Depth Dialogue: The Life and Death Test of Encryption VC, Exit or Breakthrough?

Original｜Odaily Daily Report (@OdailyChina)

Author｜Wenser（**@wenser 2010 ）

In the previous article "ABCDE Stops Fundraising, Crypto Capital Urgently Needs a 'Version Update'", we introduced a topic based on ABCDE's cessation of fundraising - crypto VCs urgently need a version update to adapt to the new cycle and new monetization paths. With the recent recovery of the crypto market, many crypto investment institutions have also started their performances, some choosing to adjust their positions, some pinning hopes on new projects, and others setting their sights on more fitting versions of on-chain trends, stablecoin tracks, and PayFi tracks.

Odaily has recently engaged in in-depth discussions with several leading VC institutions in the industry, hoping to explore a new path for crypto VC in industry discussions and find new directions for market development for industry professionals' reference. The following content mainly comes from interviews with institutions such as ArkStream Capital and YBB Capital, with some content edited.

Adults, the times have changed: the era of crypto chaos has begun, liquidity is king

A casual discussion on the current market situation, perhaps the most important thing is to gain insight into the changes and constants of the market and the times.

ArkStream Founder: The main line of Crypto is still Fintech 2.0

When asked about the issue, ArkStream founder Ye Su (@allen_su1024) believes that, from a longer time dimension, the dividing line of the cryptocurrency market cycle is 2023. Before this, the crypto industry was in a technological foundation development stage, similar to the former AI industry, with the main goal being the construction of industry infrastructure. After this, with the emergence of BTC ETF and ETH ETF, the process of mainstreaming cryptocurrencies accelerates, thus the main participant groups in the market spread further from the Crypto Native community to the mainstream population. Specifically, the changes include the following three aspects:

Cycle Logic: Transitioning from a narrative and attention-centered growth curve to one focused on practical applications and real income. Tokens that experience smaller declines after 2023 will require certain business support, and ETH, which has historically been criticized by the market, has seen a decline far less than other altcoins that often drop by 70%-90% or even more.

Participant Groups: The transition from the Crypto Native crowd to the inclusion of traditional financial sector participants has led to significant changes in the valuation models of the entire market. Compared to the seed round valuations in the Web2 industry, which range from 20 to 30 million RMB, Web3 industry project valuations often start at 20 to 30 million USD, undoubtedly giving rise to certain industry bubbles. The decline of market tokens in this new cycle has somewhat contributed to squeezing the bubbles, and I personally believe that a bubble-squeezing period of 2-3 years is still needed.

Asset Distribution: From the fair distribution during the past ICO period, to the "high market cap, low circulation" phase of VC coins, and now the Meme coins and on-chain issuance model. In the early days of the industry, VCs and retail investors stood on the same starting line, participating in public offerings at the same price, with no lock-up periods. Today, we have returned to a similar model, mainly because the core demand of retail investors remains the wealth effect. The majority of people in the market will follow the model that better meets their profit demands, which is also one of the reasons why former VC coins have gradually fallen out of favor.

However, what remains unchanged is that the main trend of Crypto is still Financial 2.0 (Fintech 2.0), which refers to a global ledger empowered by decentralization and smart contracts. Its core objective is not to recreate a new ecosystem of productivity but to serve the improvement of market production relations—achieving the most efficient asset circulation, distribution, and decentralized operation. The focus of the past in the crypto industry's gaming and social sectors still lies in the financial attributes, which supports this viewpoint.

YBB Capital Co-founder: Lowering asset issuance thresholds leads this cycle.

YBB Capital co-founder John (@John_YBB) also expressed a similar view, he mentioned: "The point of change is - 1. Asset issuance is still the 'hematopoietic engine' of the market, but compared with the past few cycles, asset issuance has spawned a variety of narratives and verified the maturity of the DeFi track many times, This cycle is more about the threshold for asset issuance being lowered, and the liquidity on the chain is then piled up, which ultimately drives the development of Dex and derivatives, This does not give much impetus to the overall development of the industry. 2. The capital structure is in transition, the management scale of Bitcoin spot ETF has exceeded 250 billion US dollars, sovereign wealth funds and traditional institutions have entered the market, and the market has shifted from retail to institutional. **

The unchanging point is — 1. Speculation on meme coins and the pseudo-innovation of DeFi continue to cause resource misallocation, which remains unchanged. Although the underlying technology iteration is ongoing, there are currently no applications landing that match the infrastructure. 2. The narrative of Bitcoin as 'digital gold' has not changed at all, but the separation between altcoins and BTC is continually strengthening.

