Top Crypto VCs Expand Beyond Blockchain as Industry Matures

The investment firm that helped build the industry is no longer focused solely on the crypto sector.

Article by: Vaidik Mandloi

Compiled by: Luffy, Foresight News

Paradigm, one of the world’s largest pure-play crypto-focused funds, recently raised a new $1.2 billion fund to invest in startups in artificial intelligence, robotics, aerospace, and other emerging fields. The firm has even removed all references to “cryptocurrency” from its website, reflecting its core investment thesis: crypto was merely the first frontier they entered—now, they refuse to miss out on other cutting-edge technological waves.

Framework Ventures also completed a $400 million fund raise in June, expanding into cross-sector investments—a move echoed by many other institutions. Over the past year, nearly all leading crypto-focused venture capital firms have broadened their investment boundaries and adjusted their investment themes. In the first quarter of 2026, only eight pure crypto venture funds were newly launched across the market, the lowest number since 2020.

In this article, I will delve into whether venture capital funds focused on cryptocurrency are truly dying out. If the answer is yes, how will this industry shakeout affect the lifecycle of various types of funds? For crypto startups, what does it mean that in the future they will compete for resources within the portfolios of generalist funds alongside other sectors?

The crypto-specific funds emerged primarily because they were willing to invest significant time in building industry information barriers and were the only investors at the time willing to bear the high risks of the sector. In 2017, partners at generalist growth funds like Tiger Global simply couldn’t understand the underlying logic of Solidity smart contracts, let alone establish deep collaborative relationships with anonymous developers in Discord communities.

To determine whether the cryptocurrency venture capital sector is nearing its end, one can look to the rise and fall patterns of other specialized investment categories—similar industry iterations have occurred repeatedly throughout history.

From 2006 to 2011, the clean energy sector became a hot investment trend, with numerous institutions establishing dedicated renewable energy funds. The underlying logic mirrored that of cryptocurrency venture capital at the time: investors believed they were among the first to identify a transformative technological shift and sought to build a dedicated investment portfolio around this sector.

Capital has invested over $25 billion in clean energy startups, with more than half of the investments ultimately losing money. Ironically, the underlying technologies themselves are viable, and the clean energy market is now massive, with solar power costs falling by 85% during the same period. However, venture capitalists made a fundamental misjudgment: they applied a software startup investment model, writing seed checks of $5 million, when these projects actually require $200 million in project financing and take 15 years to become profitable.

The MIT Energy Initiative’s post-mortem concluded that the traditional venture capital model is fundamentally misaligned with the clean energy industry. Early-stage specialized funds bear the risks of technology development and fund foundational research, building credibility for the sector and attracting large-scale industrial capital. However, once the technology matures and infrastructure loans and project financing enter the scene, the specialized funds’ unique informational advantages disappear entirely.

Source: Massachusetts Institute of Technology

Special purpose acquisition companies (SPACs) have followed a similar boom-and-bust trajectory. SPACs, also known as blank-check companies, raise funds through an IPO without having any existing business operations, and later acquire private companies to achieve a rapid public listing—a process simpler than a traditional IPO. Between 2020 and 2021, many investors viewed SPACs as a replicable capital tool, with some even establishing investment firms entirely focused on SPACs.

Chamath Palihapitiya once raised a $1.6 billion专项 SPAC fund. But by 2022, two-thirds of the SPACs that went public in 2021 failed to complete mergers, forcing Chamath to return funds to investors. The market’s complete reversal within just two years demonstrates how quickly industry dynamics can reshape once informational advantages in a niche sector disappear.

The same script plays out repeatedly across different industries, driven by a unified underlying pattern. Carlota Perez, analyzing 250 years of technological change, developed the theory of technological-economic paradigms: each major technological revolution begins in an early, niche phase, where only insiders understand the technology, and investors deeply focused on the sector hold exclusive information, becoming the most valuable capital providers; as the technology matures, it gradually integrates into existing traditional industries.

When reaching this stage, the information barriers that once supported the survival of specialized funds no longer exist—large integrated institutions can now understand this asset class. Fred Wilson anticipated this turning point in crypto early on, writing in 2015 that the crypto industry would reach a critical financial inflection point, transitioning from the "construction phase" to the "mass adoption phase" as described in Perez’s theory.

This watershed moment has arrived, with hallmark signs of cryptocurrency adoption and mainstream integration everywhere: payment giant Stripe has acquired Bridge and launched its own stablecoin blockchain; asset managers like BlackRock and Fidelity have issued tokenized money market funds; and traditional payment leaders such as Visa and Mastercard are building settlement networks on top of stablecoins.

These traditional giants do not need specialized crypto funds to explain MEV extraction or validator economics—such niche industry knowledge holds no value for their business expansion. What they truly need are regulatory licenses, distribution channels, banking partnerships, and the same resources required by conventional fintech companies to scale. Today, investors at generalist funds like Sequoia and Founders Fund evaluate crypto projects using the same logic they apply to fintech companies like Stripe and Plaid.

Now that the information barrier surrounding specialized crypto funds has been broken down, where will funds built on this advantage go? Their ultimate fate will be entirely determined by the capital logic of their assets under management.

