Insights

Investor’s guide to Web3 secondary markets. Don’t panic.

With VCs deploying $11.5B and institutions like Millenium and Tudor pouring $36B+ into Bitcoin ETPs, are you still treating Web3 like a simple ‘buy and hold’? The secondary market is rapidly maturing, offering structured liquidity for vested tokens, SAFTs, and equity. But navigating the regulatory maze, tech risks, and wild volatility requires skill. Is your strategy evolving as fast as this market?

Web3 secondary markets are revolutionizing capital, liquidity, and risk management for VCs and investors. And while the mechanics of secondary transactions are familiar territory for seasoned investors, the Web3 context introduces a distinct set of assets and associated complexities with the volatility challenges and liquidity on top.

The investor’s headaches and challenges in Web3

For venture capitalists and early investors deeply involved in the Web3 ecosystem, the initial excitement of securing allocations often gives way to significant post-investment friction.

The real headache? Illiquidity. Early-stage token investments and long vesting schedules can lock up your capital for years, leaving you with almost no portfolio flexibility while the market zips by.

Then there’s the operational hassle. Managing a diverse portfolio of illiquid, often small-cap positions across many projects is challenging. Tracking complex vesting schedules and maintaining accurate records often relies on manual processes, increasing the risk of oversight and even leading to valuable allocations being effectively ‘forgotten’.

Compounding these issues is the lack of transparent pricing discovery for such assets. This makes valuing your portfolio accurately, assessing your real risk, or even planning a smart exit incredibly difficult.

The secondary market as an engine for orderly growth

Regardless of individual investor strategy, the secondary market for private Web3 assets rapidly evolves from a niche activity into an essential component of the ecosystem’s financial plumbing. While precise trading volumes remain opaque, the scale of primary investment – over $11.5 billion deployed by VCs in 2024 alone – implies a vast and growing pool of assets that need pathways for managed liquidity transitions.

All those investments, tokens, and stocks eventually need a way to change hands before a big IPO, acquisition or token generation event happens. That need is huge, and it’s forcing the market to grow up fast, providing mechanisms beyond just waiting for public market events.

We’re seeing the infrastructure pop up to handle it. Specialized platforms are appearing, and the big crypto trading desks like Cumberland or Wintermute are busy handling liquid tokens.

Critically, institutional-grade prime brokers such as Hidden Road (highlighted by Ripple’s recent $1.25bn acquisition) are building the rails for sophisticated players to manage positions strategically.

The demand side confirms this shift. Crypto-native funds are rebalancing, but increasingly traditional financial institutions – asset managers, investment banks, family offices, and established VCs – are actively building digital asset capabilities and structuring their initial secondary transactions.

For many of these TradFi entrants, the motivation extends beyond diversification; they look for exposure to high-growth assets within a more controlled environment, meeting client demand for digital asset solutions. One of the examples for this was the acquisition of the Solana FTX batch, which was bought by not only crypto native funds but also many TradFi parties.

Asset managers, investment banks, family offices, and VCs are actively building digital asset capabilities and structuring their initial secondary transactions.

How OTC facilitates strategic transactions

For participants like VCs, project teams, and early investors, Over-the-Counter (OTC) desks and private arrangements remain the primary conduits for transacting assets unsuitable for open exchange listing, allowing for the less market-disruptive transfer of significant positions.

While OTC trading is a standard tool in traditional finance, its role is amplified and adapted within the Web3 secondary ecosystem due to the unique nature of the assets involved.

Institutions that value stability and discretion prefer the private nature of these deals. It is a safer first step thanks to more control, clearer terms, and less exposure to the swings of public crypto prices.

Yes, these deals are still complicated. You’ve got to coordinate between buyers, sellers, secure custodians (like BitGo, Anchorage, Fireblocks, etc), and often the project team itself, all while meeting tricky regulations. Plus, keeping the privacy of the parties and being impartial in the whole process.

If you want to get liquidity early or access top-tier Web3 projects, you have to get comfortable in this secondary world. Mainstream adoption is picking up speed.

And just like that, the necessity for bespoke legal frameworks addressing token transfer restrictions, KYC/AML compliance, multi-jurisdictional challenges, and strict confidentiality requirements cements OTC’s dominance for these structured transactions.

The fact is, these deals are happening more and more, driven by that growing TradFi interest. It tells us one thing: if you want to get liquidity early or find ways into top-tier Web3 projects down the line, you have to get comfortable navigating this secondary world. Mainstream adoption is picking up speed.

Liquidity has evolved. Your strategy should too.

What used to be an informal workaround is now a critical part of Web3’s financial system. Investors who understand and use secondary markets aren’t just looking for exits — they’re building smarter, faster, and more aligned portfolios.

If you’re still waiting for IPOs or token unlocks, you’re playing an outdated game.

In the next piece, we’ll look at how top funds and institutional players are actively using secondaries to manage risk, return capital to LPs, and drive the next cycle of growth.