Author: Yi.Pineapple
LPs are no longer buying dreams; GPs must sell products. This article attempts to categorize current crypto fundraising products into three types: Primary, Liquid, and CeFi/DeFi Native Yield. In this first part, we focus on Primary: After VC blind pools lost their appeal, who remains at the table, and who must prove themselves all over again? The answer is revealed at the end—you can jump straight there.
Note: This article aims to provide a landscape overview of the entire crypto fundraising market. The first part primarily categorizes and describes the current market from a product perspective, while the second part will focus more on classification analysis from the LP viewpoint. Due to the author’s primary focus on the Asian market, this article may contain regional bias.
Current market conditions
After losing sight of the stars and oceans, most Crypto GPs who failed to generate excess returns in this cycle must ground themselves by launching a product with PMF, either by re-proving their ability to generate excess returns for LPs through a niche market, or by solving specific problems for LPs or partners in order to survive.
- For most GPs, this market has long moved from the phase of “buying a future vision” to the phase of “buying a concrete product.”
- LPs have now lost patience and no longer want to look toward the stars; they want to see immediate, urgent, and relatively certain profit opportunities.
- Crypto LPs have lost trust in the market and are unwilling to easily believe in stories of "the next cycle" (which has been discussed too much and won't be elaborated on here). Moreover, many did not make easy money in this cycle; once earning becomes harder, investment behavior naturally becomes more cautious and conservative.
- Most traditional LPs have also completed their initial learning phase and moved beyond the stage of just listening to stories. The 2020/2021 bull market was the peak of FOMO in the market. Dollar funding was cheap (Treasury yields near 0%), LPs found it relatively easy to profit (just before the onset of an economic downturn), and crypto was in its explosive phase (with numerous wealth creation myths and compelling narratives still available). At that time, many people, even with only a basic understanding of crypto, were willing to spend impulsively for the dream—or strategically invest to learn.
- The declining costs of AI and human labor have also shifted the GP ecosystem. LPs are finding it increasingly affordable to learn on their own, hire talent, analyze data, execute trades, and make small direct investments. The trend of LPs transitioning into GPs is growing, and if GPs only offer vague capabilities like “I understand crypto,” their value will become increasingly precarious.
- In terms of storytelling, unless it’s a U.S. fund with strong brand power and a proven track record that can craft narratives and visions around niche areas—such as a16z leveraging its AI expertise to talk about crypto * AI, or Dragonfly using its investments in Ethena/Polymarket to discuss internet capital markets—there’s still some opportunity. In Asia, this positioning has become extremely difficult, since, to some extent, only crypto projects and funds with whitepapers have the chance to tell stories.
Product Overview
This article categorizes crypto fundraising products into three main types: Primary, Liquid, and CeFi / DeFi Native Yield (Note: This classification is not entirely precise, as there is some overlap between the three categories). (*This time, we’ll cover only Primary.)
Primary VC:
From a transparency perspective, they can generally be divided into two categories: blind pools and those with a clear pipeline.
From a liquidity perspective, it can generally be divided into primary and primary-plus.
Liquid:
Based on sources of return, they can be roughly categorized as alpha-focused (betting on the individual expertise of GP) and beta-focused (betting on industry trends).
Directionally, they are broadly categorized as directional (correctly timing the market cycle) and market neutral (capitalizing on market inefficiencies in immature markets).
There are many ways to categorize, and this is just one idea.
CeFi/DeFi Native Yield:
In theory, CeFi/DeFi native yield can be regarded as a type of return source existing within or spanning both the crypto primary market and the liquid market. It is singled out primarily because, from the perspective of traditional finance investors, they typically interpret crypto through the framework of traditional financial markets: for instance, crypto VC can be understood as a niche within the broader VC category, while staking/lending yields can be analogized to fixed-income or cash management products.
However, crypto does include certain practices and revenue mechanisms that don't have direct equivalents in traditional financial markets, such as mining, claiming, and selling; points/airdrop farming; protocol incentives; and on-chain liquidity mining. These are more akin to crypto-native issuance, customer acquisition, and incentive mechanisms, and thus warrant separate discussion.
Second, for many crypto-native investors, their first exposure to and understanding of financial markets did not come from traditional equity or bond markets, but rather from crypto-native scenarios such as exchange savings, staking, DeFi lending, LP, points/airdrop farming, and basis trades. Therefore, when viewing this type of yield, they are less likely to first translate it into TradFi concepts like fixed income, cash management, or alternative yield; instead, they naturally understand it through the lens of protocol incentives, liquidity provision, token emission, on-chain risk, counterparty risk, and capital efficiency.
For Crypto Native LPs, accessing this yield doesn’t require GP involvement—just a reliable account manager will suffice.
For TradFi LPs, some institutions are now packaging this yield into funds and selling them to TradFi LPs.
Primary Market
From the perspective of the entire primary market, crypto VC is merely a niche segment within the broader VC category. 2021 was a wild year, and the actual returns for that vintage, whether crypto or non-crypto, were poor. As a cruel fact, LPs have learned their lessons and are tired of any products with excessively long lock-up periods (traditional VC typically lasts 10 years, and crypto VC often spans 5–10 years). Without hard locks, they at least retain the opportunity to withdraw some capital if circumstances change.
