Non-Consensus and Right
Field notes on crypto venture
History is a cruel poet with a passion for rhyming.
In 2002, one of the columns the New York Times published argued that Herman Miller was a beaten-down stock, owing to the post dot-com bubble days. It suggested that when venture dollars flowed back, it made sense to buy the best hardware. And with it, the stock would appreciate in price. Globally, $10T would be wiped out in value from markets in the two years between 2000 and 2002.
The metaverse, sadly, has no Herman Miller to bid on.
You could, however, bid on the plot next to Snoop Dogg’s in The Sandbox. In 2021, at its peak, its price was $450k. It lists for a little over $1k today. Or a 99.8% drawdown.
This piece is not about finding value investment opportunities in the metaverse. Instead, it seeks to understand how the pendulum swings when it comes to the human psyche over the past 30 years through the lens of technology and venture capital. Much like life, the story of markets is one of birth, death, rebirth and the handful of zombies that emerge in between.
We have been writing about crypto for a little over a decade. In that time, both the industry and we have grown old. The technically right term might be “mature”. For the first time in quite a while, we feel the energy shifting. We internalise it by saying different things
Crypto is fintech now
It’s just infrastructure, in the backend
The tokens need revenue! And then the revenue needs to buy the tokens back!
Maybe it was just a bubble?
The pathway to resolution about our little metaverses, NFTs and WAGMI’s dying has been different for each of us. We have been discussing the shift internally and with a few of our VC peers within the industry. This piece is what came of it.
How can an industry be at the peak of adoption, and also be in a trough of depression when it comes to price? Why is it that we have more people than ever on-chain, and yet founders struggle to raise money? Why is it that crypto is now a “hush-hush” topic that falls considerably below AI, defence, Space, healthcare and perhaps even legaltech?
In 2022, being in crypto may have raised eyebrows because of the fraud in it. In 2026, it would raise alarm out of concern.
Our About page, written a long time ago, clarifies that we write for founders. In pursuit of that mission, this piece is all we could gather about what’s happened to crypto venture as a construct, where it’s headed next, and the parallels in history for the current glut. It is equal parts a memoir and a siren’s call for a future that could be co-constructed.
Let’s dig in.
Before we do, big thanks to Haseeb Qureshi (Dragonfly), Kinjal Shah (Blockchain Capital), Brooke Pollack (Hutt Capital), Richard Chen (Varrock VC), Xavier Meegan (Frachtis VC), Peter Pan (1kx), Michael Cieri (Robot Ventures), Steven Venino (Strobe Ventures), Wally Hansen (Crosslayer), Chad Fowler (Blueyard), Joe Eagan (Anagram), Krishna Sriram (Quantstamp), and Brandon Kumar for conversations that helped shape the article.
We appreciate Fernando Gouveia (Compa Capital), Jack Sun (Wonderstruck), Kunal Goel (LayerZero), Jakub Rusiecki (SGV), Alex Gedevani (Monad Foundation), and Jin Ming Neo (HashKey Capital),Darshan (Polaris) for giving feedback on the article.
Seeding Liquidity
By many measures, crypto is having a landmark year. Institutions hold over $175B of crypto through exchange-traded products. On-chain companies earned $11B in fees over the trailing twelve months. The GENIUS Act is about to wipe out a decade of regulatory limbo. Exits have reached a record, with $8.6B of M&A and eleven IPOs.
These are fertile grounds for the “seed” of venture capital to flourish. But speak to any founder raising in these markets, and they’d quickly clarify that liquidity is nowhere to be found. According to Galaxy Research, only eight new venture funds formed last quarter - the fewest since 2020. Quarterly deployment is down to $4B. Extrapolating annually, that $4B becomes $16B. Or half of what was deployed in 2021 at $31B. While the institutions are validating the asset class, VC dollars that create new categories and assets are yet to catch up.
One heuristic is to think crypto as a sector has gotten so efficient, that it no longer needs as much money to be deployed. The other would be to acknowledge what broke along the way. But to understand what broke, we need to understand how we got here in the first place.
Liquidity was once a privilege given to a firm that has spent long enough building something valuable. The median age of a tech firm listing today is 14 years. During the dot-com days, it compressed to five years. Their valuations also justified sticking around the long haul. In 1980, when Apple listed, its valuation was $1.8B. When Meta (Facebook back then) listed, it had 901M MAUs and revenue of $3.7B the year before. It listed at a valuation of $104B after existing for a little over eight years. ±40% of anyone who interacted with the web, tinkered with Facebook. Why was this the case?
