Source: Token Dispatch
Author: Saurabh Deshpande
Compiled and organized by BitpushNews
History is a cruel poet, fond of rhyme.
In 2002, a column in The New York Times suggested that, due to the aftermath of the internet bubble, Herman Miller was an undervalued stock. The article recommended that it was reasonable to buy the best hardware companies when venture capital funding resumed, as this would drive stock prices higher.
Unfortunately, the metaverse has no Herman Miller to bid on.
However, you can bid on a plot of land next to Snoop Dogg in The Sandbox. At its peak in 2021, it was priced at $450,000; today, the listing price is just slightly above $1,000—that’s a 99.8% drawdown.
We have been tracking cryptocurrencies for over a decade. For the first time in a long while, we genuinely feel a shift in the atmosphere. People are expressing this sentiment in different ways:
Cryptocurrencies are now fintech.
It’s just the underlying infrastructure.
Tokens must generate real revenue! And that revenue must be used to buy back tokens!
Is all of this really just a bubble?
How can an industry be at the peak of real-world adoption while simultaneously experiencing the darkest low in token prices and market sentiment?
Seed liquidity
From many indicators, cryptocurrency is experiencing a landmark year. Institutions hold over $175 billion in crypto assets through exchange-traded products. On-chain companies have generated $11 billion in fees over the past twelve months. The GENIUS Act is set to eliminate a decade of regulatory uncertainty. Exits have reached record levels, with $8.6 billion in M&A and eleven IPOs.
These are fertile grounds for the growth of venture capital "seed" investments. But any founder raising capital in this market will quickly clarify that liquidity is nowhere to be found. According to Galaxy Research, only eight new venture funds were launched last quarter—the fewest since 2020. Quarterly deployment dropped to $4 billion. While institutions are validating this asset class, venture capital funding to create new categories and new assets has not kept pace.
The amount of capital allocated to private market technology investments is only a small fraction of what it is today. So there was once a hierarchy. In 1980, Sequoia had to sell its stake in Apple for $6 million to deliver a 40x return to its investors. At the time, they did not have the freedom to hold permanently, as this asset class was considered risky. Almost like a meme coin for the wealthy.
Source: Collaborative Fund
This lack of confidence has played out repeatedly over the past few years. In 1987, The New York Times suggested that pizzerias might be competitors for technology investment funds.
Pizza tokens cannot satisfy hunger.
The maturation of cryptocurrency occurred at the end of decades of technological evolution—when venture capitalists were debating whether to invest in pizza shops, yet this asset class refused to die.
ICO combines capital formation and listing into a single event. Selling an idea to the public as a means of capital formation was initially effective. Ethereum raised $18 million in 2014 this way and built all the infrastructure that all EVM chains still rely on today. But in the end, the public was only sold an idea and tokens.
In June 2017, ICOs raised more funds for the industry than venture capital for the first time. By December, it was widely believed that ICOs would kill venture capital.
More than half of the projects died within 120 days after sale, and academic research on this period placed the rate of outright fraud at nearly 80%. But at the time, we had no mechanism to price seed-stage companies with no revenue and no safeguards.
The concept of crypto venture capital was born precisely out of this arrogance: teams no longer raised funds directly from the market, but instead raised money from a select group of capital allocators, promising tokens in the future. SAFEs with token warrants became a sanitized, rationalized version of fundraising. For VCs, this meant that risky projects difficult to value in private markets gained liquidity in public markets.
A fund that entered at the seed round and saw the token list at four times the price can recoup its costs through just the first 25% unlock. This means incentives are aligned with the speed of liquidity, not with the value the project may accumulate.
Investors realized they could exit before having to be "right." Early token listings solved funding issues, and tokens became the primary product. Tokens were no longer a mechanism to fund ongoing development, but rather a means to pay for equity.
The mistake has been made
Various types of tokens, whether governance tokens or utility tokens, fail for one or both of the following reasons:
The business model has flaws or does not exist at all.
Unlike equity, tokens do not confer legal claims against a company.
The crypto industry has painfully learned that simply holding tokens does not mean you automatically have staying power. In crypto projects, activity is rarely tied to business revenue growth. When the incentives of X-to-earn end, users leave, because the product itself has no inherent demand.
Source: Delphi State of Tokens Report
Unlike tokens, equity represents a legal claim on a company. Shareholders can take the board to court when actions by the board require it. Friend.tech’s protocol has generated tens of millions of dollars in fees, yet its token has captured no value because holders have no claim to these economic proceeds. Therefore, when a token trades at a discount below its equity multiple, this discount is often justified.
