What Are Crypto VCs Experiencing as the Landscape Changes?

Investment firms that once pioneered the industry are no longer solely focused on the crypto sector.

Written by: Vaidik Mandloi

Compiled by: Luffy, Foresight News

Paradigm, one of the world's leading pure crypto-focused funds, recently completed a $1.2 billion fundraising round, with plans to invest in startups in artificial intelligence, robotics, and aerospace. The firm has even removed all mentions of "cryptocurrency" from its website, with its core investment logic being that crypto was merely the first frontier it explored, and that other cutting-edge technologies should not be overlooked.

Framework Ventures also completed a $400 million fundraise in June, initiating cross-sector investment strategies, and it is not the only firm making such adjustments. Over the past year, nearly all leading crypto-focused venture capital firms have been broadening their investment boundaries and adjusting their investment themes. In the first quarter of 2026, only eight new pure crypto venture capital funds were established across the entire market, marking the lowest number since 2020.

In this article, I will delve into whether venture capital funds focused on cryptocurrency are truly on the decline. If the answer is affirmative, how will this industry reshuffle affect the lifecycle of various funds? For crypto startups, this means they will compete for resources within the investment portfolios of diversified funds, which raises further questions.

The Development Cycle of Crypto-Focused Funds

The emergence of crypto-focused funds is primarily due to their willingness to invest significant time in building industry information barriers, being the only investors willing to take on high risks in the sector at the time. In 2017, partners at comprehensive growth funds like Tiger Global could hardly understand the underlying logic of Solidity smart contracts, let alone establish deep collaborative relationships with anonymous developers in Discord communities.

To determine whether the crypto venture capital sector is nearing its end, one can refer to the historical rise and fall of other specialized investment categories, as similar industry iterations have played out repeatedly.

From 2006 to 2011, the clean energy sector became an investment hotspot, with numerous institutions establishing specialized new energy funds. The underlying logic was akin to that of crypto venture capital: investors believed they were capturing a transformative technological change ahead of others and aimed to build a dedicated investment landscape around this sector.

Capital accumulated over $25 billion in investments in clean energy startups, but ultimately, more than half of these investments resulted in losses. Interestingly, the related technologies were indeed feasible; today, the clean energy market is vast, and the cost of solar power generation has dropped by 85% during the same period. However, venture capital firms made a fundamental judgment error: they applied the software company investment model, issuing $5 million seed round checks to startups, while these projects actually required $200 million in project financing and needed 15 years to become profitable.

The Massachusetts Institute of Technology's Energy Initiative concluded that the traditional venture capital model fundamentally does not fit the clean energy industry. Early specialized funds took on the risks of technological development, funding foundational research to build credibility in the sector and attract large industrial capital. However, once the technology matured and infrastructure loans and project financing entered the scene, the unique information barriers of specialized funds disappeared entirely.

Source: Massachusetts Institute of Technology

Special Purpose Acquisition Companies (SPACs) have also followed a similar rise and fall trajectory. SPACs are blank check companies that raise funds through IPOs without any actual business, later acquiring private companies to achieve rapid public listing, a process simpler than traditional IPOs. From 2020 to 2021, many investors viewed SPACs as a replicable capital tool, even establishing investment firms entirely focused on SPAC operations.

Chamath Palihapitiya raised $1.6 billion for a specialized SPAC fund. However, by 2022, two-thirds of the SPACs that went public in 2021 failed to complete acquisitions, forcing Chamath to return funds to investors. The market reversed completely in just two years, illustrating that once the information advantage of a specialized sector disappears, the industry landscape can be rapidly restructured.

Different industries repeatedly play out the same narrative, driven by a unified underlying logic. Carlota Perez reviewed 250 years of technological change and proposed the theory of technological economic paradigms: every major technological revolution goes through an early niche stage, where only insiders understand the technology, and investors deeply engaged in the sector hold exclusive information, becoming the most valuable capital providers; as the technology matures, it gradually integrates into the existing traditional industrial system.

When development reaches this stage, the information barriers that support the survival of specialized funds no longer exist—large comprehensive institutions can also understand the asset sector. Fred Wilson predicted early on that crypto would reach this inflection point; in 2015, he wrote that the crypto industry would face a critical financial watershed, completing the transition from the "construction phase" to the "widespread implementation phase" as outlined in Perez's theory.

Now, this watershed has indeed arrived, with the characteristics of the crypto implementation and popularization phase evident everywhere: payment giants like Stripe acquiring Bridge and launching their own stablecoin public chain; asset management firms like BlackRock and Fidelity issuing tokenized money market funds; and traditional payment leaders like Visa and Mastercard building settlement networks on top of stablecoins.

These traditional giants do not need crypto-focused funds to explain MEV extraction or validator economic mechanisms; such specialized industry knowledge is meaningless for their business expansion. What they truly need are regulatory approvals, traffic channels, and banking partnerships, resources that are completely consistent with what ordinary fintech companies require for scaling. Today, investors in comprehensive funds like Sequoia and Founders Fund evaluate crypto projects in the same way they assess fintech projects like Stripe and Plaid.

Polarization and Expansion of Fund Sectors

Since the information barriers of specialized crypto funds have collapsed, what will happen to the funds established on this advantage? Their ultimate fate is entirely determined by the financial logic of fund management scale.

For years, the venture capital industry has formed a "barbell differentiation" pattern: on one end are giant comprehensive investment platforms like a16z, Sequoia, and Founders Fund, which can incorporate entire sectors as vertical segments into their investment landscape; on the other end are small boutique funds that rely on deep industry knowledge to bet on niche frontier projects, where a single breakout project can cover the entire fund's returns; meanwhile, the survival space for medium-sized funds is completely squeezed, and currently, the vast majority of crypto-focused funds find themselves in this "death zone."

