VC "dead"? No, the industry is undergoing a brutal reshuffle

As a former VC investor, what is your view on the current “VC is dead” rhetoric in the crypto space?

Regarding the funding issue, I’ll give a serious answer. I have quite a few thoughts on this narrative.

First, the conclusion -

1. It’s undeniable that some VCs are already dead.

2. Overall, VCs will not die; they will continue to exist and push the industry forward.

3. In fact, VC is similar to projects and talent—entering a phase of “clearing out” and “big waves washing away the sand,” somewhat like the internet bubble of 2000. This is the “debt” from the last crazy bull run. After a few years of repayment, a new phase of healthy growth will begin, but the threshold will be much higher than before.

Now, let me elaborate on each point.

1. Some VCs are already dead

Asian VCs are probably the hardest hit in this round. Since this year, most of the top players have shut down or disbanded. The remaining few might not make a move for months, focusing on exits from their current portfolios. Raising new funds is also quite difficult.

In Europe and America, the second and third tiers have been relatively okay for the first half of the year, related to their LP structures and fund sizes. But in the second half, especially in the past one or two months, there’s been a noticeable shift among Asian VCs—decreasing deal frequency, some stopping investments altogether, or transitioning into pure Liquid Funds. Some investment managers/partners have started telling me on TG, “It’s too hard, hard to exit.” The impact of the 1011 disaster on the liquidity of clone projects is fatal, and now this sentiment is starting to affect VC confidence.

A few top-tier Western firms seem less affected, at least on the surface.

In fact, this “bear market” for VCs started as a “delayed effect” after Luna’s collapse in 2022. Back then, the secondary market was bearish, but the primary market—project valuations and VC fundraising—was not significantly impacted. Many new VCs were established after Luna’s crash (like ABCDE). The approach back then wasn’t flawed; DeFi summer projects like MakerDAO, Uniswap, etc., were built during the 2018-19 bear market. The VCs during 2018-19 also made huge profits in the 2021 bull run. Doing VC in a bear market, investing in good projects, and enjoying the bull market was the plan!

But reality is often harsher than ideals, for three reasons:

First, the narrative and liquidity flood in 2021 were too crazy. During 2018-19, the difference between good and bad projects was minimal; everything soared—tens or hundreds of times. This caused the valuations and funding amounts of new projects in the primary market to remain relatively high even in the bear market, anchored by the previous hype, with little impact from the secondary market. This is what I mentioned earlier as the “delayed effect” of the primary market bear.

Second, the four-year cycle has been broken. There’s no “clone season” in 2025. This is due to macro reasons, too many clone projects, insufficient liquidity, the gradual disillusionment with narratives, the AI boom, and the “real value investing” in US stocks siphoning funds from the crypto space… Anyway, the old pattern won’t repeat. The dream of investing in good projects in 2019 and exiting a hundredfold in 2021 is no longer possible.

Third, even if the four-year cycle repeats, the terms of this VC round are completely different from the last. Some of our portfolios from early 2023 have yet to issue tokens after 2-3 years; even after TGE, tokens are locked for a year, then released gradually over two or three years. A project invested in 2023 might only get its final batch of tokens around 28-29 years, crossing one and a half cycles. How many projects in crypto can survive and thrive across cycles? Very few.

2. Overall, VCs will not die

There’s nothing to worry about here. If the industry can’t die, then VC can’t die either. Otherwise, who will provide resources for new ideas, new technologies, and new directions? It can’t all rely on ICOs or KOL rounds, right?

ICOs are mainly to bring some retail and community investors onboard and to create hype; KOL rounds are mainly for promotion. These happen in the later stages of projects. In the earliest stage—just a few founders and a PPT—only VCs can truly understand and fund. I’ve discussed over 1,000 projects in ABCDE over two years, and only invested in 40. Out of these carefully selected 40, maybe 20-30 will fail. Many projects you see in the market that you think are “garbage” have already been filtered through multiple rounds of vetting—they are relatively “quality.” Otherwise, how could over a thousand projects have launched ICOs or KOL rounds, and retail investors or even KOLs could tell the difference?

Think about the iconic projects from the last cycle to this one—except for extreme cases like Hyperliquid, which is backed by VC, can you name one without VC support? Whether it’s Uniswap, AAVE, Solana, OpenSea, PolyMarket, Ethena… no matter how anti-VC the sentiment, the industry still relies on the combined efforts of founders and VCs to push forward.

A few days ago, I discussed a prediction market project that’s very different from most Polymarket/Kalshi copycats—highly differentiated. I’ve shared it with some VCs and KOLs recently, and the feedback has been very interesting. They want to chat more. See? Good projects won’t die, and good VCs are the same.

3. The threshold for VCs, projects, and talent will rise, trending towards Web2

VCs—reputation, capital, and professionalism are clearly entering a “stronger players only” phase.

The reputation and brand of VCs are most important not for retail recognition but for whether developers or founders are willing to take your money. Why choose your VC over another? That’s the real moat. This round, VCs are shifting from a pyramid structure to a pin-like structure, similar to CEX.

Projects—We’ve transitioned from the narrative and whitepaper focus of the previous cycle (or even just a few years ago, like in 2017 when Li Xiaolai raised over a billion with just an idea) to TVL, VC backing, narrative, transactions in the last cycle, and now to real user numbers and protocol revenue. It feels like we’re gradually moving closer to the US stock market model.

Jeff from Hyperliquid once said in an interview that the majority of crypto projects’ only business model is selling tokens because, at TGE, they have nothing—no ecosystem, no users, no revenue… so they have to sell tokens. Think about a US stock company going public—if it only has a corporate entity, some employees, maybe a factory or workshop, but no customers and no revenue, how could it possibly get listed on NASDAQ? Why can we directly TGE or list in Web3?

This cycle, Polymarket and Hyperliquid set a good example: first, they spend years building a large base of real users and revenue, even creating a new track, then consider issuing tokens. They attract early users with token airdrops, but their products are so strong that even after token issuance, users keep using them. The project itself is a cash cow, and 99% of its revenue is used to buy back tokens. When a project has real non-farmer users and real revenue, then it’s time for TGE and listing. That’s when the industry truly moves onto the right track.

Talent—One big reason I remain confident in Web3 is that it attracts some of the smartest people in the world. I’ve written before that nearly half of the founders and core teams of the 1,000+ projects I’ve discussed are graduates of Ivy League schools. In China, founders are almost all from Tsinghua, Peking University, or occasionally Zhejiang University and Jiao Tong University.

Of course, I don’t believe in education alone. I’m not from a prestigious school myself. But from a statistical perspective, with so many high-IQ talents gathering here—whether driven by wealth effects or not—they will definitely create some useful or fun things.

That’s why I said before, even though the market is bearish, the current entrepreneurial directions are quite clear: stablecoins, Perp, on-chain everything, prediction markets, Agent Economy—all have proven PMF (Product-Market Fit). With good founders and good VCs, truly great projects can be built. Polymarket and Hyperliquid are the best examples. I believe we’ll see more star products emerging in the next year or two.

For ordinary people, Web3 remains the most promising place to go from nobody to somebody—though this promise is relative, especially compared to the almost impossible grind of Web2. Compared to the last cycle, the difficulty has shifted from Easy to Hard. I saw a tweet from a Web3 VC partner a few days ago: he received over 500 resumes in a few days for an entry-level internship, many from top schools, and he was so shocked he shut down the job posting.

So, in the end, the same old truth remains—pessimists are always right, optimists keep moving forward.