Author: Yi.Pineapple

LP no longer buys dreams, GP must sell products. This article will attempt to categorize current crypto fundraising products into three types: Primary, Liquid, CeFi/DeFi Native Yield. The previous part discusses Primary: after the VC blind pool lost its appeal, who remains at the table, and who must prove themselves again? The answer is at the end, you can flip straight to the bottom.

Note: This article aims to describe the landscape of the entire crypto fundraising market. The previous part mainly classifies and explains the market situation from a product perspective, while the next part will analyze more from the LP's perspective. Since the author primarily operates in the Asian market, this article may have a regional bias.

Market Situation

After losing the vastness of the stars and the sea, most Crypto GPs who did not earn excess returns in this cycle must ground themselves to launch a product that has PMF, either by proving they still have the ability to help LPs earn excess returns in some niche markets, or solving specific problems for LPs/partners in order to survive.

• For most GPs, the market has long shifted from the phase of "buying a future vision" to "buying a concrete product."
• LPs have now lost patience; they do not want to look out at the stars and sea anymore; they want to see immediate, urgent opportunities that can relatively surely make money.
• Crypto LPs have lost trust in the market and are unwilling to easily believe the story of "the next cycle" (this has been discussed too much, so I won’t elaborate here). Moreover, many people did not make easy money in this cycle; once the ways to earn become difficult, investment actions become relatively cautious and conservative.
• Most traditional LPs have also completed a round of learning; they have moved past the stage of listening to stories. The bull market of 2020/2021 was when the market was most FOMO-driven. Dollar capital was cheap (Treasury yields close to 0), and LPs could still make money relatively easily (on the eve of an economic downturn), while crypto was in the explosive period (a lot of wealth myths appeared, and there was still a dream to tell). At that time, many people, even if they had little understanding of crypto, were willing to impulsively spend for dreams; or, for strategic needs, they spent money to enter and learn.
• The decline in AI and labor costs has also changed the ecological position of GPs. The cost of LPs learning, hiring, analyzing data, trading, and making small direct investments is decreasing. The trend of LPs transforming into GPs is significant; if GPs only provide a vague ability like “I understand crypto,” their value will become increasingly precarious.
• In terms of storytelling, unless it is a powerful American fund that has a strong brand, there is still an opportunity to tell stories and visions in some niche areas based on their past track records (for example, a16z telling crypto * AI based on its advantages in the AI track, Dragonfly discussing internet capital markets based on their investments in Ethena/polymarket). In Asia, this ecological niche has become very difficult, as in both crypto projects and funds, to some extent, only the white papers have a chance to tell stories.

Product Overview

This article divides crypto fundraising products into three major categories for discussion: Primary, Liquid, CeFi/DeFi Native Yield (Note: this classification is not entirely precise; there are some gray areas between the three). (*This time will focus on Primary)

Primary VC:

In terms of transparency, it can roughly be divided into blind pools and those with a clear pipeline.

In terms of liquidity, it can roughly be divided into primary and primary-and-a-half.

Liquid:

Divided by yield sources, it can be roughly separated into alpha (buying GP's individual ability) and beta (buying industry trends).

Divided by directionality, it can be roughly divided into directional (judging the right cycle) and market neutral (buying market inefficiencies in immature markets).

There are various classification methods; this is just one idea.

CeFi/DeFi Native Yield:

In fact, CeFi/DeFi Native Yield can theoretically be regarded as a type of yield source that lies within either the crypto primary market or the liquid market, or spans both. The reason for isolating it is mainly that from the perspective of TradFi investors, they usually use the framework of traditional financial markets to understand crypto: for example, crypto VCs can be understood as a sub-direction under the VC umbrella, and staking/lending yields can be likened to fixed income or cash management products.

However, there indeed exist some gameplay and yield mechanisms in crypto that do not completely correspond to those in traditional financial markets, such as mining, selling rewards, points/airdrop farming, protocol incentives, on-chain liquidity mining, etc. These are more like crypto-native issuance, customer acquisition, and incentive mechanisms, thus warranting separate discussion.

Moreover, for many Crypto Native Investors, their first encounter and understanding of financial markets did not stem from the traditional equity/bond market but from crypto-native scenarios such as exchange wealth management, staking, DeFi lending, LP, points/airdrop farming, basis trading, etc. Therefore, when they view this part of yield, they may not first translate it into fixed income, cash management, or alternative yield in TradFi, but rather understand it more naturally from the angles of protocol incentives, liquidity provision, token emissions, on-chain risks, counterparty risk, and capital efficiency.

For Crypto Native LPs, accessing this part of yield does not require GPs; at most, they need a reliable account manager.

For TradFi LPs, some institutions are currently packaging this part of yield into fund forms to sell to TradFi LPs.

Primary Market

From the perspective of the entire primary market, crypto VC is merely a sub-category under the VC umbrella. 2021 was a crazy year; whether crypto or non-crypto, the real returns of that vintage are not good. As a cruel reality, LPs have learned their lessons and are tired of any products with extremely long lock-up periods (traditional VCs are typically locked for 10 years, and crypto VCs often for 5-10 years). Because without hard locks, at least they have the opportunity to withdraw some of their money if the situation changes.