The amount of money allocated towards private market technology investments was a fraction of what it is today. So there used to be a pecking order. A VC would absorb all of the risk in founder selection, sector expansion and management. In exchange, they would get a lower valuation, which could then scale and be exited at the time of an IPO. In 1980, Sequoia had to sell its stake in Apple for $6M in order to produce a 40x return for their backers. They did not have the liberty of being a permanent hold vehicle back then because the asset class was considered risky. Almost like rich-people memecoins.
That lack of belief has played out multiple times over the years. In 1987, the NYT suggested that Pizza shops are a possible competitor for tech investment dollars to flow towards. In 1991, as the first generation of valley tech adopters came of age, Time wrote a piece titled “How Gray Is My Valley.” In 2002, after the dot-com bust, NBC snuck its head out and suggested the asset class had too much capital. By 2013, venture capital evolved into a lifestyle choice, so VCs began warning about funds simply role-playing the job of a venture capitalist. They were dubbed Zombie VCs.
Can’t Eat Pizza Tokens
Crypto’s coming of age happened at the end of decades of tech evolution - with VCs wondering whether they should invest in pizzas and the asset class itself refusing to die.
From 2013 to 2016, there was barely any venture to speak of within the industry. Access to the asset class was through an exchange account, and the asset was the network itself. The first dedicated funds formed around bitcoin; Pantera’s 2013 fund bought at $65.
Launching a token in those years meant launching a chain. A team forked the code, ran the infrastructure, and convinced exchanges to carry the asset. The ICO collapsed capital formation and listing into a single event. Developers wrote their own smart contracts, paid for audits, and negotiated listings with exchanges that could say no. No exchange listing meant no liquidity, and almost certain death.
Selling an idea to the crowd worked as capital formation at first. Ethereum raised $18M this way in 2014 and built all the infrastructure that all EVM chains still rely on. But the crowd eventually got sold just ideas and tokens. Products and infra capable of generating value for these tokens were mostly absent.
This worked well as a narrative. In June of 2017, ICOs raised more than venture capital funding for the industry for the first time. By July that year, ICOs outpaced VC deployment by four times. By December, it was established that ICOs would kill venture capital. (It appears people really do want venture capital dead).
If the primary job of a VC were to simply connect capital to a venture, these arguments could have held weight. But the data tells a different story.
More than half of the projects were dead within 120 days of their sale, and academic work on the period puts the share of outright scams near 80%. $28B was raised between ICOs. We have proved that global-scale capital coordination is possible. But we did not have a mechanism of pricing seed-stage companies with no revenue without guardrails in place. The euphoria had people rushing without questions at first, and with neither profits nor answers later on.
Crypto-VC as a construct emerged in this hubris. Instead of raising directly from a market, teams would raise from a curated subset of capital allocators with a promise of a future token. A SAFE with a token warrant attached became an insulated, sane version of raising. For founders, it meant having the privilege of time on their side as they figured out what exactly had to be tokenised. For VCs, it meant public market liquidity for ventures that struggled to prove private market valuations.
A fund that entered at seed and saw the token list at 4x was made whole by its first 25% unlock, and everything after that was profit. So all a founder had to prove was that they could list the token quickly and manage it reasonably, so that unlocks did not lead to massive sell-offs. This meant that incentives were aligned with the pace of liquidity rather than the value a project might accrue. Fund portfolios became biased towards listings rather than towards assets that represented lasting products.
Investors realised that they could exit before they had to be right. It also allowed them to churn the money faster. Teams realised that when you strip away everything, this is what really moved the needle with the investors. So they did what the investors wanted. They made sure tokens were listed as early as possible. Early token listings took care of funds, and tokens became the primary product. Instead of being a mechanism to fund continued development, tokens were about paying out the cap table.
Mistakes Were Made
Tokens of all kinds, whether governance or utility, failed for one of the two or both of the following reasons:
The business model was flawed or non-existent
Unlike equity, tokens were not a legal claim on the business
Tokens are a great way to align different stakeholders across geographies toward the same goal. But crypto learned painfully that just because you have a token does not automatically mean you have staying power. Tokens are good to bootstrap a business. Usually, when businesses subsidise something, they are trying to cultivate a new behaviour in their users.
