The crypto infrastructure project Yellow announced that it refunded over $8 million to initial investors on Friday, while building a decentralized clearing and payment network for digital asset trading. This action signifies a break from the venture capital (VC) centered funding model that has dominated the digital asset industry.

According to a decision made public by co-founder Alexis Sirkia, the project returned most of the external VC capital and retained only a few investors deemed consistent with its long-term development direction.

This refund corresponds to nearly 100% of the initial funding amount and has minimized the token allocation held by external VCs.

This measure comes amid increasing scrutiny of the role of venture capital in the token ecosystem, particularly concerning concerns about incentive misalignment between early investors and the broader community.

Pointing out the misalignment between founders and VC incentives

Sirkia stated that this decision was driven by the need to protect the project's long-term vision and maintain alignment with its user base.

"Capital always demands a price. Usually, it's at the expense of the relationship with the token-holding community. We will not allow such a thing to happen at Yellow," he stated in a public announcement.

He also noted that many VC investors were not aligned with the project's long-term goals, criticizing industry practices such as early selling and hedging strategies that could exert downward pressure on token prices and undermine user trust.

Following the restructuring, tokens held by external investors are few in number, and most tokens have been reallocated to the community, team, and ecosystem participants.

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Transition to a community ownership model

Yellow stated that this decision was made to ensure that ownership and incentives within the network are focused on builders and users rather than financial sponsors.

This project, which has attracted over 500 developers building on open-source infrastructure, aims for a model where participation and contribution play a larger role in value distribution.

By reducing reliance on VC, Yellow aims to address criticisms that early-stage investors hold large amounts of tokens and later sell them in public liquidity markets, which have been repeatedly raised in the crypto market.

Raising questions about future funding models

This action highlights the growing debate over whether crypto projects can continue to grow without traditional VC support.

Historically, venture capital has played a role not only in providing funding but also in offering strategic support and access to networks, thereby increasing the speed of adoption.

Deviating from such models can limit these advantages, especially in highly competitive markets.

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