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

Recently, the role of venture capital (VC) in the Crypto Assets field has sparked widespread discussion. Some people are critical of the so-called "VC coins," while there are also many reports about VC rights protection and closures. However, the high elimination rate in the VC industry is not a new phenomenon, but a characteristic that has always existed.

Reviewing the VC during the ICO Boom Period

2017 was the era of the ICO boom and also the inaugural year for cryptocurrency VC. At that time, the number of VCs in the Shanghai area alone exceeded 100, with a very low barrier to entry. As long as there was an offshore entity that could sign, stamp, and make external payments, it could call itself a Token Fund. Nationwide, the number of VCs could reach several hundred.

However, over time, many VCs have gradually exited the market. This phenomenon reflects the brutality of the industry and highlights the high-risk nature of the VC industry.

Misunderstanding of VC in the Market

The market's view of VC is often polarized. When people see successful projects backed by VCs, they tend to believe that Crypto Assets VCs are very profitable. However, in reality, VC portfolios also include many failed projects that are often overlooked by the market. It is precisely because of such a high failure rate that each project must have high-profit expectations.

On the other hand, when VC invests in failed projects, people often criticize VCs for "harvesting leeks" together with the project parties, 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 aspects can be considered:

1. Performance: The primary task of a VC is to create value for limited partners (LPs). However, some large and well-known funds may not perform as well as expected.

2. Industry Contribution: In addition to performance, we should also look at whether the VC investment projects have technological innovation and whether they promote industry development. Institutions that only invest in air projects to make money, or those that enter star projects at high valuations without providing substantial assistance, are difficult to be considered excellent.

Challenges Faced by Crypto Assets VC

1. Overvaluation: Some projects launched by financially strong institutions have high valuations, resulting in limited upside potential and significant downside risks for retail investors.

2. Challenges Brought by Industry Maturity: As the industry develops, various tracks are gradually occupied by giants. VCs need to engage more deeply in project operations, co-entrepreneur with project parties, and provide more resource support.

3. Specialized Demand: A solo-operated VC may only be limited to the angel investment stage, and the industry requires more specialized VC institutions.

Outlook

Ideally, as the Crypto Assets industry develops, perhaps in the future there will no longer be a need for traditional VC in the conventional sense. A more decentralized ecosystem is the goal that the industry should pursue. This also includes reducing reliance on centralized exchanges and promoting true decentralized development.