Summary: The cycle is still ongoing, but the desire for profit is particularly strong.

Overall, the power of cycles is still at play, and the entire cryptocurrency industry continues to innovate around asset issuance and distribution methods. However, the industry's narrative has gone through rounds of scrutiny and has fallen into a state of exhaustion, ultimately relying on the "casino scale effect" generated within the industry and the introduction of "mainstream asset liquidity" from outside the industry.

In other words, the entire cryptocurrency industry is now more realistic, and the instinct for profit is particularly strong. Against this backdrop, the business model of crypto VCs has also undergone new changes.

A new storm has emerged: VC eyes new monetization models

Looking back at the past, those who have experienced the crypto VC industry from 2022 to 2024 can't help but exclaim: "The great wall is truly as strong as iron." The current market monetization model has undergone significant changes compared to the past.

Cypher&M2&Phoenix Co-founders: No destruction, no establishment, quietly waiting for the next cycle.

In response to past results, Bill Qian (@billqian_uae), co-founder of Cypher&M2&Phoenix and other institutions, previously posted: "We have invested 10+ VC funds in this cycle, and the GPs are very good, and they have all captured the top projects. But for our investment in the entire VC fund (we do LP), we have made a 60% accounting reduction, that is, we hope to return 40% of the principal in the end; There is no way, the vintage of the 2022/23 investment has caught up, and it has to be recognized.

Sometimes you did nothing wrong, you just lost to time and years. However, we are quite optimistic about the next cycle of Crypto VC because: extremes must turn into opposites. Just like in 2000 when Web2 VCs were wiped out in Silicon Valley, the following years became a great time for nurturing and investing in innovation.

Looking at it now, this speech carries some of the pains of the times, but it is also filled with deep hope for the next future.

YBB Capital Co-founder: From Rejecting Memes to Joining the Trend, Flexibly Choosing the Track

When referring to the institution's own hematopoietic model, John (@John_YBB), co-founder of YBB Capital, concluded: "Previously, YBB's main investment model was to participate in the early rounds of the project, such as seed round and angel round financing, and establish a long-term cooperative and growth relationship with the project after participating in the investment, and provide resources such as market media, exchanges, and communities to empower the team, with returns ranging from 10 times to 100 times. The track is more cyclical and flexible - at the beginning of 2016, it was dominated by Infra, such as L1 public chain and underlying cross-chain protocol; Follow-up DeFi Summer-related protocols, games in the GameFi field, NFT, metaverse and other tracks are also deeply involved. So far from 2024 to 2025, under the market cycle where meme coins are king, there are not many opportunities for VCs to participate because the earliest issuance method of meme coins is driven by simple "hot issues"; **After a certain stage of development, there is a standard coin issuance team that includes traffic marketing, community guidance, and team calling, and some institutions participate in the investment, but because this model is contrary to our industry values, we did not participate. After all, the risks far outweigh the benefits, and some projects are too ugly. **

It is worth mentioning that under last year's TG ecological outbreak node, we helped many Web2 project parties bring a certain scale of new Web3 users in the form of Mini App through regional resources. In the later stage, we saw the development prospects of Pump.Fun, also invested in some Meme Launchpad products, and did not miss the wave after wave of Meme coins. Personally, I think that a reasonable and long-term monetization method should be a business that rises and falls with the meme boom, and it is a way to cut a wave of leeks and run, and the things that can bring positive user growth to the project are what we have been doing and what we think are valuable.

Currently, YBB mainly focuses on core narratives within the industry such as Dex, chain abstraction, and asset issuance platforms, as well as narratives outside the industry that combine Web3 with RWA, stablecoin upstream and downstream, and AI; in the future, there is greater anticipation for the AI economy, upstream and downstream demand in the AI industry, derivative tools for asset issuance platforms (such as GMGN and other token tracking and analysis platforms), and some narratives that may have the opportunity to revive under mature technology (such as Metaverse).

