This issue invites Dashan, co-founder of Waterdrop Capital, and Xiaoyang, a practitioner from a certain Crypto VC, to discuss the real survival conditions of the crypto primary market.

Editor: Wu Talks Blockchain

Recently, the well-known venture capital firm a16z announced that it would rename its crypto investment division a16z Crypto to a16z Frontier, expanding its investment scope from crypto to cutting-edge technology fields like AI and robotics. This change also reflects that some crypto VCs are re-evaluating their investment directions.

This episode of Wu Talks invites Dashan, co-founder of Waterdrop Capital, and Xiaoyang, a practitioner from a certain Crypto VC, to discuss the real survival conditions of the crypto primary market. The two guests come from investment institutions of different sizes but face similar problems: many projects struggle to operate sustainably, investors have difficulty exiting, traditional crypto investment opportunities have decreased, and funds and attention are gradually shifting towards emerging fields like AI.

Since its establishment in 2017, Waterdrop Capital has invested in nearly 300 projects, currently managing funds totaling hundreds of millions of dollars. Dashan reveals that less than one-third of the invested projects are still operating well, with about 20%–30% of projects involving absconding, going to zero, defaulting, or investors' rights being harmed. By 2026, out of more than ten projects invested in by Waterdrop Capital, only three to four belong to the crypto field, while the rest are primarily focused on AI and chips. Dashan believes that crypto no longer needs to be the protagonist of the digital economy but should serve as the infrastructure for areas like AI Agent payment, data privacy, and operational verification.

In contrast, the fund where Xiaoyang works has a scale of about 20 million dollars and has invested in about 100 projects, including more than 70 in 2024 alone, but has ceased new investments since the first quarter of 2025. Xiaoyang states that about two-thirds of the invested projects are still operational, but more than half find it difficult to maintain effective communication with investors. The fund's accounting returns are close to break-even, but actual exits are still challenging. Both guests believe that future investments should focus more on founder integrity, genuine user needs, and sustainable business models rather than short-term market trends.

The speakers' opinions do not represent the views of Wu Talks and do not constitute any investment advice; please strictly adhere to local laws and regulations.

The audio transcription is completed by AI and may contain errors. Please listen to the complete podcast:

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https://www.xiaoyuzhoufm.com/episode/6aee01575b7c4709bfe23cdb

Part One: Dashan from Waterdrop Capital — Transitioning from Crypto Investment to AI

Starting with 5000 ETH, with nearly 300 projects invested

Cat Brother: Can you introduce the development history, fund scale, and investment style of Waterdrop Capital?

Dashan: Waterdrop Capital was established in 2017 and is one of the earliest Token Funds in China. The initial co-founders pooled about 5000 ETH, mainly investing in ETH and BTC, gradually starting to use USDT after 2019.

In 2021, we established an LPF compliance structure in Hong Kong, and in 2023 we collaborated with traditional financial institutions to establish a compliant fund. Currently, if accounting for our own funds and the funds we manage in partnership, the overall scale reaches hundreds of millions of dollars, covering directions like primary market, secondary market, quantitative trading, and RWA, with the primary market fund scale around tens of millions of dollars.

As of now, we have invested in nearly 300 projects. The team consists of about 15 people, keeping the overall number under 20.

The name Waterdrop Capital comes from Liu Cixin's "The Three-Body Problem." The co-founders are fans of the "Three-Body" series, believing that blockchain could become a technology that disrupts the traditional financial system like the "waterdrop" in the novel, hence the name Water Drip.

Cat Brother: What changes have occurred in investment direction over the years?

Dashan: During the ICO craze in 2017, we mainly invested in public chains and various "blockchain +" projects, including ecosystems like Cosmos and Polkadot. In 2018 and 2019, we began focusing on the integration of blockchain with traditional industries, then moved into DeFi and Layer 2 areas.

The Bitcoin ecosystem is also a representative investment direction for us. We participated in Bitcoin mining early on and later established a dedicated Bitcoin ecosystem fund, Satoshi Lab, investing in projects like the Lightning Network, RGB, and Bitcoin Layer 2.

We also participated in the rise of inscriptions but believed it was closer to Meme Coin, hence did not invest heavily. Although the heat around the Bitcoin ecosystem has declined, technologies like the Lightning Network and RGB are still developing, and we will continue to pay attention.

Overall, we are increasingly inclined to invest in projects with practical applications rather than those with high valuations based purely on technical concepts.

Crypto VCs experience major reshuffling; why is Waterdrop Capital still expanding?

Cat Brother: Many Crypto VCs have faced difficulties in the past two years; why is Waterdrop Capital instead expanding?

