From FOMO Fundraising to No Exit: What is Crypto VC Going Through?

Foresight News

2025-04-28 21:01

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Original Article Title: "Crypto VC in the Midst of Liquidity Anxiety: An Unfolding Imbalance"
Original Source: ChandlerZ, Foresight News

Waterdrop Capital partner Dashan admitted in a recent Space session that all four projects he had recently invested in had launched on Binance, but none had distributed tokens to investors according to the original investment agreement. Despite the token distribution terms being clearly outlined in the contract, after the project goes live, the agreement can be amended at will, and investors are almost unable to take any effective countermeasures.

He mentioned that the amendment to the agreement was not actually the project team's intention, but rather a longstanding unwritten rule of Binance, so he does not blame the project teams because they are also at a disadvantage in front of Binance. The current strategy is very clear: to persuade and help truly high-quality project teams to forgo token distribution and go directly to listing on a relatively clean and regulated market to showcase their value.

In traditional VC investments, rights protection based on contracts does not have the same practical binding force in the encrypted token investment structure. Due to exchanges leading circulation rules after token listing, on-chain asset allocation is not immediately bound by the traditional legal system, and investment agreements often lose their enforceability at critical junctures. In the current market environment, whether a project can gain access to a top exchange directly affects its overall survival, and the importance of agreement terms is marginalized in the face of actual interests. In order to get listed, project teams have to cooperate with exchanges in redesigning aspects such as release schedule, lock-up rules, token distribution ratios, etc. Investors, lacking on-chain governance rights and circulation discourse power, find themselves in a de facto rights disadvantage.

This statement reveals a deep-rooted crisis that the current crypto VC investment system is facing, namely a dilemma where the effectiveness of contracts, liquidity control, and exit mechanisms have completely failed.

Imbalance of Power: The New Relationship Among VCs, Projects, and Exchanges

In the industry's development over the past few years, the model of "project narrative construction - multi-round VC financing - top exchange token generation event (TGE)/listing" has gradually become mainstream. The hallmark of this model is that in the early stages, projects rely on professional VC institutions for funding, resource connection, and reputation endorsement, completing financing with gradually increasing valuations, with the ultimate goal usually being the initial token issuance and circulation on a large centralized exchange for early investors to exit.

In the previous multiple bull markets, crypto VCs, as core resources, held significant power in early-stage financing and token issuance design, playing a key role in driving rapid industry expansion and project incubation. In the last bull market, the position of project teams was enhanced, but VCs still had some dominance due to their large capital and liquidity empowerment such as Launchpad.

However, as the market enters a new adjustment period, liquidity in the altcoin space dries up, and the incentive structure between investors and projects shifts. Exchange power has reached unprecedented levels, becoming the absolute controller of liquidity, with key processes such as listing approval, token allocation, and circulation strategy concentrated in the hands of exchanges. This places projects in an extremely weak position during negotiations, even if they have signed detailed investment agreements. Faced with exchange-proposed changes to circulation conditions, project teams find it difficult to refuse, ultimately having to violate the original agreements with investors.

Exchanges have become the controllers of scarce resources, while VCs are gradually being marginalized, with their actual control capacity significantly reduced.

The "Prisoner's Dilemma" in Liquidity Contraction

The current dilemma faced by "VC coins" is not caused by a single factor.

After multiple rounds of funding, projects often have a high public market valuation at the time of Token Generation Event (TGE). This directly results in a high initial buy-in cost for secondary market investors, while also implying that early investors including VCs, the team, early supporters, etc., hold a large amount of low-cost chips and have a strong potential sell-off motive.

This expectation gap puts tokens under natural selling pressure after listing, with market participants potentially forming a consensus that "selling is the optimal strategy," triggering a negative feedback loop.

Furthermore, the token economy itself exacerbates the dilemma of VC coins.

During a bull market, many projects' token issuance models follow the high growth assumptions of the bull market, such as continuous market cap growth and sufficient liquidity to support gradual unlocking. However, in practice, many projects lack real revenue support, with DeFi relying on Ponzi schemes, GameFi relying on subsidies, NFTs relying on FOMO, and tokens completely losing intrinsic growth momentum.

Most importantly, tokens invested by VCs in the past could eventually be sold to new retail investors on the secondary market, forming a complete exit path. However, there are currently very few new retail investors on-chain and on exchanges, incremental funding is drying up, and VC mutual selling has become the norm.

Essentially, early investors, project teams, liquidity providers, and early users have become part of a zero-sum game within a closed loop, making it increasingly difficult to exit.

VC Return in the Previous Bull Market Cycle

VC Return in the Current Cycle

For VC firms, the traditional strategy of relying on rapid TGEs to achieve high multiple exits is facing challenges, and the realization period of investment returns may lengthen, increasing uncertainty. This may prompt VCs to focus more on a project's long-term fundamentals, sustainable business models, reasonable valuations, and healthier tokenomic models when making investment decisions. Their role may also need to evolve from focusing on early-stage investment and driving listings to more in-depth post-investment management, strategic empowerment, and ecosystem development.

For project teams, there is a need to reassess their token issuance strategy and community relationships. Following the questioning of the "pump and dump" model, exploring a lower valuation starting point, a more equitable distribution mechanism, designing tokenomics that better incentivize long-term holders, as well as increasing operational transparency and strengthening accountability may be more worth exploring.

From a more macro perspective of industry development, the current challenges can be seen as an adjustment in the market's path to maturity. It has exposed issues accumulated during past rapid growth and may drive the formation of a more balanced, sustainable financing, and development ecosystem. This requires all market participants, including VCs, project teams, exchanges, investors, and even regulatory bodies, to collectively adapt to change, seeking to establish a new equilibrium between innovation incentives and risk control, efficiency, and fairness.