Is there still a chance for VC Tokens?

2024.07.25

Is there still a chance for VC Tokens?

Poor liquidity is indeed a significant issue in the current market.

2024.07.25 - 03:55:02

Navigating Web3 tides with focused insights

Poor liquidity is indeed a significant issue in the current market.

Authors: LUCIDA & FALCON

Guests

Zheng @ZnQ_626

LUCIDA Founder
Champion of the 2019 Bgain Digital Asset Trading League Season 1 - Mixed Strategy Group;
Runner-up in April, Champion in May, and Season Third Place in the 2020 TokenInsight Global Asset Quantitative Competition - Composite Strategy Group;
Season Third Place in the 2021 TokenInsight x KuCoin Global Asset Quantitative Competition - Composite Strategy Group.

Jims @jimsyoung_

Investor at Youbi Capital
Invests in early-stage deals in both traditional finance and crypto
Focuses on the Web3 application layer赛道

Rui @yeruizhang

KOL
Entered the space in 2017
Main focus on early-stage investments, side activity in secondary markets

Mason @ma_s_on_

Crypto/Tech FoF Investor
Five years of experience in FoF investing across blockchain, internet, and tech sectors
Has researched hundreds of VC, secondary market, and quant funds
Holds unique perspectives on cycles, asset classes, and fund strategies

Zheng @ZnQ_626

VC tokens have generally underperformed over the past few months. Today I'd like to discuss a slightly sensitive topic: Do VC tokens still have a chance?

I know all three of you work at reputable investment firms in the industry. What I'm doing today is treating this as a casual conversation among friends. Any strong opinions expressed afterward represent your personal views, not those of your companies. I hope you can speak candidly. Before we begin, let’s each give a brief self-introduction.

Mason @ma_s_on_

Hi everyone, I'm Mason. Over the past five years, I've focused on investing in technology, internet, software, and blockchain sectors, helping clients with asset allocation. Looking forward to discussing some ideas with you all today.

Rui @yeruizhang

I'm Rui. I started in crypto back in 2017 and have been involved in investing ever since. I’ve talked with almost every major and minor project out there. My primary experience is solid, and I began writing on Twitter in 2021—I've been at it for quite a while now.

Jims @jimsyoung_

Hello everyone, I'm Jims. My background started with overseas expansion—working on international strategy at big tech companies, then investing in cross-border projects. Later, I moved into early-stage crypto fund investing, mostly focused on primary markets. This cycle, I've become more interested in secondary markets, diving into memes. That's my general trajectory.

Let’s start with our first question: What are the underlying reasons behind the poor performance of VC tokens in this market cycle? If you could list multiple causes, how would you rank them?

Mason @ma_s_on_

I think there are four main factors contributing to the current situation:

Primary-secondary market misalignment: This is a long-standing structural issue in capital markets. The participants, funding sources, and investment scopes differ significantly between primary and secondary markets. It's not something that can be resolved overnight.
Crypto-specific characteristics: Exit mechanisms and rules in crypto markets aren’t as mature as in traditional markets. In traditional finance, VCs have clear exit paths—like M&A or IPOs. But in crypto, these rules are still being defined, with token vesting schedules and liquidity terms adjustable at will. This flexibility amplifies the gap between primary and secondary markets.
Liquidity shortage: Overall market liquidity is low, and VC-held tokens lack sufficient liquidity. This creates a “too many buyers, too few goods” scenario.
Negative wealth effect feedback loop: A downward spiral driven by weakening investor confidence and diminishing returns.

If I had to rank them, I’d say points one and two—especially point two—are the most critical. The industry needs to return to rationality, but the problem of self-defined rules remains unresolved. The scarcity issue only exacerbates this.

Take the stock market as an example: initial circulation rates, lock-up periods, and expected returns for early investors are all reasonably predictable. Some KOL data shows that valuations for new projects this year are several times higher than they were three years ago. Compared to projects from four years ago, today’s deals have drastically different terms—changes that can be quantified.

In the previous cycle (2020–2021), investors were more cautious, leading to lower valuations. This time, massive inflows pushed up primary market valuations, raising expectations for higher secondary market returns upon exit.

