kathy Tong, Quantitative Venture Investor, Abdul Al Ali, Web3 Venture Investor at Decasonic
The supercycle of Web3 and AI isn’t just approaching—it’s here, transforming the Internet into a smarter, more interconnected, and equitable digital economy. With capital re-entering digital assets, groundbreaking product launches, and regulatory clarity paving the way, we stand on the cusp of a generational opportunity.
Entering 2025, we are energized by the transformations shaping blockchain, Web3, metaverse and AI. Over the last year, transition moments impacted the macroeconomy, geopolitics, venture capital, AI and crypto. A change in the US regulatory and political landscape stands to accelerate innovation specifically in AI and crypto. Today, we have entered a new era for digital assets, fueled by funds flows, technical innovation, and product adoption.
This Web3 and AI supercycle is our generational opportunity.
At Decasonic, we approach this super cycle with a strengthened rigor and discipline that we have battle tested during the bear markets. We systematically track retail, government and institutional funds flows, analyze emerging technical and product trends, and underwrite opportunities in product and token designs through dual structure venture financings or other cross-asset structures.
Entering 2025, our conviction is clear: blockchain technology, token economies, AI metaverse interfaces and AI will accelerate the next stage of growth and adoption of Web3. With a pro-innovation, pro-business environment as a foundation, we believe this is the moment to accelerate meaningful value creation.
We are witnessing a fundamental upgrade of the Internet. This transformation is fueled by the convergence of decentralized technologies and intelligent automation, offering new paradigms of ownership, governance, and innovation. The intersection of blockchain’s transparency with AI’s intelligence unlocks a digital economy defined by efficiency, accessibility, and personalization.
2025 is the year to accelerate. It is the moment to execute on the momentum of the Web3 and AI supercycle, doubling down on investments, partnerships, and innovation that drive meaningful, durable value creation.
Today: 2024 Powers the Web3 and AI Supercycle
2024 provided a pivotal foundation for growth, marked by a transition from speculative to productive capital. Institutional investors re-entered the digital asset markets, buoyed by regulatory clarity and technical breakthroughs that expanded adoption cycles across blockchain and AI ecosystems. At Decasonic, we embraced these shifts with disciplined execution, balancing liquidity-driven strategies with long-term durability.
Key trends from 2024 include:
1 - Pro-Innovation Policies: Global governments and regulatory bodies supported blockchain and AI as strategic priorities, fostering confidence and catalyzing institutional adoption.
2 - Product-Driven Adoption: Applications powered by blockchain and AI—ranging from decentralized finance to AI-enabled gaming and metaverse interfaces—accelerated utility-driven growth.
3 - Capital Inflows: Institutional, retail, and government funds converged to fuel development, further propelling adoption across consumer and enterprise sectors.
This was a year where liquidity, leadership, and innovation converged, setting the stage for a transformative 2025.
How We Got to Today: A Pro-Crypto Environment Ushers in Web3 and AI Applications
We are emerging from the crypto bear markets and entering an era of pro-innovation and pro-crypto growth. Global liquidity from the U.S., Europe, and China has increasingly flowed into “risk-on” asset classes such as venture capital, AI and crypto, driven by easing monetary conditions, access to leverage and a supportive regulatory backdrop. This capital infusion is fueling investment across both blockchain infrastructure and Web3 & gaming/ metaverse applications, accelerating the development of real-world use cases for Web3.
Passive ETF flows drew renewed interest in the digital asset class, as the Bitcoin ETFs launched in January 2024. By year end 2024, these ETFs showcased remarkable growth in AUM, increasing from $27.8 billion to $105.9 billion by year-end. This surge occurred against a backdrop of significant market dynamics, including liquidation activities from Mount Gox and government sales by Germany which notably influenced market supply and demand.