A $500 million fund requires a total project exit amount of $1.5 billion to provide a 3x net return to its investors. Relying solely on small seed investments is insufficient to achieve this goal, as a single seed investment portfolio is unlikely to yield enough large-scale projects; at the same time, they cannot compete with giant funds of $50 billion for growth stage targets—the latter can easily issue large investments of over $100 million. For example, in the first half of 2025, the total amount raised by Founders Fund alone was equivalent to 1.7 times the total amount raised by all emerging small funds during the same period. Capital continues to concentrate at both ends of the industry.

While both Framework Ventures and Paradigm have broadened their investment sectors, their underlying strategies are fundamentally different due to scale differences. Framework manages $400 million, which is too small to rely on a few seed projects for returns and insufficient to compete with giant funds for growth stage projects. Relying solely on exit revenues generated from the crypto sector cannot meet the fund's return requirements, necessitating the broadening of investment boundaries. In contrast, Paradigm manages $1.2 billion, a scale sufficient to transform into a cross-industry comprehensive investment platform, leading to essential differences in their strategic choices. In short, the scale of the fund determines which end of the barbell structure it falls on and dictates its available development paths.

Even those venture capitalists claiming to remain committed to the crypto sector have completely redefined the meaning of "crypto investment." Dragonfly completed a $650 million fundraising round in February this year, exceeding its target by three times. However, the firm has clearly stated that crypto applications outside of financial scenarios have completely failed, and the fund is only betting on stablecoins and prediction markets. a16z raised $2.2 billion for its crypto-focused fund in May 2026, only half of the $4.5 billion fund size in 2022. Moreover, partner Chris Dixon has also adjusted the core narrative: no longer defining crypto as a new computing paradigm, but rather proposing that finance is the foundational basis of the entire industry.

Today, the "pure crypto investment" that these institutions refer to essentially involves laying out the financial infrastructure built on blockchain, a sector that is also a key focus for comprehensive funds with substantial capital.

Another core force driving the industry's shift comes from changes in the behavior of fund investors (LPs). The venture capital industry currently faces a DPI (Distributions to Paid-In) crisis, with the average DPI of funds established in 2021 being only 0.08 times. The crypto bear market of 2022 led to significant losses for many investors, while the AI sector has become a new outlet, attracting 70% of primary market funds globally. Investors holding four years of idle funds that cannot be liquidated see AI projects delivering the high returns that crypto once promised, forcing fund managers to proactively invest in the AI sector to meet LP demands.

This trend is not favorable for entrepreneurs still deeply engaged in crypto: the number of investment institutions that truly understand crypto and are willing to continue investing is steadily shrinking. Many might say that entrepreneurs can directly seek funding from comprehensive funds, which theoretically seems feasible—Sequoia and Founders Fund can issue larger checks and provide commercialization resources that native crypto funds cannot match.

However, there are two significant drawbacks. First, the current AI sector is siphoning off the vast majority of quality project resources, and crypto projects within comprehensive funds must compete for the attention of investment teams with a multitude of AI projects; only exceptionally high-quality targets have a chance to enter the investment decision agenda, which is a completely different competitive logic compared to pitching to specialized funds focused on crypto. Second, the development of the crypto ecosystem relies on the long-term investment of specialized funds in foundational infrastructure. Paradigm funds academic research related to MEV, and Dragonfly supports cross-chain development tools; such investments may not yield immediate commercial returns when viewed in isolation, but they build the foundational public infrastructure shared across the entire industry. Comprehensive funds will never invest in such projects, as they only evaluate targets based on independent commercial returns.

I believe that in a few years, the term "crypto investor" will become as outdated as "internet investor" is today. Crypto has become foundational infrastructure, a set of underlying channels supporting the operation of various financial products; no one will build a complete investment logic solely around the underlying pipeline, as investment value arises from the application layer above the pipeline. If Perez's theory of technological cycles holds true, the industry is currently at this transformative juncture: crypto is no longer an independent investment sector but rather the foundational infrastructure for various investment targets.

However, this does not mean that specialized crypto funds will completely disappear. As new subcategories like tokenization and on-chain securities continue to emerge, numerous niche frontier sectors will arise that comprehensive funds are unwilling to engage in, and small specialized funds will be established around these subfields in each cycle. What is truly declining is the current batch of medium-sized large pure crypto funds—relying solely on niche crypto projects cannot meet the fund's return requirements. The entire sector will continue to be restructured according to the barbell model: large growth-stage investments will be handled by comprehensive funds, while pioneering niche experimental projects will be managed by small specialized funds.

The early specialized funds established between 2017 and 2018 incubated core infrastructures such as Uniswap, the Ethereum ecosystem, and stablecoin supporting tools. However, times have changed; leading crypto projects like Hyperliquid and MegaETH in recent years have raised funds entirely through community fundraising, without relying on venture capital. Specialized funds once provided clear investment logic for the crypto sector, attracting comprehensive capital; now, an increasing number of entrepreneurs realize that they can also achieve project launches without venture capital.

Disclaimer: This content is provided for general branding and informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online events, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets or to use any services. Crypto assets are highly volatile and may result in loss. WEEX services and online events may not be available in all regions and are subject to applicable laws, regulations, and eligibility requirements. You are responsible for ensuring that your use of WEEX services complies with local laws and for carefully assessing the risks before participating in any crypto-related activities.