Whether it was Uber subsidising rides or food delivery services making deliveries for free, these businesses used VC dollars to build consumer habits. Once these habits were formed, they could charge users for it to keep making revenue. The habit that businesses were trying to build was directly tied to the business.
With crypto projects, the activity was rarely linked to increased revenue for the business. When X-to-earn emissions ended, the users left with them, because the product had no demand of its own. Much of DePIN repeated the same loop and subsidised supply for demand that never arrived. Suppose you have a token that has successfully bootstrapped a business and has genuine users. But that is still not a sufficient condition. For a token investment to be successful, the token needs to have a legal claim on the business outcome.
Unlike a token, equity is a legal claim on the business. Shareholders can take the board to court when the board’s actions warrant it. Friend.tech’s protocol earned tens of millions in fees while its token captured none of it, because holders had no claim on those economics. So when a token trades below an equity multiple, the discount is often correct.
If the early liquidity and price discovery that tokens enabled can exist through tokenised equity, investors keep the genuinely useful part of the token model and gain real ownership and legal recourse with it.
Tokens have undergone two shifts in response to this.
Some have begun swapping back to equity when the market has clearly mispriced what a business is worth. Across Protocol is one instance of this.
The breakout winners for 2026 have all tied their revenue back to the token in some form.
In the 1990s, you were valuable by being “on the internet”. In the late 2000s, you could command a premium by being “on a mobile”. In the late 2010s, that trend shifted to being “on a blockchain”. When the tides return, what is left are hard questions about which businesses built in the days of easy liquidity were actually valuable in the days of easy liquidity. Crypto simply seems to be having its moment of reckoning now. Peter from 1kx had a beautiful way of framing this in our conversations.
“Apps didn’t fail because they used token incentives. They failed because they weren’t good businesses. Crypto’s main sin was that there wasn’t enough durable innovation resulting in profitable businesses or protocols with durable product-market fit.” — Peter Pan, Research Partner at 1k(x)
The days of easy liquidity are gone, what is left, then? Have the billions of dollars spent on the industry yielded outcomes? There are sectors that show clear PMF, and the conversation about venture in crypto is not finished until they are mentioned.
Proof Of Work
Three verticals have found durable product-market fit. We have been spending time and talking to teams to make bets on verticals that will find PMF next.
Stablecoins
Supply exceeds $300B, annual transfer volume reached $46T, and roughly $9T of that remains after stripping the bots. Issuers collectively rank as the seventeenth largest holder of US Treasuries. Circle went public and jumped 167% on day one, and consortium banks are now issuing their own. This vertical belongs to growth equity, corporate acquirers, and bank strategy teams now. Issuance now belongs to growth equity, corporate acquirers, and bank strategy teams, and the funds that captured it wrote their cheques when stablecoins were a possibility. The seed window has now moved up a layer, to the companies built on top of the dollars. Ethena was seeded in this vintage and became one of its biggest winners. Bridge went on to get acquired by Stripe within three years.
Prediction markets
ICE committed up to $2B to Polymarket. Robinhood made event contracts its eleventh $100M+ business line. Susquehanna is building a prediction markets business. When the world’s biggest exchange operator, its biggest retail brokerage, and one of its biggest quant firms all arrive within twelve months, price discovery on the vertical itself is complete.
Perp exchanges
Hyperliquid handles roughly 44% of on-chain perp volume and out-earned most public exchanges last year with a team of eleven. Coinbase’s $2.9B Deribit acquisition set the comp for everyone else.
All three now earn billions in annual revenue. They looked like improbable seed rounds four to six years ago. Polymarket was dismissed as a novelty in 2020. Circle spent years as a payments company the market ignored. Hyperliquid launched into a market that treated perps as a solved problem.
Every crypto bear market had some positives. In 2018, the promise was that the infrastructure would improve, that chains would get faster and blockspace cheaper. In 2022, it was that the institutions were coming. Both promises were kept. But the silver lining this time is that nobody has to believe a forecast. These three categories work the way they do because crypto’s architecture enables things that aren’t possible without it. Dollars settle around the clock without a correspondent bank. Exchanges hold client assets in custody that the client can verify.
Markets on anything pool liquidity from anywhere. And the revenue is no longer bought. The largest applications cut token incentives from $2.8B to under $0.1B, and fees still kept growing.