Despite these fluctuations, Bitcoin ETFs emerged as the best-performing ETF launches across all asset classes, driven by robust institutional interest and favorable funding rates. Similarly, Ethereum ETFs, introduced in July, saw their AUM grow from $8.8 billion to $10.6 billion. By the beginning of 2025, five asset managers had also filed for Solana ETFs. This trend in ETF growth underscores strong institutional interest in these assets, catalyzed by regulatory clarity and the growing availability of mainstream investment vehicles. As we enter a more favorable regulatory environment, with potential US government purchases on the horizon, we anticipate continued fund flows into ETFs.
At the same time, the new U.S. administration has embraced blockchain and AI as strategic priorities, appointing leadership that reflects a commitment to seeing innovation thrive in the US. The establishment of a dedicated “crypto and AI czar” and broader regulatory clarity have created an environment where institutional capital is returning to the market with optimism and confidence. Pro-innovation policies are fostering the momentum needed to scale adoption, replacing the Biden SEC approach of regulation by enforcement.
Trading of digital assets accelerated after the November elections. Open interest for Bitcoin surged from $19 billion to $57.4 billion, and for Ethereum from $8 billion to $22.4 billion. Perpetuals volume grew from $116 billion to $340 billion in 2024. Hyperliquid attracted net $1.9 billion in inflows since inception. Related, in 2024, stablecoin hit new all time high’s, with its total market cap reaching $204.2 billion, up from $130.3 billion at the end of 2023. This growth underlines the continued demand for fintech solutions backed by crypto rails including payments, remittances, and financial services.
This transition is also evident in the shift from foundational infrastructure to application-driven investments. While the last cycle prioritized critical components like Layer-2 scaling solutions, decentralized AI infrastructure, and interoperable blockchain solutions, 2024 saw a clear move toward product-driven innovation.
We are seeing a cascade of new fund flows into sectors and chains. Net flows indicated a growing dominance in chains like Base at $7.6 billion, OP Mainnet at $2.1 billion and Solana at $2 billion, while Ethereum experienced a notable outflow of -$7.6 billion throughout 2024. Layer 2 ecosystems also saw explosive growth, with TVL in EVM L2s rising from $21 billion to $48.6 billion, led by Arbitrum with $18 billion and Base with $15 billion.
Additionally, TVL locked in DeFi grew from $54.2 billion in late 2023 to $119 billion by year-end. Monthly DeFi volume hit record highs, reaching $433.5 billion in December, with platforms like Solana, Hyperliquid, and Base dominating decentralized exchange activity.
Applications powered by blockchain and AI are gaining momentum, from consumer AI Agents to AI enabled social and AI gaming experiences within the Web3 ecosystem. Together, these factors reflect a backdrop where liquidity, leadership, and product innovation are converging to transform how value is created and exchanged across digital economies in Web3.
Sectors experiencing the most significant growth in market share and mindshare include AI, where we have updated our 2024 AI market map to showcase close to 300 companies. Additionally, emerging chains such as World Chain and Soneium are gaining traction, reflected in our latest market maps for these networks, mapping out the current state and projects building on these ecosystems.
In private deals, 2024 saw crypto venture capital funding increase by 28% year-over-year to approximately $13.7 billion, signaling a rebound from 2023 but still below the peaks of 2021–2022. Deal count is approximately 3000, signalling a YoY growth of 16% from 2023 with the largest raises as Monad at $225 million followed by Farcaster at $150 million. AI and DePin sectors saw 100% and 300% increase YoY in funding respectively.
Looking ahead to 2025, sentiment on Web3 venture capital funding from leading crypto VCs are generally cautiously optimistic with anticipation that funding levels may not return to previous highs. Spotlight on startups demonstrating strong product-market fit and tangible user adoption are best positioned to attract capital in the coming year.
Key areas of interest include the resurgence of DeFi, scaling platforms, CeFi, stablecoins and payments, AI x Web3, DePin and new L1 chains that enable more app-level functionality. Conversely, sectors like security, tokenization, and interoperability may see reduced investment focus. Overall, the sentiment suggests a strategic and discerning approach to investments in the evolving Web3 landscape.
Visions for Tomorrow: Our Outlook for 2025
We enter 2025 on the cusp of an upgrade of our Internet defined by the convergence of blockchain and AI. This Web3 and AI super cycle represents the integration of economic and intelligence systems, enabling new paradigms for decentralized value creation.
