Author: Aquarius Capital
How do fund project owners organize projects and what VC coins are worth paying attention to? Research Lead @ Aquarius Shaman Devil deciphers the logic of VC coins, the key points are as follows:
VC projects such as Ethena, IO and MSN quickly attracted money through high valuations and market enthusiasm. The market appeal of such projects has weakened, and investors have turned to MEME projects.
This round of financing boom has led to a market bubble, with highly valued projects struggling to deliver on expectations, and the influx of people trying to profit through venture capital into the market further exacerbating the chaos.
Idealists find it difficult to sustain, puppet projects rely on capital operations, and top teams such as Zama and Fhenix focus on long-term technological innovation and are expected to go further.
North American fund investments focus on technology, while Asian fund investments seek market effectiveness. However, it is more difficult for Asian projects to obtain long-term financial support than North American projects.
Projects with excellent products, such as those invested by Paradigm, have long-term potential. In this round, retail investors need to stand from the perspective of the project party and profit from VC together.
Technical capabilities and information channels help identify whether a project is a scam, and projects with potential problems can still be judged for acceptability based on fundamentals.
The "gold mine and human mine" theory reveals that there is no real gold mine in the market, projects rely on new users for consumption, and most transactions are worthless cycles.
The "human mine" in the current market is the VC itself, and those who profit from this round of market are the participants who cut the VC together with the project party.
The cost of haircut is low and the risk is controllable. Stable returns can be obtained through airdrops and staking diversification strategies, which is suitable for long-term persistence.
Be wary of projects with high valuations and low circulation, as they face high inflationary pressure. You can check the distribution of coin holding addresses through blockchain browsers such as Etherscan. If most of the tokens are concentrated in actual circulation, then it is a good project.
ETH has rigorous technology and high security, making it an ideal project for Crypto people, but the technology has no direct correlation with the price of the currency.
Uweb famous teacher's frontier course 88: Which VC coins are worth paying attention to? The following is the highlights of the interaction between Uweb President Yu Jianing and Research Lead @ Aquarius Shaman Demon King. Enjoy:
1. VC projects such as Ethena, IO and MSN quickly attracted money through high valuations and market enthusiasm. The market appeal of such projects weakened, and investors turned to MEME projects
A large number of projects in the market this year are dominated by large VCs, especially in the fields of Staking and CeDeFi. Projects listed on top exchanges such as Binance are almost all driven by these VCs. This round of market history can be analyzed through three projects to analyze the rise and fall of VC-led projects:
The first project is Ethena, which is a typical VC-operated project. Ethena performed well in the VC round through high valuation and strictly controlled whitelist mint mechanism. Although it brought certain benefits to retail investors in the early stage, the price of Ethena tokens fell sharply over time, and many VCs' investments were still locked. Terms such as the "1+3" (i.e., three years of linear release after one year of cliff period) promoted by North American VCs, although seemingly protecting the interests of VCs, in fact many investors are still trapped.
The second project is IO. After announcing a $30 million financing, this project attracted great market attention. But the actual situation was disappointing: the project's technology was not mature at the time of financing, the team was still in the formation stage, and there were even loopholes in security, which eventually led to the project being hacked. Despite this, IO was successfully listed on Binance, but many retail investors did not get the expected returns after participating, and even suffered a loss.
The third project is MSN. The founder of this project attracted a lot of investment through extensive publicity and KOL endorsement. However, the project quickly lost momentum after listing on OKX, and the value of the token fell rapidly to almost zero. The project owner had already arranged an exit channel and gained profits by harvesting retail investors and other VCs. In the end, the project withdrew from the market.
There are also relatively successful VC projects, such as EtherFi, Bouncebit and Eigenlayer, but they are highly homogeneous: from the beginning, these projects have determined the trading platform, execution team and liquidity exit plan. After that, they will look for VCs for financing and people willing to "carry the sedan chair". In fact, the technical part of many teams is outsourced, and the quality is generally poor. If you look closely at the contracts of these projects, you can see that their processes and technical levels are relatively mediocre. VC projects take advantage of high valuations and market heat to make quick profits, but as the market becomes familiar with these routines, the attractiveness of VC projects gradually weakens, and investors begin to turn to other types of projects, such as MEME.
