The Funding: Why the bar for crypto VC is higher than ever
The crypto venture capital landscape has changed markedly over the past couple of years. What once felt like a steady flow of early-stage funding announcements has slowed considerably. While activity has picked up somewhat in 2026, the environment is noticeably stricter than during the 2021–2022 bull run.
Several experienced investors I spoke with described this as a healthy reset rather than a temporary downturn. The era of easy fundraising in crypto is over, and it is unlikely to return soon.
The Big Shift in Investor Expectations
Paul Brody, former global blockchain leader at EY and now founder and CEO of Nightfall Networks (a privacy-focused blockchain startup), began raising funds last month. He noted a clear change in investor focus:
“The level of impatience for quick returns surprised me. My coaches are telling me that this is driven by the outsize growth rates being seen in AI and how that’s raising expectations for the kind of revenue you can ramp up to quickly.”
Investors now demand real users, revenue traction, and clear paths to returns before writing checks. Pre-product or pre-revenue projects launching tokens at high valuations have become extremely rare.
Ray Hindi, co-founder and managing partner of L1D AG, put the evolution into historical context. He contrasted the low-capital, low-competition period of 2018–2020 (when retail markets were strong enough to exit even flawed projects) with the 2021–2022 flood of capital that led to high valuations and poor outcomes when the market turned.
Hindi believes the next few years could produce some of the strongest vintages since 2018. Many VCs are struggling to raise new funds, which reduces competition. The surviving firms are being far more disciplined, and improving regulation is helping filter out lower-quality projects.
“VCs are back in control, and that’s a good thing for the industry: realistic valuations, higher-quality operators, and hopefully far fewer of the unethical founders that have plagued our space.”
Token Model Under Pressure
A major driver of the higher bar is the breakdown of the previous token-based exit model.
Anirudh Pai, partner at Robot Ventures, explained that low-float, high-valuation token launches have underperformed, and secondary markets are punishing projects with large future unlocks.
Thomas Klocanas, managing partner at Strobe Ventures (formerly of BlockTower), added that poor token designs and thin liquidity have been exposed, forcing funds to shift back toward more traditional venture thinking. Equity is receiving renewed attention, and when tokens are involved, there is far greater scrutiny on value accrual and realistic valuations.
Cosmo Jiang, general partner at Pantera Capital, views the current disfavour for tokens as cyclical rather than permanent:
“I strongly believe tokens are a disruptive new form of capital formation and there will be many more token-based businesses.”
Dan Elitzer, co-founder at Nascent, agrees that tokens remain an important innovation, but the models themselves must improve significantly.
Fundraising Challenges at the Fund Level
Raising capital for crypto VC funds has also become significantly harder. Many 2020–2022 vintage funds deployed at high valuations and have yet to return meaningful capital to LPs, making limited partners more cautious. Newer funds raised in 2024–2025 have struggled to show results, further tightening LP appetite.
Jed Breed, founder and general partner of Breed VC, described raising a fund as “the absolute hardest” part of being a crypto VC today. The category is simply not as popular with LP capital as it once was.
The rise of AI has compounded this dynamic. As Anirudh Pai noted, “AI ate the oxygen — both the talent and the LP attention.” Many would-be crypto founders are now building AI companies, and the marginal LP dollar has a clear competing home.
Where Capital Is Flowing
Despite the tougher environment, capital is still deploying — but with much greater selectivity. The sectors repeatedly mentioned across conversations include:
- Stablecoins
- Payments
- Tokenization / Real-world assets (RWA)
- Prediction markets
- Financial infrastructure
These areas show clearer demand, stronger product-market fit, and more realistic revenue profiles compared to the speculative projects that dominated earlier cycles.
What Lies Ahead
Most investors I spoke with view the higher bar as a structural shift rather than a temporary phase. Even if market conditions improve and fundraising for VCs becomes easier, the elevated standards for startups are likely here to stay.
Tom Dunleavy, head of venture at Varys Capital, believes traditional VC and crypto VC are blending quickly. As crypto fades into the background and becomes integrated into broader industries like AI and finance, underwriting will increasingly focus on fundamentals rather than speculation.
The consensus is clear: the crypto VC market is maturing. While this makes raising capital harder in the short term, it should ultimately lead to higher-quality companies, more sustainable businesses, and better long-term outcomes for the industry.