The token has undergone two directional shifts to address this issue:
Some projects have begun reverting to an equity model when the market clearly misprices enterprise value. Across Protocol is one such example.
The breakthrough winners of 2026 all tie their revenue to tokens in some form.
Peter from 1kx has a nice framing for this in our conversation:
The failure of applications isn't because they used token incentives. They failed because they weren't good businesses. The main sin of crypto has been insufficient sustained innovation to generate profitable businesses or protocols with lasting product-market fit. — Peter Pan, Research Partner at 1k(x)
The days of easy liquidity are over—what’s left?
Proof of Work: Three Major Practical Application Tracks
Three vertical markets have achieved lasting product-market fit:
Stablecoin
With a supply exceeding $300 billion and annual transaction volume reaching $46 trillion, removing bots leaves approximately $9 trillion remaining. This vertical is now targeted by growth equity firms, corporate acquirers, and bank strategy teams. The seed window has shifted up a level—to companies built on top of USD. Bridge was acquired by Stripe within three years.
Prediction markets
ICE has committed up to $2 billion to Polymarket. Robinhood has turned event contracts into its 11th business line exceeding $100 million. Susquehanna is building a prediction market business. When the world’s largest exchange operator, the largest retail broker, and one of the largest quant firms all enter within a twelve-month period, price discovery for this vertical is already complete.
Perpetual Contract Exchange
Hyperliquid processed approximately 44% of on-chain perpetual contract trading volume, surpassing the revenue of most public exchanges last year with a team of just 11 people.
These three categories function this way because the architecture of cryptocurrency enables things that would otherwise be impossible. USD can settle 24/7 without correspondent banks. Exchanges hold customer assets in a way that customers can verify. Revenue is no longer "bought." The largest applications have reduced token incentives from $2.8 billion to under $1 billion, while fees continue to grow.
The clearest signal that these categories are real is outsiders attempting to enter the crypto space. Tokens and businesses have diverged. A decade of overbuilding infrastructure has finally paid off at the application layer, following the same sequence as the internet, where the overbuilding of fiber optics enabled the application era.
The next vertical to achieve product-market fit will likely emerge alongside established verticals, as a scaled vertical creates demand at its edges. Stablecoins require credit, brokerage, and treasury products built around the dollars they hold. The work of early funds deploying in 2026 and 2027 will be to invest in these adjacent verticals before their product-market fit becomes visible in usage and revenue data.
But what exactly makes the 2026 venture capital vintage fundamentally different from 2020 or 2018? It largely depends on a profound reshaping of the regulatory environment and industry mindset.
Make Crypto Great Again
GENIUS was signed in July 2025. CLARITY passed the House with bipartisan support, and the FDIC is developing rules for bank-issued stablecoins. Clearer regulation directly impacts cryptocurrency venture capital in three ways.
For a decade, every U.S. crypto investment letter of intent priced in, to some degree, the probability that the government might directly shut down the company—much like it nearly did to exchanges in 2023. With U.S. policy shifting toward favorable conditions, this additional risk premium has disappeared.
The second impact is on founders. According to Electric Capital, the lack of clear U.S. policy has caused the share of U.S. crypto developers to decline by roughly half over the past decade, falling below 20%. The same adverse selection that shaped the ICO market in 2017 has governed the founder market for a decade, but now this trend has reversed, benefiting the industry.
The third change is operating costs. Compliance costs are the last enduring moat in fintech. The licensed crypto pathway is a machine for reducing compliance costs, meaning crypto companies are being granted the same moat.
Capital typically lags behind Washington’s moves. When the U.S. takes a law enforcement-driven approach, capital formation shifts overseas, and quality deteriorates. Regardless of where founders register their companies, certain rulebooks always apply.
Integration and repricing of real income
The previous discussion explored how lack of revenue led projects to be forced to launch tokens prematurely; today, this situation has fundamentally changed.
Speculation remains at the core of this revenue, and the first paid product in crypto has always been its casino. But speculation exists on a spectrum. At one end, Axiom’s fees track the trading volume of meme coins and decline accordingly.
Source: Meshclans from Blockworks
On the other end, Hyperliquid (which generated about $843 million last year with only 11 people) and Aave have sustained revenue from trading and lending across cycles. Phantom earned approximately $325 million in 2025 from exchange fees generated by 17 million monthly active users. A decade of crypto has produced a circle: the past two years have yielded candidates across every level of the spectrum.
