Why Are VCs Being Marginalized in the Crypto Market?

VCs Are Being Abandoned by the Market and Users!Or rather, the market and users are fed up with the old VC playbook - "endorsement first, then narrative, then fundraising, and finally TGE" - a flowchart-like industrial model that's now completely worn out.When the market and users no longer chase after projects with VC backing, VCs naturally become marginalized in crypto.
From Worshipped to Abandoned: There's Always a Reason. VCs falling out of favor isn't without cause. Let's think: what's the real reason behind it?

1. VCs Exist to Provide Trust - If They're Abandoned, It's Because They've Lost It
   The typical VC path - "endorsement → narrative → fundraising → TGE" - is something most crypto folks know all too well:
   High-end whitepapers full of future-changing tech jargon
   A dream team of global top-tier investors
   Sky-high fundraising amounts
   Massive profit expectations promising overnight riches

Sound familiar? Flip through crypto history and you'll see this everywhere in the last cycle.Data shows that in 2021, VCs poured $29 billion into crypto startups and projects; in 2022, that number jumped to $33.3 billion.That was the golden age of crypto VC.At its peak, between 2021 and 2022, it wasn't even surprising to see a new DeFi/NFT/GameFi project raise funds every 2–3 days.
But the market always tells the truth. When tons of VC-backed tokens collapse in secondary markets due to inflated valuations and liquidity extraction via industrialized launch mechanics, VCs' golden reputation dimmed fast.Bottom line: VCs massively overdrew the market's trust.

1. VCs Are Trapped in a "Prisoner's Dilemma" and a Token Unlock "Death Spiral"
   The lack of trust is one issue. But don't ignore the external forces.
   The marginalization of VCs, especially small and mid-sized ones, stems from a brutal combo:Oligopoly effect + Death Spiral + Prisoner's Dilemma.
   (1) In an Oligopoly Market, Small VCs Are Doomed
   Most VCs - apart from a select few big players - have no real say.With hot projects, they either can't get in at all, or by the time they do, valuations are already bloated and allocations are small. Returns? Minimal.
   On the flip side, niche projects that haven't caught fire offer low visibility and limited ROI - even if a VC bets big, the upside is meh.
   So this "trifecta" of good project + low valuation + large allocation is basically a VC's impossible dream.
   (2) Unlock Mechanisms Trigger a "Death Spiral"
   Crypto VC token economics are riddled with traps.After multiple fundraising rounds, the TGE price is already over-inflated. Retail enters at a high, while early investors look to exit for profits.To avoid large unlocks crashing the market, retail ends up selling first - creating a vicious cycle where the token is perceived as a ticking time bomb.
   On paper, vesting schedules tie VCs and projects together: shared risk, shared reward.

But in reality, token unlocks often clash with market timing.When a big unlock hits during a bear market, liquidity dries up, sentiment drops, and tokens flood the market - prices crash, and VC paper gains vanish.
(3) VCs and Retail Are Trapped in a "Prisoner's Dilemma"
Classic game theory: the Prisoner's Dilemma explains what happens when individuals prioritize personal gains under uncertainty and distrust - often at the cost of the collective outcome.
Example:
Prisoners A and B are detained for a joint crime, unable to communicate.
If one betrays and the other stays silent, the betrayer goes free, the other gets 10 years
If both stay silent, they each get 2 years
If both betray, each gets 5 years

Even if they agree beforehand not to betray, the lack of trust means both are likely to choose betrayal to minimize personal risk - a race to the bottom.
Now back to crypto:VCs and retail are in the exact same trap.When all retail believes "sell before unlock = safest move", and sees shorting as rational, any token with VC backing becomes a sell target at launch.If this happens during a broader liquidity crunch, the result is catastrophic.VC-backed tokens become the market's sacrificial lambs.
So How Do VCs Rebuild Trust?

1. Full Transparency: Rebuild the Foundation
   VCs used to fear being watched.Due diligence, token allocation, pricing, unlock schedules - all behind closed doors.But now? In the digital age, if the community senses anything shady, rumors and smear campaigns follow fast.
   Put everything on-chain or on public platforms:
   Investment amounts
   Pricing
   Equity/token percentage
   Vesting timelines
   Ideally, every transaction should be trackable

Let people see how much you got, when it unlocks, and how it ties into votes/incentives.Transparency kills the "secret rug pull" narrative.

1. Start at Low Valuations: Leave Room for Growth
   Kill off the model of "VC gets huge discounts, retailers hold the bag."Projects and VCs need to accept lower initial valuations so that TGE is a real beginning - not a temporary peak.This gives the market actual upside.
2. Community Co-Governance: Rewrite the Rules of the Game
   If only VCs and teams make the calls, the community is just a passive spectator.To truly rebuild trust, bring the community into the process.
   DAO governance: Let a DAO vote on community rewards, roadmap decisions, future funding rounds
   Public KOL/advisor endorsements: Bring in respected devs, investors, and industry figures as advisors. Let their votes/opinions be visible. That adds real weight to the ecosystem.

When the community has a real voice, VCs stop being shady overlords and become collaborators. That earns respect.

1. Build Long-Term Incentive Models: Kill the Short-Term Dump Culture
   Convertible bonds: Early rounds use debt instruments that convert to tokens or equity later. Investors earn interest and only convert when certain price targets are hit.
   Holding rewards: Give extra benefits to VC wallets that hold for 12+ months - like revenue share or bonus airdrops.
   Inflation models: Use deflation/inflation mechanics to reward long-term holders. Maybe early buyers get lower discounts, but longer holders earn more.

Long-term models give everyone a reason to stick around. Less selling pressure = healthier market.
Final Thoughts
If VCs want to regain respect in crypto, shouting slogans isn't enough.They must build a new model that's deeply tied to the community and user base - with transparent processes, fair pricing, moderate vesting, community governance, multiple smaller rounds, and long-term incentives.
When users stop seeing you as a "rug-puller,"
When the community gets a real say in decisions,
When unlocks are no longer dump signals -

Only then will the VC badge shine again.