The way capital flows typically works like this: there is a group of institutions or individuals who hold capital, such as family offices, high-net-worth individuals, donor funds, foundations, pension funds, and sovereign wealth funds. In most cases, they do not make investment decisions directly but choose to allocate funds to passive strategies (such as exchange-traded funds, ETFs) or active strategies (like entrusting professional investment firms like us). They believe in our expertise in a certain field, so they entrust us with managing the funds, and we are responsible for investing this capital.
Currently, institutions and individuals such as pension funds, sovereign wealth funds, and family offices are tentatively entering the cryptocurrency space but have not fully participated yet. I believe family offices may be among the earliest to enter because they see the return potential of this asset class, particularly in terms of liquidity. However, their involvement mainly takes two forms: one is through purchasing cryptocurrency ETFs, which is a simple exposure method; the other is through venture capital, allocating funds to some well-known blue-chip managers. However, many have not directly entered the liquidity market or liquidity agencies like ours.
Since 2022, approximately $60 billion in capital has flowed into seed-stage venture capital, supporting a large number of founders. Among these founders, some hope to exit through tokens, while others plan to go public. However, going public typically takes six to eight years, while a token exit may only take 18 months. For certain businesses, tokenization makes more sense than public stock.
Now, everyone is gradually realizing that the capital pool has begun to tentatively enter the cryptocurrency space. However, much of the capital allocation is excessively concentrated in venture capital, and the prices of tokens invested through managers have generally declined after being launched in the past 12 to 24 months.
This is due to the lack of a mature takeover market in the liquidity token market. In traditional markets, when a venture-backed company is preparing to go public, there is a deep public equity market with various investors willing to buy these stocks at market prices. However, this mechanism does not exist in the liquidity token market. Therefore, I believe that although venture capital is starting to pay attention to liquidity, there are still some structural issues to truly enter the liquidity market.