Review of 35 "out" crypto VC projects: total financing exceeded US$1.1 billion, what led to their demise?

Original title: "Autopsy report of 35 "dead" crypto VC projects: a total of more than $1.1 billion in financing, DeFi, NFT and games have the highest failure rate"

Original author: Nancy, PANews

On July 30, Starknet ecological derivative DEX ZKX claimed that it would stop operating due to a serious imbalance between income and expenditure, which was questioned and condemned by the community. It should be noted that the protocol officially announced that it had obtained $7.6 million in strategic financing more than a month ago. In fact, under the multiple tests of tightening funds, liquidity risks and industry downturn, the survival index of crypto projects has soared, even those that were once favored by capital. According to a report by CoinGecko at the beginning of this year, 14,039 cryptocurrencies have "died" since 2024, accounting for more than 50%, and most of the projects appeared during the bull market from 2020 to 2021. During the last bull market alone, about 70% of the 11,000 crypto projects have ceased operations.

In this article, PANews has compiled 35 "out" projects with financing of more than 5 million US dollars since last year. Among them, there are projects that have been popular with well-known capital or backed by giants, mainly involving NFT, DeFi and games. Among these closed projects, there are veterans who are on the decline and rookies who suddenly fall. Most of them are at their end due to financial problems, market downturn, regulatory pressure and low product adoption.

The closed projects have raised more than 1.1 billion US dollars in total, and DeFi, NFT and games are struggling to survive

Although the crypto market has entered the stage of capital "control", financing alone does not mean that it can smoothly cross the bubble cycle. According to incomplete statistics from PANews, since 2023, 35 projects in the crypto market with financing of more than 5 million US dollars have been closed. The cumulative financing amount of these projects is nearly 1.17 billion US dollars, with an average amount of about 34 million US dollars. Among them, the three projects with the highest financing are Voice, Prime Trust and LINE NFT, which have received more than 600 million US dollars in financing.

"The wind is cool for a while, and the replay is a crematorium." Although there are many successful cases of crossing industry risks, the investment market is so cruel. Judging from the tracks to which these closed projects belong, DeFi, NFT and gaming are the main narratives of capital betting. The number of failed projects in these three fields accounted for 22.8%, 11.4% and 8.5% respectively, and the investment amounts were approximately 170 million US dollars, 530 million US dollars and 35 million US dollars respectively, accounting for about 62.8% of the total financing of the overall closed projects.

Behind these high-value financings, there are many star VCs, such as Coinbase Ventures, Paradigm, Binance Labs, Sequoia China, Circle Ventures, Galaxy Digital, a16z, Polychain, and the bankrupt Alameda Research and Three Arrows Capital, among which Coinbase Ventures, Alameda Research, Three Arrows Capital and Polychain are the most prone to "stepping on mines", and have participated in at least 3 failed projects. Of course, this is also closely related to their high-frequency investment activities.

In addition, from the timeline of establishment, the projects launched between 2020 and 2021 have the highest failure rate, accounting for about 61.7% of the total statistics, and a total of more than US$430 million in financing. Among them, 16 failed projects are from 2021, mainly DeFi and NFT projects.

These factors have become the main fuse in the tide of crypto closures

In the rapidly changing crypto market environment, the failure cases of these crypto projects have undoubtedly sounded the alarm for the industry. Overall, most of the projects are related to market coldness, financial difficulties, stricter supervision and insufficient product penetration.

The industry's prosperity is an important factor affecting the survival and development of projects, especially in the "cold winter" environment, successful "survival" has become a problem for major projects. According to PANews statistics, at least 5 projects have had to stop operating due to market problems.

Take the NFT market as an example. As we all know, the NFT market has continued to show a downward trend after the craze has subsided, and market demand has become increasingly sluggish. According to a recent report by the data tracking platform CryptoSlam, the current monthly sales of the NFT market have dropped to US$393 million, the lowest monthly sales since November 2023. With such a sharp decline in transactions, the NFT market is inevitably experiencing a wave of shutdowns, even though many of them have strong backgrounds and huge financing.

