Deep Dive: Crypto VC's Life-or-Death Test—Will They Exit or Break Through?
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Deep Dive: Crypto VC's Life-or-Death Test—Will They Exit or Break Through?
VC firms are still at the table. The day after tomorrow looks bright, but the key is surviving the toughest tomorrow.
Navigating Web3 tides with focused insightsAuthor: Wenser, Odaily Planet Daily
In our previous article "ABCDE Stops Fundraising: Crypto Capital Needs a 'Version Update'," we introduced the topic of crypto venture capital (VC) needing to upgrade its model in response to new market cycles and evolving monetization paths—prompted by ABCDE's decision to halt fundraising. As the crypto market warms recently, many investment firms have re-entered the stage. Some are adjusting their portfolios, others are betting on new projects, while still more are turning attention toward on-chain trends, stablecoin sectors, and PayFi—areas better aligned with the current cycle.
Odaily Planet Daily has conducted in-depth discussions with several top-tier VC firms in the industry, aiming to explore new directions for crypto VCs and identify future growth opportunities for professionals. The following content is primarily drawn from interviews with ArkStream Capital, YBB Capital, and other institutions, with some parts edited for clarity.
My Lord, Times Have Changed: The Crypto Chaos Era Begins, Liquidity Is King
To understand the current market, it’s essential to discern what has changed—and what hasn’t—in this evolving era.
ArkStream Founder: The Core of Crypto Remains Fintech 2.0
When asked about the state of the market, Ye Su (@allen_su1024), founder of ArkStream, argued that the defining line in crypto market cycles was 2023. Prior to this year, the crypto industry resembled the early AI sector—focused on building foundational infrastructure. After 2023, with the approval of BTC ETFs and ETH ETFs, mainstream adoption accelerated, expanding participation beyond crypto-native users to broader financial audiences. This shift manifests in three key areas:
Cycle Logic: Transition from narratives and attention-driven growth to application-based, revenue-backed expansion. Tokens that held up during post-2023 downturns generally had real business fundamentals. ETH, often criticized, declined far less than altcoins that dropped 70%–90% or more.
Participant Base: A shift from crypto-native individuals to traditional finance participants has reshaped valuation models. While Web2 seed-stage startups typically valued at $2–3 million RMB, Web3 projects now commonly start at $20–30 million USD, fueling industry bubbles. The recent market correction helped deflate these bubbles, though Ye Su believes another 2–3 years of compression may be needed.
Asset Distribution: Evolution from fair ICO distributions, to VC-led “high-market-cap, low-circulation” token releases, and now to meme coins and on-chain issuance. In early days, VCs and retail investors participated equally in public sales without lockups. Today’s resurgence of similar models reflects retail demand for wealth effects—investors follow whatever mechanism offers profit potential, which partly explains the decline of traditional VC tokens.
What remains unchanged, however, is that crypto’s core narrative continues to be Fintech 2.0—a decentralized, smart contract-powered global ledger whose primary mission isn't creating new productive ecosystems but improving market relationships through efficient asset transfer, distribution, and decentralized operations. This is evidenced by how even gaming and social projects in crypto ultimately emphasize financialization.
YBB Capital Co-founder: Lowered Asset Issuance Barriers Define This Cycle
John (@John_YBB), co-founder of YBB Capital, echoed similar sentiments: “The changes are twofold: First, asset issuance remains the market’s ‘lifeblood engine.’ But unlike past cycles where it fueled diverse narratives and validated DeFi maturity, this cycle is defined by drastically lowered barriers to issuing assets. This inflates on-chain liquidity, driving DEX and derivative tool development—yet offers limited fundamental progress for the ecosystem. Second, capital structure is shifting: Bitcoin spot ETFs now manage over $250 billion, with sovereign funds and traditional institutions entering en masse. The market is transitioning from retail-driven to institution-dominated.
The constants? Meme coin speculation and pseudo-innovations in DeFi continue causing resource misallocation. Despite ongoing tech upgrades, there remain no killer applications matching existing infrastructure. And Bitcoin’s ‘digital gold’ narrative remains intact, though altcoins grow increasingly decoupled from BTC.”
Summary: Cycles Persist, But Greed Reigns Supreme
Overall, market cycles still operate, with innovation continuing around asset issuance and distribution. Yet narratives have been exhausted through repeated hype cycles. The industry now relies either on internal “casino-scale effects” or external injections of mainstream liquidity.
In short, the crypto space has become more pragmatic, with profit-seeking instincts stronger than ever. Against this backdrop, crypto VCs are adapting their business models accordingly.
A New Storm Has Arrived: VCs Turn to Novel Monetization Models
Looking back, every crypto VC surviving 2022–2024 might sigh: “The journey has been anything but easy.” Market monetization mechanisms have fundamentally shifted.
