Donovan Choy

This is a segment from the 0xResearch newsletter. To read full editions, <a href="https://blockworks.co/newsletter/0xresearch" target="_blank" rel="noreferrer noopener">subscribe</a>.



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The following is the third and final part of a multi-part series on the state of crypto liquid markets, based on several conversations with liquid funds. You can find part <a href="https://blockworks.co/news/crypto-liquid-funds-bitcoin-target-this-cycle">one</a> and <a href="https://blockworks.co/news/crypto-liquid-funds-fundamentals">two</a> here.



Which crypto sectors are the most reviled by the average person in the industry? Anecdotally, gaming and crypto x AI projects seem to make the easiest punching bags. If I had a dollar for every time I heard “crypto games aren’t fun…”



The liquid funds I spoke to, however, had much more lukewarm and varied feedback. Though some were uninterested in gaming, others expressed optimism.



“The Web3 gaming space is very challenged at the moment and is most overlooked or under-owned,” Spartan co-founder Kelvin Koh told me.&nbsp;



“We need a big hit game for people to pay attention to Web3 gaming again. Off the Grid, Maplestory Universe and FIFA Rivals are three games we are watching closely.”



Off the Grid in particular has continued to average about <a href="https://flipsidecrypto.xyz/yasmin/gunzilla-network-metrics-explorer-kbgQ38">552k</a> daily players after its <a href="https://blockworks.co/news/off-the-grid-blockchain-gaming-experience">big bang launch</a>. Its active player base has cemented the GUNZ chain as a top 10 chain based on active addresses and transaction count, according to <a href="https://x.com/pierskicks/status/1906626745794519419">Delphi Ventures</a>, an investor in the game.



1kx was another fund that <a href="https://x.com/pet3rpan_/status/1887140527310864481">expressed</a> greater optimism for Web3 gaming.



Traditional free-to-play mobile games have an incredibly high entry barrier and require millions to breakeven. But a Web3 game that leverages the power of token incentives can greatly reduce that barrier of user acquisition, 1kx partner Peter Pan told me.



“A game like Pixels raised $4 million in their first year and was able to go to market within 18 months. They spent $70 million in token incentives on user acquisition and made about $25 million back — that’s roughly a 30% return on spend that would never be possible for a Web2 startup managing the same budget.”



Despite the early days of crypto x AI, a few funds also expressed hopefulness for the sector. At the very least, most acknowledged that in the long run, blockchain would enable AI in some specific use cases.



For instance, one crucial way that blockchain tech can support AI is in the area of “identity,” Pantera’s Cosmo Jiang said.



&#8220;Infinite agents and bots will exist thanks to AI. So there will always be a demand to know what is truly human. What better way to create a global, permissionless, censorship-resistant identity solution than using a blockchain? World [formerly known as Worldcoin] is doing something critical here.”



When it came to more mature token sectors within DeFi (DEX, lending liquid staking), there was general agreement among the funds I spoke to that these were markets with proven PMF and ways to perform valuations.



This however also crucially means that token valuations in DeFi were increasingly tethered to financial reality and less susceptible to speculative valuations than, say, memecoins, as one investor told me.



This is in stark contrast to L1/L2 tokens, which saw more disagreement on how they should be valued.



The valuations of most existing L1 tokens (on a P/E ratio basis) were far beyond what a fundamental analysis would explain, and poised for a harsh correction to the downside, one investor told me.



Another believed that L1 tokens were still erroneously being valued as a comps to bitcoin, which has become more of a store of value.



Here’s what Blockworks head of research Ryan Connor had to say on L1 valuations:



“The reason, all else equal, for the higher valuations for L1 and L1-like things is because they are platforms, and platforms can be money-making machines. So all else equal, theoretically, you&#8217;re pricing in higher growth. Solana, for example, can 5x its revenue in the next 12 months to above 10b. That&#8217;s incredible earning power. You can&#8217;t say the same for AAVE.”



