Crypto VC Inflection Point: The Survival Answers of a16z, Dragonfly, Paradigm

Original Article Title: "From $6.5 Billion to $15 Billion to $20 Billion, The Crypto VC Landscape Has Shifted!"

Original Article Author: Zhou, ChainCatcher

Many believe that Crypto VCs are facing a twilight moment.

Over the past decade, Crypto VCs have been highly homogenized—clustering in the same tracks, telling the same stories, and fighting over the same projects. Seemingly vibrant, but actually fragile within the industry.

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

By the end of February 2026, two fundraising announcements appeared in succession.

On one side, Dragonfly Capital completed the fundraising for its fourth fund, totaling $6.5 billion, with a focus on stablecoins, on-chain financial infrastructure, and tokenization of real-world assets.

On the other side, Paradigm is seeking up to $15 billion for its new fund, expanding its investment scope from crypto to frontier technology fields such as AI and robotics.

Both A-list Crypto VCs, experiencing the same downturn cycle, why have they taken such different paths?

If we also look at a16z Crypto, the question becomes even more intriguing. The firm is currently in the process of raising $20 billion for its fifth fund.

These three funds represent three starkly different answers that Crypto VCs are giving in the face of industry challenges.

Defend: a16z Crypto's Long-term Logic

In the fundraising landscape of Crypto VCs, a16z Crypto has long held the top position. This is the fund line focused on crypto investments under Andreessen Horowitz (a16z), which has completed four rounds of fundraising since 2013, with a total size of over $7.6 billion, making it one of the largest crypto funds globally.

Earlier this year, a16z completed a $15 billion new fundraising round, spanning infrastructure, application layer, and growth funds among various directions, and identifying the intersection of AI and crypto as one of the key investment areas.

According to Fortune magazine, a16z Crypto is raising its fifth fund with a target of around $2 billion and plans to complete the fundraising by the first half of 2026.

a16z Crypto partner Chris Dixon views blockchain as the next foundational layer of the Internet, believing that the crypto industry is in a long "foundational" period, similar to how the 1943 publication of the neural networks paper is to today's AI, where true mainstream adoption requires decades of groundwork.

Dixon has publicly stated that a16z Crypto's current holdings represent 95% of its historical investments, as in venture capital, selling off quality assets too early is the worst decision.

The annual crypto industry report released by the team is a continued signal to its investors: even in a bear market, we are still diligently trying to understand what is happening in this industry.

And the investors targeted by a16z Crypto are the long-term institutional capital in the crypto fundraising landscape, the old money with a deep belief in the entire industry.

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

Change: Dragonfly's Financial Evolution

Dragonfly was founded in 2018, starting as an early-stage crypto VC connecting the Asian and American markets. The initial fund was only $100 million, and the most core competitive advantage at the time was the geographic arbitrage ability of the co-founders across the Chinese and American markets.

Since 2019, Dragonfly has gradually expanded into the secondary market, started managing liquidity funds, and built its own trading team. Not only serving as a risk hedging tool but also providing real-time market data for primary market investments, offering an additional perspective for project evaluation.

In 2022, Dragonfly acquired the crypto hedge fund Metastable co-founded by Naval Ravikant in 2014, integrating it into its operations, thus forming three parallel business lines: Dragonfly Ventures (primary investments), Dragonfly Liquid (liquidity strategy), Metastable (hedge fund).

The judgment of primary VCs, combined with the trading capabilities of the secondary market, is the core difference between Dragonfly and purely primary crypto funds.

However, the establishment of this system was not built in a day. Building an investment system spanning both primary and secondary levels means simultaneously constructing two completely different decision-making frameworks, risk management systems, and talent structures – the primary level requires deep technical judgment of early-stage projects, while the secondary level requires precise quantitative capabilities for market microstructure.

In the positions Dragonfly previously recruited for, candidates were explicitly required to have professional abilities in delta-neutral hedging, derivative inventory risk management, and other similar skills. These talents are already scarce in the crypto industry, and introducing them from traditional financial institutions also requires a long adaptation period.

This trading system is a barrier that Dragonfly has accumulated over many years, and it is the most challenging aspect for other funds to replicate directly.

Today, Dragonfly is a trading-driven organization spanning both primary and secondary markets, with approximately $4 billion in assets under management. Its investment portfolio includes unicorns such as Ethena, Polymarket, and Monad Labs.

However, behind this is a somewhat pessimistic industry trend.

According to RootData, in 2025, the crypto primary market completed a total of $22.73 billion (excluding Post-IPO and debt financing) in 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 40.3% decrease from the previous year, hitting a nearly five-year low, with monthly financing events trending sharply downwards.

