Collaborating with liquidity fund managers can significantly enhance the success rate and market impact of projects.

Author: Ray

Compiled by: Shen Chao TechFlow

Liquidity funds are reclaiming an important position: November is expected to be the strongest month for liquidity fund performance in this cycle and also ranks fourth since @L1D_xyz began allocations in November 2018!

(Shen Chao Note: Liquid fund (流动基金) is a type of fund that can be used at any time to meet depositor withdrawal requests, characterized by high liquidity and security.)

This data may attract a large influx of institutional capital. As the asset management scale (AUM) between venture capital (VC) and liquidity funds gradually rebalances, let's explore why more and more founders of crypto projects are beginning to collaborate with liquidity funds and how they are utilizing these funds.

In traditional finance (TradFi), alternative asset management supports companies' growth at different stages through the classic S-curve.

  • Venture capital stage: From seed rounds to Series A, companies typically focus on validating whether their product meets market demand (PMF), then scale during Series B-D, and finally move towards an IPO.

  • Public market stage: During the IPO process, investment banks are responsible for guiding price discovery, while hedge funds manage ongoing price discovery in subsequent stages, handling complex matters such as corporate actions and restructuring.

Similarly, in the crypto space, many crypto networks, although usually launched with venture capital, achieve liquidity through Token Generation Events (TGE). This mechanism marks a fundamental shift in capital market dynamics.

As crypto projects can access liquidity at an early stage, liquidity funds are particularly important for founders in this field.

As projects transition from private placement to liquidity phase, understanding this transition process is crucial. At this point, tokens are not merely financing tools for the project but are an integral part of its core product. The quality of the token issuance has a profound impact on the project's market performance and long-term viability.

Many new founders often need assistance at this stage, such as connecting with exchanges or designing token economic models or product structures that are attractive to active investors and crypto enthusiasts (crypto degens).

In this way, liquidity funds not only provide early capital support for crypto projects but also become an important tool for founders to achieve project success.

Working with liquidity fund managers, such as @leptokurtic_ from Ethena, highlights the importance of expertise in navigating the complex crypto market.

The strategies of liquidity venture capital and long-short funds play a crucial role in price discovery during Token Generation Events (TGE) and in risk management in the coming years. Here are some key supports provided by liquidity funds for projects:

  • Increasing visibility and market awareness: @multicoincap is active in multiple ecosystems and fields (such as Solana, decentralized IoT DePIN, and fully homomorphic encryption FHE) and often publicly shares their views and investment logic on liquid tokens.

    @Arthur_0x from DeFiance recently proposed the narrative of the 'DeFi Renaissance', a concept that has successfully motivated many founders in the field and reinvigorated decentralized finance.

  • Introducing like-minded investors: Fair launch projects like Aerodrome recently built a bridge to the crypto capital market through the recommendation of a respected investor, accelerating the project's development.

  • Supporting transformation and reboot narratives:

    Many founders from the previous cycle achieved project transformations with the help of liquidity funds. For example, Kevin Hu and his Nova Fund (BH Digital) team were important early supporters of the TON project, helping it regain market attention.

  • Optimizing equity structure:

    Liquidity funds can help projects maintain a healthy equity structure by providing liquidity to early fatigued investors. For example, Locked SOL in the FTX legacy was effectively handled through this mechanism.

  • Providing total value locked (TVL) at protocol launch:

    In the early stages of the protocol's launch, liquidity funds can enhance the project's market credibility by providing initial TVL. For example, Kevin and his Nova Fund (BH Digital) team, as well as @CryptoHayes, provided significant early TVL support for Ethena.

  • Formulating product strategies and development roadmaps:

    Liquidity fund managers not only provide financial support but also assist founders in formulating clear product strategies and future development directions.

  • Token design and economic model restructuring:

    For example, @TheiaResearch assisted HoudiniSwap (a fair launch project) in restructuring its token design to better meet market demands and attract investors.

Collaborating with liquidity fund managers can significantly enhance the success rate and market impact of projects. Founders should make full use of this important resource to tackle the complex challenges of the crypto capital market.

Some liquidity fund managers active in the crypto space (not an exhaustive list, only a few mentioned):

  • Liquidity venture capital: @multicoincap, @1kxnetwork, @paraficapital, @DeFianceCapital, @TheiaResearch, @SyncracyCapital, @Modular_Capital

  • Long-short funds: Republic Digital (Joe, @dim_ss, Armaan, and Gabriel), Nova Fund (BH Digital) (Kevin and @ashwinrz team), BLC...

Disclaimer: @L1D_xyz has invested in many of the funds mentioned in this article.