Zheng @ZnQ_626

There’s a view that the 2022 bear market wasn't as brutal as previous ones—many projects struggled but didn’t collapse entirely. Could this explain why current project valuations remain high? Do you agree? Are there other factors?

Mason @ma_s_on_

I agree, but a more direct reason is that the previous cycle’s wealth effect attracted even more investors. Supply and demand drive prices. The influx of capital inflated valuations. Even during the 2022–2023 bear market, project valuations didn’t drop as sharply as in prior cycles.

Jims @jimsyoung_

Poor liquidity is indeed a key issue in today’s market. During periods of monetary easing, this problem gets masked, but in the current cycle, weak liquidity combined with a shortage of high-quality assets has become the core challenge. Take the mobile internet boom—it created a golden era where investments anywhere delivered solid returns. Even in regions like Africa or Southeast Asia, limited opportunities elsewhere were offset by scale and intrinsic value.

Liquidity issues vary across cycles. In the last cycle, fewer assets meant liquidity was concentrated. Now, with more diverse assets entering the market, liquidity is diluted. For instance, many new tokens see modest price gains because capital isn’t funneling into just a few names.

High-quality assets still exist, but their performance differs. Take Pendle—it significantly outperformed the broader market over the past year, proving that valuable opportunities still exist. While we no longer see broad-based rallies, standout performers remain worth watching. Lower asset creation costs also play a role: building a public chain used to be expensive; now launching a Layer2 is much easier. More assets mean greater fragmentation in individual performance.

Zheng @ZnQ_626

How about your own performance in secondary market investments this year?

Jims @jimsyoung_

This is my first time managing my own capital. From late last year through early this year, when the market was strong, I increased exposure to high-risk bets and experimented with various strategies. Due to portfolio flexibility, my overall results didn’t exceed expectations. Betting heavily on Bitcoin didn’t pan out as hoped. After some drawdowns, I adjusted my approach—shifting toward timing large-cap coins, becoming more conservative. Overall, performance has been average, but my judgment and learning ability have improved.

Zheng @ZnQ_626

I’d add that A-shares have seen similar sector rotation patterns. This year, rotations have been extremely fast—one sector might lead for just a week or even days. This is common in A-shares. The difficulty has increased, but it’s baseline—not extreme.

Back in 2020–2021, many investors made money regardless of which altcoin they picked. Even during the 2016–2017 cycle, nearly any ICO token would generate profits. This bred overconfidence in coin selection skills. But today’s market is far less generous. That said, compared to traditional markets, picking coins in crypto is still relatively easy.

Mason @ma_s_on_

Regarding small-cap strategies in my FoF fund, performance varies widely. Altcoins often underperform major coins due to higher risk and lower predictability. Institutions typically prioritize certainty—earning 50% on a large position is more valuable than 10x on a small bet. Different strategies yield different outcomes: some focus on Bitcoin swing trading, others on small caps, others on top-10 coins. The cycle isn’t over yet, so final results remain to be seen.

Rui @yeruizhang

Let me discuss why VC tokens haven’t lived up to expectations this cycle. While many legacy tokens performed well starting November last year, the overall profit-making effect has weakened. Several factors contribute:

First, market participants are collectively wealthier. In the last cycle, having $100K marked you as high-net-worth. Now, many start with seven-figure portfolios. With bold moves, catching a few right assets from October last year to March this year could deliver solid gains.

Second, listing channels are now highly centralized—mainly on Binance. Few tokens spark real buying interest. Many are already heavily traded before listing. Some even conduct extensive airdrops pre-listing, pricing in future value. As a result, opening prices are often high, leaving little room for further upside.

Third, shifts in sectors and communities matter. Previously, community FOMO was intense—think certain L1s or stablecoins. In 2021, people passionately rallied behind projects. Now, community energy is weaker, lacking that collective momentum. Also, newer sectors have transparent revenue models—investors calculate expected returns rather than relying on emotion or imagination. Decisions are more analytical, making some projects fall short of expectations.

Overall, participant wealth levels, centralized listing gateways, and evolving sector/community dynamics are key drivers behind underwhelming VC token performance.

Zheng @ZnQ_626

Got it. So how has your small-cap investing performed this year?

