top of page
Search

The Frustrations of the Crypto Retail Community with VC Investors



The cryptocurrency and blockchain space has always been driven by ideals of decentralization, transparency, and community empowerment. These principles stand in contrast to traditional financial systems, which are often viewed as hierarchical and exclusive. However, as the crypto space has matured and attracted significant interest from venture capital (VC) investors, tensions have emerged between these investors and the retail community. While VC investments bring much-needed capital and resources, they also introduce dynamics that can frustrate and alienate retail investors. This blog explores the key points of contention between the crypto retail community and VC investors.


The Clash of Ideals

At the heart of the crypto community's frustration is the perceived clash between the decentralized ethos of cryptocurrencies and the centralized nature of venture capital. Cryptocurrencies were created to provide an alternative to traditional financial systems, empowering individuals and promoting decentralization. In contrast, venture capital is often seen as the embodiment of centralized control and influence.

Centralization of Influence: When VC investors enter the crypto space, they bring with them significant financial resources and influence. This can lead to a concentration of power and decision-making in the hands of a few entities, undermining the decentralized principles that the community values. For instance, VC-backed projects may prioritize the interests of their investors over those of the broader community, leading to decisions that do not align with the community’s vision.


Exclusive Access: Another point of contention is the exclusive access that VCs often have to early funding rounds. Retail investors typically do not have the opportunity to participate in these early rounds, which are usually conducted at significantly discounted prices. This creates a sense of inequality and exclusion, as retail investors are left to buy tokens at higher prices during public sales or on secondary markets.


Economic Disparities

The economic dynamics introduced by VC investments also contribute to the frustrations of the retail community. The disparity between the financial positions of VCs and retail investors can lead to outcomes that are perceived as unfair or detrimental to the latter.


Pre-sale Discounts: VCs often receive tokens at steep discounts during pre-sale rounds. This practice can lead to significant price disparities when the tokens are eventually listed on public exchanges. Retail investors, who buy tokens at market price, may feel disadvantaged when VCs start selling their tokens at a profit, often causing price drops and volatility.

Token Vesting and Dumping: While many projects implement token vesting schedules to prevent immediate sell-offs, there are instances where VCs offload large quantities of tokens as soon as they are able to. This "dumping" can lead to sharp declines in token prices, hurting retail investors who bought at higher prices. The perceived prioritization of short-term gains by VCs over the long-term health of the project adds to the community's frustration.


Governance and Decision-Making

Governance is another area where the involvement of VCs can lead to friction. Decentralized projects often use governance tokens to allow the community to participate in decision-making processes. However, the large token holdings of VCs can skew governance votes and decision-making in their favor.


Influence over Governance: With substantial token holdings, VCs can wield considerable influence over project governance. This can lead to decisions that benefit VCs at the expense of the broader community. For example, proposals that align with the interests of VCs may be passed, while those that benefit retail investors or the community may be overlooked or rejected.

Lack of Transparency: The decision-making processes involving VCs are sometimes opaque, adding to the mistrust. Retail investors may feel that important decisions are made behind closed doors, without adequate input or visibility from the community. This lack of transparency can erode trust and foster resentment towards VCs and project teams.


The Impact on Project Dynamics

The involvement of VCs can also affect the dynamics and direction of crypto projects in ways that are not always aligned with the interests of the retail community.

Pressure for Rapid Growth: VCs typically seek high returns on their investments within relatively short timeframes. This can lead to pressure on project teams to prioritize rapid growth and short-term gains over sustainable development and long-term vision. Projects may focus on marketing and hype rather than building robust, user-centric solutions, which can be detrimental to the project's long-term success.

Strategic Direction: The strategic direction of a project can be influenced by the priorities and interests of VC investors. For example, a project might pivot to cater to institutional clients or explore enterprise solutions to meet the expectations of their investors, potentially alienating the original user base and community.


Navigating Regulatory Challenges

Regulatory challenges in the crypto space add another layer of complexity to the relationship between VCs and the retail community. As governments and regulatory bodies worldwide continue to develop and implement frameworks for cryptocurrencies and blockchain technology, the actions and decisions of VCs can significantly impact the regulatory landscape.