By the end of 2025, applications in the DeFi and financial services sectors accounted for 73% of all on-chain fees, while blockchains earned 12%. However, blockchains represent 91% of protocol market capitalization, with applications accounting for only about 6%. The market is still pricing infrastructure from the previous cycle, rather than valuing the business models of this cycle.
Delphi constructed a portfolio composed of the top ten highest-revenue tokens, weighted by revenue, and tracked it from January 2025 to May 2026. It achieved a 30.6% return, while BTC fell 17%, ETH fell 35%, and SOL fell 58%. Tokens with real cash flows outperformed all other assets in the category, including mainstream ones. In liquid markets, choosing business over story is now working—and it’s even more effective earlier in private markets.
Source: Delphi
Each on-chain asset class generates a generation of companies, and stablecoins have already established this template. We believe a similar dynamic is unfolding in two other asset classes: government bonds and equities. Tokenized equities traded approximately $23 billion last month and are growing at a monthly rate of about 100%.
The most valuable companies remain private for longer periods, so investors among them trade shares with each other during the waiting period. Retail investors simply cannot purchase these companies before they go public. Tokenized stocks are where this trapped supply meets excluded demand.
Source: Lorenzo from ARKInvest
Banks couldn't innovate at the speed of their customers, so fintech built digital banks. Digital banks reached the limits of the tracks they leased, so builders built crypto-native digital banks. Now there are crypto-native banks with actual charters (Erebor received a national banking charter this year) and foreign exchange settlement built on stablecoins. Each generation has moved one layer deeper into the stack.
Crypto is no longer a parallel financial system waiting for permission. It is becoming the pipeline for the existing system, and the next cycle’s venture capital opportunities lie in this convergence.
The migration of fiat has progressed so deeply that users no longer notice the blockchain elements. The crypto portion has become invisible, and the companies making it invisible are collecting fees. Stocks and government bonds are at the starting point of the same curve. On-chain stocks require brokers, mortgage providers, and market makers. Tokenized government bonds require custody and distribution. These companies barely exist yet, and companies like these are founded in the seed round.
Beyond tokens, the real exit mechanism
The blockchain space is now oversaturated with minimal returns, and fees have shifted to the application layer. Applications are where value accumulates, yet they often lack capital.
Experts think within the constraints of the industry; outsiders come with problems and view the industry as a tool. A decade of overinvestment in block space and tools has ended this. As a result, the "form" of what we call "crypto founders" has also changed:
Hyperliquid was built by Jeff Yan, a high-frequency trader at Hudson River Trading, who wanted a better derivatives exchange.
Circle was built by Jeremy Allaire, who previously took two internet software companies public before entering the blockchain space.
Erebor, the first bank to receive a national crypto charter, was founded by Palmer Luckey, the defense technology entrepreneur behind Anduril.
Each of them came to the crypto space with a business that needed a track, not a belief in search of a use case; they found the track already in place and built upon it. Operators now view blockchain as infrastructure—like Linux or a database.
This is where venture capital becomes relevant as a concept.
For a decade, tokens were the only exit path, so every company was forced to go public, regardless of whether its business was ready. Tokens are still an exit path, and now they are even stronger because buybacks and revenue make them a claim on the business.
It is no longer the only path.
The acquisition set a record of $8.6 billion. IPOs are operating again. Today’s crypto companies can be acquired, go public, or return cash through their tokens. No moment in the early history of the industry offered all three options.
Longer liquidity pathways have restored the momentum to build businesses worth holding. The shortcut—launching a token and gaining instant liquidity—has been shut down. This may be the best thing that has happened to crypto innovation. Founders are now differentiated by their product and adoption, not by marketing and incentive releases.
One place we’re seeing liquidity is through secondary acquisitions. Brooke Pollack of Hutt Capital previously invested directly in venture capital funds; now the fund is focusing on the secondary market:
We currently allocate at least three-quarters of our capital to purchasing stakes from LPs in existing funds... so we are now a secondary fund, although we still make some primary allocations within this strategy.
This does not mean that the concept of tokens has died. Some of the best names in crypto are token-driven. But it does mean that the era of easily making money with tokens is over.
How can investors adapt?