Rui @yeruizhang

Performance has been mediocre lately, especially since May, with slight drawdowns. Before that, things were decent. Investing in projects like EigenLayer and Pendle yielded relatively high returns—during peak yield phases, locked-in annualized returns exceeded 50%. Still, losses from altcoin picks have been severe.

Zheng @ZnQ_626

Understood. I want to add an observation about why VC tokens are underperforming. Personally, I feel retail investors no longer believe in Web3 narratives as strongly as before. Back in 2017–2018, during the ICO craze, users genuinely believed in these projects. Even in 2020–2021, many had real faith in NFTs and new concepts. This cycle, retail trust seems notably lower—which may explain the weak community sentiment Rui mentioned. Just a personal impression, not necessarily rigorous. Which leads me to the next question.

Do you still believe in Web3? If yes, what’s your current investment thesis? Why continue investing in early-stage projects, especially as a VC backing these ventures?

Mason @ma_s_on_

Yes, we still believe in the Web3 trend. Although innovation this cycle may not be as eye-catching as last time, that doesn’t mean we’ve lost faith in its long-term potential. Last cycle’s excitement—breakthrough innovations like Uniswap simplifying complex problems—was impressive. This cycle’s innovations may seem less dazzling, but many projects are solving real problems and advancing the industry. These still deserve attention.

However, two issues stand out. First, uncertainty in the path forward. We don’t know exactly how Web3 or blockchain will evolve—whether rapid growth will be followed by stagnation. This uncertainty affects investment decisions.

Second, narrative divergence between East and West. In the West, many investors—including Wall Street institutions—have family or peers actively building in blockchain, indicating genuine belief in its potential. On the investment side, Western players often focus on aligning blockchain with compliance—for example, compliant asset management in Web3 (RWA).

Overall, we remain confident in Web3, though uncertain about its exact trajectory and implementation—factors that shape investment choices.

Zheng @ZnQ_626

From your perspective, whether looking at projects you invest in directly or via FoF funds, what percentage of founders are truly trying to change the world or advance Web3? And what percentage are mainly chasing profits, telling a story to eventually cash out? From an institutional standpoint, do you have a preference in values? For example, do you favor founders in the first category?

Rui @yeruizhang

Let me take this one. The industry is now quite mature, so most founders aren’t purely idealistic. They’re playing key roles within existing ecosystems. Many DA-layer projects, for example, serve to complement and refine existing functions. Today’s projects tend to build incrementally on foundations rather than aim to “disrupt” everything.

Compared to last cycle, this one focuses more on strengthening established ground. Projects like EigenLayer fill gaps in current systems, offering better solutions. They’re adding new layers to existing legos—or laying a few extra bricks.

As for whether teams are really trying to “rug pull,” it’s complicated. On one hand, many genuinely aim to solve industry problems, not just chase short-term gains. For example, all projects listing on Binance must go through reporting processes—Binance has review mechanisms, making it hard for pure profit-driven schemes to succeed. On the other hand, some teams do intend to “harvest韭菜,” but such cases are relatively rare.

Zheng @ZnQ_626

Understood. Let me extend the question. For you, is a project’s logic and necessity a prerequisite for investment? If a project is an important building block but lacks strong financial returns in its economic model—even unlikely to profit short-term—would you still invest? Or if you’re skeptical about its economics, believing it won’t make money in the next one or two years, would you still consider backing it?

Mason @ma_s_on_

Excellent question. For us, a project’s logic and necessity are indeed central to investment decisions. We assess whether it solves a real problem and plays a meaningful role in the Web3 ecosystem. This “political correctness” or fundamental justification is the baseline for considering an investment.

That said, financial returns and economic models are also crucial. If a project has glaring flaws in its economics or no near-term profitability, that impacts our decision. We balance long-term strategic value against short-term financial viability. If a project has strong long-term potential—even if profitability is weak—we might still invest. But it must demonstrate sustainable long-term promise.

Ultimately, a project’s necessity and problem-solving capacity are core. But its economic model and financial outlook must also be reasonably sound. We need confidence in both long-term value creation and eventual returns.

Rui @yeruizhang

Many projects we invest in continuously build public infrastructure for the industry—still unprofitable, with almost no short-term earnings outlook—yet still attract institutional capital. I believe that if a project is truly meaningful and plays a key role in an ecosystem, its value will eventually be recognized. Take Pendle: it wasn’t successful at first, but after three years, it found its niche and succeeded.