While the total amount of financing is increasing, the number of projects being financed is decreasing, indicating that money is becoming more concentrated, leaving less space for small and medium-sized early-stage projects.

Dragonfly Managing Partner Haseeb Qureshi believes that the past broad crypto, non-financial attribute application experiments have been debunked by the market. The new fund will focus its bets on stablecoins, DeFi, and on-chain financial services.

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

The investors targeted by Dragonfly are those who believe in the financialization logic of blockchain, transaction-driven allocators, and investors with a practical attitude towards crypto.

They may not need the grand narrative of crypto changing the world, but rather, real liquidity and sustainable transaction yields are the answers they seek.

The key to Dragonfly's approach on this path is to ride the wave, as the crypto industry becomes increasingly financialized, it has simply been ahead of the curve in turning this trend into its core competitive advantage.

Break: Paradigm's Boundary Narrative

Paradigm's story begins with a set of digital transformations.

In 2021, Paradigm raised $25 billion, setting the record for the largest single fundraising in the history of crypto funds at that time.

By 2024, the third fund shrank to $8.5 billion.

This time, the target is $15 billion, with investments expanding from crypto to AI, robotics, and other cutting-edge technologies.

Paradigm's foundation lies in VC with an incubation focus. Co-founder Matt Huang comes from Sequoia Capital and founded a machine learning startup at the age of 19, which was later acquired by Twitter. Another co-founder, Fred Ehrsam, was a co-founder of Coinbase.

The team's strength lies in early trend identification and technology risk management. Patrick Collison, a collaborator of Matt Huang and co-founder of Stripe, once described him as, "He is calm, rigorous, and patient—qualities particularly suited to complex technology with consequential impacts."

Paradigm's portfolio includes early protocols such as Uniswap and Coinbase, with these early bets establishing 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 than a traditional VC."

After the collapse of FTX, Paradigm took three years to rebuild. However, the fundamental issue of the scarcity of high-quality early-stage targets in the current crypto industry remains unresolved. For a fund emphasizing judgment and incubation capabilities, the lack of good projects to invest in is a more fundamental challenge than a market value decline.

Therefore, Paradigm's pivot to AI is by no means a temporary decision.

In fact, back in 2023, Paradigm quietly removed any mention of Web3 from its official website. Matt Huang later came forward to explain, stating "The progress of AI is too interesting to ignore," and expressing that crypto and AI are not in a zero-sum competition, with significant overlap between the two. Earlier this year, Paradigm and OpenAI jointly released EVMbench, a benchmark tool to test if AI models can identify and patch smart contract vulnerabilities.

According to OECD data, the global AI sector's VC investment is projected to reach $258.7 billion in 2025, accounting for 61% of total global VC funding, compared to just 30% in 2022.

However, taking a more realistic perspective, Paradigm's shift towards AI has more structural reasons.

Within the entire crypto VC fundraising landscape, a16z Crypto firmly holds the top-tier long-term capital, while Dragonfly is the most transactionally adept hunter in the financialized track.

Paradigm's team DNA, neither replicable in a16z Crypto's long-term belief narrative nor suitable for Dragonfly's transaction-driven path, dictates that it can only articulate a narrative of integrated innovation to attract a new breed of funds that are no longer interested in pure crypto but are willing to bet on cross-industry technology integration.

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

Hack VC Managing Partner Alexander Pack (former Dragonfly Managing Partner) stated that both KKR and Bain Capital have shifted from pure private equity investments to credit and public equities, and a16z has established funds for various tech market segments. Paradigm's move, like the overall industry trend, signifies the company's maturation and reintegration into a broader tech landscape.

Three Paradigms, Three Bets

Putting the three funds side by side reveals a clear logic fork.

Each of them answers the same question: during the crypto industry's low ebbs, as a fund, what makes you continue to exist?

a16z Crypto's answer is scale and belief. Large enough to withstand cycles, deeply researched to represent the industry, consistently delivering confidence to the market.

Dragonfly's answer is Capability and Focus. By diving deep into decentralized finance, leveraging trading expertise to overcome the limitations of the primary market, and maintaining fund liquidity in a scarce project environment.

Paradigm's answer, on the other hand, is Narrative and Breaking Boundaries. Crafting a new story that combines AI and crypto to attract investors unreachable by traditional crypto VCs, expanding their own boundaries from one industry to the larger wave of technological integration.

Three funds, three responses. No paradigm is final, and no paradigm can be easily replicated—ultimately, the ability to tell a compelling story is determined by the team's DNA.

Perhaps this is a sign of maturity for crypto VCs, no longer a mass of troops all squeezing onto the same path, but each finding their own way. A homogenized industry is fragile; true market vitality comes from nurturing different species.

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