Our outlook for 2025 reflects this supercycle:
1- Blockchain transforms the economics of AI infrastructure, driving advantages for open source AI.
Decentralized compute platforms are reshaping AI infrastructure by providing scalable, cost-efficient alternatives to centralized providers. These platforms democratize access to the massive compute power and costs needed to deploy AI models.
By leveraging blockchain’s programmability and transparency, developers can significantly reduce costs while ensuring efficient resource utilization. Blockchain-powered platforms for verified data and AI models also align digital ownership and incentives between contributors and developers.
Transparent systems enable high-quality datasets to flow seamlessly to AI developers while rewarding contributors through clear, on-chain incentives. This collaborative ecosystem marks a new era for open-source AI—one that is composable, interoperable, and scalable.
2- Web3 tokens crowdfund permissionless AI innovation, powering community innovations.
Web3 tokens are aligning crypto and AI innovation through decentralized funding and governance. AI agent launchpads, powered by token economies, enable communities to crowdfund and deploy autonomous AI agents across diverse decentralized applications.
These agents optimize blockchain transactions, automate workflows on digital platforms, and unlock new possibilities within DeFi, gaming, and decentralized governance. Sophisticated token designs further align economic incentives among developers, AI agents, and users, fostering a virtuous cycle where adoption fuels innovation, and innovation accelerates adoption.
3- AI personalizes our digital and physical worlds, enabling new interfaces for the metaverse.
AI-driven personalization is redefining digital and physical interactions, creating highly adaptive experiences that seamlessly integrate human and machine interactions.
Autonomous AI agents are revolutionizing social platforms by enabling AI-to-AI-to-Human relationships, elevating personalization and intelligent automation in communities. AI-powered storytelling, generative multimedia, and intelligent bots are transforming content creation, making virtual environments more engaging and tailored to individual preferences.
These innovations blur the lines between physical and digital realities, with devices like AI-enabled smart glasses from Meta and Ray-Ban marking the first steps toward this future.
4- AI injects advanced reasoning intelligence into blockchain, upgrading Web3’s use cases.
AI is upgrading blockchain’s capabilities by embedding advanced reasoning and decision-making intelligence into decentralized systems. AI-first interfaces, optimized for voice, gesture, and natural conversation, simplify user experiences and lower barriers to Web3 adoption.
Autonomous AI agents are scaling decentralized ecosystems, managing complex processes within DAOs, Web3 games, and DeFi protocols. These agents optimize decision-making, enhance efficiency, and unlock new use cases, from protocol automation to intelligent asset management.
Moreover, AI drives hyper-personalization by delivering tailored workflows, intelligent recommendations, and actionable insights at scale.
The Web3 and AI super cycle is not simply a convergence of technologies. It is a transformative moment for the Internet itself. By integrating decentralized economic systems with intelligent automation, we are creating a more interconnected, efficient, and equitable digital economy. AI agents are enabling new ways to create and manage value, while AI-first applications are driving adoption across industries and use cases. Blockchains provide the infrastructure for transparency, tokenization, and ownership, while AI unlocks intelligence, automation, and personalization.
We are excited for what’s to come in 2025 and beyond. We have written our internal OKRs around the objective of catalyzing the Web3 and AI supercycle and are excited about like-minded innovators and investors who are also building this journey.
Welcoming 2025: Key Sectors of Interest
As of this publication, the collective market capitalization of the AI sector stands at $50 billion. Recent growth is predominantly fueled by two emerging categories: AI Memes and AI Agents. AI Memes account for $10.4 billion, while AI Agents contribute a robust $16 billion. For context, the DeFi sector currently holds a collective market cap of $127 billion. Despite the rapid ascent of Web3 AI tokens in 2024 and growing interest in AI Agents, we anticipate 2025 will usher in a broader integration of AI across all Web3 categories. This includes advancements and integrations in intersections like AI x Gaming, AI x DeFi, AI x RWA, AI x SocialFi, and beyond.