The clearest sign that the categories are real is outsiders trying to build into crypto. Robinhood added event contracts, tokenised stocks, and a chain of its own because they can be the next $100 million revenue lines. Robinhood is doing all of this because building in or adjacent to crypto maximises value for its shareholders.
Crypto was a cool esoteric technology in 2017, but today it’s capable of making money for Robinhood.
Public fintechs build where the margin is, and right now that is here. All of it is happening inside an industry that looks terrible from the outside, where half the tokens listed on major exchanges last year are down more than 80%. The tokens and the businesses have parted ways. A decade of overbuilt infrastructure is finally paying out at the application layer, the same sequence the internet followed when overbuilt fiber made the application era possible.
Venture-scale returns are usually made by betting on verticals that are not yet well established. The next verticals to reach fit will most likely form adjacent to the established ones, because a vertical at scale creates demand at its edges. Stablecoins need credit, brokerage, and treasury products built around the dollars they hold. Perp rails are already extending into equities, commodities, and indices. The job of an early-stage fund deploying in 2026 and 2027 is to back these adjacent verticals before their fit becomes visible in usage and revenue data.
Architect shows how fast an adjacent bet can inflect. It became the first US-regulated derivatives exchange for compute and the AI economy and cleared $1B in volume within months of launch.
But what makes a vintage in 2026 distinctly different from that of 2020 or 2018? A huge part of that conversation is how regulations and mindsets around the industry have evolved. Look beyond the charts and you will realise that the machinery of policy and perception has shifted to be far kinder to the industry than it once was. In the early 2000s, founders building social networks out of the United States had a competitive edge through regulatory protection. A founder (like Zuckerberg) would not be held personally accountable if someone posted things that were deeply offensive to a group of people.
Tim Wu argues in “Who Controls the Internet” that the regulatory environment in the United States is what led to the creation of multiple trillion-dollar companies from the region. Although prices are down, it appears the US has been repeating that playbook with crypto by taking charge of creating frameworks for the industry.
Make Crypto Great Again
GENIUS was signed in July 2025. CLARITY cleared the House with both parties aboard, and the FDIC is writing rules for bank-issued stablecoins. Clearer regulations impact crypto ventures in three direct ways.
For a decade, every American crypto term sheet priced in some probability that the government would simply end the company, the way it nearly ended the exchanges in 2023. Every company faced this risk. So, it could not be mitigated or diversified away. The only workaround for investors was to price it into every deal. With US policies shifting in favour, the additional risk premium goes away.
The second impact is on founders. According to Electric Capital, the absence of clear US policy may have caused the share of US crypto developers to decline by roughly half over the past decade, to under 20%. Building a crypto company in America is for founders comfortable in grey zones. Government policy changes no longer require founders to navigate legal issues. The same adverse selection that shaped the ICO market in 2017 shaped the founder market for a decade, and it has now reversed in the industry’s favour.
The third change is on the cost of doing business. Compliance cost is the last durable moat in fintech. The company that onboards a regulated customer for $40 instead of $400 compounds that advantage every quarter. Licensed crypto rails are machines for collapsing compliance cost, which means crypto companies are being handed the same moat.
Capital usually follows Washington with a lag. When the US led with enforcement, capital formation moved offshore and quality deteriorated, because offshore meant a lack of regulations. US and offshore are both now changing their stance. The UK is writing its own regime, and Coinbase and Robinhood are already building for that market. Hong Kong’s stablecoin ordinance took effect on August 1, 2025. South Korea introduced its Digital Asset Basic Act the same summer, and Japan already regulates stablecoins under its Payment Services Act and keeps refining that framework. Wherever a founder incorporates now, some rulebook applies.
Mixing Revenue
We discussed how the lack of revenue led to the forced listing earlier in this piece. That has now changed.
On-chain protocols earned $11B in the trailing twelve months, and at least a dozen of them earn at a nine-figure annualised rate. Speculation remains the core of that revenue, and crypto’s first fee-paying product was always going to be its casino. But there are degrees to the speculation. At one end, Axiom’s fees track memecoin volumes and fall with them. It collected $100M in fees within four months of launch and roughly $700M since, and its quarterly revenue dropped 86% when memecoin volumes collapsed.
At the other end, Hyperliquid (roughly $843M last year with eleven people) and Aave earn from trading and lending that persist through cycles. Across the market, teams are trying to move their revenue entirely off crypto’s cycle, and Hyperliquid’s HIP-3 markets show how far that has gone. Those markets already carry $4B of its $10B in open interest, with roughly $3B a day trading in assets unrelated to crypto.
