The business of crypto VC is becoming promising

Author: Zhou, ChainCatcher

Many people feel that crypto VC is heading towards twilight.

Over the past decade, crypto VC has been highly homogeneous—crowding into the same tracks, telling the same stories, and competing for the same projects. It seems lively, but the industry is actually fragile inside.

However, what is happening now may be one of the most anticipated moments since the birth of this industry, as the market has truly begun to differentiate for the first time.

At the end of February 2026, two fundraising news items appeared one after the other.

On one side, Dragonfly Capital completed its fourth fundraise, totaling $650 million, focusing on stablecoins, on-chain financial infrastructure, and the tokenization of real assets.

On the other side, Paradigm is seeking up to $1.5 billion in financing for a new fund, expanding its investment scope from crypto to cutting-edge technology fields such as AI and robotics.

Both are top VCs in the crypto industry, both in a downturn cycle, yet why have they taken such different paths?

If we also consider a16z Crypto, the question becomes even more interesting.

These three funds represent three distinctly different answers to the challenges faced by crypto VCs in the current industry predicament.

Conserve: a16z Crypto's Long-Cycle Logic

In the fundraising landscape of crypto VC, a16z Crypto has long occupied a top-tier position. This is the fund line under Andreessen Horowitz (a16z) that focuses on crypto investments, having completed four rounds of fundraising since 2013, with a total scale exceeding $7.6 billion, making it one of the largest crypto funds in the world.

At the beginning of this year, a16z completed a new round of fundraising of $15 billion, spanning multiple directions including infrastructure, application layers, and growth funds, and listed the intersection of AI and crypto as one of its important investment directions.

a16z Crypto partner Chris Dixon views blockchain as the next infrastructure of the internet, believing that the crypto industry is in a long "foundational period," similar to the neural network paper published in 1943 for today's AI, where true mainstreaming requires decades of groundwork.

Dixon has publicly stated that 95% of the assets held by a16z Crypto to date are from historical investments, as selling quality assets too early in venture capital is the worst decision.

The annual report on the crypto industry published by the team each year continuously sends a signal to investors: even in a sluggish market, we are still seriously understanding what is happening in this industry.

The investors targeted by a16z Crypto are those long-term institutional capital in the crypto fundraising landscape, who have a deep faith in the entire industry.

For them, as long as they still believe in the future of crypto, a16z Crypto is the natural choice.

Transform: Dragonfly's Financial Evolution

Founded in 2018, Dragonfly started as an early crypto VC connecting the Asian and American markets. The first fund was only $100 million, and its core competitive advantage at that time was the geographical arbitrage ability of its co-founders across both markets.

Since 2019, Dragonfly has gradually extended into the secondary market, began managing liquidity funds, and formed its own trading team. It can serve not only as a risk hedging tool but also provides real-time market data for primary market investments, becoming an auxiliary perspective for project evaluation.

In 2022, Dragonfly acquired the crypto hedge fund Metastable, co-founded by Naval Ravikant in 2014, bringing it under its umbrella, thus forming three parallel business lines: Dragonfly Ventures (primary investment), Dragonfly Liquid (liquidity strategy), and Metastable (hedge fund).

The judgment of primary VC, combined with the trading ability of the secondary market, is the core difference between Dragonfly and pure primary crypto funds.

However, establishing this system did not happen overnight. Building an investment system that spans both primary and secondary markets means constructing two completely different decision-making frameworks, risk control systems, and talent structures—primary requires deep technical judgment of early projects, while secondary requires precise quantitative ability regarding market microstructure.

In previous job postings, Dragonfly has explicitly required candidates to possess professional skills in delta-neutral hedging and derivatives inventory risk management, which are already scarce in the crypto industry and require a long adaptation period when recruited from traditional financial institutions.

This trading system is a barrier accumulated by Dragonfly over many years and is also the most difficult aspect for other funds to replicate directly.

Today, Dragonfly is a trading-driven institution spanning both primary and secondary markets, managing approximately $4 billion in assets, with a portfolio that includes unicorns like Ethena, Polymarket, and Monad Labs.

However, behind this is an industry trend that is not optimistic.

According to RootData statistics, the crypto primary market completed a total of $22.73 billion in financing in 2025 (excluding post-IPO and debt financing), a 120.6% increase from 2024; however, in terms of the number of financing events, there were a total of 933 financing events throughout the year, a decrease of 40.3% from the previous year, marking a five-year low, with the monthly number of financing events almost showing a one-sided downward trend.

While the total financing amount is increasing, the number of projects receiving financing is decreasing, indicating that money is becoming increasingly concentrated, leaving less space for small and early-stage projects.