Dashan: In 2018, there were hundreds of crypto investment institutions in China, but many active funds that year have now disappeared. Waterdrop Capital has been able to endure, partly because our early investments in Bitcoin and mining accumulated a certain amount of assets, and partly because we are a small team with relatively low operating costs.

We have previously issued four funds, some of which achieved returns of tenfold or twentyfold, though others did not break even, yet we did not have mass layoffs because of this.

In the last two years, we have indeed increased our personnel, but mainly focused on AI, chips, US stocks, and business related to listings, rather than expanding the Crypto investment team. Now, in addition to Hong Kong, we also have colleagues in the US and Japan.

I have always hoped to keep the team under 20 people. AI can now help complete much research and auxiliary work, reducing the need for a large number of employees. Also, I prefer flat management and hope to communicate directly with each colleague weekly; a larger team may reduce efficiency.

After investing in nearly 300 projects, founder integrity is more important than technology

Cat Brother: After so many investments, what do you think is the most important criterion for selecting projects?

Dashan: If I were to choose again, the first thing to look at would be whether the founder is honest, and only then the market trends and timing.

We've experienced many pitfalls in the past. Some founders' CVs are not truthful, fundraising materials are exaggerated, or they fail to fulfill their promises. Sometimes, even when we know a team is bragging, we still invest with the hope of making money because of the participation of well-known institutions, and the results often lead to serious losses.

What’s more troublesome is that even if a project successfully issues tokens and the price rises, investors may not necessarily profit. Some teams do not unlock tokens as agreed, some hide financial situations, and some privately sell tokens, leading investors to be unable to exit normally.

So, a project's success and an investor's returns are two different things. Trustworthiness of the founder is more important than technical ability and financing background.

Cat Brother: How should investment timing be judged?

Dashan: Many segments of crypto have lifecycles of only a few months to one or two years. In the past, many technical concepts ultimately did not create real demand, but areas like DeFi, DEX, and asset tokenization have proven to have long-term value.

For example, zero-knowledge proofs are valuable in themselves, but that does not mean every piece of technology needs to establish a separate public chain and issue tokens. Many technologies can be integrated into existing ecosystems as infrastructure.

In the past, we have also made money in segments that ultimately proved to be false because we entered early and exited timely. But I believe that truly successful investments should be ones where investors receive returns and the projects genuinely solve problems and exist in the long term.

Investing too late makes it easy to take over, while investing too early may result in missing market maturity. Finding the right timing is very important.

Project absconding, defaults; nearly 30% of investments encounter problems

Cat Brother: Among the nearly 300 projected investments, how many are still operating normally?

Dashan: We did a statistics in the first half of this year; those still operating well, continuously developing, with tokens trading normally and funds supporting long-term development, are less than one-third, around 60 to 70 projects.

If including those that successfully issued tokens and performed normally but later stopped due to operational difficulties, the overall fulfillment situation should exceed half.

However, about 20%–30% of projects involve absconding, going to zero, defaulting, or investors' rights being harmed, which is a very high proportion.

Many of these issues relate to the integrity of the founders. Some teams did not manage funds as agreed after receiving financing, some were thinking about speculation and cashing out from the very beginning, and others stopped communicating after running out of funds.

Cat Brother: When encountering a default from the project party, how do you usually safeguard your rights?

Dashan: If the amount is not large, we may have to give it up because cross-border litigation costs are very high. But if it involves a larger amount, we will also resort to legal means.

We once had a lawsuit in the U.S., costing over $900,000 in legal fees, and ultimately recovered over $1.3 million. Although the profit is limited after deducting costs, it at least shows that we will hold them accountable.

There have also been projects that used the name Waterdrop Capital without authorization for promotional financing, attracting retail investors to buy tokens. In such cases, we even actively reported to the police to clarify that we did not participate in the investment.

These experiences have made us value due diligence more, including verifying founders' backgrounds, financial situations, and credit histories.

Significantly reducing Crypto investments in 2026, shifting to AI and chips

Cat Brother: How many projects did Waterdrop Capital invest in 2026? Why reduce Crypto investments?

Dashan: This year we invested in over a dozen projects, roughly only three or four that are purely crypto-related, while the rest are mainly in AI and chips.

Even these few crypto projects are mainly around AI Agent, Agent payments, and tokenized stocks for actual applications.

While our investments in the crypto primary market have decreased, the overall investment amount has actually increased, with more funds now directed toward AI and chips.