The industry constantly evolves—new opportunities and challenges emerge. Founders who seize them can succeed. A project appearing unprofitable today doesn’t mean it never will. Etherscan didn’t make money initially but now earns very well—started with donations and ads, now charging large fees for supporting new chains. A project’s value and earning potential may simply take time to surface.

Most institutions are open-minded about this, willing to wait patiently. They tend to focus on long-term value, not just short-term profits.

Jims @jimsyoung_

I think the concept of Web3 itself lacks a clear definition. Since its inception, interpretations have varied widely—many problems unsolved by Web2 get lumped into Web3’s domain. Simply reframing or extending an existing system as Web3 doesn’t guarantee it’ll solve anything. That’s clearly unrealistic.

If we define Web3 as blockchain, then many areas already use it—cross-border payments, crypto trading—partially embodying Web3 principles. But current Web3 applications still face challenges—they often resemble “Martian casinos,” i.e., tech and models not yet widely accepted. For countries with immature financial systems, blockchain offers new solutions, but practical adoption faces many hurdles.

External factors are equally vital for blockchain’s development. Hardware advances and AI progress can dramatically boost blockchain performance. Ethereum’s shift from disk to SSD storage is an example—driven by hardware, not blockchain itself. These external forces propel the field forward.

Regulatory changes also have major impact. If certain countries loosen blockchain regulations, traditional businesses may enter, accelerating industry growth. Singapore’s proactive support for blockchain is a positive case in point.

In short, blockchain’s evolution depends not only on internal innovation but also external catalysts. While fully mature applications may not yet exist, changing conditions and technological progress could unlock new opportunities. We need patience, active exploration, and close attention to external influences.

What do you think are the necessary conditions to revive VC tokens? Beyond “improved macro liquidity” and “lower early-stage valuations,” are there other answers?

Mason @ma_s_on_

Good question. First, improved market conditions—including macroeconomic recovery—are essential. Beyond that, I see several additional drivers:

Market dynamics: Market博弈 plays a big role in shaping VC token value. For example, if volatility increases, investors may adopt different strategies to capture returns. Recently people joke, “If memes get expensive, value coins might turn into memes too,” suggesting that market博弈 could shift attitudes toward VC tokens. This goes beyond price swings—it includes how investors react to market movements.
Capital structure博弈: Poor VC token performance affects overall VC fund returns. This could cool market enthusiasm, prompting valuation corrections and repricing. Such adjustments help re-evaluate risks and opportunities, potentially reviving interest in VC tokens.
Emergence of innovation: The market embraces truly disruptive innovations. If groundbreaking tech or projects emerge—sparking widespread interest and demand—they could reignite VC token momentum. Innovation isn’t just technical—it can be in business models, market needs, or operations.
Regulatory shifts: Government and regulator stances influence VC token markets. Friendlier, clearer regulations could stimulate investment and activity, positively impacting token performance.
Shifts in market sentiment: Investor psychology matters. If optimism returns or appetite for risk assets grows, VC tokens may regain attention and capital.

In sum, reviving VC tokens depends not just on macro and market improvements, but also on market博弈, capital restructuring, innovation, regulation, and sentiment. Their combined effect will determine whether VC tokens enter a new growth phase.

Rui @yeruizhang

Here’s how I see it—what people complain about is mainly the unlock schedule, right? Continuous sell pressure during unlocks. Some projects unlock in batches every six months—that’s manageable. The real headache is monthly unlocks, like OP and ARB. Sure, they’re expensive and can drop—but you don’t have to buy. Everyone knows OP and ARB are unlocking—you shouldn’t stubbornly buy into known sell-offs.

Trade-offs? This cycle has more traps than last, but avoiding them makes it manageable. Starnet’s performance in April is a clear example. Previously, only technically savvy believers invested in such projects; retail traders stayed away. So this cycle’s hallmark is greater information transparency and more rational博弈.

My view: a token’s upside depends on its unlock plan. Delaying unlocks can prevent market sell-offs. Mason’s points on valuations and liquidity are valid too. Basically, without unlock periods, large-scale dumping disappears—risk becomes controllable.

