The midlife crisis of Crypto GP: Without PMF, there is no next check from LP

Author: Yi.Pineapple

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

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

Market Status

After losing the stars and the sea, most Crypto GPs who failed to earn excess returns in this cycle must pragmatically launch a product with PMF, either by proving their ability to help LPs earn excess returns through some niche markets or by solving specific problems for LPs/partners to survive.

• For most GPs, this market has long transitioned from the stage of "buying a future vision" to "buying a concrete product."
• LPs have now lost patience; they no longer want to look at the stars and the sea but want to see immediate, certain opportunities to make money.
• Crypto LPs have lost trust in the market and are unwilling to easily believe in the story of "the next cycle" (this has been discussed too much already, so it won't be elaborated here). Moreover, many people did not make easy money in this cycle; once the way to make money becomes difficult, investment actions will tend to be cautious and conservative.
• Most traditional LPs have also completed a round of learning and have moved past the stage of listening to stories. The bull market of 2020/2021 was when the market was most FOMO-driven. Dollar funds were cheap (Treasury yield close to 0), and LPs found it relatively easy to make money (on the eve of the economic downturn). Crypto was in an explosive period (many wealth myths emerged, and there were still dreams to tell). At that time, many people, even with only a superficial 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 niche of GPs. The costs for LPs to learn, hire, analyze data, trade, and make small direct investments are decreasing. The trend of LPs transitioning to GPs is significant; if GPs only provide vague capabilities like "I understand crypto," their value will become increasingly precarious.
• In terms of storytelling, unless it is a well-branded American fund that can leverage its past track records to tell stories and visions in some niche areas (for example, a16z leveraging its advantages in the AI sector to discuss crypto * AI, Dragonfly discussing internet capital markets based on its investments in Ethena/polymarket), there are limited opportunities. In Asia, this ecological niche has become very difficult; after all, whether it is a crypto project or a fund, to some extent, only white papers have the opportunity to tell stories.

Product Overview

This article categorizes crypto fundraising products into three main types for discussion: Primary, Liquid, and CeFi / DeFi Native Yield (Note: this classification is not entirely precise, and there are some gray areas between the three). (*This time, we will first write about Primary.)

Primary VC:

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

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

Liquid:

From the source of returns, it can be roughly divided into alpha-oriented (buying GP's personal capabilities) and beta-oriented (buying industry trends).

From the directional perspective, it can be roughly divided into directional (buying the right cycle judgment) 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 viewed as a type of return source within or spanning both the crypto primary market and liquid market. The reason for separating it out is primarily that from the perspective of traditional finance investors, they usually use the framework of traditional financial markets to understand crypto: for example, crypto VC can be understood as a sub-direction under the VC category, while staking/lending yield can be likened to fixed income or cash management products.

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

Moreover, for many Crypto Native Investors, their initial exposure to and understanding of financial markets did not come from the traditional equity/bond market but from crypto-native scenarios like exchange wealth management, staking, DeFi lending, LP, points/airdrop farming, and basis trading. 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 perspectives of protocol incentives, liquidity provision, token emission, on-chain risk, 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 now packaging this part of yield into funds to sell to TradFi LPs.

Primary Market

From the perspective of the entire primary market, crypto VC is merely a sub-niche under the VC category. 2021 was a crazy year; whether in crypto or non-crypto, the actual returns of that vintage were not good. As a cruel fact, LPs have learned their lessons and are weary of any products with ultra-long lock-up periods (traditional VC typically 10 years, crypto VC often 5-10 years). Because without hard lock-ups, they at least have the opportunity to withdraw some money if circumstances change.

Crypto, in a sense, is worse off than traditional VC because the entire vision has collapsed. It is not a new industrial revolution; at most, it is a revolution in financial infrastructure. This judgment does not belittle crypto; the revolution in financial infrastructure is still very important, but it is not as grand as many imagined during the last bull market. Worse still, the market was too immature at that time, and many projects were invested in without sufficient due diligence and legal protection. Many failed projects are a combination of investment failure and founders running away. There have already been too many articles in the industry discussing the current dire situation, so I won't elaborate here.