Bill Qian, Co-founder of Cypher & M2 & Phoenix: Break Old Rules, Wait for Next Cycle
Reflecting on past performance, Bill Qian (@billqian_uae), co-founder across multiple funds including Cypher, M2, and Phoenix, wrote: “We invested in over 10 VC funds this cycle—all GPs were excellent and backed top-tier projects. However, as LPs, we’ve already written down 60% of our fund investments, hoping to recover just 40% of principal. There’s no way around it—the vintage years of 2022/23 simply hit bad timing.
Sometimes you do everything right and still lose—to time and timing. But we’re actually optimistic about the next cycle for crypto VCs because extremes reverse. Just like Web2 VCs collapsed in Silicon Valley after 2000, the following years became fertile ground for innovation and investment.”
This statement carries the bitterness of the moment—but also deep hope for the future.
YBB Capital Co-founder: From Rejecting Memes to Riding the Wave, Flexibility Wins
On self-sustaining strategies, John (@John_YBB) summarized YBB Capital’s evolution: “Previously, YBB focused on early-stage investments—seed and pre-seed rounds—then built long-term partnerships with teams, offering media exposure, exchange listings, community support, etc., achieving returns ranging from 10x to 100x. Our sector focus has always been cyclical and adaptive: Initially centered on infrastructure like L1 blockchains and cross-chain protocols in 2016; later diving into DeFi Summer protocols, GameFi, NFTs, and metaverse projects. From 2024–2025 onward, amid a meme-coin-dominated market, initial meme launches were driven purely by trending topics, leaving little room for VC involvement. Later, professional teams emerged using coordinated marketing, community mobilization, and pump groups to launch tokens. Though some firms invested, we refrained due to misalignment with our values—risks outweighed rewards, and many projects looked outright predatory.
Notably, during last year’s Telegram mini-app boom, we leveraged regional networks to help Web2 teams onboard Web3 users via mini-apps. Later, recognizing Pump.Fun’s potential, we invested in several meme launchpads and rode successive meme waves. We believe sustainable monetization lies not in quick exits but in businesses that rise and fall with meme cycles—those generating real user growth are what we value and actively pursue.
Currently, YBB focuses on core on-chain narratives like DEXs, chain abstraction, and asset issuance platforms, plus off-chain integrations involving Web3 RWA, stablecoin ecosystems, and AI. Looking ahead, we’re excited about AI economics, upstream/downstream AI industry needs, derivative tools on asset issuance platforms (e.g., GMGN-style analytics), and revival opportunities in mature technologies like Metaverse.”
ArkStream Founder: From Tier-1 to 1.5-Tier Investing, Wild vs. Orthodox Sectors
On strategic priorities, Ye Su (@allen_su1024) shared ArkStream’s perspective:
First, during the 2020–2022 bull run, top-tier funds achieved DPI (Distribution to Paid-In Capital) multiples of up to 20x, with strong performers seeing 5–10x. Below 5x was considered underwhelming. In contrast, today most funds average a DPI of ~1x, with exceptional ones reaching 1–3x—rarely higher. Overall returns have sharply declined.
Second, ArkStream previously focused on traditional Tier-1 VC investing. Due to superior liquidity compared to Web2 startups (which rely solely on IPOs for exit), crypto offered shorter unlock periods (1–2 years) and easier arbitrage profits—driven by attention economies. Post-2023, regulatory pressures and exchange policies extended token unlocks to 2–3 years, sometimes 4–6, shrinking liquidity arbitrage and reducing first-mover advantages. Only select players achieve high returns. Hence, OTC investing has become a key focus—targeting mature projects with lower risk, predictable discounts, and improved liquidity, enabling ~1-year investment horizons with reduced forecasting difficulty.
Finally, regarding future interests, ArkStream closely monitors meme-related innovations. While institutional activity remains limited, we actively track “wild west” financial infrastructures such as trading bots and on-chain derivatives, alongside more “orthodox” sectors like RWA and PayFi. We welcome collaboration with founders and teams in both domains.
Summary: On-Chain Becomes the Next Gold Rush
In summary, VCs broadly agree: the next frontier lies in on-chain transaction innovations, combined with mainstream narratives like AI. Amid tight and concentrated liquidity, they await endogenous breakthroughs—developments influenced in part by Trump-era U.S. politics and regulation.
New Variable in Crypto: Trump’s Stance Will Shape Industry Trajectory
Undeniably, Trump’s election and presidency will have lasting impacts on the crypto industry. His return not only accelerated Bitcoin’s rally to new highs but also laid a relatively favorable policy foundation for future regulation. However, his earlier tariff wars caused sharp declines in both U.S. equities and crypto markets. His ongoing stance and actions will continue shaping the landscape.