Looking ahead, the AI market category is projected to grow in market capitalization. While we observe a gradual rotation of interest and capital from traditional Web3 categories, including static memes, towards AI memes, we remain optimistic about the broader growth of Web3 market caps in 2025. This expansion will likely be driven by continuous rapid innovation, enhanced regulatory clarity, and increased mainstream adoption. Within this dynamic shift, AI Agents are poised to capture a substantial share of the Memes sector, whose market cap currently stands at $117 billion. AI Agents’ ability to generate continuous, engaging content and foster community interactions positions them as a powerful driver of this capital migration.
AI Agentic Adoption: Gaming and DeFi as Early Innovators
The potential for AI in our view - lies at the intersection of key Web3 categories, particularly Gaming and DeFi:
AI x Gaming
With a current market cap of $25 billion, Gaming has struggled to maintain momentum in 2024. However, the integration of AI Agents promises to re-ignite interest in the sector. In AI x Gaming, NPCs will evolve into adaptive, AI-driven entities with personalized behaviors tailored to individual players. These agents will enhance gameplay through real-time evolution, creating a richer, more immersive experience. Beyond gameplay, AI Agents are poised to revolutionize in-game economies by managing decentralized, player-driven ecosystems and introducing novel interactions between players and AI entities.
AI x DeFi
We foresee AI Agents becoming integral to leading DeFi protocols, simplifying complex user experiences and enhancing accessibility. These agents will enable users to navigate DeFi with ease, offering tailored portfolio management, optimized trading strategies, and 24/7 monitoring for improved outcomes. By leveraging on-chain data and advanced analytics, they could increase user returns significantly, driving higher engagement.
Ushering in Mainstream Blockchain Adoption
AI’s integration into Web3 is reshaping the landscape, refining user experiences and driving blockchain’s mainstream adoption. From seamless onboarding processes to personalized user engagements, AI innovations are breaking accessibility barriers, making blockchain more intuitive, engaged, and personalized. This evolution, we believe, is just beginning and will accelerate as we advance into 2025 and beyond.
Heading into 2025, we are closely tracking the growth trajectories of RWA and stablecoins. With stablecoins currently at a $210B market cap and RWA at $20B, we anticipate that increasing regulatory clarity will catalyze adoption in both areas. Regulatory advancements are set to unlock institutional participation in the on-chain economy and crypto trading, further driving stablecoin market caps. On-chain adoption focused blockchains, like Coinbase’s Base, are also expected to play a pivotal role in this growth. Similarly, the institutional embrace of asset tokenization continues to position RWA as a key area of expansion, setting the stage for sustained growth in the year ahead.
Building a Better Tomorrow, Faster: Bull Markets Catalyze Web3 Adoption
Bull markets remain the ultimate catalyst for mainstream adoption. Optimism drives funds flows into crypto markets, fueling a flywheel of wealth effects to drive additional funds into our sector. Rising token valuations create momentum, driving attention and fueling user engagement across blockchain ecosystems. As funds flow broadly into Web3 and breakthrough AI-driven products reach the market, price-driven adoption cycles will accelerate in 2025. The resulting momentum will sustain innovation and create pathways for widespread integration into financial and non-financial applications.
From our family to yours, we wish you a prosperous new year.
The content of this material is strictly for informational and educational purposes only. It is not intended to constitute investment advice, nor should it be considered a recommendation or a solicitation to buy, sell, or hold any asset. Decasonic does not endorse investments in any specific tokens, and nothing in these blog posts should be construed as legal, tax, or financial advice. Please consult with a qualified professional advisor before making any financial decisions. Decasonic provides no warranties, whether expressed or implied, on the content provided in these blog posts, including its accuracy, completeness, or correctness. The opinions expressed here are those of the authors and do not necessarily reflect the views of Decasonic. Please note that Decasonic may hold a position in some of the tokens mentioned, including Virtuals. Decasonic is not liable for any errors or omissions in the content of this material or for any actions taken based on the information provided herein.
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