For years, the venture capital industry has developed a "barbell differentiation" structure: at one end are giant integrated investment platforms like a16z, Sequoia, and Founders Fund, which can incorporate entire sectors as vertical divisions within their investment portfolios; at the other end are small, specialized funds that rely on investors’ deep industry expertise to bet on niche, cutting-edge projects, where a single breakout hit can cover the entire fund’s returns; meanwhile, mid-sized funds trapped in between have had their space completely squeezed out, and the vast majority of crypto-focused funds today reside in this "death zone."

A $500 million fund requires a total exit value of $1.5 billion to deliver a 3x net return to its investors. Relying solely on small seed-stage investments cannot achieve this goal, as a seed-only portfolio rarely produces enough large-scale, top-tier exits; moreover, such funds lack the capacity to compete with giant funds worth $50 billion for growth-stage deals—those funds can easily offer investments in the hundreds of millions. For example, in the first half of 2025, Founders Fund alone raised 1.7 times more capital than the combined total raised by all emerging small funds during the same period. Capital continues to concentrate at both ends of the industry.

Similarly, Framework Ventures and Paradigm have fundamentally different underlying strategies for expanding their investment horizons, rooted in their size differences. Framework manages $400 million—too small to rely on a few seed-stage investments for returns, yet not large enough to compete with mega-funds for growth-stage deals. Returns solely from crypto exits cannot meet the fund’s return requirements, so it must broaden its investment boundaries. Paradigm, managing $1.2 billion, is large enough to transition into a cross-industry, diversified investment platform. The two firms’ strategic choices reflect an essential divergence. In short, fund size determines which end of the barbell spectrum a fund occupies—and thus, the paths available to it.

Even venture capital firms that claimed to remain committed to the crypto space have fundamentally redefined what “crypto investment” means. Dragonfly raised $650 million in February this year, three times its target. However, the firm explicitly stated that applications outside financial use cases have completely failed, and the fund is now focused solely on stablecoins and prediction markets. a16z raised $2.2 billion for its crypto-specific fund in May 2026—just half the size of its $4.5 billion fund raised in 2022. Moreover, partner Chris Dixon has shifted the core narrative: no longer defining crypto as a new computing paradigm, he now positions finance as the foundational bedrock of the entire industry.

Today, what these institutions refer to as "pure crypto investment" is essentially about building the financial infrastructure underlying blockchain, a sector that is also a key focus for large-cap institutional funds.

Another core force driving industry shifts comes from changes in the behavior of limited partners (LPs). The venture capital industry is currently facing a widespread DPI (distributed to paid-in) crisis, with funds established in 2021 averaging only a 0.08x DPI. The 2022 crypto bear market caused significant losses for many LPs, while the artificial intelligence sector has emerged as a new outlet, attracting 70% of global early-stage capital. With LPs holding idle capital that has been illiquid for four years and witnessing AI projects deliver the high returns once promised by the crypto space, fund managers are now proactively allocating to AI to meet LP demands.

This trend is not favorable for entrepreneurs still deeply committed to crypto: the number of investment firms that truly understand crypto and are willing to continuously invest is steadily shrinking. Many might say entrepreneurs can simply raise funds from generalist funds—on paper, this seems feasible; firms like Sequoia and Founders Fund can write larger checks and offer commercialization channels that native crypto funds struggle to match.

But there are two major realities at play. First, the current AI sector is absorbing the vast majority of high-quality project resources; within generalist funds, crypto projects must compete for investment teams’ attention against a flood of AI projects, and only exceptionally strong candidates stand a chance of making it onto the investment agenda—this is an entirely different competitive dynamic than pitching to specialized crypto-focused funds. Second, the development of the crypto ecosystem depends on specialized funds’ long-term investments in foundational infrastructure. Examples include Paradigm funding academic research on MEV and Dragonfly supporting cross-chain development tools; individually, these projects may generate little or no immediate commercial return, yet they build shared public infrastructure for the entire industry. Generalist funds will never invest in such projects, as they evaluate opportunities solely based on standalone commercial profitability.

I believe that in a few years, the term “crypto investor” will become outdated, much like “internet investor” is today. Cryptocurrency has become foundational infrastructure—a底层 channel supporting the operation of various financial products. No one builds an entire investment thesis around the underlying pipe alone; investment value emerges at the application layer built on top of it. If Perez’s theory of technological cycles holds true, the industry is currently at this turning point: crypto is no longer a standalone investment sector, but rather the foundational infrastructure underlying all investment assets.

This does not mean that specialized crypto funds have disappeared entirely. As new niche categories such as tokenization and on-chain securities continue to emerge, numerous frontier markets will arise that generalist funds are unwilling to enter—each cycle will see smaller specialized funds forming around these niche areas. What is truly declining are the current generation of mid-sized, large pure-play crypto funds—these funds can no longer meet their return requirements solely through investments in niche crypto projects. The entire landscape will continue to restructure along a barbell model: large growth-stage investments will be dominated by generalist funds, while frontier, niche, and experimental projects will be pursued by smaller specialized funds.

Early specialized funds established between 2017 and 2018 incubated core infrastructure such as Uniswap, the Ethereum ecosystem, and stablecoin-related tools. But times have changed: recent leading crypto projects like Hyperliquid and MegaETH raised all their funding entirely through community channels, with no reliance on venture capital. Back then, these specialized funds provided a clear investment thesis for the crypto space, attracting broad capital; today, an increasing number of entrepreneurs recognize that projects can achieve successful cold starts without venture capital.