Crypto is, in some ways, worse than traditional VC since the entire vision has collapsed. It is not a new industrial revolution; at most, it is a revolution in financial infrastructure. This judgment is not meant to demean crypto, as the revolution in financial infrastructure is still significant, but it is not as grand as many imagined in the last bull market. Worse still, the market was too immature at that time, and many projects were invested in without proper due diligence and legal protection. Many failed projects resulted from a combination of investment failures and founders running away. There have been too many articles in the industry discussing the current dire situation, so I will not elaborate here.

Investing in VC is like how VCs invest in projects; it is a power-law business, a lottery-like business. As long as there are still people willing to buy lottery tickets, this table will not disappear.

Why did LPs invest in crypto VCs back then, and why have these reasons weakened now?

1. Invest to capture the beta of the industry

This reason is especially applicable to TradFi LPs. It was indeed valid in the early days when market choices were limited. For those from outside the industry, onboarding, buying tokens, going on chain, using centralized exchanges, and managing wallets were challenging. They were concerned about losing private keys and about CEXs running away. Investing in VCs then seemed like a more reliable access.

But today, a traditional LP has a whole range of choices when entering crypto: BTC ETFs, ETH ETFs, crypto ETPs, DATs, custodial accounts, SMAs, structured products. More importantly, these products do not require them to learn on-chain operations; they can trade just like they used to buy stocks.

According to CoinShares, in mid-May 2026, the AUM of global digital asset investment products covered by them is approximately $156.9 billion. This number does not represent the total AUM of the entire industry, but only covers listed or quoted products such as ETFs/ETPs/trusts/closed-end funds. However, it is sufficient to illustrate that acquiring crypto exposure no longer requires investing in VC blind pools.

For a few with clear mandates for long-term capital (e.g., endowments, etc.), this reason still applies. For them, laying out an industry often means laying out a basket of assets, so it is likely they still allocate 1-2% to Crypto VCs.

2. Invest accessibility

This usually happens among crypto LPs and some TradFi LPs with strategic layouts. Many of these LPs did not have the energy/time/capability to build their investment teams, so they handed money over to GPs in hopes of gaining good deal access.

However, they later found this reason to be unstable. In good markets, GPs themselves often do not have enough capacity, making it hard for LPs to secure truly good access. In bad markets, competition is not fierce; as long as you are willing to engage, securing capacity is not that difficult.

For traditional LPs, access also has another layer of meaning: at that time, they knew nothing but hoped to enter the ecosystem through investing in crypto-native GPs and gain insider information. This was a strategic investment without a clear target strategy. Now, the situation has changed. Many traditional LPs have either left for hotter industries like AI or have developed their own internal teams. AI and cheaper researchers have narrowed the cognitive gap; new learners do exist, but their speed of learning is increasing, and their paths are diversifying; investing in the primary market with very long lock-up periods is not necessarily the best choice for them.

3. Invest for judgment

This is the trickiest part. In a rapidly developing market, unless GPs can continue to iterate themselves, the judgment premium can disappear very quickly. With each cycle, the rules of the game change, but people find it difficult to change themselves (this could be considered a different kind of saying that it's easy to change the landscape but hard to change one’s nature).

We must face a harsh reality: most GPs have not proven to LPs that they have superior judgment in the last cycle.

For traditional LPs, part of the purpose of investing in crypto-native GPs was to educate themselves through the GPs' judgment and learn about the industry. This typically happened with two types of individuals: one type included companies hoping for a strategic entry into web3, such as large internet enterprises; the other consisted of sophisticated TradFi investors, like traditional GPs or family offices, who wanted to do web3 direct investments themselves in the future. The learning phase has now passed, and only a few GPs who have truly proven their superior judgment can remain on their investment lists.
For crypto LPs, they find that rather than betting on the GPs' judgment, it is more beneficial to lose their own money. Losing one's own money at least holds emotional value, and there is no management fee to pay.

4. Invest for organizational capability

From the perspective of investment returns, organizational capability primarily manifests as the ability to achieve a successful exit for projects. Ideally, it is best to realize good growth for projects to ultimately gain good returns in the secondary market; otherwise, having organizational capacity for subsequent rounds of financing is also very important (essentially the difference between retail investors and large holders taking over).

However, as a form of financial innovation, crypto sometimes resembles a large capital game. Sometimes, investing is merely a method of interest exchange to ensure everyone has aligned interests and can relatively safely make money together.

5. Invest for reputation

For some large LPs, investing in a single VC merely accounts for about 1% of their overall portfolio, which is insignificant. Sometimes, they might invest in a GP just to be cool (like investing in a16z). However, most GPs do not belong to this category.

Who can still stay at the primary table?

From the perspective of pure capital sources, the players most likely to remain at the primary table are:

Large enough to enter endowment/other similar long-term patient capital mandates funds. These institutions buy crypto VCs as lottery tickets, without short-term funding pressure.

Family Offices (FOs), companies, and HNW proprietary primary crypto investment that invest their own money. FOs/HNW can more easily operate accelerator-like, very early funds; companies find it easier to perform direct strategic investments/acquisitions.

A few funds that placed bets on the right projects/bought BTC in this cycle, which have genuinely earned excess returns for LPs. LPs believe they can win again.

Funds with clear organizational capability who have ecological resources to conduct interest exchanges with LPs.

For other players, if trust has been lost, it may be worthwhile to start over from a mindset perspective, rebuilding trust. Proving themselves again in a niche track to be capable of helping investors earn excess returns, or providing some specific service/value, to subsequently scale up based on that.

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