Crypto VC Reality Check: 300 Projects Later, Nearly a Third Have Gone to Zero
Waterdrop Capital co-founder Dashan and small crypto VC practitioner Xiao Yang recently disclosed on the Wu Shuo podcast that Waterdrop Capital has cumulatively invested in nearly 300 projects, but fewer than one-third are operating well. Roughly 20% to 30% of those projects have either run away with funds, gone to zero, or defaulted. Of the more than ten new projects the firm invested in during 2026, only three or four are crypto-related; the rest have pivoted to AI and chips. Xiao Yang’s $20 million fund, after investing in about 100 projects, has stopped making new investments.
The Harsh Reality of Crypto Venture Capital
The disclosure paints a stark picture of the venture capital landscape in the crypto industry. While headlines often celebrate unicorns and astronomical returns, the day-to-day reality for many funds is far less glamorous. A failure rate of 20-30% due to outright fraud or collapse is alarming, especially when considering that even the surviving projects may not be generating meaningful returns.
The shift away from crypto toward AI and chips is particularly telling. It suggests that even seasoned crypto investors are seeking safer or more promising opportunities elsewhere. The AI boom, fueled by advances in machine learning and generative models, has captured the imagination of investors worldwide, and crypto VC firms are not immune to the hype.
Implications for the Industry
This revelation has several implications for the crypto industry:
- Due Diligence Gap: The high rate of failures indicates that many projects may have been funded without adequate due diligence, or that the space is inherently prone to scams and mismanagement.
- Investor Sentiment: Limited partners may become more cautious about allocating capital to crypto-focused funds, especially those with a broad mandate.
- Survival of the Fittest: The shakeout could ultimately be healthy, forcing funds to be more selective and projects to demonstrate real value.
- Talent Migration: Developers and founders may increasingly choose AI over crypto, draining talent from the blockchain ecosystem.
Forward-Looking Perspective
Despite the grim statistics, the crypto industry continues to evolve. The pivot to AI and chips by some funds does not necessarily signal the end of crypto VC; rather, it reflects a diversification strategy in a challenging market. As the industry matures, we may see a bifurcation: funds that specialize in deep crypto infrastructure and those that take a broader tech approach.
For investors, the lesson is clear: crypto venture capital is high-risk, and returns are not guaranteed. The coming years will likely bring further consolidation, with only the most resilient and well-managed funds surviving. The survivors will need to demonstrate not just financial acumen but also a keen eye for genuine innovation in a space where hype often outpaces substance.
