Unlocking mechanisms, the lack of narrative continuity in the market, and the marginalization of some VCs are the main reasons.
Written by: 1912212.eth, Foresight News
The last cycle was truly the golden age for crypto VCs. a16z and Paradigm sat atop the pyramid, calling the shots, while Multicoin Capital made a name for itself with Solana. During the peak period from 2021 to 2022, it is no exaggeration to say that every two to three days, a project in the DeFi/NFT/gaming space secured VC funding, and the cries for a Web3 revolution filled social networks. According to financing data from The Block Pro, VCs invested $29 billion in startups and projects in 2021, which rose to $33.3 billion in 2022. Many VCs made a fortune in public chains, DeFi, and NFTs, with some even achieving returns of nearly dozens or even hundreds of times from seed rounds to listings.
However, times have changed, and everything is different now. In 2024, VCs invested approximately $13.7 billion in cryptocurrency and blockchain startups, a 28% increase from $10.7 billion in 2023. However, funding is still far below the peak of the last cycle.
In this cycle, the performance of crypto VCs has been disappointing. Many projects are overvalued, and token prices have collapsed in the secondary market, leading to VCs being criticized by the community and retail investors, with their exit channels blocked. Bitcoin rose from a cycle low of $15,000 to nearly $110,000, an increase of nearly 734%, with an annualized return of about 94.28% from 2022 to 2025. How many funds in the market have outperformed BTC? Recently, Du Jun stated that ABCDE has stopped investing in new projects and raising funds for the second phase, rethinking how to participate in the industry's development.
So, what are the reasons that have led VCs to find themselves in difficulty or even losing money today?
Unlocking Mechanisms Are Still Imperfect
Unlocking mechanisms, to some extent, deeply bind the interests of VCs and project parties together, sharing both joys and sorrows. However, the crypto market is very time-sensitive. Crypto VCs may enter at a lower cost during seed rounds and Series A, but often many project tokens are already in a bear market by the time the VCs' unlocking period arrives. The exit of crypto VCs mainly relies on secondary market trading after token listings, but the market is highly volatile and lacks liquidity. Many projects face sell-offs after airdrops or unlocks, causing token prices to plummet, and the paper profits of VCs vanish.
Jack Yi, founder of LD CAPITAL, stated, "Investors generally face a strict '1+3' lock-up period, while exchanges, project parties, market makers, and KOLs are not subject to this restriction. In the fast-paced environment of the crypto space, where one might experience 10 narrative changes in four years, this unequal mechanism puts investors at a clear disadvantage."
Successful Hot Projects Are Still a Minority
The probability of a crypto project becoming a hot project and successfully launching on a major exchange at the right time is very low. The main narratives of the last cycle were recognized both inside and outside the industry, and the sustainability of the tracks was quite long. However, in this cycle, various popular tracks and projects often lack sustainability.
From last year to now, tracks such as inscriptions, re-staking, decentralized scientific research, Ton mini-games, social, L2, and the Bitcoin ecosystem often fall into silence after a brief period of popularity. Even when these projects are at their peak, they need to achieve returns of several times to cover overall investment and time costs, and based on the current market capitalization of listed projects, this goal is difficult to achieve at the time of unlocking.
Moreover, many unpopular projects have not even been listed on major exchanges, and some haven't even made it to second-tier exchanges. Many project parties faced significant issues during the airdrop phase or community public relations, resulting in no heat or buying interest even during TGE. Projects quickly become marginalized, and the token prices are predictable.
The funds and enthusiasm in the crypto market have been rotating around Bitcoin, MEME, and AI concept coins for a considerable time, which undoubtedly exacerbates the performance of VCs.
Some VCs Are Marginalized
Except for a few top-tier VCs, some VCs have little say, unable to invest in truly hot projects, or even if they can invest, the valuations have become quite high, leading to lower returns and meager amounts obtained.
Projects that are not in the spotlight often have low market heat and returns, making it difficult to achieve significant returns even if they secure large amounts. "Good projects, low valuations, and large amounts" have become an impossible triangle.
A deeper issue is that the role of VCs is being marginalized. Traditional VCs add value to projects through strategic guidance, resource integration, and brand endorsement, but in the crypto market, these added values are becoming ineffective. Project parties find that they can attract retail funds more quickly through KOL social media marketing or partnerships with exchanges. The endorsement of VCs not only loses influence but is sometimes seen by the community as a signal of harvesting retail investors. Many VCs only provide funding, lacking deep empowerment for projects, resulting in a high failure rate of their portfolios.
Additionally, some project parties raise funds directly from retail investors through public and private placement platforms (such as Echo, CoinList), bypassing VCs and weakening their bargaining power and exit opportunities.
Where Do We Go from Here?
VCs must return to fundamentals. The future winners will be those projects with real application scenarios, product-market fit, and sustainable revenue models. Stablecoins, RWA tokenization, and data infrastructure are tracks worth deepening. VCs need to strengthen their due diligence on project fundamentals and abandon blind chasing of hot trends. Secondly, VCs need to transform from mere fund providers to strategic partners of projects. Providing technical support, market resources, and compliance guidance is essential to truly enhance the success rate of projects.
The losses of crypto VCs in this round are the result of a combination of macroeconomic winter, industry chaos, and strategic missteps. Valuation bubbles, exit dilemmas, and role marginalization… these issues reflect the confusion of VCs in a fervent market. However, the market in 2025 is brewing new opportunities. Integration trends, regulatory clarity, and the entry of traditional finance provide VCs with a stage to reshape themselves. From speculators to value creators, crypto VCs need to redefine their roles with a more professional and long-term perspective.
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