2. This round of financing has led to a market bubble, with high-valuation projects having difficulty delivering on expectations, and the influx of people trying to profit from venture capital into the market has further exacerbated the chaos
The investment strategy of the last round of VCs was relatively stable, and most investors received good returns. This successful experience led to a wave of financing in this round, and many funds under the name of cryptocurrency venture capital have flooded into the market and successfully raised a large amount of funds. The original VC institutions have also rapidly expanded their scale. This influx of funds was not accompanied by significant technological innovation, and a bubble phenomenon appeared in the market.
Since LPs have time requirements for funds, VC institutions have to put funds into the market within a limited time. This leads to two situations: either investing in some projects with low valuations but mediocre performance, or competing to invest in a few so-called top projects, resulting in these projects being given high valuations that far exceed their actual value. This bubble valuation makes the market's expectations for these projects far exceed their due levels.
Take Ethena as an example. Although it is not a bad project, and WorldCoin and RNDR may not perform badly, the valuations of these projects are pushed too high and difficult to match the actual market performance. At the same time, VC institutions not only need to invest funds, but also hope to make profits in these highly valued projects, which has led to the emergence of projects like IO and MSN. IO is a typical VC-led project, while MSN is clearly an example of the project party harvesting VC in turn.
The chaos in this round of the market can be attributed to the oversupply of funds in the primary market, but the scarcity of high-quality projects. Many people have poured into the market, trying to make profits through venture capital, further exacerbating the chaos in the market, which is a typical bubble phenomenon.
3. Idealists are hard to sustain, puppet projects rely on capital operations, and top teams such as Zama and Fhenix focus on long-term technological innovation and are expected to go further
In North America, it is common to see some project owners who are idealistic and hope to change the world through their own efforts. Such entrepreneurs are usually young people who are starting a business for the first time, especially those white people who are deeply influenced by Silicon Valley culture or founders who have been exposed to American culture. They often think that what they are doing is not just to make money, but to create a truly valuable product. Although such projects may obtain financing in the early stages, they are often difficult to sustain and eventually disappear.
Another type of entrepreneur is the "puppet" founder who is pushed to the front. Their projects are not based on team strength from the beginning, but rely on carefully designed publicity and a strong support system behind them. The foundation may have preset the profit path of the project, including who will increase the TVL of the project, who will support it, and which ecosystem will promote the development of the project. For such projects, the importance of the team itself is reduced, and more success in capital and market operations is required.
There is another type of team that has planned from the beginning how to make a profit from the project and exit the market. If they can successfully reap profits from retail investors on the exchange, they will quickly profit from retail investors. If this is not possible, they will also make a lot of money through financing.
In addition, there are some projects that fully cooperate with VCs to launch some short-term profitable "on-chain meme" projects, with the main goal of quickly obtaining funds. The operation mode of such projects is simple and crude, especially in the Asian market.
There are indeed some excellent projects in the market that are made up of top scientific and technical teams. For example, the Zama and Fhenix teams that are researching fully homomorphic encryption (FHE) have raised huge amounts of money, with Zama raising $75 million. Most of these team members are real scientists, similar to those in the Ethereum Foundation, who focus on academic research and the development of the blockchain industry, publish academic papers, and promote industry progress.
There are also some projects such as those invested by Paradigm, where the project teams are very clear about what they are doing and are seriously advancing. However, in the current market cycle, the performance and future success of such projects are still full of uncertainty, so they have not attracted much attention, but we can firmly believe that these projects will still exist in the industry in 3 to 5 years.
4. North American fund investments focus on technology, while Asian fund investments seek market effectiveness. However, it is more difficult for Asian projects to obtain long-term funding support than North American projects.