In the 2003 deep bear market, AVC's Fred Wilson wrote a note on "How Much Is Too Much":
Too many venture capital firms that have received funding are not true venture capitalists. [...] If all this money went only to experienced venture capitalists, less money would be invested, and less money would be lost.
Years later, he wrote a possible solution: go deep where others cast wide nets. There are no longer "internet investors." Just as there may no longer be "crypto investors" today.
The broad arc beginning here is defined by the same three themes: the need to move beyond the isolation that shaped this industry, delve deeper into industry expertise, and extend holding periods from years to nearly a decade.
Founders have adapted. The script of “token as product” is over. As founders change, investors must change too. When a company requires five years or more to exit, investors must correctly judge the business—and correct business judgment begins with understanding the market in which it operates.
Investors' advantage likely stems from specialization in vertical sectors. Cambridge Associates found that industry experts among U.S. venture capital and growth equity funds from the 2001–2010 cohort achieved total returns of 2.2x invested capital and a 23.2% total IRR, compared to 1.9x and 17.5% for generalist funds. Crypto venture capital has never needed to learn this discipline, as token listings have paid for the lack of it.
Capital for growth-stage crypto companies has never been more abundant. What the market lacks is investors willing to write the first check with an informed perspective. Those seed-stage managers who have done their homework have become the layer that identifies companies for all this downstream capital.
If the environment is so favorable, why are only a few people investing?
Several of the largest crypto-native companies have raised non-crypto funds or expanded their mandates beyond this asset class, and about half of the struggling mid-sized crypto funds are expected to liquidate or convert by 2028.
The early stage remains open, with funding sizes suited for small, specialized funds. Fewer than 20 companies are actively writing pre-seed and seed checks. A fund typically deploys its capital over three years after closing, so very few investors will genuinely compete for seed rounds in 2027 and 2028.
This brings us back to the age-old question the market has always asked—has venture capital in this space died? Or not yet?
The reality is quite different. The best funds are often those that double down during the most terrifying times. Ten years ago, Collaborative Fund defined the economic rationale behind this in simple terms:
The market rewards those who are right in non-consensus bets.
Today's crypto is simply a bet without consensus.
The best entry points never feel like consensus. This understanding has anchored our belief in digital assets from day one, knowing this is a story that unfolds over decades, not just cycles. Today, capital continues to consolidate, and adoption is reaching record levels in use cases that have proven product-market fit. We believe digital assets will redefine financial markets and networks, and we’re excited to double down while others look elsewhere.” — Kinjal Shah, General Partner at Blockchain Capital
Slow is fast: The triumph of patient capital
Some of the best funds in the crypto space exhibit a recurring behavior pattern: they raise funds precisely in the middle of a bear market.
The arc of cryptocurrency mirrors the arc of the internet. It began with a group of ideologically driven users who came together without a business model. It then transitioned to nations and governments embracing it, as the initial excitement from investment capital and novelty gradually faded. People often compare cryptocurrency to the internet bubble.
But perhaps we are closer to 2009 than to 1999.
The infrastructure is mature, regulation is clear, use cases have arrived, and sentiment is in one of its worst periods. Deep within that crisis, a handful of companies generated some of the best DPIs ever created by the venture capital asset class. As we have repeatedly seen, history is a cruel poet, fond of rhyme.
The reason is that the founder pool has been reduced to the strongest group. As opportunists have left, so have average teams, leaving only a small number of exceptional teams, with very little venture capital competing for them. LPs no longer need to be convinced that crypto matters—they are now choosing managers.
When the funds eventually flow back, they may no longer even be called crypto investments. No one refers to themselves as an internet investor anymore. Crypto is following the same financial path. The companies in this article will increasingly be called brokerages, payment companies, and banks, and the funds supporting them will simply be called venture funds.
Finance is absorbing crypto feature by feature. AI has lowered the cost of intelligence. Stablecoins are lowering the cost of trust in the same way.
Each migration feature requires building a generation of products around it, and small teams can build these products with just a few checks. As AI writes more software, the capital needed to start a company is decreasing, shifting scarce inputs toward judgment, distribution, and patience—just as the battlefield is clearing.
This new era requires what venture capital has consistently provided during periods of low sentiment. In 2009, Fred Wilson defined it as "slow capital." In 2026, Will Mandis called it "patient capital."
In this new era of generative garbage and hyper-financialization, the ability to wait patiently for the right opportunity, and the "taste" to recognize what is right, is where all the value lies in the next generation of crypto venture funds.
Double down.
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