Consumer software built on trading primitives is also generating revenue. Phantom did roughly $325M in 2025 from swap fees on seventeen million monthly users, which is app store economics rather than exchange economics. Phantom doesn’t have a token and probably doesn’t need to have one either.
Then come the enterprise sellers. The companies selling tokenised assets and compliance infrastructure to institutions grew the RWA market from $5.5B to $18.6B in a year, and they earn revenue through sales contracts that are independent of broader asset prices.
And furthest from the casino are the stablecoin issuers, whose earnings depend on float and interest rates rather than on crypto prices. Tether reported over $10B in profit for 2025 from its Treasury reserves, and Circle took the same reserve model public. Ten years of crypto produced one Circle. The last two years produced candidates at every degree of the spectrum.
And we are also seeing earnings flowing to investors who hold the asset. Protocols paid $96M to holders in a single month through buybacks, which is one way the token serves as a claim on the business.
A sector view also shows where the market is still adjusting. By late 2025, applications in DeFi and financial services earned 73% of all onchain fees while blockchains earned 12%, yet blockchains held 91% of protocol market capitalisation and the applications roughly 6%. That prices blockchains at nearly 4,000 times their annual fees and the applications at 17 times. The gap has held through 2026. Uniswap, Pump.fun, and Polymarket each collected more fees in the past month than Ethereum or Solana did. The market is still pricing the infrastructure of the last cycle over the businesses of this one, and an investor who knows where the fees are earned can see it.
We spend our time on a handful of sectors, like financial applications powered by blockchain rails, tokenised collateral, and on-chain credit, because we would rather know a few markets deeply than have a view on everything.
The market has started paying for exactly this kind of underwriting. Delphi built a portfolio of the ten largest revenue-generating tokens, weighted by revenue, and tracked it from January 2025 to May 2026. It returned 30.6% while BTC fell 17%, ETH fell 35%, and SOL fell 58%. Tokens with real cash flows beat everything else in the asset class, including the majors. Picking businesses over stories now works in the liquid market, and it works earlier in the private one.
Every asset class that moves on-chain creates a generation of companies around it, and stablecoins have established that template. When dollars wanted to move on-chain, they needed on-ramps, cards, and treasury products. Circle and Tether are a result of that demand. We think something similar is underway for two more asset classes: Treasuries and equities. BlackRock’s money market funds now put Treasury yield on-chain with Securitize as administrator. Tokenised stocks moved ~$23B last month and are growing ~100% month over month.
The pressure behind the equity migration comes from the private markets themselves. The most valuable companies stay private longer, so investors locked inside them sell stakes to one another as they wait. Secondary sales of private-fund stakes reached $240B in 2025, a record, up 48% from the year before. Retail cannot buy these companies at all until they list. Coinbase built the first bridge in June with pre-IPO perpetual futures, starting with SpaceX, synthetic exposure ahead of real issuance. Tokenised equities are the venue where that locked supply and that excluded demand eventually meet.
A third market is forming around machine payments. Payment companies are converging on standards that let AI agents pay in stablecoins, because software that buys things needs money that settles like software. Cloudflare built a payment gateway on the x402 standard it developed with Coinbase, so an agent can pay for an API call or a page crawl in stablecoins without a card network involved.
"Agent-native trust is a completely new category that most AI investors are ignoring. As AI capability compounds, security becomes paramount. We see a clear opportunity in securing the future of multi-agent networks by implementing the past 10 years of research done in blockchain. Crypto-native investors are primed to underwrite what we believe will become one of the largest markets of the next decade." — Xavier Meegan, Founder and CIO at Frachtis
As tokenisation becomes normal, every function around the asset has to work on-chain too. A tokenised asset becomes productive only when it can be used as collateral, and credit is where we are already invested.
Banking is the industry where this migration has gone furthest. Banks cannot innovate at the speed their customers move, so fintech built neobanks. Neobanks reached the limits of the rails they rented, so builders made crypto neobanks. Now come crypto-native banks with actual charters (Erebor received its national bank charter this year) and FX settlement built on stablecoins (OpenFX raised $94M for exactly this). Each generation moved one layer deeper into the stack.
Crypto has stopped being a parallel financial system waiting for permission. It is becoming the plumbing of the existing one, and the venture opportunity of the next cycle is in that merger.
