Pivot Table: Why is the Financing Performance of the Cryptocurrency Market Poor?

Author: Kit

The Fatigue of Crypto Compliance Under the Iteration of AI Technology

The cryptocurrency market is undergoing its second four-year technological cycle transformation since the ICO boom in 2017, while the AI industry has entered its 10th development cycle with breakthroughs from GPT-3 to LLM technologies. According to the technological iteration rules of Moore's Law, the crypto industry faces a cyclical test in 2025—total financing has plummeted from a peak of $31 billion in 2021 to $9.8 billion in 2024, a decrease of 68%. Meanwhile, the financing scale in the AI sector is expected to exceed $110 billion in 2024, creating a stark capital siphoning effect.

Behind this structural shift is the divergence in the technology maturity curve. Since the summer of DeFi in 2020, the crypto industry has not seen any groundbreaking technological narratives, while AI continues to release productivity dividends through the evolution of the Transformer architecture. The differentiation in financing scales essentially reflects capital's voting on the potential of technological applications—while crypto projects are still repeating the traditional path of "issuing tokens-exchanges," AI has already achieved commercial closed loops in fields such as healthcare, manufacturing, and education.

The AI Monsoon Has Yet to Arrive, Crypto Believers Still Need to Strive

Data from Q1 2025 shows that while the crypto community remains enamored with the myth of AI MEMES, eagerly imitating ELIZA, the first chatbot in AI history, and becoming the decentralized ELIZA in crypto history, there is a clear differentiation in institutional investment within the crypto space: the financing share of CEX and custodial projects has shrunk from a peak of 90% during the DeFi summer and the collapse of FTX to 45%, while AI, DeFi, and infrastructure projects have grown against the trend, accounting for 58% of total financing during the same period.

At the same time, the financing scale of AI-related crypto projects has shown dramatic fluctuations. Although there was a surge of $2.3 billion in a single quarter in Q3 2024, this figure fell back to $780 million in Q1 2025, a decrease of 66%. This exposes the inherent contradictions of the "AI + blockchain" narrative: most current projects remain at the conceptual integration level and have not addressed core pain points such as AI model training and data rights confirmation. Meanwhile, traditional AI primary investment has entered a four-year technological cycle since the advent of GPT-3, with total investment amounts rising from an average of $400 billion annually from 2017 to 2020 to over $800 billion annually. In contrast, the growth of AI-related crypto financing has not reached 1% of the aforementioned traditional AI funding increase. How blockchain can cleverly integrate AI technology to ensure that crypto believers can share in the overflow of AI funds is worth pondering, while the acceleration of total AI crypto financing also indicates that native crypto funds are willing to increase their bets in search of this rare golden goose. In summary, founders of crypto projects should consider how to combine AI and infrastructure solutions to address the current issues of rights confirmation and trust that CeFi or traditional AI find difficult to solve.

The Dual Dilemma of Liquidity

The divergence between quantitative tightening policies and the issuance of on-chain stablecoins has exacerbated market distortions. In March 2025, the on-chain circulation of USDC surpassed $98 billion, yet during the same period, crypto venture capital only attracted $4.6 billion. This liquidity dam phenomenon reveals a deeper contradiction—institutional funds are more inclined to allocate BTC spot through compliant channels such as ETFs rather than support early-stage innovative projects. In fact, the financing amount in the primary crypto market has fallen from a peak of $31 billion in 2021 to a total of $9.8 billion in 2024, a drop of 68%, while the number of financings has decreased from 1,880 in 2021 and 2022 to 1,544 in 2024, with the average financing amount dropping from $15.7 million in 2022 to $6.4 million, a decline of 59%. The liquidity of institutional investment in crypto startups has nearly vanished due to the explosion of programmable blockchain technology and the benefits brought by the 2020 pandemic and quantitative easing.

Financing Dilemma: The Great Escape of Founders

RootData shows that the financing amounts for later-stage crypto projects have significantly contracted; the cycle bonus period in 2021 led to overvaluation, and now founders' project valuations are being squeezed in the A round or even seed round, with no institutions willing to publicly invest in C rounds from Q3 2023 to Q4 2024. Strategic financing remains stable, while mergers and acquisitions and OTC transactions indicate that institutional funds are more willing to reach off-market agreements in a liquidity-scarce market.

It is noteworthy that the median financing across all rounds has steadily increased, indicating that funds are more willing to reduce investment frequency and increase investment amounts in the context of declining total financing amounts. Like a battle royale game, excellent capital reserves and bullets are fully bet on projects with better fundamentals and cash flow. At a time of explosive growth in AI technology and crypto technology, the competition among early crypto founders and startups for the gold coins in investors' hands has intensified. Among the 2,681 projects that received seed round financing from 2017 to the present, only 281 have entered the A round (a progression rate of 10.5%), and fewer than 30 projects have reached the C round. This "one in ten" survival game reflects the systemic flaws of early-stage projects in the industry:

From Valuation Bubble to Value Reversion:

• In the 2021 cycle, the median amount of seed round financing reached $4.7 million, while by Q1 2025, it had fallen to $400,000. As total financing shrinks, its proportion continues to decline, indicating a decreasing interest from investment institutions in crypto seed projects.
• The median amount for pre-seed rounds was $2 million, which increased to $2.91 million by Q1 2025. The total financing amount for pre-seed rounds has increased, and the rising median financing amount indicates that higher-risk but more attractively priced projects are favored by more crypto institutions.
• Despite the shrinking total amount of A round financing, the financing amount has increased from $10 million to $14.5 million during the same period. This indicates that crypto projects that have achieved PMF and cash flow have received more funding, while projects that have not successfully turned a profit have struggled to secure additional funding in the seed round.

