The market needs a 'knockoff season' to rescue the trapped cryptocurrency VCs (venture capital firms).

I have been chatting with some peers these days, and this round of VC in the cryptocurrency circle is basically over. Fortunately, we didn't invest much in the first tier, but turned to the second tier

Chatting with the market maker, he sympathized with our VC. In the first year of the project's launch, VC couldn't get any coins, only the market maker, the project, and the exchange had coins, but when the price was smashed, it was VC who took the blame and was ridiculed as VC coins

At the Hong Kong cryptocurrency event, LD Capital founder Yi Li stood up for Huawei's cryptocurrency VC. In his view, VC is the biggest scapegoat in this cryptocurrency cycle, not only losing money, but also being chased and scolded.

Entering 2024, many senior practitioners of encrypted VC have resigned one after another and joined project teams or secondary markets, for only one reason: not making money.

Nowadays, venture capitalists in the cryptocurrency industry are facing multiple challenges: they cannot find suitable investment projects, and the valuations of the projects they are interested in are extremely high; Difficulty in exiting old projects, severe lack of liquidity in the entire secondary market of altcoins, and immediate book losses of 50% -90% for some investment projects upon launch; Even if one is fortunate enough to invest in a good project and extend the token lock up for many years, everything will be unknown at that time

Many venture capitalists in the cryptocurrency industry rely on external LP funding and need "brand packaging", even if their bodies are already half cold, they still have to pretend to live well to the outside world.

When the project party is unable to obtain liquidity from the secondary market, VC becomes an exit liquidity.

This generation of cryptocurrency VCs is already on the road to safeguarding their rights.

During the process of VC rights protection

Do you know what despair is? It was the day ZKX went live, "said investor David, feeling embarrassed about having participated in such a project before.

The ZKX Token, with an investment cost of $1, fell directly from the opening price of $0.6 to $0.2 on the first day of its listing on the exchange, resulting in an 80% loss on its books. However, this was not the end point, and since then ZKX has continued to decline, dropping to almost zero at one point to 0.000618.

A few months ago, ZKX was also a well-known star project, StarkNet's top derivative platform, which received investments from well-known institutions such as GCR, Amber Group, Crypto.com, Hashkey, StarkWare, OrangeDAO, etc., with a cumulative financing amount of 7.6 million US dollars.

On July 31st, ZKX founder Eduard directly announced that he had chosen to shut down the platform due to the inability to find a feasible economic path.

All investors were caught off guard like a bolt from the blue.

Perlone Capital partner Jin Kang angrily denounced ZKX as a scam on X.

The team closed the project 6 weeks after the TGE (Token Generation Event); Sudden modification of token unlocking plan during TGE; During TGE, the actual circulating tokens exceeded the official document... Jin Kang said, "If this is not a scam, then what is it

Under the call of Jin Kang, numerous ZKX investors have decided to unite and defend their rights. As of now, the rights protection group has gathered 42 relevant personnel, and everyone has provided suggestions.

Some investors are well aware that under the existing SAFT agreement framework, it is difficult for investors to recover funds, so they propose to pressure the Starknet Foundation to provide subsidies to investors.

During the process of safeguarding rights, external teams have also contacted investors, expressing their desire to take over and restart the ZKX platform, providing new trading methods for the existing ZKX community.

ZKX is just a microcosm of the many current cases of rights protection VC. Some investors told Deeptide TechFlow that they have temporarily suspended their first level investments and shifted their focus to "post investment management" to inquire about the development status of invested projects. For projects that have no operational progress, they will "protect their rights" and apply for the return of investment funds, most of which are old projects that participated in investment in 2022, including investments from well-known institutions such as Coinbase Ventures. They use the concept of metaverse, but now it has lost popularity, and social media has also stopped operating

However, safeguarding one's rights is not easy

Difficulty in safeguarding rights in the cryptocurrency industry

Protecting rights in the cryptocurrency industry is difficult to achieve.

Yi Lihua, who has many years of experience in protecting rights in the cryptocurrency industry, also stated that he has successfully defended multiple projects in the cryptocurrency industry, with few successes.

In primary market investment, the emphasis is on willing to gamble and accept defeat. Moreover, most primary investments in Crypto adopt SAFT/SAFE contracts, and the investment entities are offshore organizations such as BVI, which have legal flaws. Investment institutions are located in various countries, making it difficult to rely on legal means to protect rights. For VCs, rights protection often involves concentrated actions, collaborating with other investors to exert pressure on the project team, appealing to emotions and reasoning, but the dominant power still lies in the hands of the project team.

Yi Lihua said that for most of the rights protection, the founders of the project directly ignore you and ignore you. You can't help them. Some founders are shameful and are willing to give up half of their money, which is very good.