The dollar migration is already far enough along that its users stop noticing blockchain elements. Ramp’s finance customers pay vendors in São Paulo the way they pay vendors in Seattle, settle over weekends when every traditional rail is closed, and barely register that a stablecoin was involved. Visa processed $3.7B in payments through stablecoin-linked cards in the past year, on 1.9 million cards across more than 200 markets, with plans to expand to over 100 countries with Bridge. $9T a year settles this way after stripping the bots.
The crypto part turned invisible, and the companies that made it invisible earned the fees. Equities and Treasuries are at the start of the same curve. So the venture question has narrowed from whether assets migrate to which products each migration needs. Stocks on-chain need brokerages, collateralised lending, and market makers. Tokenised Treasuries need custody and distribution. Almost none of those companies exist yet, and companies like that get built at seed.
Taking The Right Exit, After Tokens
Blockspace is now oversupplied and earns little, while fees have shifted to applications. Hyperliquid earns more than the chains it was supposed to depend on. In 2018, it was one exchange protocol and a stack of hackathon demos. Apps are where the value has been accruing, and they are usually starved of capital. With fintech and crypto fusing, there will be an ever-growing long tail of products that bring these assets to people who will never know what a bridge is. DeFi was crypto’s only financial product line for a decade. Neobanking, brokerage, FX, and credit are each now being rebuilt with crypto built in.
Overbuilt infrastructure allows outsiders to build for specific problems. Vinod Khosla has argued for years that the companies which transform an industry rarely come from its experts. Tesla and SpaceX were built by Elon Musk, a software entrepreneur. Impossible Foods was built by Pat Brown, a Stanford biochemist. Experts think in an industry’s constraints; outsiders arrive with a problem and treat the industry as a tool.
For crypto’s first decade, the tooling was not ready, so building here required believers willing to construct exchange rails, custody, and compliance from scratch. A decade of overinvestment in blockspace and tooling ended that. And with it, the “shape” of what we considered “crypto founders” has shifted too.
Hyperliquid was built by Jeff Yan, a high-frequency trader from Hudson River Trading who wanted a better derivatives exchange
. Circle was built by Jeremy Allaire, who had taken two internet software companies public, Allaire and Brightcove, before he touched a blockchain.
Erebor, the first bank to receive a national crypto charter, was founded by Palmer Luckey, the defence-tech entrepreneur behind Anduril.
Each of them came to crypto with a business that needed rails rather than a belief in search of a use, found the rails ready, and built on them. The idealistic, utopian days of what used to be considered “crypto” are behind. Operators now look to blockchains as just infrastructure. Like Linux. Or databases. The infrastructure itself becomes a commoditised bet that might mimic Cisco from the early 2000s. This is where venture capital as a construct becomes relevant.
For a decade, the token was the only exit, so every company was forced toward a listing whether its business was ready or not, and the failures catalogued above mostly trace back to that pressure. The token remains an exit, and a stronger one now that buybacks and revenue make it a claim on the business.
It is no longer the only one.
M&A set a record at $8.6B with over 130 venture-backed companies acquired, and the buyers were strategic rather than financial. Naver paid $10.3B for Dunamu. Coinbase bought Deribit for $2.9B, then bought Echo. IPOs work again. A crypto company built today can be acquired, go public, or return cash through its token. No earlier point in the industry’s history offered all three.
A longer path to liquidity restores the incentive to build businesses worth holding, and it filters the capital base to investors who can wait. The easy route, launch a token and get immediate liquidity, is closed. This is probably the best thing to happen to innovation in crypto. Founders now differentiate on product and adoption rather than on marketing and emissions, which is what building looked like before 2017, when nobody was here for quick money.
One place we are seeing liquidity is through secondary buy-outs. Brooke Pollack from Hutt Capital used to invest directly into VCs in the past. Currently the fund is looking towards secondaries, both due to the opportunity they represent and the need the asset class has for liquidity within the industry.
At least three quarters of our capital now is buying out LPs in existing funds…so we are now a secondaries fund, though still making some primary allocations within this strategy
As the industry evolves, the pathway to exits would look quite different from what we are used to. This does not mean tokens as a construct are dead. Some of the best names in crypto are powered by tokens. But it does mean the age of easy money from tokens is behind us.
How Do Investors Adapt?
History is a cruel poet with a passion for rhyming. Maybe history is just misunderstood, because in rhyming, it leaves clues about what to expect as time passes.