Regulatory Arbitrage: VCs may engage in regulatory arbitrage, seeking jurisdictions with more favorable regulations for their investments. While this can provide short-term benefits, it can also create long-term uncertainties and challenges for the projects and their communities, particularly if regulatory landscapes shift or if projects face scrutiny in their home jurisdictions.

Compliance and Security: Projects backed by VCs are often under greater scrutiny to comply with regulations and security standards. While this can be positive in terms of ensuring legitimacy and protecting investors, it can also lead to increased costs and operational burdens for projects. These costs may be passed on to users, affecting the overall accessibility and inclusivity of the project.


Building a More Inclusive Ecosystem

Despite the frustrations and challenges, there are ways to foster a more inclusive and equitable ecosystem that balances the interests of both VC investors and the retail community.

Fair Token Distribution: Projects can implement fair token distribution mechanisms that allow retail investors to participate in early funding rounds. Methods such as public sales, community grants, and airdrops can help ensure a more equitable distribution of tokens.

Transparent Governance: Enhancing transparency in governance processes can build trust and ensure that decision-making is more inclusive. Projects can adopt decentralized governance models that give the community a voice and ensure that decisions are made in the best interests of all stakeholders.

Long-Term Commitment: VCs can demonstrate their commitment to the long-term success of projects by adhering to longer vesting schedules and engaging with the community. By aligning their interests with those of the retail investors, VCs can help foster a more collaborative and supportive ecosystem.

Education and Engagement: Educating the retail community about the role and impact of VCs can help mitigate frustrations and build a more informed investor base. Regular communication and engagement between project teams, VCs, and the community can also help address concerns and build stronger relationships.



The relationship between venture capital investors and the crypto retail community is complex and often fraught with tensions. While VCs bring valuable resources and expertise to the table, their involvement can also introduce dynamics that frustrate and alienate retail investors. By recognizing and addressing these concerns, the crypto ecosystem can work towards a more inclusive and equitable future, where the interests of all stakeholders are balanced and the foundational principles of decentralization and community empowerment are upheld.

 
 

This presentation is not an offer or advertisement; it is not intended for public use or distribution. The strategies presented are currently provided through separately managed accounts.

THIS MATERIAL MAY ONLY BE PROVIDED TO YOU BY DAUGHTRY DYNASTY GROUP (DDG) AND IS FOR YOUR PERSONAL USE ONLY AND MUST NOT BE PASSED ON TO THIRD PARTIES WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF DAUGHTRY DYNASTY GROUP (DDG) . IF YOU HAVE NOT RECEIVED THIS MATERIAL FROM DAUGHTRY DYNASTY GROUP (DDG) , YOU ARE HEREBY NOTIFIED THAT YOU HAVE RECEIVED IT FROM A NON AUTHORIZED SOURCE THAT DID NOT ACT ON BEHALF OF DAUGHTRY DYNASTY GROUP (DDG) AND THAT ANY REVIEW, USE, DISSEMINATION, DISCLOSURE OR COPYING OF THIS MATERIAL IS STRICTLY PROHIBITED. BEFORE MAKING AN INVESTMENT DECISION, PLEASE CONSULT A QUALIFIED INVESTMENT AND TAX ADVISOR.

​

Any projections, market outlooks or estimates in this material are forward-looking statements and are based upon certain assumptions that are solely the opinion of DDG. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. Further, any information regarding portfolio composition, portfolio composition methodology, investment process or limits, or valuation methods of evaluating companies and markets are intended as guidelines which may be modified or changed by DDG at any time in its sole discretion without notice.Forecasts, estimates, and certain information contained herein are based upon proprietary research and the information contained in this material is not intended to be, nor should it be construed or used as investment, tax or legal advice, any recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security.

​

References to specific securities and their issuers or sectors are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities or gain exposure to such sectors. The strategies may or may not own the securities or be exposed to the sectors referenced and, if such securities are owned or exposure maintained, no representation is being made that such securities will continue to be held or exposure maintained. Where mentioned, maximum gross exposure is equivalent to the sum of gross long and gross short position. All commodity positions are valued on a notional basis. A position is defined as a single holding, long or short, in a security. Non-DDG proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of DDG.

​​

© 2009 - 2025 by DDG VC.

bottom of page