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Liquid funds remain optimistic about Web3 gaming and blockchain uses for AI

Casey Wagner

This is a segment from the Forward Guidance newsletter. To read full editions, <a href="https://blockworks.co/newsletter/forwardguidance" target="_blank" rel="noreferrer noopener">subscribe</a>.



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Thanks to the early signs of a trade deal with China and a better-than-expected <a href="https://blockworks.co/news/inflation-april-rose-less-tariff-impact">April CPI print</a>, Big Tech (and just about everything else) is up this week.&nbsp;



The S&amp;P 500 North American tech sector index is up 8.4% over the past five trading days. The Nasdaq Composite has gained 6.3% in that time.&nbsp;



Even Microsoft and Nvidia — despite their respective headwinds (which we’ll get into later) — are in the green. They’re up 3% and 13%, respectively, in the past five days.&nbsp;



The way I see it, there are two main forces poised to significantly impact Big Tech: tariffs and AI. These two forces just so happen to be intertwined.&nbsp;



In an overgeneralized nutshell, higher tariffs mean many Big Tech companies may have to raise prices. While most consumer electronics are currently exempt from tariffs, Trump insists the relief is temporary.&nbsp;



On the AI side, tariff-fueled <a href="https://blockworks.co/news/tariff-supply-chain-effects-summer">supply chain disruptions</a> for semiconductors and other infrastructure also make investing in AI more expensive. Still, the biggest names in the space say they’re forging ahead with massive AI budgets.&nbsp;



Alphabet plans to spend $75 billion on AI and data center infrastructure, marking a 43% increase from 2024. Meta similarly upped its AI budget by 44% — bringing its 2025 target range between $60 billion and $65 billion.&nbsp;



Microsoft, which revealed on Tuesday it would cut ~3% of its global workforce, said it will have spent $80 billion on AI expansion by June (when the company’s fiscal year ends).&nbsp;



Grain of salt here. If tariffs make the tools to build out AI operations more expensive, of course the budgets will have to increase. But the budgets are growing by a lot. This signals companies are still on the offensive and see scaling AI models as an essential part of their businesses, even though this now costs much more.&nbsp;



Nvidia shares have gained more than 10% since Monday’s open, on news that the US and China had reached a temporary truce in the trade war. The chipmaker’s market cap is back above $3 trillion for the first time since February, even as its AI server maker, Foxconn, <a href="https://www.foxconn.com/en-us/press-center/press-releases/latest-news/1595">downgraded</a> its 2025 outlook.&nbsp;



A prominent theory in recent years has been that AI will improve productivity, and a new <a href="https://www.stlouisfed.org/on-the-economy/2025/may/industry-level-growth-ai-use-us-postpandemic-recovery">report</a> published by the St. Louis Fed yesterday backs this up.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXesxtiaEEbxAw5-yYJXc6LKLo3Dxx20dphVOAQd2iszJVWxGczZL3cO9ZBimoozh3EKIURqWaAjNYKsZKoPqPa-5I4A6-rSWyzCOGG9_JQTvQtlP7j3W29AjT2223zmBOf0CeyZQQ?key=hXsPwiTivyY4kmJktT1tYg" alt=""/></figure>



See “Information” on that chart? That’s technology, and according to the St. Louis Fed, the industry has become about 5% more productive each year between 2019 and 2024.&nbsp;



But what about the labor force? Isn’t AI coming for jobs? Yes and no. General consensus seems to be that AI will both create and destroy jobs. For now, I’d argue the biggest impact the Big Tech push into AI has had on the labor market isn’t that humans are being replaced by machines. It’s that their salaries are being redirected to fund those machines.&nbsp;



The St. Louis Fed’s report notes that manufacturing jobs now make up a smaller share of overall employment, but productivity has increased. Economic growth happens when either more people are employed or when productivity increases. In a perfect world, we get both.&nbsp;



Also, in a perfect world, ChatGPT doesn’t come for this journalist’s job. Here’s hoping.



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