Yesterday I saw an article published by Shenchao titled "This generation of VCs has begun to defend their rights". I found it both funny and emotional.
It was expected. Since the ZKS airdrop began, the resentment accumulated in the entire market has exploded. Exchanges, VCs, project owners, and even KOLs are all in a mess.
In the current market, it is no wonder that everyone always focuses on every word of traffic giants to speculate MEME coins. Whenever Musk or Trump says a word a lot, they will hype it up. The logic here is that traffic is large and easy to remember. They also solemnly sorted out the common characteristics of the local dogs that skyrocketed before, and even made a strategy tutorial...
This is less than the beef in Master Kong beef noodles. I can’t blame everyone because the industry is now in a state of speculation. People would rather lose money on MEME coins than believe in those “value coins” and “narrative logic”. At least MEME coins seem to have really increased 100 times, while the so-called VC coins have not.
Let’s also take this opportunity of VC rights protection to talk about what the industry has become like now, where it is heading in the future, and what should we players do?
1. The niche harvesting phenomenon among VCs is more serious than that among retail investors.
Shenchao said that VCs have begun to defend their rights, but those VCs who are defending their rights are all third or fourth rate.
Generally speaking, the seed and A rounds of top projects are not the turn of small and medium-sized VCs, and the lead investors are giants such as A16Z, Polychain or Paradigm. Small and medium-sized VCs are able to participate basically after the valuation of the B and C rounds has increased N times, or directly get premium shares from top VCs. (These are still good, and many times the bottom VCs don’t even have the opportunity to pick up the plate for others)
Even if there is an opportunity to follow the investment, the money that can be invested is just a drop in the bucket, better than nothing. Most of the investment is in the leading companies in the ecosystem of star projects.
These projects are also very interesting. Top VCs may invest a few million dollars, and then small and medium VCs will start to contact the project. Then the top VCs will withdraw directly. Finally, the project's official website will openly list the top VCs in the list of financing institutions on the official website, but in fact these institutions have already made money and run away...
And Shenchao is right. Small and medium-sized VCs have very little say. Once the money enters the hands of the project party, it is a state of resignation. Generally speaking, star projects will require 3+2+N, that is, 3 years of lock-up, 2 years of withdrawal, and N years of unlimited extension.
One cycle is four years, and the lock-up period is three years. Small and medium-sized VCs basically have no chance to sell at the best time in the secondary market.
It can even be said that the coins are allocated by the project party, and when the coins are issued to you depends on the project party's mood. As far as I know, if you want to exit early, you must have a good relationship with the project founder, otherwise you will not be allowed to leave.
For example, in order to reduce the selling pressure in the market, DYDX wants everyone to pledge as much as possible and extend the lock-up period. What can you, as a VC, do? Just accept it.
If it is not a star project, the right to speak will be higher, but the risk is greater. To be honest, most VCs know nothing. DCG boasts that 9 employees invested in 125 crypto-related companies. How deep can the background check be? It is just a blind investment.
The remaining small and medium-sized VCs are just following the trend, looking to see if there are any big guys investing, if there are, they will invest a little, if not, they will say “wait a little longer, let’s see?”
In summary, the entire VC ecosystem is summarized as follows:
Top VCs earn management fees from LPs, leaving it to small and medium-sized VCs to take over and exit, while small and medium-sized VCs hope for secondary exits.
When the market is good, everyone is happy. When the market is bad, the big fish eat the small fish and shrimps, and the small fish starve to death.
But when will the market get better? This brings us to the next question.
2. The blockchain industry will be a casino for a long time.
VCs enter the market because they have found the right benchmark. They are willing to invest in Ethereum because they have seen the success of Bitcoin, and they are willing to invest in various public chains because they have seen the success of Ethereum.
But what is the reality of blockchain? In the entire industry, there is only one application, “payment transfer”. For the remaining 99.99% of the projects, even the project owners themselves cannot clearly explain what they are going to do.
