Insights

Liquidity, risk, LP value. Investor’s guide to Web3 secondaries, Part II

In part I, we explored how secondary markets emerged to solve growing liquidity constraints in Web3, and how infrastructure from OTC desks to institutional brokers is maturing fast.

Now let’s talk strategy: how investors are using secondaries not just to exit, but to manage risk, recycle capital, deliver value to LPs while supporting long-term ecosystem growth.

Strategic Derisking & Capital Recycling (Without Dumping Everything)

This is probably the biggest change. Think about those multi-year vesting schedules locking up valuable tokens. Secondaries mean VCs and early backers don’t have to be stuck waiting passively.

It’s less about simply ‘cashing out’ and more about strategic portfolio management. You can realize partial value by strategically taking some chips off the table, maybe selling a slice of a winning position that’s still locked via an OTC desk, unlocking capital not just for profit, but potentially to reinvest in new, emerging Web3 projects or, critically, to return committed capital back to LPs.

For the LPs backing these funds, this means improved fund liquidity and the potential for more timely distributions, which is a big deal, especially when fundraising is tough (as Galaxy Research noted). It gives fund managers more levers to fulfill their fiduciary duties and support the next cycle of innovation.

Why This Matters for LPs?

Earlier distributions. Secondary sales enable GPs to return capital sooner, improving IRR and LP trust.

More accurate NAVs. Real pricing data from secondaries improves valuation accuracy and transparency.

Smarter risk management. Proactive rebalancing limits downside and supports long-term performance.

Capital reinvestment. Recycled capital supports new deals, driving innovation and compounding growth.

Dynamic portfolio management and putting capital back to work

Waiting passively isn’t the only option anymore. Narrative changes within crypto occur within months rather than years; hence, you need a smarter way to re-adjust and choose a different strategy fast. Secondaries let you actively manage your bets and reallocate capital where it can have the most impact.

Imagine trimming your stake in SOL to strategically deploy that capital into a promising new Layer 1 or fund the next wave of innovation in areas like AI/crypto projects (a space VCs are clearly watching).

Selling even a part of a vested position through orderly secondary channels means trapped capital gets moving again. This “capital velocity” allows funds to support promising new ventures instead of sitting on your hands, contributing to a healthier, more dynamic ecosystem.

This "capital velocity" allows funds to support promising new ventures instead of sitting on your hands.

Example:

Imagine you invested in a protocol at a 10M valuation, and by now it is trading at a 3B valuation. It would be smart to derisk on that investment and re-invest into a new potential protocol at a 10M valuation. The chances of that protocol hitting 100M or 1B are higher than the chances of your other investment doing a 10x or 100x.

This active use of secondaries also impacts how portfolios are priced, tracked, and reported.

Enhanced price discovery and market stability (even without public prices)

Secondary markets, particularly private OTC deals, offer crucial price signals where none might otherwise exist. This gradual price discovery, happening away from the volatility of public exchanges, can contribute to more stable long-term valuations.

Every time a deal gets done for pre-launch tokens or shares in a key infrastructure company, it creates a real-world data point, helping establish a sense of value where guesswork once reigned.

Beyond the transaction itself, reliable secondary facilitators play a crucial role in shaping transparency. By advising both buyers and sellers on prevailing market conditions, they help avoid mispricing, ensuring participants don’t overpay or undersell based on outdated or opaque benchmarks. While these intermediaries aim to close deals, the longer-term value lies in their impartial positioning, helping build a more trustworthy and reliable ecosystem.

For fund managers, this means less finger-in-the-wind portfolio marking or reliance on inflated last-round valuations. It translates to more credible NAV reporting for LPs, boosting investor confidence and supporting long-term fund health.

Broadening access and supporting project growth (not just exiting)

Secondaries are a whole new way to bring new, committed capital into promising projects post-primary rounds. Think of it as accessing deals that were previously off-limits.

In essence, the Web3 secondary market provides the tools to manage illiquidity strategically, actively manage risk, enhance reporting accuracy, access unique deal flow, and support sustainable ecosystem growth.

This opens the door for institutions, especially those TradFi players setting up their crypto desks, to get into more established, later-stage projects. Maybe they missed the initial funding round for something hot (think projects that raised big like Monad or Berachain), but now they can potentially buy a stake later on from early stakeholders seeking planned liquidity.

Where do these stakes come from? Often, it’s seed investors or even early employees executing planned diversification, derisking, or liquidity concerns. They might offer their shares or tokens, sometimes at a pretty decent price compared to the last big funding round or spot price.

For buyers, this means a chance to get exposure with potentially less of that super-early-stage risk. And the heavy lifting is getting easier, thanks to serious infrastructure like prime brokers and secure custodians (like BitGo, Anchorage and Fireblocks) making these complex trades smoother, ultimately providing growth capital and stability to the projects themselves.

In essence, the Web3 secondary market provides the tools to manage illiquidity strategically, actively manage risk, enhance reporting accuracy, access unique deal flow, and support sustainable ecosystem growth, building smarter portfolios as a result.

Its growing sophistication, evidenced by the participation of established players and dedicated infrastructure investment, signifies a maturation of the asset class, making participation no longer merely speculative but vital for long-term success and ecosystem health.

Now What?

In short, secondary markets are redefining portfolio management for Web3 investors. They’re bringing maturity, transparency, and stability to what was once an opaque and illiquid asset class, enabling smarter capital deployment and healthier market cycles.

More investors are stepping in to build flexibility into how they operate rather than just optimizing returns.

The choice is clear: are you prepared to be a part of what comes next, or will you be left following others?