Deep in the bear market of 2003, Fred Wilson from AVC wrote this note on How Much is Too Much. It is a retroactive look at what happened during the dot-com bubble.
1. There were too many VCs getting funded that weren’t actually VCs. There were people who decided they wanted to be VCs, were able to raise money because there was so much out there, and they set up shop and did a bunch of stupid things. If all of that money went only into the hands of experienced VCs, a lot less of it would have been invested, and a lot less of it would have been lost.
2. The equity markets tanked in 2000. It takes 3-5 years to get a company to the stage where it can be sold or taken public. The health of the equity markets at that time will have a lot to do with the returns that can be generated by a VC. So you had to make investments in the 1993-1997 timeframe if you wanted to take advantage of the crazy prices that were being offered in the 1999-2000 time frame. The “good years” benefited from that. The “bad years” suffered.
One of the arguments being made was that VC as an asset class cannot absorb more than $10B a year. Years later, he wrote a potential fix for the situation. It was to go deep where others went wide. There were no more “internet investors”. Just like perhaps today there are no longer “crypto investors”.
In 2009, he drew a contrast between the two worlds:
Thematic investing involves identifying big themes and going after them. Examples from the world of web services would be “social networking”, “online video”, “ad networks”, “social media”, “real time”, “mobile”. I know many VCs who go about it this way. They identify the themes and then get busy filling out their portfolio with companies that fit those themes.
Thesis-driven investing involves drawing a picture of where your particular area of focus is going. I like to take a five to ten year view. And once you have mapped out that picture, it becomes your thesis. And you evaluate every investment you make in the context of that thesis.
Nine years later, Fred explained one more element that defined how venture evolved.
It was about Hold periods
If you assume the average hold period for an early-stage investment is seven years and if you make one to two investments per year, you will have between seven and fourteen portfolio companies to manage at any one time.
The low end of that range is quite manageable. The high end of that range is not. I have been there.
I believe that early-stage venture capital done right is a service business in which the entrepreneur and the company they started is our customer… Doing this well is hard. Because if you only make eight to ten new investments per year and expect to produce at least one billion-plus exit each year, something we have been able to do every year for almost ten years now, you have to have a pretty high hit rate on super early-stage investments.
The Deja-vu of going into the mind of an investor who saw the dot-com boom, and the rise of unicorns in the years that followed, is quite real. Crypto’s broad arc from here on is defined by the same three themes. A requirement to look beyond the insularity of what made the industry, going deeper towards sectoral expertise and expanding hold times from a few years to almost a decade.
The founders have already adapted. The token-as-the-product playbook is finished. They will be more careful about whether and how they launch a token, and they will not launch one just so investors can churn their capital. As founders change, investors have to change with them. When a company takes five or more years to exit, the investor has to be right about the business, and being right about a business starts with understanding the market in which it operates.
Longer holds also mean that you can’t spread your capital too thin across too many sectors. As the churn rate declines, investors will have to be more deliberate about the businesses they deploy in. Investors’ edge will likely come from specialising in a vertical. Being a specialist means knowing how a sector makes money, who the buyers are, what good unit economics look like, and which regulations decide who can operate.
Cambridge Associates found that US venture and growth equity funds across the 2001 to 2010 vintages returned 2.2x gross on invested capital with a 23.2% gross IRR for sector specialists, versus 1.9x and 17.5% for generalists. The gap held across consumer, financial services, healthcare, and technology. The study also found that specialists deployed more selectively when valuations were high. Crypto venture never had to learn that discipline because the token listing paid for the lack of it.
The other part of adapting is knowing which stage actually needs you. Capital for growth-stage crypto companies has probably never been as available. a16z raised $4.5B for its largest crypto fund, Paradigm and Haun manage billions more, and TradFi funds now join later rounds. A seed company that discovers good businesses will find plenty of capital waiting for it at Series A and beyond. What the market is missing is investors willing to write the first cheque with an informed view. Seed managers who have done the work become the layer that finds companies for all of that downstream capital.
That leaves one question. If the setup is this favourable, why are only a few funding it?
Several of the largest crypto-native firms have raised non-crypto funds or expanded their mandates beyond the asset class, and roughly half of the troubled mid-sized crypto funds are expected to liquidate or convert by 2028. A firm managing billions or hundreds of millions cannot deploy them through $2M seed cheques, so the largest funds broadened into AI and elsewhere to match their size. The mid-sized funds are leaving because performance no longer allows them to raise capital.
