Investing in top VC but the principal has slumped by 50% in four years, what happened to the encryption fund?

Written by: PANews, Zen

Recently, Akshat Vaidya, co-founder and investment director of the Arthur Hayes family office Maelstrom, publicly disclosed a dismal investment performance on X, sparking widespread discussion in the crypto community.

Vaidya stated that he invested $100,000 in a Pantera Capital early-stage token fund (Pantera Early-Stage Token Fund LP) four years ago, and now only $56,000 remains, almost losing half of his principal.

In contrast, Vaidya pointed out that during the same period, the price of Bitcoin roughly doubled, while many seed round crypto projects saw returns soar by 20–75 times. Vaidya lamented, “While the specific year of investment entering the market is important, losing 50% in any given cycle is considered the worst performance.” This sharp critique directly challenged the fund's performance and sparked heated debates in the industry regarding the performance and fee structures of large crypto funds.

The “3/30” of the market boom era

Vaidya specifically mentioned and criticized the “3/30” fee structure, which refers to an annual management fee of 3% and a 30% performance share on investment returns. This is significantly higher than the traditional “2/20” model commonly seen in hedge funds and venture capital funds, which charges a 2% management fee and a 20% performance fee.

During the peak of the cryptocurrency market frenzy, some well-known institutional funds charged investors fees higher than traditional standards, such as 2.5% or 3% management fees, and 25% or even 30% performance fees based on excess returns, leveraging their extensive project channels and past performance. Pantera, which Vaidya criticized, is a typical example of high fees.

With the development of the market, the fee structures of crypto funds have been gradually evolving in recent years. After experiencing the baptism of bull and bear cycles, and influenced by LP bargaining pressures and fundraising difficulties, crypto funds are generally continuing to shift towards lower structures. Newly raised crypto funds in recent years have begun to make concessions in their fee structures, such as reducing management fees to 1-1.5% or charging higher performance fees only on excess amounts, in an attempt to align more closely with the interests of investors.

Currently, cryptocurrency hedge funds typically adopt the classic “2% management fee and 20% performance fee” structure, but the pressure on fund allocation has led to a decrease in average fees. Data released by the Crypto Insights Group shows that current management fees are close to 1.5%, while performance fees tend to range from 15% to 17.5% depending on the strategy and liquidity conditions.

Cryptocurrency funds find it difficult to scale.

Vaidya's post has sparked discussions about the scale of cryptocurrency funds. Vaidya pointed out that, with a few exceptions, the returns of large cryptocurrency venture capital funds are generally poor, harming limited partners. He stated that the purpose of publishing this tweet is to remind/educate everyone with data that cryptocurrency venture capital cannot be scaled, even for well-known brands with top investors.

A school of thought supports his view, believing that the oversized fundraising of early cryptocurrency funds has become a drag on performance. Leading institutions like Pantera, a16z Crypto, and Paradigm have raised billions of dollars in cryptocurrency funds in recent years, but it is quite challenging to efficiently deploy such a large amount of capital in the relatively early cryptocurrency market.

With limited project reserves, the large fund is forced to invest in numerous startup projects in a “broad net” manner, resulting in a low proportion of investment in each project and varying quality, leading to excessive dispersion and difficulty in obtaining excess returns.

In contrast, small funds or family offices, due to their moderate capital size, can more rigorously screen projects and focus on high-quality investment targets. Supporters believe that this kind of “small but refined” strategy is more likely to achieve outperformance in the market. Vaidya himself also stated in his comments that he agrees more with the view that “the issue is not with early tokens, but with the size of the fund,” as well as the idea that “an ideal early-stage cryptocurrency fund must be small and flexible.”

However, there are also different voices questioning this radical statement. The viewpoint is that while large funds may face diminishing marginal returns when pursuing early-stage projects, their value in the industry should not be completely denied due to the poor performance of a single investment. Large crypto funds often possess abundant resources, professional teams, and extensive industry networks, which can provide value-added services to projects post-investment and drive the development of the entire ecosystem, something that individual investors or small funds find difficult to compete with.

In addition, large funds are usually able to participate in larger financing rounds or infrastructure construction, providing the deep financial support needed for the industry. For example, projects such as public chains and trading platforms that require financing of hundreds of millions of dollars cannot do without the participation of large crypto funds. Therefore, large funds have their reason for existence, but it is important to control the matching between fund size and market opportunities to avoid excessive expansion.

It is worth mentioning that there are comments in this controversy suggesting that Vaidya's public criticism of his peers carries a strong “marketing” implication— as the head of Arthur Hayes' family office, he has recently been devising differentiated strategies and raising funds for his own fund— Maelstrom is preparing a new fund exceeding $250 million, planning to acquire medium-sized crypto infrastructure and data companies.

Therefore, Vaidya is suspected of using criticism of competitors to highlight the differentiated positioning of Maelstrom's focus on value investing and cash flow. Mike Dudas, co-founder of 6th Man Ventures, stated that if he wants to promote the performance of his family office's new fund, he should let his own achievements speak for themselves, rather than attracting attention by attacking others.

“No strategy is better than buying BTC”

Vaidya compared the returns of funds with a simple buy-and-hold strategy for Bitcoin based on personal experience, leading to a well-worn topic: for investors, is it better to invest money in a crypto fund or to buy Bitcoin directly?

This question may have different answers at different times.

In earlier bull market cycles, some top crypto funds significantly outperformed Bitcoin. For example, during the market frenzies of 2017 and 2020-2021, savvy fund managers achieved returns far exceeding Bitcoin's gains by positioning themselves in emerging projects or employing leveraged strategies.

Excellent funds can also provide professional risk management and downside protection: during bear markets, when Bitcoin prices are halved or even drop further, certain hedge funds have successfully avoided massive losses and even achieved positive returns through short selling and quantitative hedging strategies, thereby relatively reducing volatility risk.

Secondly, for many institutions and high-net-worth investors, crypto funds provide diversified exposure and professional channels. Funds can venture into areas that are difficult for individual investors to participate in, such as token projects in private placements, early-stage equity investments, and DeFi yields. The seed projects mentioned by Vaidya, which surged 20–75 times, would be hard for individual investors to engage in at early valuations without the channels and professional judgment of the funds—provided that the fund managers truly possess exceptional project selection capabilities and execution skills.

From a long-term perspective, the cryptocurrency market is constantly changing, and professional investment and passive holding both have applicable scenarios.

For practitioners and investors in the cryptocurrency sector, the turmoil surrounding the Pantera fund provides an opportunity — in the ever-changing cryptocurrency market, rationally assessing and choosing investment methods that suit one's own strategy is key to maximizing wealth appreciation.