Since 2024, we have been researching these new directions. Blockchain has been developing for over a decade, and the infrastructure is relatively mature, without particularly significant breakthroughs in underlying technology in the past two or three years. As VCs, we need to seek new technological opportunities.

Crypto is no longer the protagonist; in the future, it should serve AI

Cat Brother: Do you think the shift of crypto VCs towards AI is an industry trend?

Dashan: I believe the more important change is the positioning of crypto.

In the past, we thought blockchain would completely change traditional finance, even replacing some institutions on Wall Street. But now it seems that although Bitcoin, DeFi, etc., have made significant progress, blockchain has not completely transformed the traditional financial system.

Now I believe crypto is better suited to serve as the infrastructure of the digital economy rather than being the protagonist. The protagonist of the future may be AI, especially the AI Agent economy.

Blockchain should think about how to serve AI, including payments between agents, data security, privacy protection, and operational records.

I am no longer optimistic about projects that only circulate internally within crypto, such as developing new public chains for fundraising, or solely relying on issuing tokens and speculation to attract users.

In the future, one class worth关注 is RWA servicing traditional finance, and another is infrastructure serving AI.

Opportunities in AI Agent payments, data privacy, and zero-knowledge proofs

Cat Brother: Specifically, what directions are worth关注?

Dashan: Firstly, data privacy and AI security. Many governments, hospitals, schools, and enterprises want to use AI but are reluctant to directly hand over sensitive data to large models.

Blockchain, cryptographic technology, and zero-knowledge proofs can help protect data and record key actions, making AI systems more transparent and auditable. These technologies may be combined with specialized hardware and computing power in the future, and we have already invested in some related projects.

The other important direction is AI Agent payments. For ordinary users, traditional payment tools like credit cards and Alipay are convenient enough and do not necessarily need crypto.

However, Agents are different. They do not have traditional IDs and bank accounts and find it difficult to complete KYC like humans. In the future, Agents may purchase significant amounts of data, computation, and other services, requiring automated payments and settlements, where crypto may be a more natural solution.

To some extent, much of the blockchain infrastructure we've built in the past may not have been prepared for humans but rather for future AI Agents.

Cat Brother: When do you think AI Agents might truly drive the development of crypto?

Dashan: I believe we need to wait for the widespread adoption of AI Agents first. Currently, Agents can book tickets, write research reports, send emails, and even execute on-chain transactions, but there are still not many high-frequency users.

When Agents enter work and life on a large scale,需求 for payment, identity verification, data security, and operational audits will truly arise.

This process may take one to three years, or it could be faster. The next wave of development opportunities in crypto may emerge after the widespread adoption of AI Agents.

Part Two: Xiao Yang from a Small Crypto VC — Project Disappearances, Exit Difficulties, and Investment Suspension

20 million dollar fund, invested in over 70 projects in 2024

Cat Brother: Can you introduce the scale, team, and investment strategy of your fund?

Xiaoyang: We are a small VC with a scale of about 20 million dollars, mainly investing in early-stage projects in crypto and cutting-edge technology fields, including infrastructure, DeFi, AI, data security, and privacy.

The investment stages are primarily Pre-Seed and Seed, with funding from individual LPs, family offices, and other VCs, and the team consists of about 10 people.

The fund started investing around 2023, and I joined in 2024. In just 2024, we invested in over 70 companies, totaling around 100 projects.

However, in 2025, we invested in less than 10 projects, mainly concentrated in the first quarter. After that, we stopped all new investments, not only in crypto but also in other fields like AI.

Why halt investments? About a third of projects have difficulty operating normally

Cat Brother: Why did you suddenly stop investing after 2025?

Xiaoyang: Mainly because our existing investment portfolio has about 100 projects, requiring substantial effort to manage. At the same time, we are becoming increasingly aware of the risks of early-stage investments, and the fund manager's focus gradually shifted to other matters.

Starting in 2025, some invested projects have successively stopped operating or scaled back their business. Even if a field has potential, it doesn’t mean every team can deliver a product or secure the next round of funding.

Therefore, we decided to suspend new investments and concentrate our efforts on existing projects, helping them find partnership opportunities and resources.

Cat Brother: How many of the approximately 100 projects are still operational?

Xiaoyang: According to actual tracking, about two-thirds are still operating. However, some are only barely maintaining operations and may not hold out much longer.

More seriously, over half of the projects find it difficult to maintain effective communication with investors. Some teams still provide updates on X, but rarely respond to messages; we can only determine if they are still operating through their official website and social media.

Projects that can continuously report progress to investors are far fewer than those that appear to be operating.

Long-term non-responsiveness from project parties; small VCs find it hard to protect their rights

Cat Brother: How do you handle it when project parties do not respond to messages?