Waterdrip Capital Founder: Chaos Era Dawns, Risks and Opportunities Coexist
As Waterdrip Capital’s Da Shan noted in his article *“New Logic for Web3 Entrepreneurship Under Global Trade Reordering”*: “Since Trump returned to the White House, unexpected economic and political moves have kept global markets volatile. Among the most disruptive was the escalation of tariffs. Investor uncertainty persists, and the global financial system seems to have entered a ‘Chaos Era.’
On the flip side, a series of signals suggest the U.S. aims to position Bitcoin alongside gold as anchor assets in a new financial system. A triad of USD stablecoins, gold, and Bitcoin could form the blueprint of a ‘New Dollar Order’—preserving the dollar’s legal status while bolstering resilience through physical and digital asset backing.”
In the second half of crypto’s evolution, simple traffic-grabbing tactics are no longer viable. Instead, hard-value entrepreneurship will dominate. Key opportunities for founders include: Bitcoin ecosystem (BTCFi), other public chain ecosystems (including DeFi), real-world assets (RWA), payment finance (PayFi), and crypto-themed equities.
YBB Capital Co-founder: Trump Has Become a Liquidity Black Hole, Crypto Is Now Stock-Like
Discussing Trump’s impact, John (@John_YBB) offered a distinct take:
“Tariffs and trade wars had minimal direct effect on crypto. Trump’s main influence lies in volatility and liquidity.
On volatility: Policy unpredictability shook U.S. equities. Since China began banning miners and mainland users, crypto volatility has increasingly mirrored Wall Street—‘Wall Street-ification.’ The launch of Bitcoin spot ETFs marks crypto’s final transformation into an equity-like asset class. By classifying Bitcoin as a commodity, ETFs subject it to tax rules akin to stocks and bonds. Moreover, ETFs split Bitcoin into two segments: ‘white Bitcoin,’ stripped of decentralization and anonymity, retaining only speculative financial traits, backed not by code but by centralized governments; and ‘black Bitcoin,’ representing the original, ideologically pure version. Yet control is shifting toward ‘white Bitcoin,’ with the largest players now being U.S. government and institutional capital—not grassroots communities.
Liquidity shifts are often more damaging than policies themselves. In Web3, attention equals liquidity. Trump turned political attention into financial power via the TRUMP meme coin, creating a narrative-driven liquidity black hole through ‘identity storytelling + asset minting +舆论 manipulation.’”
ArkStream Founder: Bitcoin’s Next Rival Is Gold
On the “Trump Effect,” Ye Su (@allen_su1024) suggests analyzing implications through Bitcoin’s lens—as the industry’s bellwether.
After progressing through two phases—“tech foundation” and “mainstream asset”—the critical question now is whether Trump’s policies can accelerate Bitcoin’s transition into a global safe-haven asset. Over the next five to ten years, the key metric will be whether Bitcoin can attain parity with gold in terms of asset status. The role of U.S. sovereign funds in advancing this process is crucial. If successful, Bitcoin still holds massive upside—currently 8–10x below gold’s market cap. If not, its growth ceiling becomes significantly constrained.
Summary: Crypto Is No Longer Niche, Nor Can It Remain Isolated
Regardless, Trump’s dramatic and confrontational policies bring both high uncertainty and opportunity to crypto—uncertainty reflected in market swings and Trump’s own influence on prices via tokens like WLFI and TRUMP; opportunity seen in enhanced Bitcoin safe-haven appeal, crypto-themed equities, stablecoins, and PayFi developments.
Conclusion: No Misallocated Assets, Only Misaligned Projects
Finally, addressing the question “Does misallocation exist in crypto markets?”—after gathering insights from leading capital figures—we synthesize the following:
At the micro level, mismatches do exist: market cap vs. project fundamentals, valuations vs. real usage, token airdrops vs. short-term speculation, exchanges vs. projects, and projects vs. users. The market still struggles to balance “expectation-driven” momentum with actual “value realization.” Sustainable, healthy development requires aligning value with utility—“you get what you use.” Without this alignment, true innovation cannot emerge.
At the meso and macro levels, all capital—retail or VC—flows to where efficiency is highest. Wherever wealth creation occurs, capital follows, and attention converges. Whether Solana, Base, BSC ecosystems, meme coins, AI agent tokens, airdrop farming, or exchange IEOs—all depend on user demand. As ArkStream’s Ye Su (@allen_su1024) puts it: “Market dynamics are ultimately shaped by user needs. Retail investors, the silent majority, hold decisive influence. Products and distribution models must evolve with the market—not remain static.” From this angle, crypto doesn’t suffer from simple misallocations, but from structural adjustments driven by shifting cycles and user demands.
In any case, crypto never sleeps. Liquidity flows like water. What truly creates waves isn’t misallocated projects—but assets perfectly timed.
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