Token Economics Failure:

B round projects face liquidity pressure from token unlocks, and insufficient secondary market absorption capacity leads to a vicious cycle. According to RootData, most projects experience significant selling pressure with each unlock of token funds without any new liquidity injection.

Technological Iteration Gap:

The financing bubble of 2021 has concentrated failed projects in previously popular tracks such as cross-chain bridges and NFT platforms, failing to keep up with new trends like ZK-Rollups, modular blockchains, and AI. LPs in fund structures that have not achieved positive profitability are seeking to survive by cutting off limbs, while institutional activities (such as OTC and mergers) are on the rise.

Fundraising Dilemma: A Cliff-like Decline in Scale

According to RootData, the total amount raised by crypto institutions plummeted from a peak of $22 billion in 2022 to $2 billion in 2024, a staggering decline of 91%. This rate of shrinkage far exceeds the 35% decline in financing scale for Nasdaq tech stocks during the same period. The lack of macro liquidity, the "century-long" decline in crypto token issuance, and the decrease in institutional IRR have led to a sharp decline in interest from institutional LPs and independent investors in financing crypto projects. This may indirectly reflect the insufficient AI innovation in the crypto industry during this cycle, which has not attracted attention from incremental funds outside the industry.

Quarterly Data Confirms the Downtrend: After Q2 2024 (the BTC halving cycle), the fundraising amount fell back to $420 million, comparable to levels before the rise of DeFi in 2020, indicating that the current bull market has not brought incremental funds to crypto institutions.

Top Institutions Encounter Setbacks: A16Z faced a Waterloo after successfully raising funds for three consecutive years from 2020 to 2022, while Paradigm's new fund in 2024 shrank by 72% compared to its historical peak in 2021.

After the public financing market for crypto cooled, private rounds and OTC transaction volumes increased by 35%. In Q4 2024 and Q1 2025, financing completed through OTC reached $1.9 billion, with mergers and OTC accounting for 75% of the total during that period. The prevalence of these "under-the-table transactions" reflects institutional investors' anxiety about liquidity—by customizing token unlock terms and buyback agreements, they aim to minimize the impact of market volatility on their portfolios.

The Crisis of Launching at a Loss

In this cycle, the crypto community has popularized the slogan "shorting tokens upon launch," which indirectly reflects the negative reactions and rejection of institutional projects by independent crypto investors. According to RootData, which collects data on the performance of tokens and projects launched by Binance, under the commonly applied "3+1" unlock rule, institutions face severe exit pressures:

a. They need to achieve 5-10 times returns on the first unlock to cover overall costs.

b. Data shows that since Arbitrum in 2021, there are very few projects in later financing rounds that can recover costs without any hedging strategies.

c. Among the new tokens issued in 2024, more than half have an FDV below 5 times the last round of financing, directly leading to:

• Institutions face a -50% actual paper loss when the first 10% unlock occurs.
• Subsequent unlocks trigger a chain reaction of selling pressure.

This also indirectly confirms the hidden reasons behind the rise of institutional trading—declining returns on token investment portfolios. In short, tokens launched on Binance are already in such a situation, and institutions are even more distressed by those tokens that can only be launched on liquidity-depleted T1 and T2 exchanges.

Crypto Investment Tends Towards Rationality

Based on RootData's data on the number of days and their squared variance from seed round to A round financing in the crypto market, we find that from 2017 to 2020, the average number of days until the next round of financing gradually increased, peaking in Q4 2018 (1,087.75 days). This reflects the slow financing rhythm and low liquidity of early-stage projects in the crypto industry. The variance was high between 2017 and 2020, peaking in Q4 2017 (578.63 days), indicating significant uncertainty in project financing timelines. During the ICO and DeFi waves from 2017 to 2019, the crypto industry was in an exploratory phase, with varying project quality. Some projects experienced extended financing cycles due to immature token economic models.

After 2021, the number of days until the next round of financing significantly decreased, dropping to 317.7 days in Q1 2023 and further shortening to 133 days in Q3 2024. This indicates that as the market matures, the financing efficiency of quality projects has improved, and capital allocation has become more concentrated. Since 2021, the variance has gradually decreased, indicating that the market has entered a rational development phase, with financing cycles among projects becoming more consistent. Since 2021, institutional investors have been more inclined to support leading projects. The concentration of funds in seed and A rounds has enabled quality projects to complete their next rounds of financing more quickly. Meanwhile, capital has gradually abandoned projects lacking innovation and profitability, accelerating the survival of the fittest in the industry.

Conclusion

The crypto industry is undergoing a transformation from early chaos to rational development. Since 2021, both curves have shown a continuous downward trend, and the decline in the number of days until the next round of financing and variance not only reflects improved capital allocation efficiency but also highlights the industry's preference for quality projects. In the coming years, those projects that can quickly adapt to market demands, integrate emerging technologies like AI, and achieve commercial closed loops will become the focus of capital pursuit.

In summary, the current market demands higher profitability and product-market fit (PMF). Founders need to quickly validate their business models during the seed round to shorten subsequent financing cycles. Institutional investors should focus on high-potential projects that can complete multiple rounds of financing in a short time. Such projects typically have clear growth paths and strong execution capabilities.

The author believes that the liquidity tightening commonly perceived by the crypto community is not the main reason for the poor performance of the crypto financing market or crypto prices. 2024 is the year of compliance for the crypto industry and a turning point for more mature institutions to enter the market. The failure of crypto founders to perfectly submit a closed loop of AI and crypto technology to native crypto investors is a major reason for the poor performance of cryptocurrencies in this intertwined technological cycle of AI and crypto, or the failure to gain liquidity overflow from the AI application explosion.