They just talked about some technologies that no one could understand, some mathematical formulas, and the economic model of tokens, but did not mention the business model at all. When the market is hot and the project has not been implemented, everyone can maintain sufficient imagination, but when it is actually implemented, expectations will be shattered.
It can be said that after BTC, Ethereum, and DeFi, all the seemingly successful concepts on the market are just Ponzi schemes in a different shell and have not created any value at this stage.
Public chain? What is it used for? What kind of help does it bring to production and life? Does real users have a stable compound growth rate? Is there a business model? None. Everyone looks at the rise and fall of the currency price, and only this can determine whether a project is a good project.
I said before that Solana is a casino, but in fact, apart from Bitcoin, Ethereum, and DeFi, the entire industry is a casino.
Top exchanges provide a relatively fair gambling environment and projects for gambling. All users are gamblers. VC-funded projects are listed on Binance, and market makers are the agents who ensure that the gambling stall is lively enough to attract more gamblers.
What long-term logic and valuation can a gambling project talk about? No, we can only talk about a newer gambling method (or model innovation?)
Old projects and old concepts, ask VCs if they are willing to take over in the secondary market? No. The only retail investors who can take over are also afraid of losing money. But the reflection of human development history is that people will only repeat the same mistakes and will be deceived by new scams.
Therefore, small and medium-sized VCs are replaced one after another. Old comrades are drowned in old projects and old concepts, and new VCs rise in new concepts and new scams. At this time, the over-the-counter market is required to provide sufficient liquidity.
From this perspective, the Fed’s interest rate adjustment does have an extremely direct impact on the crypto alt season.
When the crypto industry has a long period of time where it is difficult to find applications, new concepts will emerge in an endless stream. Retail investors and small and medium-sized VCs often die in the process of succession. Firstly, they do not have Bitcoin and Ethereum, and secondly, they will not stand at the forefront of new concepts.
3. Changes in the market after a large number of VCs were forced to withdraw.
The market is in dynamic balance. If a track has a very high profit margin (even if it is a book profit margin), it will attract more people to enter the market, and the profit margin will be diluted. As the number of people entering the market increases, the profit margin will continue to decline.
When the profit margin drops, many players will leave the market due to losses, and the profit margin will rise again. This is the spontaneous balance of the industry under the market economy.
When a large number of VCs cannot make money, they will leave the primary market. However, since they have already taken root in the crypto industry, it is not easy for them to leave the industry. Therefore, some VCs will move to the secondary market.
Well, these VCs have invested in many projects and know the details of many projects. Which projects will they invest in? Will they invest in star projects? No, there are a huge amount of tokens waiting to be unlocked. Are they willing to take over? No.
What to do? Two options. One option is to become a market maker, or collude with market makers to find fully circulated or heavily circulated projects to manage currency value; the other option is to invest in blue chip projects, such as the leaders of various tracks in DeFi, public chains with high circulation rates, as well as Bitcoin and Ethereum.
So you can see that altcoins are in a slump, while Bitcoin, Ethereum, DeFi leaders and some public chains are extremely reflexive. A large part of this money comes from small and medium-sized VCs.
In other words, in the next market, the leading effect will be more obvious.
As a retail player, we also face choices.
Should I continue to participate in the negative-sum game of MEME coin and become one of the 0.3% who make money, or should I increase my investment in projects with higher stability, or should I just sit there and wait?
I personally hold a large position in BTC\ETH, and the rest is allocated to other projects I am optimistic about and new concepts that may appear in the future. It turns out that my strategy is correct and I have not made any mistakes - because as long as the large position is only BTC and ETH with lower prices, it cannot be wrong.
Of course, everyone has different perspectives, risk preferences, and even different amounts of money in their pockets due to their past experiences. There is no one-size-fits-all investment method. There are only adjustments that are tailored to local conditions and the times.
Actually, in terms of capital allocation, we have more advantages than VC. VC's money is different. It has time limits, target limits, and is even affected by office politics. Our money is our own. We decide what to invest, when to invest, and how much to invest. In theory, it should be easier to make money than VC.
