The Funding: How the crypto VC space is maturing

• This is the main section from the 57th edition of The Funding sent to our subscribers on August 9.
• The Funding is a fortnightly newsletter written by Yogita Khatri, The Block’s longest-serving editorial member.
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Crypto venture dealmaking has slowed sharply in 2026. There have been just over 300 deals so far this year, compared with about 840 last year over the same period, a decline of nearly 64%, according to The Block's Data Dashboard.

Funding dollars have held up much better, though. Over $8.1 billion has been invested so far this year, down roughly 13% from $9.4 billion over the same period in 2025. Large rounds for companies including Kalshi, Polymarket, Crypto.com and Digital Asset helped keep the total high even as overall activity slowed.

My colleague and research analyst Ivan Wu used a rough calculation to look at this change. He divided funding dollars by recorded deal count. This figure increased from about $11.1 million per deal in 2025 to $27.1 million this year. It is not an average round size, but it shows how more funding is going to established companies with product-market fit. Very early-stage companies still find it difficult to raise money.

Will deal activity remain low? All investors I spoke to said that 2021, a high point for deal activity, is not coming back, and most noted that crypto VC is becoming more disciplined and more like traditional VC, with a stronger focus on real users and revenue.

"I do not expect crypto venture to ever return to the heyday of 2021; as the industry has matured, it’s coalesced around the areas that are clearly disrupting other industries and solving venture-scale problems, mostly around capital markets, payments, and potentially AI," said Rob Hadick, a general partner at Dragonfly.

"That is why you’ve seen the amount of capital deployed stay elevated even when the number of deals has fallen, because more later-stage investment rounds are happening in those areas of success," Hadick added.

Thomas Klocanas, managing partner at Strobe Ventures, called the slowdown a "recalibration". He described 2021 and 2022 as “a once in a generation stack of zero rates, retail mania, and institutional FOMO [fear of missing out] all hitting at the same time.”

“That’s gone, and it isn’t coming back in that form,” Klocanas said. “What we have now is a market where diligence is real, and check sizes are disciplined.”

Lex Sokolin, co-founder and managing partner at Generative Ventures, was more direct. He sees the current environment as the new normal until crypto funds begin returning meaningful cash to their investors.

What could help early-stage funding recover?

For early-stage deal activity to significantly increase again, the market needs more founders, more money for early-stage funds and clearer ways for investors to get returns, VCs said.

On why fewer founders are entering crypto, Hadick pointed to talent moving toward AI, defense technology, robotics and other hard-tech sectors. As for capital, Klocanas noted that much of the institutional money returning to crypto after the FTX collapse went into liquid token funds and later-stage vehicles rather than pre-seed and seed managers.

Exit options also need to improve, some investors said. Richard Galvin, executive chairman and chief investment officer at Digital Asset Capital Management, said weak token markets, limited public token sales and a difficult environment for mergers and public listings have made early-stage bets harder to underwrite.

That higher bar is visible where investors still have conviction. Capital markets, payments, stablecoins, lending, real-world asset tokenization and AI came up in the conversations. Prediction markets have also drawn interest following the growth of companies such as Kalshi and Polymarket.

Hadick said Dragonfly continues to invest from seed through Series C, although traditional stage labels have become increasingly meaningless. He currently sees the most attractive risk and reward at seed and Series B, with a squeeze developing around Series A rounds.

"I would bifurcate it more as 'founder bet into market with huge TAM' [total addressable market], what we would traditionally call Seed but also now still happens sometimes at the A for the best founders," Hadick said.

"And a business or protocol with real, sustainable, underwritable traction that proves the company can win in that large market. Historically, that deal has often been at the Series A. But as the best companies have raised more money more quickly, that has often gotten kicked to the Series B or C, resulting in the Series A crunch that has often been talked about on the timeline. This has been true for us, as well."

Token deals face a higher bar too. Tokens will still have a role, but investors do not expect the old playbook to return. The common view continues to be that a token needs a real function, clear demand and a way to capture value. Longer lockups and stricter vesting have also become more common, investors said.

“Token-first, product-later is largely finished,” Galvin said. Hadick expects clearer regulation to open the door to new token models that return value to stakeholders, potentially narrowing the distinction between tokens and equity.

What's next

When asked about how regulation is important, most investors said passage of the Clarity Act, or the crypto market structure bill, would help with clearer frameworks, but it is not the factor holding the market back. The U.S. Senate did not vote on the bill before its August recess, but Majority Leader John Thune has started the process for an initial vote when lawmakers return in September.

Klocanas called another potential delay in the bill's passage this year “a headwind, not a moat killer.” Galvin also expects regulators to keep providing guidance through rulemaking even if the bill stalls.

Beyond regulation and deal activity, Klocanas pointed to two other areas worth watching. He said security is becoming a bigger issue as crypto companies try to attract more institutional investors. He said the past quarter had one of the highest numbers of exploits on record. In his view, these incidents reduce investor confidence but receive less attention than prices or regulation.

Klocanas is also watching secondary sales of stakes in crypto VC firms and funds. He said some investors who entered in 2021 now want to sell, while long-term investors are buying. He sees this as a sign of which fund managers investors trust for the next decade and which mainly benefited from the last cycle.

More broadly, investors expect crypto VC to start looking much more like traditional venture capital. Companies will be judged on revenue, users, retention, compliance, and their ability to build a durable business. A token may still be part of the model, but it can no longer stand in for the product.

Hadick sees the line between crypto and other venture categories becoming less distinct as stablecoins and tokenized assets become more widely used. Sokolin expects crypto companies to look more like traditional businesses, reach users through familiar fintech channels, and expand onchain over time.

"It will be slower, it will be less fun to write about, and it will produce better companies," Klocanas said of crypto VC's future. "I'd rather build in this market than that one."

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