ArkStream Founder: From first-level investment to 1.5 level investment, in the wild faction vs. the pro-establishment faction track.

Regarding the business focus, ArkStream founder Ye Su (@allen_su 1024) has the following main points:

First of all, from the perspective of the entire industry, during the bull market from 2020 to 2022, the DPI (Distribution to Paid-In) of top funds could reach 20 times, while mid-level funds were at 5-10 times, and institutions with less than 5 times performed relatively poorly; in the current cycle, the DPI of ordinary funds is about 1, while the performance of excellent funds is between 1-3 times, with very few achieving higher returns, resulting in a significant decline in overall return rates.

Due to the good liquidity performance of the crypto industry, compared with the Web2 venture capital industry with a single exit mechanism (capital profit-taking can only be completed through listing), the unlocking cycle is as short as 1-2 years, and it is relatively easy to obtain high returns brought by liquidity arbitrage opportunities, which is determined by the attention economy attribute of the crypto industry; After 2023, due to the impact of regulatory forces and exchange policies, the unlocking cycle of many project tokens will be extended to 2-3 years, or even 4-6 years, the liquidity arbitrage space will become smaller, the primary market dividend will be reduced, and only a few institutions can obtain high returns, so OTC investment has become part of the key business. The usual operation is to choose mature projects with easier risk control, liquidity and discounts are more predictable, the investment cycle is shortened to about one year, and the difficulty of judging the cycle is relatively reduced.

Finally, in terms of the focus of follow-up attention**, ArkStream can be said to be an investment institution that pays close attention to meme, although there are not many actions from the institutional investment level, but it has always paid attention to the financial infrastructure and new opportunities on the chain including the Trading Bot track, on-chain derivatives, which can be called "in the opposition", as well as the relatively more "orthodox" RWA, PayFi payment and other "in the dynasty" track assets. **We also look forward to deep linking with projects in these two directions in the future, and welcome entrepreneurs to contact and cooperate with the project party. **

Summary: On-chain becomes the next gold rush area

In summary, the phased consensus among VC institutions is to seek innovative projects related to on-chain transactions, combining mainstream narratives like AI. Given the current tight and concentrated liquidity, there is an expectation for the emergence of endogenous innovations in the industry, which to some extent has also been influenced by the Trump administration and the regulatory environment in the United States.

New Variable in Cryptocurrency: Trump's Attitude Will Certain Influence the Industry Direction

It must be said that Trump's election and assumption of the presidency of the United States has had a lasting and far-reaching impact on the cryptocurrency industry. His rise not only accelerated the early emergence of Bitcoin's new highs but also laid a relatively friendly policy foundation for subsequent cryptocurrency regulation. However, the tariff trade war initiated by Trump previously caused both the U.S. stock market and the cryptocurrency market to plummet, and his subsequent attitudes and actions will continue to influence the entire cryptocurrency market.

Waterdrip Capital Founder: The chaotic era has arrived, with crises existing in the crypto industry.

As mentioned by Da Shan, the founder of Waterdrip Capital, in his article "The New Logic of Web3 Entrepreneurship Under the New Global Trade Order": "Since Trump returned to the White House, a series of unexpected economic and political measures have caused continuous turbulence in the global market. Among them, one of the measures that triggered the greatest shock is the upgrade of tariff policies. Investors remain full of concerns about future uncertainties, and the global financial system seems to have entered a 'chaotic era'.

But on the other hand, a series of actions indicate that the United States intends to position Bitcoin alongside gold as a new anchor asset for the financial system. The combination of USD stablecoins + gold + Bitcoin may outline the prototype of the 'new order of the dollar'—maintaining the legal status of the dollar while being supported by physical and digital assets to enhance risk resistance.

In the second half of encryption, simple traffic strategies are no longer sustainable, replaced by an entrepreneurial logic centered around hardcore value. In the current market environment, the new opportunity directions for entrepreneurs mainly include: Bitcoin ecosystem (including BTCFi), other public chain ecosystems (including DeFi), real-world assets (RWA), payment finance (PayFi), and crypto concept stocks, etc.