Jims @jimsyoung_

Yeah, it’s pretty clear. Mason speaks more broadly and long-term, while Rui zooms in on the core mechanics. Macro-wise, another key factor is the nature of top-tier assets—what counts as high quality and what achieves consensus.

This cycle, prices, tech, and metrics have been thoroughly博弈ed. I know many founders—their token holdings are largely known. So what defines a high-quality asset? If tech has no moat—if anyone can replicate your ZK or AI project—and pricing is transparent, where’s the edge? Where’s information asymmetry? Where’s non-consensus value? That’s the deeper answer.

People say VC tokens are bad because they don’t rise—they just don’t moon like before. But if we apply non-consensus logic, where might hidden opportunities lie? When non-consensus emerges, big chances hide beneath—something others miss but you catch. That’s alpha.

Like Rui said earlier—this cycle, more projects are “accountable.” Their math checks out, their story is set, everyone chases the same metric. Little room left for imagination.

But things that can’t be easily calculated—that’s where non-consensus lives. From a single-asset or single-sector lens, that’s where big opportunities may emerge.

Zheng @ZnQ_626

I’ve noticed more early-stage participants are getting involved in secondary markets. On this phenomenon, I’d like to hear your thoughts.

Do you think primary market institutions are turning to secondary markets because primary investing isn’t profitable? If so, how do your methodologies differ between primary and secondary investing? What are the advantages and disadvantages of participating in secondary markets?

Mason @ma_s_on_

This can be answered together. Primary capital flowing into secondary markets is common—money follows returns. Advantages and disadvantages of VCs entering secondaries:

Advantages: Primary investors often have insider knowledge—deep insights into team capabilities and industry trends. This helps make more confident secondary market bets, info retail investors lack.

Disadvantages: Primary investors may struggle in volatile secondary markets due to long-hold habits. Short-term swings pose challenges inconsistent with primary strategies. Also, primary evaluation methods—often qualitative—may not suit secondary markets, where quantitative data dominates.

Rui @yeruizhang

Basically, if you believe in a project, you hold even through heavy losses. In that case, losses are inevitable.

Zheng @ZnQ_626

So do you see primary institutions’ secondary market involvement as a short-term tactic or long-term strategy? If primary markets recover, would they stop secondary investing?

Rui @yeruizhang

It depends. If a project does well in primary, institutions may keep adding in secondary. This stems from conviction, not full transformation.

Zheng @ZnQ_626

To me, that still counts as primary behavior.

Rui @yeruizhang

Primary institutions entering secondaries aren’t doing short-term trading—no 5-day or 10-day moving averages. Their participation is based on long-term belief, not complete pivoting. They apply their original logic—just shifting from illiquid to liquid assets.

Jims @jimsyoung_

Got it. Mason’s points are comprehensive. The main reason primary investors enter secondary markets is they have tokens to manage. For example, post-investment projects reach listing/unlock stages—investors receive tokens that may underperform. Then questions arise: Should they buy more? When to reduce? How to communicate with the community? Especially when funds need to achieve DPI—handling these issues is a key driver for secondary market engagement.

Zheng @ZnQ_626

I may not have defined “secondary participation” clearly earlier. I don’t count discussing primary projects as secondary involvement. True secondary participation means direct trading on secondary markets—unrelated to primary discussions—including OTC trades, which I also exclude.

Jims @jimsyoung_

Understood. Secondary market entry is often a natural transition. For example, when deciding to sell a project, you compare it with similar ones—might spot undervalued tokens and decide to invest. The decision flow is continuous. Primary investors, by habit, extend their mindset into secondary markets. It’s a natural evolution.

Final question: What will be the future form of crypto funds? How will their business lines evolve, and what’s the logical relationship between them?

Mason @ma_s_on_

First, we should ask: Where will future crypto fund capital come from? And what will future crypto fund managers look like? There’s ongoing debate—should funds pursue compliance or stay off-grid? This shapes their future form. Compliance may attract investors seeking safe, fixed-income-like returns, while the alternative path may focus more on micro-innovation.

As for fund structure, the key is how they make money. Currently, beyond crypto-native strategies like funding rate arbitrage, most models mirror traditional finance. Crypto funds borrow heavily from traditional forms—VC, hedge funds, platform funds. Their evolution will likely follow traditional blueprints.