Dragonfly managing partner Haseeb Qureshi believes that the previous type of broad crypto, non-financial application experiments has been disproven by the market. The new fund will focus on stablecoins, DeFi, and on-chain financial services.

He stated that the recent growth of investments in Ethena, Polymarket, Rain, and Mesh already illustrates the point: "The coverage of crypto is about to explode, and we hope to support founders at the center."

The investors targeted by Dragonfly are those financial institutions and trading-driven allocators who believe in the financialization logic of blockchain, as well as investors who hold a pragmatic attitude towards crypto.

They may not need the grand narrative of crypto changing the world; real liquidity and sustainable trading returns are the answers they seek.

The key to Dragonfly's path is to go with the flow, as the crypto industry becomes increasingly financialized, it has simply turned this trend into its core competitiveness earlier than others.

Break: Paradigm's Boundary Narrative

The story of Paradigm begins with a change in a set of numbers.

In 2021, Paradigm raised $2.5 billion, setting the record for the largest single fundraising in crypto fund history at that time.

By 2024, the third fund shrank to $850 million.

This time, the target is $1.5 billion, with the investment scope expanding from crypto to AI, robotics, and other cutting-edge technologies.

Paradigm's background is VC plus incubation, with co-founder Matt Huang coming from Sequoia Capital, having founded a machine learning startup at the age of 19 that was acquired by Twitter; another co-founder, Fred Ehrsam, was a co-founder of Coinbase.

The team's advantage lies in early trend judgment and technical risk control; Matt Huang's collaborator, Stripe founder Patrick Collison, once commented on him: "He is calm, rigorous, and patient—these traits are particularly suitable for complex technologies with delayed influence."

Paradigm's investment portfolio includes early protocols like Uniswap and Coinbase, and these early bets have established its industry position.

As a result, Paradigm has been described by outsiders as "more like a combination of a research lab and an engineering organization rather than a traditional VC."

After the collapse of FTX, Paradigm took three years to rebuild. However, the fundamental issue of a lack of quality early-stage targets in the crypto industry has not been fundamentally improved, which poses a more fundamental dilemma for a fund that emphasizes judgment and incubation ability—having no good projects to invest in is a greater challenge than a decline in market value.

Thus, Paradigm's shift towards AI is not a spur-of-the-moment decision.

In fact, as early as 2023, Paradigm quietly removed references to Web3 from its website, and Matt Huang later explained that "the progress of AI is too interesting to ignore," stating that crypto and AI are not zero-sum competitors, and there will be a lot of overlap between the two. Earlier this year, Paradigm and OpenAI jointly released EVMbench, a benchmark tool to test whether AI models can identify and fix vulnerabilities in smart contracts.

According to OECD data, global VC investment in the AI sector will reach $258.7 billion by 2025, accounting for 61% of total global VC investment, while this proportion was only 30% in 2022.

However, returning to a more realistic level, Paradigm's shift towards AI has its more structural reasons.

In the entire crypto VC fundraising landscape, a16z Crypto firmly occupies the top tier of long-term capital, while Dragonfly is the most capable trader in the financialization track.

Paradigm's team gene cannot replicate a16z Crypto's long-term faith narrative, nor is it suitable for following Dragonfly's trading-driven route.

Its team gene determines that it can only tell a narrative of integrated innovation to attract those who have lost interest in pure crypto but are still willing to bet on cross-industry technology integration.

This is the underlying motivation for Paradigm's shift and its only misalignment space.

Hack VC managing partner Alexander Pack (former Dragonfly managing partner) stated that KKR and Bain Capital have shifted from pure private equity investment to credit and publicly traded stocks, and a16z has also set up funds for various segments of the technology sector. Paradigm's move, like the development trend of the entire industry, marks that the company is maturing and reintegrating into the broader technology field.

Three Paradigms, Three Bets

Putting the three funds together reveals a clear logical fork.

They each answer the same question: during the downturn of the crypto industry, what justifies your continued existence as a fund?

a16z Crypto's answer is scale and faith. Large enough to weather cycles, deeply researched enough to represent the industry, continuously conveying confidence to the market.

Dragonfly's answer is capability and focus. Deeply cultivating crypto financialization, using trading ability to compensate for the limitations of the primary market, maintaining the activity of funds during a period of project scarcity.

Paradigm's answer is narrative and boundary-breaking. Using a new story of the integration of AI and crypto to attract investors that traditional crypto VCs cannot reach, expanding its boundaries from one industry into the larger wave of technological integration.

Three funds, three responses. No paradigm is the ultimate solution, and no paradigm can be easily replicated—the stories that can be told ultimately depend on the team's gene.

This may be a sign of the maturation of crypto VC, no longer a stampede down the same path, but each finding the path they can walk. A homogeneous industry is fragile; only when different species can grow can the market be considered truly alive.