The Role and Challenges of Venture Capital in the Crypto Assets Field

Recently, the Crypto Assets industry has engaged in extensive discussions about the role of venture capital (VC). On one hand, the community has a critical attitude towards the so-called "VC coins"; on the other hand, there have been numerous reports about VC rights protection and shutdowns. In fact, the VC industry has always had a high elimination rate, and this is not a phenomenon that has emerged recently.

VC Ecology Under the ICO Boom

During the ICO boom in 2017, the number of cryptocurrency VCs surged. In the Shanghai area alone, there were over 100 VCs, with a very low barrier to entry. As long as there was an offshore entity that could sign and stamp documents and make external payments, it could claim to be a Token Fund. Nationwide, the number of VCs could reach several hundred. However, as time went on, many VCs gradually exited the market, highlighting the harshness of the industry.

Misunderstanding of VC by the Community

Retail investors often have polarized views on VCs. When a popular project has VC involvement, people are quick to assume that Crypto Assets VCs are generally highly profitable. In reality, the VC portfolio also includes many failed projects, which are often overlooked by the market. It is precisely due to the high failure rate that VCs require individual projects to have high profit potential.

On the other hand, when VC invests in failed projects, the community often criticizes VCs for colluding with the project parties to "cut leeks", ignoring that VCs are also victims, and their losses may be greater than those of retail investors.

Criteria for Evaluating the Excellence of VC

To evaluate whether a VC is excellent, two main aspects are considered:

1. Performance: The primary task of a VC is to generate profits for limited partners (LPs). Some well-known large funds have average performance, while certain small funds may perform better.

2. Industry Contribution: In addition to performance, it is also essential to examine whether the quality projects of VC investment have technological innovation and whether they promote industry development. Institutions that only invest in vaporware projects or highly valued star projects can hardly be considered excellent.

Challenges Faced by Crypto Assets VC

1. Project valuation is too high: Some projects launched by well-funded institutions have inflated valuations, resulting in fewer opportunities for retail investors to enter and limited upside potential.

2. Industry maturity improvement: Each track is gradually occupied by giants, and traditional money-splashing investments may become ineffective. VCs need to become more specialized and collaborate deeply with project parties.

3. Decentralization Trend: As the industry develops, ideally there should be a reduction in reliance on VC, moving towards a more decentralized direction.

In the face of these challenges, VCs need to adjust their strategies, placing greater emphasis on project quality and long-term value. At the same time, the industry should explore more equitable and transparent financing mechanisms, such as improved community fair sale models, to balance the interests of all parties and promote the healthy development of the industry.