Investing in VC is like GPs investing 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 VC 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 there were few market choices. For outsiders, on-ramping, buying tokens, going on-chain, using CEX, and managing wallets were all very difficult. They worried about losing private keys and about CEXs running away. At that time, investing in VC seemed like a more reliable access point.

But today, when a traditional LP enters crypto, they face a whole set of options: BTC ETF, ETH ETF, crypto ETP, DAT, custodial accounts, SMA, structured products. More importantly, these products do not require them to learn on-chain operations; they just need to trade like they did in the past with stocks.

According to CoinShares, by 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 AUM of the entire industry but only includes listed or quoted products like ETFs/ETPs/trusts/closed-end funds, yet it is sufficient to illustrate that obtaining crypto exposure no longer requires investing in VC blind pools.

For long-term capital with clear mandates (e.g., endowments, etc.), this reason still applies. For them, entering an industry often requires a basket of assets, so there is a high probability that 1-2% will still be allocated to Crypto VC.

2. Invest accessibility

This usually occurs among crypto LPs and some TradFi LPs with strategic vision. At that time, many of these LPs did not have the energy/time/capability to build their own investment teams, so they handed money to GPs, hoping to gain good deal access.

But later they found that this reason was also unstable. In good market conditions, GPs themselves often do not have enough quotas, making it difficult for LPs to gain real access. In bad market conditions, competition is not fierce; as long as you are willing to engage, obtaining quotas is not that difficult.

For traditional LPs, access has another layer of meaning: they knew nothing at the time but hoped to enter the ecosystem and gain insider information by investing in crypto-native GPs. This was a form of strategic investment without clear strategic targets. The situation has changed now. 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 still exist, but their learning speed is increasing, and paths are diversifying; investing in the primary market with ultra-long lock-up periods may not be the optimal choice for them.

3. Invest for judgment

This is the trickiest part. In a rapidly developing market, unless GPs can continuously iterate themselves, the judgment premium will disappear quickly. With each cycle, the rules of the game change, but changing oneself is not easy (is this another way of saying that it is easy to change the country but hard to change one's nature?).

We must face a cruel reality: most GPs did not prove 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 and learn about the industry through the GPs' judgment. This usually occurs among two types of people: one type is companies hoping to strategically enter web3, such as large internet firms; the other type is sophisticated TradFi investors, such as traditional GPs or family offices, who want to make web3 direct investments themselves in the future. Now the learning period has passed; only a few GPs that have truly proven their superior judgment can remain on their investment lists. For crypto LPs, they find that rather than betting on GPs' judgment, it is better to lose money themselves. Losing money themselves at least has emotional value and does not incur management fees.

4. Invest for the ability to organize

From the perspective of investment returns, the ability to organize mainly manifests in whether a project can achieve a good exit. Ideally, it is best to achieve good returns in the secondary market through helping projects achieve healthy growth; otherwise, having the ability to organize the next round of financing is also very important (essentially the difference between relying on retail investors or large holders to take over).

However, as a form of financial innovation, crypto sometimes resembles a large capital game. Sometimes, investment is merely a way of exchanging interests, ensuring that everyone has aligned interests and can relatively safely make money together.

5. Invest for reputation

For some large LPs, investing in a single VC may only account for 1% of their overall portfolio, which is negligible. Sometimes they will invest in a GP just to be cool (for example, investing in a16z). However, most GPs do not fall into this category.

Who Can Still Stay at the Primary Table

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

Large enough to enter endowment/other similar long-term patient capital mandates. These institutions buy crypto VC as a lottery ticket, with no short-term funding pressure.

Family offices, companies, and HNW individuals investing their own money in primary crypto investments. Family offices/HNW individuals find it easier to create accelerator-like, very early funds; companies find it easier to make direct strategic investments/acquisitions.

A few funds that have hit the jackpot or bought BTC in this cycle, truly earning excess returns for LPs. LPs believe they can win again.

Funds with clear organizing capabilities that have ecological resources to exchange interests with LPs.

For other players, if trust has been lost, it may be worthwhile to start over mentally and rebuild trust. Proving their ability to help investors earn excess returns again in a niche track, or providing some specific service/value, and then expanding based on that.