There are significant differences in investment mentality between North American and Asian funds. North American funds are generally less impatient and are willing to support some projects that are unlikely to succeed in the short term or even in the next market cycle, especially those "scientist" projects that can enhance blockchain technology. Asian funds, on the other hand, pay more attention to realistic results, and are more concerned about how to obtain more liquidity from the chain, and how to make the project widely recognized and loved in the market, focusing on data performance and market acceptance.
This difference does not necessarily mean superiority or inferiority, but rather reflects different investment logics and cultural backgrounds. Asia’s technology level is generally higher, and there are some projects with outstanding performance, but these projects often have more difficulty in obtaining financial support than North American sentimental projects.
5. Projects with excellent products, such as those invested by Paradigm, have long-term potential. Retail investors need to stand on the project side and profit from VC together.
Projects can be divided into two categories: one is projects with excellent products, and the other is projects where retail investors have the opportunity to participate and gain benefits. For projects with excellent products, taking Paradigm as an example, the direction of this fund's focus and the projects it has invested in have helped investors avoid many potential risks. Although the fund also experienced losses during the bear market, their research, published papers, and the technical logic of the projects they invested in show their serious attitude. Most of the projects invested by Paradigm have the potential for long-term survival, and they will persist even in the face of difficulties, because they are a crypto-native fund with research-driven core and have invested in companies such as Flashbots, which are worth paying attention to.
There are also some poorly performing funds in the North American market, such as PolyChain, and investors are advised to remain vigilant. Although projects with excellent products may not necessarily provide retail investors with opportunities to participate, those high-profile projects, such as IO, usually give retail investors the opportunity to participate. However, in the current market environment, retail investors need to change their original investment ideas. The logic in the past was to obtain the capital returns of subsequent entrants through early investment, but this round needs to stand from the perspective of the project party and profit from VC together with them. Through this adjustment of thinking, even if you participate in some projects that are not completely ideal, you may still get a good return.
6. Technical capabilities and information channels help identify whether a project is a scam. Projects with potential problems can still be judged for acceptability based on fundamentals. For people with certain technical capabilities, it is relatively easy to identify the authenticity of a project.
For example, by reading IO's technical documentation, I found some unreasonable things and thus noticed the problem. Projects with impure purposes will not invest too much energy in product development, so people with a technical background can more easily identify these problems. Some projects may be well hidden, but even so there are still some clues to be found.
If you have certain information channels in the circle, you can usually hear some rumors about the project, which often provide valuable clues. By combining rumors and technical understanding, many so-called "grouping" projects can be identified. Even if there is a grouping intention behind some projects, if they do not have a bad reputation and the technology and fundamentals are not bad, such projects can still be accepted. This is a reasonable judgment logic.
7. The “Gold Mine, Human Mine” theory reveals that there is no real gold mine in the market, projects rely on new users to consume, and transactions are mostly worthless cycles
The "gold mine and human mine" theory is a view formed after reflection on the market and the industry: most projects are basically providing services or tools, like making "shovels", but what gold mines are these "shovels" digging? It turns out that there is no real gold mine in the market. The so-called gold mine is actually a "human mine" - those new users who are constantly attracted. After these new users enter the market, they often become the objects of later project operations and are "consumed". There is no actual rigid demand logic between many projects, but instead they present a mutually dependent gambling relationship. For example, Uniswap serves Aave, and Aave serves Uniswap. This relationship makes people question the nature of platforms such as Uniswap, which ultimately only provide a trading platform, and the content of most transactions is actually worthless "air".
Chinese people are better at reconciling with this reality, and they do not necessarily pursue lofty goals when entering the market. Through this "gold mine and human mine" theory, we can see through the market and find where the "human mine" comes from. Although it sounds a bit cruel, it is indeed a methodology for analyzing industry problems.
8. The “human mine” in the current market is the VC itself, and the participants who profit from this round of market are those who cut VC together with the project party
The current market is clearly divided into multiple parts. Looking back at the heyday of the Inscription project, the people who mined at that time were mainly retail investors. Just by publishing an inscription on the chain and revealing a little bit of the name, it could trigger a strong FOMO emotion and attract a large number of retail investors to participate. This wave of retail investors, whether from Web2 or Web3, is driven by emotions.