A VC partner who participated in ZKX's rights protection admitted that even though there is a common demand for rights protection, the interests and demands of different institutions are too scattered, and some VC investment amounts are not particularly large, so they will not "all in" do their best to do this.

In addition, most VCs want to maintain basic dignity, so they are actually unwilling to break up with the project party unless absolutely necessary.

On the contrary, it is the individual investors who can break free from the constraints of face, boldly defend their rights, and persist in their rights that have a higher success rate. The rights protection in the cryptocurrency industry has evolved from a game of "who is more shameless, who can persist" from the beginning.

Not only VCs, but also many KOLs in the cryptocurrency industry are now seeking to protect their rights.

ALEX, a practitioner in the encryption industry, has collaborated with multiple KOLs to participate in the KOL round of a certain encryption project.

When ALEX found the project and expressed his desire for a refund, otherwise he would mobilize KOLs to FUD you together. The project team was very happy to welcome the joint KOLs to FUD the project, which could bring attention and heat to the project.

VC in the cryptocurrency industry, vulnerable groups?

Leo Tolstoy said that happy families are almost identical, while unhappy families have their own misfortunes.

In the encryption industry, happy VCs are almost identical, while unfortunate VCs have their own ways of losing money.

According to the descriptions of some VC practitioners, pending rights protection projects can be classified into three major factions.

The ZKX project, which was officially announced to cease operation immediately after its launch, was called "Rug Pai".

The second type is the 'slackers', who use listing as the endpoint and then allow the coin price to plummet, breaking through the center of the earth. Investors have not yet obtained any tokens, but have already gained over 90% of their book losses.

At this point, the project team often claims to the outside world that 'the market is not good, we are still working', and investors want to protect their rights but cannot find a suitable 'reason', wanting to cry without tears.

The third type is the 'zombie faction', where the project party chooses to shrink for a long time after financing, going through one bull bear cycle after another, but still remaining silent, making people doubt whether the project party just wants to witness the history of the cryptocurrency industry.

Some of these projects, although maintaining updated social media operations and telling everyone that they are still alive, are like zombies in terms of narrative, operation, and technological development. Although they still have a breath, they are no different from being dead.

Both traditional VC and encrypted VC follow the 80/20 rule, where a large number of projects will fail and rely on 20% of successful projects to cover costs and generate profits.

However, in the cryptocurrency industry, even if VCs invest in "good projects", they do not make as much money as people imagine.

A VC partner stated that they had invested in a gaming project during the seed round and had a good development momentum. Later, they launched the T1 trading platform. However, before the token was launched, the project party requested to modify the contract to meet the exchange's requirements and extend the token lock up period.

Although the book value is still floating at present, it can't withstand the shadow fall of the copycat. It has dropped more than 80% since the highest point on the line. When the tokens are unlocked in the future, what the market will be like is unknown. The partner roast that VC's lock position is now more strict than A shares and US shares.

LI XI, a partner at LD Capital, also stated in July: "The portfolios that LD Capital has launched this year are all making money on paper, but they are all Paper Value with zero unlocking. Don't talk about VC making money anymore. The money has been earned by project parties and exchanges. Except for the VC who has accumulated a lot of money, most of them are big leeks who have taken on orders. The primary market is already a hellish difficulty this cycle

Not only will the lock up conditions be modified, but some project parties will also modify the cost price of VC investment tokens, forcibly increasing costs; Some project parties may repurchase the previous quota midway, and if they exit according to the latest valuation, it is already a good idea. Some may request a discount repurchase

Therefore, in the eyes of many VC practitioners, they are the disadvantaged group in this industry. To put it bluntly, in the four party game between project parties, VC, exchanges, and retail investors, VC lacks "leverage" and has no say, and can only passively compromise.

For retail investors, VC coins have now become a derogatory term, and investors' attitudes towards VC have shifted from following them in the past to disliking or even disliking them.

According to previous research conducted by DeepTide TechFlow, the influence of "well-known VC endorsements" in investment decisions is only 31%, even lower than KOL recommendations.

For the project team, most VCs lack unique Value Added capabilities, even the ability to make independent decisions, and dare not lead investments. They only ask, 'Which other institutions have invested in you? If xx has invested, then we will also participate a bit.'.

This year, under the hellish difficulty of the primary market, many encrypted VCs have begun to transform: some have tried to deeply participate in the incubation and construction of a project, increase their voice in the project, and become jumping VCs; Some VCs simply give up the primary market and switch to the secondary market

But all the complaints may be attributed to one thing: the market is not good, and a bull market can solve most of the contradictions.

The market needs a 'knockoff season' to rescue the trapped cryptocurrency VCs.

It's great to be here, but what if you don't come?

The cryptocurrency market is constantly changing, and besides project parties, perhaps there are also cryptocurrency VCs who need to actively seek change.

This article is authorized to be reproduced from DeepTide TechFlow