Decoding the high 'failure' rate in the crypto world
A comprehensive study conducted by Chainplay in collaboration with Storible has just revealed shocking numbers: 45% of crypto projects backed by venture capital (VC) have officially ceased operations. It is not due to 'running out of steam' or 'lack of liquidity' — but rather disappearing completely from the market.
But the shock doesn’t stop there. 77% of surviving projects are currently earning less than $1,000/month, a figure that clearly indicates that most are merely 'surviving' rather than truly existing as a sustainable profit-generating business.
The picture becomes clear: The success rate of VC-backed crypto projects is extremely low, reflecting the harsh and uncertain nature of the blockchain market.
⸻
Does the capital from large funds help improve survival rates?
You might think that if large VC funds like Polychain Capital or Yzi Labs invest, the chances of survival would be higher? Wrong! Research shows that even these renowned VCs are witnessing a majority of their crypto investments become ineffective or completely collapse.
This confirms a reality: Even with money, connections, and strategy – crypto projects can still easily fail if they do not address fundamental issues such as:
• How to gain market acceptance
• How to overcome legal barriers
• And how to survive in a sea of competitors filled with 'vaporware' (overhyped projects with nothing behind them)
⸻
Do large funded projects really 'survive'?
Research indicates a single factor clearly correlates with high survival rates: the amount of capital raised.
• Projects raising over $50 million: significantly higher survival rates
• Projects raising under $5 million: exceedingly high failure rates
What does that mean? It means that in the context of crypto 'burning money' as fast as a storm, startups that receive more funding have more time to:
• Survive the crypto winter
• Build real products
• Attracting talent and
• Persevere with market development strategies, even if there are no immediate profits
However, more money does not mean immortality; it merely buys more time to… not die early.
⸻
Why do funded crypto projects fail en masse?
Understanding 'what' is not enough; more importantly, it's about understanding 'why'. Below are the main reasons nearly half of VC-backed crypto projects fail:
1. Market volatility is too severe
• The crypto market experiences extreme volatility, with every downtrend season being a 'genocide'.
2. Lack of real-world application
• Many projects do not move beyond the facade of speculation, lacking products that everyday users actually need.
3. Operational and technical risks
• Building a blockchain system is complex: from technology, decentralized community, to legal aspects. Lack of capability will lead to early demise.
4. Ambiguous legal frameworks
• In many countries, crypto is still in the gray area. Projects may face fines, be blocked, or forced to cease operations simply due to 'lack of licenses'.
5. Fierce competition and the phenomenon of 'vaporware'
• Too many projects targeting the same pie. Many only have beautiful whitepapers, while the rest are completely empty.
6. Misdesigned tokenomics
• If the token model is inflated, imbalanced, or does not create real incentives for users => the project is likely to fail even with a good product.
⸻
Lessons learned for investors and founders
For venture investors:
• Thorough due diligence: Don’t just look at the founder's reputation or the glitz. Dive deep into the product, market, revenue model, and token design.
• Prioritize sustainability: Projects need to have real utility rather than just relying on price appreciation expectations.
• Prepare for a long-term investment mindset: Blockchain is not like traditional startups. Patience is required.
• Smart allocation: With a high failure rate, one must diversify investments across many fields and stages.
For blockchain founders:
• Focus on solving real needs: Build what users need, not what you think is 'cool'.
• Build a strong, flexible team: Good technical skills, legal understanding, and adaptability to the market.
• Smart spending: Even with money, one must still be frugal. Burning capital in the wrong places = quick demise.
• Be proactive about legal matters: Do not underestimate the law. Have advisors from the start.
• Robust tokenomics design: Ensure supply, usage incentives, and sustainable models.
⸻
The future of crypto investment: Need to be more cautious than ever
This research is a wake-up call for anyone involved in the crypto market – from large funds to individual investors.
The truth is that money is still pouring in, but most do not yield proportional results. Major funding projects have higher survival rates, but are not immune to failure.
Therefore, crypto investment is not for dreamers. It requires clarity, thorough research, deep understanding of technology, and the courage to accept high risks.
If you want to keep up with the latest trends in crypto investment, read our article on the developments shaping the future of this market and the increasing participation of traditional financial institutions.
