The Rise and Fall of VC-Backed Tokens: The Clash Between Web3 Era Traditional VC and Decentralized Investment Philosophy

In the first half of 2024, intense cash-out occurred for a series of once highly anticipated “superstar” projects. From Wormhole to Polyhedra Network, from Starknet to LayerZero, and from Zksync to Blast, these are all airdrop projects that the community and deal hunters have eagerly awaited for a long time.

In the first half of 2024, there was intense cash-out activity for several once-hyped “superstar” projects. These projects, including Wormhole, Polyhedra Network, Starknet, LayerZero, Zksync, and Blast, were all airdrop projects that had been eagerly anticipated by the community and deal hunters.

However, the actual price performance upon cash out has been less than satisfactory. Especially in the era of industrialized Airdrop, while massive numbers of community users and deal hunter workshops help these flagship projects achieve impressive paper data—thereby inflating project valuations—additional factors such as exaggerated fully diluted valuations (FDV) due to venture capital funding have laid the groundwork for early liquidity sell-off risks.

For example, recent venture capital-backed token issuances like W (Wormhole), ZK, ZRO, and STRK have been disasters—FDVs are extremely high, and their prices have been in a continuous downtrend, almost daily declines since listing, leaving early investors trapped in significant losses.

According to statistics from late June (not accounting for further recent drops), PORTAL and SAGA have already fallen about 80% from their opening prices, while W, ZKJ, STRK, OMNI, and ALT have all dropped by over 50%.

From a data perspective, the era of making substantial profits easily from buying VC-backed tokens for regular users is now over. At least for recent new tokens, purchasing them in the secondary market is approaching the point where it’s even more cost-effective than their later-stage of finance valuations, and there are signs of valuation inversions between the primary and secondary markets:

According to the latest data as of July 10:

· ZRO has raised a cumulative $3 billion historically, with a current total market capitalization of only $3.8 billion.

· W has raised a cumulative $2.5 billion, with a current market capitalization of $2.9 billion.

· ZK has raised a cumulative $1.25 billion, with a current market capitalization of $3.1 billion.

· ZKJ has raised a cumulative $1 billion, with a current market capitalization of $1.2 billion.

Interestingly, Dune Analytics shows that even amid a market downturn, the paper gains for major venture capital firms on these token investments are still substantial, with returns of tens to nearly a hundred times the original investment. Overall, the unrealized profits for VCs are still as high as 7x.

Hitesh.eth, co-founder of DYOR, also compiled a list of the top 10 “VC tokens” in terms of overall VC return rates. These tokens are predominantly the ones experiencing continuous declines in the market, significantly dampening market confidence.

At the same time, despite the heavy losses suffered by secondary market investors in tokens like ENA, DYM, and SAGA, venture capital firms have still managed to secure profits exceeding 10x. For example, ENA has achieved a return rate as high as 100x, while the lowest-performing token, ALT, still delivered over 10x returns. The disparity between the experiences of VCs and secondary market investors can be described as a stark contrast between “fire and ice.”

The Rise of Memecoins: The Clash Between Web3 Era Traditional VC and Decentralized Investment Philosophy

In contrast to the continuous decline in prices of prominent VC-backed tokens on the online trading platform, the secondary market performance of blockchain assets like Memecoins has surged ahead, almost “devouring” the entire market and becoming a cultural symbol of the Web3 era.

Since the first half of this year, Memecoins have outperformed VC-backed tokens in the market, attracting significant attention and capital inflows quickly. They symbolize a growing public demand for fairness, rapidly becoming a trend. While the prices of star VC projects continue to fall, Memecoins and other blockchain assets have bucked the trend, becoming popular symbols in the Web3 ecosystem. In the short term, Memecoins have attracted massive attention and funding, representing the voice of ordinary investors calling for fairness and decentralization. This phenomenon highlights the clash and contradiction between the traditional VC model and the emerging decentralized investment philosophy within the Web3 ecosystem.

However, the rise of Memecoins also reflects a certain act of desperation within the Web3 ecosystem. As traditional VCs increasingly dominate and stifle innovation in the Web3 sector, there is a pressing need for a model that challenges the unfair practices of traditional VCs without sacrificing their expertise—while also avoiding the excessive speculation that Memecoins tend to bring.

Disadvantages of Traditional VCs: The Problems of Elite Monopoly and High Threshold to Participate

In the traditional venture capital field, the phenomenon of elite monopoly is quite severe. Decision-making power is concentrated in the hands of a few elite groups, and investment opportunities are limited to a select group with abundant resources. Ordinary investors find participation difficult, and the entire