In a sense, crypto has fared worse than traditional VC, because the entire vision has collapsed. It is not a new industrial revolution, at most a revolution in financial infrastructure. This assessment is not meant to diminish crypto—revolutionizing financial infrastructure is still hugely important—but it was nowhere near as grand as many imagined during the last bull market. Even worse, the market was far too immature, and many projects were funded without adequate due diligence or legal protections. Many failures were a combination of poor investment decisions and founders abandoning their projects. There have already been countless articles detailing the current bleak state of the industry, so we won’t elaborate here.
Investing in VCs is like VCs investing in projects—it’s a power-law business, a lottery-like business. As long as people are willing to buy lottery tickets, this table won’t disappear.
Why did LPs invest in crypto VC back then, and why are those reasons weaker now?
1. Invest to capture the industry’s beta
This reasoning was especially applicable to tradfi LPs. It was indeed valid early on, as market options were limited. For outsiders, on-ramping, buying tokens, going on-chain, using CEXs, and managing wallets were all difficult. They feared losing private keys and CEXs running away. At that time, investing in VCs seemed like a more reliable way to gain access.
But today, when a traditional LP enters crypto, they are presented with a full range of options: BTC ETFs, ETH ETFs, crypto ETPs, DATs, custodial accounts, SMAs, and structured products. More importantly, these products require no learning of on-chain operations—just trading as they have always done with stocks.
According to CoinShares, as of mid-May 2026, the AUM of global digital asset investment products it covers was approximately $156.9 billion. This figure does not represent the total industry AUM, but rather reflects only listed or tradable products such as ETFs, ETPs, trusts, and closed-end funds; however, it is sufficient to illustrate that gaining crypto exposure no longer requires investing in VC blind pools.
For long-term capital with a clear mandate (e.g., endowments, etc.), this rationale still holds. For such investors, entering an industry typically involves allocating to a basket of assets, making it likely that 1–2% will still be allocated to crypto VC.
2. Investment accessibility
This often occurs among crypto LPs and some tradfi LPs with strategic visionary goals. At the time, many of these LPs lacked the resources, time, or capability to build their own investment teams, so they entrusted their capital to GPs in hopes of gaining access to high-quality deals.
But they later realized this rationale was also unstable. In strong markets, even GPs themselves don’t have enough allocation, making it hard for LPs to secure genuine access. In weak markets, competition isn’t intense, and if you’re willing to reach out, securing allocation isn’t that difficult.
For traditional LPs, access had another meaning: they didn’t understand much at the time, but hoped to enter the ecosystem and gain insider information by investing in crypto-native GPs. This was a strategic investment made without clear targets. Now, things have changed. Many traditional LPs have either left for hotter industries like AI, or have built their own internal teams. AI and affordable researchers have narrowed the knowledge gap; while new learners still exist, their learning speed is increasing and their pathways are expanding. Investing in the primary market with extremely long lock-ups may no longer be the optimal choice for them.
3. Invest with judgment
This is the most tricky part. In a market that evolves extremely rapidly, unless GPs continuously iterate themselves, the judgment premium will disappear quickly. With each cycle, the rules of the game change, but it’s not easy for people to change themselves (isn’t this another kind of “the江山 changes easily, but human nature is hard to alter”?).
We must face a harsh reality: most GPs failed to demonstrate superior judgment to LPs in the previous cycle.
For traditional LPs, one of the reasons they invested in crypto-native GPs back then was to learn the industry and develop their own judgment through the GP’s decisions. This typically occurred among two types of investors: those seeking to strategically enter web3, such as major internet companies; and sophisticated tradfi investors, such as traditional GPs or family offices, who aimed to eventually make their own web3 direct investments. Now that the learning phase is over, only a small number of GPs who have genuinely demonstrated superior judgment remain on their investment lists.
For crypto LPs, they found that losing money themselves is preferable to betting on GP’s judgment. Losing money themselves at least provides emotional value, and they don’t have to pay a management fee.
4. Invest for accumulation capability
From an investment return perspective, the ability to assemble a round primarily manifests in whether the project can achieve a successful exit. Ideally, the best outcome is to help the project achieve healthy growth and ultimately realize strong returns on the secondary market; if not, the ability to organize a subsequent funding round is also crucial (essentially, the difference lies in whether retail investors or institutional investors take over).
However, as a financial innovation, crypto can sometimes resemble a large-scale capital game. Sometimes, investment is merely a way to align interests, ensuring that everyone can profit together with relative confidence.
5. Invest for reputation
For some large LPs, investing in a single VC constitutes just 1% of their overall portfolio—negligible. Sometimes they invest in a GP simply to be cool (e.g., investing in a16z). However, most GPs do not fall into this category.
Who else can stay at the primary table?
From the perspective of capital source alone, the players most likely to remain on the primary table are:
Large enough to qualify for endowment or other similar long-term, patient capital mandates. These institutions treat crypto VC like a lottery ticket, with no short-term funding pressure.
FO, company, and HNW proprietary primary crypto investments made with one’s own funds. FO/HNW are better suited for accelerator-like, very early-stage funds; companies are better suited for direct strategic investments or acquisitions.
A few funds that correctly bet on or bought BTC during this cycle have delivered exceptional returns for LPs. LPs believe they can win again.
Funds with clear capabilities in organizing ecosystems and possessing ecological resources that can be exchanged for value with LPs.
For other players, if trust has been lost, consider starting fresh with the right mindset and rebuilding trust. Prove yourself again in a niche market by demonstrating your ability to generate excess returns for investors, or by offering specific services or value—and then scale up from there.