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Money & Ideas in Crypto
Crypto venture funding has contracted sharply since 2021 as founders shift to AI, forcing funds to exit, pivot to "frontier tech," or bet that 95% of financial infrastructure migration to crypto still remains.
What: Crypto venture capital is shrinking with fewer founders, compressed token returns, and smaller LP allocations compared to 2021, prompting funds like Paradigm to rebrand from crypto-specific to broader "frontier technologies" while others either exit entirely or stay focused on crypto.
Why it matters: The contraction signals whether crypto's compressed returns represent a temporary trough or structural decline, directly affecting where founders should build and which markets offer realistic paths to funding.
Takeaway: Founders weighing crypto versus AI should consider that while crypto funding is tighter, the author argues AI is the most competitive venture market in decades and crypto still has 95% of financial infrastructure migration untapped.
Decoder
- LP: Limited Partner, the institutional investors (pension funds, endowments) who provide capital to venture funds
- ZIRP: Zero Interest Rate Policy era, the period of near-zero rates that ended in 2022 and fueled excessive venture investment
- Power law: The venture capital pattern where a tiny fraction of investments generate the vast majority of returns
- LPA: Limited Partnership Agreement, the legal contract that defines what assets a fund can invest in
Original article
Crypto venture activity has contracted sharply since 2021, with founders migrating to AI, token returns compressing, and LP allocations shrinking, prompting funds to exit, broaden mandates (Paradigm rebranding to "frontier technologies"), or hold focus. There is a case for staying in crypto, as AI venture is the most competitive market in two decades and industrial/deep tech is capital-intensive in ways that don't suit crypto-native investors. The bull case rests on adoption metrics: non-USD stablecoin float remains negligible and roughly 95% of financial system migration to crypto rails is still ahead.
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