For example, LINE NFT, an NFT market under Japanese communication giant LINE, terminated its service after only two years of operation despite receiving a high amount of financing of about US$150 million; NAEMO Market, backed by Bithumb Meta, a metaverse company under Bithumb, also stopped operating due to continuous losses since its establishment, which also caused its investors, including LG CNS, a subsidiary of LG, CJ OliveNetworks, and Dreamus, an affiliate of SK Square, an investment company of SK Group, to lose about US$7.3 million in investment; Recur, an NFT brand experience platform that had received US$55 million in financing, was also closed after more than two years of operation due to unforeseen challenges in the NFT market and changes in the business landscape.

At the same time, although financing can alleviate the "blocking points" of project survival and development to a certain extent, it is difficult to obtain sustainable survival space without a benign and viable survival model. According to PANews statistics, at least 7 or more projects were closed because the expected income could not cover the expenditure costs or even exceeded the financing funds.

For example, ZKX received a total of up to 12.1 million US dollars in two rounds of financing, but still chose to stop operating because it could not find an economically feasible path. According to its founder, ZKX's decision to stop operating was based on several key factors, including extremely low user participation and TGE not meeting expectations. The platform's income can hardly pay wages and other basic operating costs, and the current token value cannot continue to support the protocol. Of course, this situation is related to the current "resistance" of VC coins by retail investors. In fact, the huge amount of selling pressure to be unlocked has made VC coins gradually lose "popularity" in this round of bull market. This investment background has become an "invisible shackle" that constrains the development of crypto projects.

The same problem also occurred in the liquidity pledge platform ClayStack. After more than 3 years of continuous operation and more than 6 product audits, and a seed round of financing of up to 5.2 million US dollars, the platform announced a gradual suspension of operations in May this year due to lack of resources and insufficient product-market fit; Via Protocol, a cross-chain liquidity aggregation protocol that received 1.2 million US dollars in financing, also chose to terminate cooperation because it could no longer afford the server costs;

Financial difficulties also erode the value of the project to a large extent, and even face the risk of bankruptcy in the end. Among the above failed projects, 5 projects are facing survival difficulties due to funding problems. For example, Jet Protocol, which received 11.6 million US dollars in financing from Paradigm, DAO creation platform Superdao, and chain game project Ascenders, all fell into financial difficulties and chose to close.

In addition, regulatory compliance is also a major challenge facing crypto projects. In fact, as the scale of the crypto market grows, global regulatory hammers are frequently struck, relevant compliance requirements are becoming increasingly stringent, and the pressure of supervision and review faced by related projects is increasing. At least 5 projects in the statistical project were eventually closed due to regulatory factors. For example, the privacy protocol Nocturne, founded in 2023, decided to gradually close in June this year after receiving $6 million in support from a number of investors including Bain Capital Crypto, Polychain, Bankless Ventures, Hack VC, Robot Ventures and Vitalik Buterin. This decision was made after the privacy protocol established earlier last year ceased operations due to regulatory pressure. For another example, the crypto investment application Pillow was forced to drown in the torrent of crypto history due to regulatory uncertainty despite receiving $21 million in financing.

Of course, some of them also went bankrupt due to black swan events such as core team loss of contact, hacker attacks, and investment crashes. Among these 35 closed projects, many projects went bankrupt without any warning, and some of the coin issuance projects caused huge losses to investors. For example, the metaverse game ecosystem DeHorizon and the metaverse project Pax.world have not issued any announcements, and the tokens are now almost zero and have not even been listed on centralized exchanges.

It is worth mentioning that although some of the projects that took the initiative to close have also given positive follow-up plans compared to the projects that directly rugged after closing down for different reasons, such as ZKX closing all market positions and returning all funds to each user's trading account, and LINE NFT returning all assets on sale after closing.

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