YBB Capital Co-founder: Trump has become a liquidity black hole, and the crypto integration into U.S. stocks has become a foregone conclusion.

In discussing Trump's influence, YBB Capital co-founder John (@John_YBB) provided a different answer.

He believes that "the impact of tariffs and trade wars on the cryptocurrency industry is not significant, while the main effects of Trump's presidency on the market are reflected in volatility and liquidity."

In terms of volatility, the uncertainty of Trump's policy has had a significant impact on U.S. stocks, and since China began to clear mining machines and mainland users, the volatility of the crypto market has gradually shown a trend of 'U.S. stocking', and the completion of Bitcoin spot ETF also means that Crypto has moved towards its final form - U.S. stockization. Spot ETFs characterize Bitcoin as a commodity, which means it is subject to commodity-like rules for taxation similar to those for stocks and bonds. At the same time, the ETF also divides Bitcoin into two parts: the white part is in the market supply and demand relationship, which has lost the original demand drivers such as decentralization and anonymity, and only retains the financial attributes that can be speculated, and its value endorsement has also been transferred from the decentralized chain to the centralized government, while the black part represents the 'orthodox' Bitcoin that still retains the original attributes. But at present, the market dominance is gradually tilting towards 'white bitcoin', and the largest market makers have also shifted from private power to the US government and its capital power.

Changes in liquidity are often more lethal than the policies themselves; in Web3, attention = liquidity. Trump converted political attention into assets through the Meme coin TRUMP, constructing a narrative liquidity black hole with 'identity narrative + asset minting + public opinion manipulation'.

ArkStream Founder: The next rival of Bitcoin is gold

Regarding the "Trump Effect," ArkStream founder Ye Su (@allen_su 1024) believes it is necessary to consider the impact on Bitcoin, which serves as an industry benchmark.

After going through the two stages of development of "technology base → mainstream asset", the main impact of Trump's inauguration and his policies is whether it can promote the transformation of Bitcoin into a global safe-haven asset, and whether the industry should pay more attention to whether Bitcoin can achieve the same asset status as gold in the next five to ten years or so. In particular, it is important that the U.S. sovereign wealth fund can contribute to this process. If it can be realized, then the growth space of Bitcoin is still very huge, after all, there is still 8-10 times the market value compared to gold; And if it can't be realized, then the development space of Bitcoin is relatively limited.

Summary: Cryptocurrency is no longer niche and cannot stand alone.

In any case, the dramatic and conflictual policies of Trump bring a high degree of uncertainty and opportunity to the cryptocurrency industry—the former is reflected in the fluctuations of the market and the "price influence" exerted by Trump himself through token projects like WLFI and TRUMP; the latter is embodied in the further enhancement of Bitcoin's safe-haven properties, the crypto concept stocks, the stablecoin industry, and the PayFi sector.

Conclusion: There are no mismatched assets, only mismatched projects.

Finally, we conclude with the question of whether there is a mismatch in the cryptocurrency market. After understanding the main viewpoints of many representatives from capital institutions, the author has summarized the main points as follows:

From a micro perspective, there is indeed a mismatch in the crypto market between market capitalization and project business, valuation and actual application, token airdrops and short-term speculation, exchanges and project parties, as well as project parties and users. Overall, the market still struggles to find a balance between "expectation-driven" and "value realization". The healthy development of the industry cannot be separated from aligning with the value logic of "how much is used, how much is worth"; otherwise, innovation cannot be discussed.

From a mesoscopic or even macro perspective, whether it is retail funds or VC capital, all liquidity will only flow to more efficient places, where there is a wealth creation effect, capital will be moved, and attention hotspots will also be generated, whether it is Solana, Base, BSC ecology, or Meme coins, AI Agent concept coins, airdrops, and exchange IPOs, they cannot be separated from the user market. As Ye Su (@allen_su 1024), founder of ArkStream, said, the core of the market is mainly determined by user demand, and retail investors, as the "silent majority", actually play a leading role, so the product and issuance model need to be adjusted with the market, rather than static. From this point of view, the crypto industry has never been a simple mismatch, but a structural adjustment caused by changes in industry cycles and user needs.

Regardless, cryptocurrency never sleeps, and liquidity flows like water. What ultimately creates waves is not mismatched projects, but timely assets.