The current situation is different. The liquidity of VC-led projects mainly comes from existing funds, and there is no obvious increase in the market. Even if there are incremental funds such as ETFs, these funds will not flow into the Altcoin market, forming an isolation phenomenon. Therefore, the "human mine" in the VC market is actually the VC itself. Since the last round of the market, VC has maintained the flow of funds by filling the gap from other channels, but in this round, the real profit is the participants who cut VC together with the project party.
9. The cost of haircut is low and the risk is controllable. Through airdrop and pledge diversification strategy, you can get stable income, which is suitable for long-term persistence.
Large exchanges usually have restrictions on token sales by project parties, so project parties often distribute tokens legally through airdrops. Manta's airdrop rules are designed to allow project teams to obtain more tokens. This makes scalping a reasonable business, and participants get a share of the profits of project parties and VCs.
The cost of staking is relatively low, especially compared to contract speculation. Taking interactive staking as an example, the basic cost of an account includes three packages: Twitter, Discord and Telegram, and the cost of the three packages is about RMB 20 to 50. When operating on the chain, it is recommended to minimize the time spent on the mainnet and mainly interact on Layer 2, so that the GAS fee can be almost negligible. The cost of other expenses such as isolation IP and anti-witch tools is also relatively low, and the cost of the entire staking is controlled within a low range.
Although staking-type staking seems to require more funds, by dispersing the funds for staking, you can reduce risks and obtain considerable returns. Taking EtheFi as an example, this operation can get a minimum living allowance. By tracking on the chain, you can identify the rules and loopholes that may exist on the project side, and you can also get additional income. There are many ways to play staking. Whether the amount of funds is large or small, as long as you are willing to persist, you may get a good return. Compared with trading, the risk of staking is more controllable and the income is more stable.
10. Be wary of projects with high valuations and low circulation. There is great inflationary pressure. You can check the distribution of coin holding addresses through blockchain browsers such as Etherscan. If most of the tokens are concentrated in actual circulation, then it is a good project.
For projects with low circulation and high valuation, we need to be aware of the huge inflationary pressure that comes with it. The continuous release of new tokens will have an impact on the market. Take Arbitrum's ARB as an example. Although its price performance was good in the early stage, holders do not have any means to increase interest rates, and they have to bear an annualized inflation rate of about 60%. This means that the value of the token is being continuously diluted, which is unfair to ordinary holders.
Although SUI is also a project that is highly dependent on VC, with a large circulation and continuous release of new tokens, it provides a higher reward mechanism on its chain, especially various DeFi applications. This allows users holding SUI to fight inflation through on-chain activities, thereby reducing the direct damage caused by inflation.
How to identify projects that need to be cautious on the chain: Through blockchain browsers such as Etherscan, you can see the holders of each token address and its distribution. For example, if most of the tokens are concentrated in the addresses of exchanges or platforms such as Uniswap, this means that these tokens are actually in circulation. If the token accounts for a very low proportion of the current circulation, even if the valuation is high and the circulation is low, this is a warning signal. Check the distribution ratio of exchange addresses and holding addresses. If most of the tokens are concentrated in actual circulation, then the project is relatively good.
11.ETH has rigorous technology and high security, making it an ideal project for Crypto people, but the technology has no direct correlation with the price of the currency.
ETH has a good prospect and is often called the "scientist chain" because its underlying architecture, game theory design, and cryptography design are very rigorous and are built by real scientists. In contrast, Ethereum's biggest competitor, Solana, is more like an "engineer chain". It is obvious that engineers lack clear guidance in the direction of improvement, and many technical problems are difficult to solve. For example, Solana frequently crashes and even needs to rewrite the code, which reflects the limitations of the engineer chain.
Each upgrade of Ethereum is very rigorous. Although some people believe that the degree of decentralization has decreased, the cryptography and game theory design behind it still ensures its security. Therefore, the future of blockchain needs one or two projects that truly have Crypto ideals, and Ethereum is one of the suitable choices. It should be made clear that the technical quality of the project has no direct correlation with the price of the currency.