Xiaoyang: We try to contact them via email, instant messaging, and other contacts, but some teams do not respond regardless.

Because our single investment amounts are relatively small, compared to large funds, our importance in the eyes of the projects may not be that significant.

Legal avenues are also challenging. Even if they respond, informing you that the project is still under development, it’s hard to verify actual progress. When completely unresponsive, it’s even harder to gather evidence to take action.

So I feel that small VCs are very weak in post-investment management.

Cat Brother: In early-stage investments, how do you assess projects?

Xiaoyang: We place a lot of emphasis on founders and teams; many projects come from long-term relationships or personal recommendations.

In early-stage investing, it’s vital to invest in people, hoping that even if the initial direction fails, the founder has the ability to pivot.

But we also assess whether the technology solves real problems and if there is a sustainable revenue model. Advanced technology does not guarantee project success.

Fund accounting is nearly break-even; actual exit returns may be worse

Cat Brother: After investing in about 100 projects, is the fund overall profitable or at a loss?

Xiaoyang: On the books, there's a slight profit, but the margin is not large, essentially close to break-even.

If considering the actual operational situation of the projects and the amounts that could be genuinely exited in the future, I believe there may be a loss.

The main issue is that many tokens have not been unlocked or projects have not entered the exit stage. The book valuation does not equate to the actual realizable amount.

Early-stage VCs generally rely on a few successful projects to cover losses from other investments. We are somewhat fortunate in that our portfolio includes over 20 pure AI projects, some of which are performing well. If these projects can exit smoothly in the future, we may still achieve a positive overall return.

Cat Brother: Which projects have the best returns? Have any investments completely gone to zero?

Xiaoyang: Currently, among those with better book returns are projects like Caplabs, Prime Intellect, and Excel Labs, many from the AI field.

In terms of losses, we once invested in an AI graphics analysis project related to the fashion industry, putting in nearly $300,000, which ultimately had a valuation of zero, yielding almost no returns.

This illustrates that AI is not a guaranteed profit direction; early-stage investments consistently carry high uncertainty.

No investment plans for the next one to two years; crypto VCs generally slow down

Cat Brother: Will you consider resuming investments in the future? How is the situation with other Crypto VCs?

Xiaoyang: From what I understand, at least this year and next year, we will not resume new investments. We still have dozens of projects to monitor continuously and will focus our energy on the existing portfolio.

Although we halted investments, the team has not laid off anyone due to this.

From what I've encountered, many crypto VCs are seeing a decrease in investment frequency, with some having not invested in new projects for a long time. Some funds have made personnel adjustments, while others maintain their original teams.

I have also heard that some funds face dissolution due to severe losses, but these reports have not been verified and do not represent the entire industry.

Cat Brother: What investment directions are you still optimistic about in the future?

Xiaoyang: We are more focused on genuine user needs, technology implementation, and sustainable revenue, rather than short-term hot topics.

Currently, we are particularly关注ing AI generation, data technology, smart financial infrastructure, and fields like film and television. However,关注ing these directions does not mean we will immediately resume investing.

Star projects raising tens of millions of dollars eventually ceasing operations

Cat Brother: You’ve worked at this VC for more than two years; what has been your biggest takeaway?

Xiaoyang: Many projects, after raising funds, do not actively communicate with investors. Some do not proactively update developments, and even when investors inquire, they do not reply.

We do not just want to supervise projects; we also wish to help them connect with resources and partners. However, some teams are unwilling to establish long-term cooperative relationships with investors.

For small VCs, this situation is especially pronounced. When a project raises funds smoothly and has high market attention, our investment amounts are smaller, making it difficult to gain sufficient influence.

Cat Brother: Are there any typical cases?

Xiaoyang: We once invested in a well-known project that raised tens of millions of dollars and attracted great market attention but later ceased operations.

At that time, we met with the team and asked about some basic business progress and operational conditions, but their response was very poor. We repeatedly asked several questions, and they directly answered, "Not convenient to disclose."

Although our investment amount was not large, as investors, we should at least have the right to understand the basic situation of the project. Looking back, I am not surprised that this project ultimately failed.

Cat Brother: Is this disregard for investors common?

Xiaoyang: It’s actually not common. Most projects, even if replies are not timely, at least maintain basic respect.

But for small VCs, it's very difficult to handle this situation. Especially when projects raise significant funds and have high market attention, it’s hard for us to require them to report regularly.

I also want to know if large VCs face these same issues or if it's just that our investment amounts are too small, making it easier for projects to ignore us.