Author: Patti, ChainCatcher
Editor: TB, ChainCatcher
Last weekend, ABCDE co-founder Du Juan officially announced that "ABCDE Capital has stopped investing in new projects and suspended the fundraising plan for its second fund," and briefly summarized the investments of ABCDE's first fund: investing nearly $40 million, supporting over 30 projects, with more than 50% being lead investments.
Du Juan's tweet caused a sensation on X.
Pessimism and Helplessness Intertwined
Some believe this reflects the severely deteriorating investment environment in the crypto market, where investment institutions struggle to reverse the downward trend despite full commitment. Others analyze this as a helpless move by investors to cut losses in time.
According to investment blogger Kay Capital, Du Juan's announcement to stop investing is likely due to the extremely low returns of this Crypto VC investment cycle. He pointed out: "The passing grade for the previous Crypto VC cycle was 5-10x returns, an excellent level was 20-50x returns, and a top-tier level was over 100x returns." However, in the current cycle, the passing grade is a 50% loss, the excellent level is barely breaking even or making a small profit, while the top-tier level might only have a chance to double by going all-in on projects like Sui that unlock during a bull market.
Kay Capital further analyzed the high risks and volatility faced by Crypto VCs and the entire process of VC losses. He mentioned: "Assuming a 4-year investment cycle, most funds need to be deployed within 2 years," and the current stage is the third year after the 2022 bear market, with some VCs entering a phase of having no money to invest.
Moreover, not all invested projects will be released, and many face the risk of non-disclosure, meaning VC investments cannot create returns. Among those that can be released, TGE unlocking has become another reason why VC investments are difficult to recover. Kay Capital stated: "Many projects require a year to become truly liquid, by which time the project and market makers (MM) have already 'handed over' the project."
Additionally, crypto blogger DeFi Teddy posted on social media pointing out multiple issues with the current Crypto VC model, including lack of innovation, severe homogenization, using airdrops to manipulate data and create a false prosperity, high valuation, low liquidity, with retail investors becoming bagholders.
So, is the situation really like this? Are Crypto VCs in such a pessimistic state?
ABCDE Transforms to Launch Vernal
In fact, while ABCDE announced stopping new project investments and second-fund fundraising, their new incubator product Vernal is already brewing. As Du Juan said: "We want to change our approach and rethink how to participate in industry development." He emphasized that this is not a matter of funds or capability, but of direction, and the new product Vernal might be his new direction.
Subsequently, Du Juan briefly shared the plan for "Vernal" in a new tweet: launching a new incubator brand Vernal; continuing to invest in the primary market; researching secondary trading; and inviting crypto enthusiasts to join his team.
Financing Environment Still Vibrant
In fact, despite seemingly negative market sentiment, Crypto VC still maintains an active financing environment.
According to RootData, as of now, there have been 13 seed round financings in the crypto field this month, with crypto-native funds like a16z and Dragonfly still active in crypto investments.
Among these, Dragonfly Capital's lead investment of $15.8 million in the stablecoin blockchain startup Codex was the largest, with participation from Coinbase, Circle, Cumberland, Wintermute, and Selini Capital, with Dragonfly investing around $14 million in this round.
Similarly, in April alone, a16z participated in 6 crypto project financings, covering AI, social, and other fields. According to market news, a16z is seeking to raise $20 billion for its largest fund.
Facing market pessimism about the crypto industry, Dragonfly managing partner Haseeb Qureshi responded that as a crypto venture capitalist for nearly 8 years, he has heard similar statements multiple times like "no one will buy these tokens" and "there will be no more returns".
He stated that crypto VC fundraising was extremely difficult in 2018/2019, but reality has proven that cycles will restart. He emphasized: "If you truly don't believe in crypto, then short the market with real money. Let's compare results in three years."
Survival Strategy Amid Liquidity Drought
In fact, as large amounts of hot money flow from VC coins to meme, the already near-dry liquidity becomes increasingly precarious, and the crypto market falls into a "junk project collapse wave".
According to crypto KOL @Anymose 96's statistics, among ABCDE's invested and issued coins, the maximum price drop reaches 95.5%, which might also be a factor in ABCDE's transformation.
This is the dilemma faced by capital institutions at the top of the ecosystem, and a breakthrough transformation is imminent.
Capital institutions represented by ABCDE are transforming, maintaining primary investment business while actively expanding into secondary market investment and trading to achieve better market performance and fund returns.
Veteran crypto-native capital like a16z and Dragonfly Capital are turning their attention to hot fields like AI and stablecoins, seeking more development opportunities through broader attention, funding scale, and application products.
Haseeb gave a speech about AI Agents in Denver this March, discussing AI's impact on Crypto and future expectations. He noted that "the intersection of cryptocurrencies and AI will be very rich, but this largely depends on AI's development and integration with crypto", indicating that "AI + Crypto" will become an important investment target for Dragonfly.
Conclusion
How to survive amid liquidity drought has become a question for many Crypto VCs.
Evidently, the AI track, carrying humanity's future, has become a natural link connecting web2 and crypto liquidity, and "AI + Crypto" is gradually becoming an important narrative for VCs to obtain liquidity.
If crypto is viewed as a Circle, ABCDE's transformation seems to be creating liquidity within the circle, while a16z and Dragonfly Capital are seeking more liquidity from outside the circle.
The future evolution of the crypto capital market and whether capital institutions can find a new path to survival in their transformation remains unknown.
What is certain is that the crypto capital market is experiencing unprecedented transformation and challenges, and capital institutions need to continuously adjust strategies and adapt to market changes to survive and achieve sustainable development.