The early stage itself remains open, and its round sizes fit small, specialised funds. This is how capital cycles end in every asset class. Opportunistic capital exits, generalists return to their core mandates, and the funds that remain are those whose LPs re-committed on evidence. Fewer than 20 firms actively write pre-seed and seed cheques. Deals that closed in three weeks now take much longer to perform due diligence. Only eight new funds were raised last quarter. A fund usually deploys over the three years after it closes, so very few investors will actually compete for the seed rounds of 2027 and 2028.
Which leads us back to that ancient question markets have been asking since the time Sequoia invested in Apple - Is venture capital in the sector dead? Yet?
The reality is far from it. Throughout market cycles, the amount of capital and the number of people pursuing opportunity have grown and stagnated. But the best funds tend to be the ones that double down when it gets scariest. Collaborative Fund defined the economic reason for this in simple terms a decade back.
Markets reward being right in non-consensus bets.
Crypto today is a non-consensus bet today. The number of people that are deep enough in the weeds to understand what may be right is few and far between. That is the economic case for new funds being raised within the industry today. Kinjal from Blockchain Capital explains in the words below.
"The best entry points never feel like consensus. That understanding has anchored our conviction in digital assets from the start, knowing this is a story that plays out over decades, not cycles. Today, capital continues to consolidate and adoption is reaching record levels across use cases with proven PMF. We believe digital assets will redefine financial markets and networks, and we are excited to lean in during the time when others are looking elsewhere." — Kinjal Shah, General Partner at Blockchain Capital
Patient Capital
The arc of crypto rhymes with that of the internet. It started out with an ideological pool of users, who gathered without a business model. It then transitioned towards nation-states and governments embracing it, while the initial euphoria of investment dollars and novelty faded out. People often draw parallels with crypto and the dot-com bubble.
But perhaps, we are closer to 2009 than we are to 1999.
The infrastructure is mature, the regulations are clear, the use cases are here, and sentiment is at one of its worst. Deep in the weeds of that crisis, a handful of firms generated some of the best DPIs that the venture asset class has created. History, as we’ve seen repeatedly, is a cruel poet with a passion for rhyming.
Here’s why: The founder pool has thinned to its strongest cohort. As the opportunists left, the average teams left with them, and a small group of exceptional teams remains with very few venture dollars competing for them. LPs no longer need convincing that crypto matters. Billions in ETP money did that for them. What they are choosing now is the manager. Strategies in crypto change with each cycle, so LPs back people who have adapted across cycles rather than relying on a single playbook. Specialist knowledge also wins deals.
Founders pick investors who understand their business before the first call, and that knowledge takes years to build within one ecosystem.
When the money does return, it may not even be called crypto investing. Nobody calls themselves an internet investor anymore. The internet mattered so much that the category dissolved into several sectors or verticals. Amazon was an internet company in 1997 and is a retailer today. Netflix was an internet company and is a studio today. The investors who profited backed them while the internet was still treated as a niche, as Kleiner Perkins did with its $8M cheque for Amazon in 1996. Crypto is on the same path through finance. The companies in this piece will increasingly be called brokerages, payment companies, and banks, and the funds that back them will simply be called venture funds.
Finance is absorbing crypto one function at a time. Banks are receiving crypto charters, stocks and money market funds trade on-chain, and payment networks are using blockchains that allow programmatic money spends. In aggregate, this is an enormous market. Trust functions like verification, settlement, and safekeeping that every transaction requires account for roughly $29T of global economic activity. AI collapsed the cost of intelligence. Stablecoins are now collapsing the cost of trust the same way. No economy has ever gone back to a slower way of moving money. So any function that migrates to crypto rails doesn’t go back to old ways.
Every migrated function needs a generation of products built around it, and small teams build those products on a few cheques. The cheques also go further than they used to. The capital required to start a company is falling as AI writes more of the software, which shifts the scarce inputs to judgment, distribution, and patience, at exactly the moment the field emptied.
What this new age needs is what VCs have always provided when sentiment is low. In 2009, Fred Wilson defined it as Slow Capital. In 2026, Will Mandis calls it Patient capital. In this new age of generative slop and hyper-financialisation, the ability to sit out patiently for the right opportunity and the “taste” to identify what is right is where all of the value in the next crop of venture funds emerging within crypto lies.
Doubling down,
Saurabh Deshpande