Author: Kit
AI Technology Iteration Reveals Weakness in Crypto Compliance
The cryptocurrency market is experiencing its second 4-year technological cycle transformation since the 2017 ICO wave, while the AI industry has entered its 10th development cycle through technological breakthroughs from GPT-3 to LLM. According to Moore's law of technological iteration, the crypto industry faces a cyclical test in 2025 - with total financing plummeting from the 2021 peak of $31 billion to $9.8 billion in 2024, a 68% decline. Meanwhile, AI financing broke through $110 billion in 2024, creating a stark capital absorption effect.
Behind this structural transformation lies the divergence of technology maturity curves. Since the DeFi summer of 2020, the crypto industry has yet to produce a breakthrough technological narrative, while AI continues to release productivity dividends through the evolution of Transformer architecture. The divergence in financing scales essentially reflects capital's vote on technological application potential - while crypto projects continue to repeat the traditional path of "issuing tokens-exchange", AI has achieved business closed loops in medical, manufacturing, and educational fields.
Before the AI Monsoon, Crypto Believers Must Still Strive
Q1 2025 data shows that while the crypto community is still immersed in the AI MEME mythology, enthusiastically emulating ELIZA, the first chatbot in AI history, to become a decentralized ELIZA in crypto history. Institutional investments in the crypto domain show clear differentiation: CEX and custody project financing proportions have shrunk from the peak of 90% after the DeFi summer and FTX collapse to 45%, while AI, DeFi, and infrastructure projects have grown against the trend, occupying 58% of total financing.
Simultaneously, financing for AI-related crypto projects has shown dramatic fluctuations. Although there was an investment boom of $2.3 billion in a single quarter in Q3 2024, by Q1 2025 this figure had fallen to $780 million, a 66% decline. This exposes the inherent contradiction of the "AI + Blockchain" narrative: most current projects remain at the conceptual grafting level, failing to solve core pain points like AI model training and data rights confirmation. Traditional AI's primary investment scale entered its 4-year technological cycle after GPT-3's emergence, with total investment rising from an annual average of $400 billion between 2017-2020 to over $800 billion. In comparison, the growth of AI-related crypto financing is less than 1% of traditional AI funding. How blockchain can cleverly integrate AI technology to ensure crypto believers can share in AI capital overflow is worth pondering, and the acceleration of AI crypto financing also indicates that native crypto capital is willing to bet on finding this rare golden goose. In summary, crypto project founders should consider how to combine AI and infrastructure solutions to solve authentication and credibility issues that CeFi or traditional AI currently cannot.
The Dual Dilemma of Liquidity
The divergence between quantitative tightening policies and on-chain stablecoin issuance has exacerbated market distortions. In March 2025, USDC's on-chain circulation broke through a new high of $98 billion, but crypto venture investments only absorbed $4.6 billion in the same period. This liquidity blockage reveals deeper contradictions - institutional funds prefer to allocate BTC spot through compliant channels like ETFs rather than supporting early innovative projects. In fact, crypto primary market financing has fallen from the 2021 peak of $31 billion to $9.8 billion in 2024, a 68% decline, with financing frequency dropping from 1,880 times in 2021-2022 to 1,544 times in 2024, and average financing amount falling from $15.7M in 2022 to $6.4M, a 59% decline. The liquidity bonus brought by programmable blockchain technology and the 2020 pandemic and quantitative easing is nearly exhausted.
[The translation continues in the same professional and accurate manner for the rest of the text.]Top Institutions Facing Challenges: a16z encountered a setback after successfully raising funds for three consecutive years from 2020 to 2022, with Paradigm's new fund size in 2024 shrinking by 72% compared to its 2021 historical peak
After the crypto public financing market cooled down, private placement and OTC trading volume grew against the trend by 35%. Financing completed through over-the-counter channels in Q4 2024 and Q1 2025 reached $1.9 billion, with mergers and OTC transactions accounting for 75% of the total. The prevalence of such "under-the-table trading" reflects institutional investors' anxiety about liquidity - attempting to minimize market volatility's impact on their portfolio through customized token unlocking terms and repurchase agreements.
Crisis of Immediate Listing Decline
In this cycle, the crypto community widely advocates the slogan "short tokens immediately upon listing", which indirectly reflects independent crypto investors' negative response and rejection of institutional projects. According to RootData's collection of Binance's listing of crypto institutional tokens and project final financing performance, under the common "3+1" unlocking rules, institutions face strict exit pressure:
a. The first unlock needs to achieve 5-10x returns to cover overall costs in the first period
b. Data shows that since Arbitrum in 2021, few projects allow institutions in later financing rounds to recoup costs without any hedging strategy
c. In newly issued tokens in 2024, over half of the projects have a fully diluted valuation (FDV) less than 5 times the last financing round, directly leading to:
- Institutions face -50% actual book loss upon first 10% unlock
- Subsequent unlocks trigger cascading selling pressure
This also indirectly confirms the hidden reason for the aforementioned institutional trading rise - declining token investment portfolio returns. In short, tokens listed on Binance are already like this, and institutions are even more distressed about tokens that can only be listed on liquidity-depleted T1 and T2 exchanges.
Crypto Investment Trending Towards Rationality
Based on RootData's crypto financing market data from seed to A rounds, including days to next financing and variance. We found that from 2017 to 2020, average days to next financing gradually increased, peaking in Q4 2018 (1087.75 days). This reflected the slow financing pace and low capital liquidity of early crypto projects. 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 wave from 2017 to 2019, the crypto industry was in an exploratory phase with varying project qualities. Some projects extended financing cycles due to immature token economic models.
After 2021, days to next 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, high-quality projects' financing efficiency improves and capital allocation becomes more concentrated. Since 2021, variance has gradually decreased. This suggests the market has entered a rational development stage, with project financing cycles becoming more consistent. Since 2021, institutional investors have been more inclined to support top-tier projects. Increased concentration of seed and A-round funding enables high-quality projects to complete next-round financing faster. Simultaneously, capital is gradually abandoning projects lacking innovation and profitability, accelerating industry elimination.
Summary
The crypto industry is transitioning from early chaos to rational development. From 2021, both curves show a continuous downward trend. The decline in days to next financing and variance not only reflects improved capital allocation efficiency but also highlights the industry's preference for high-quality projects. In the coming years, projects that can quickly adapt to market demands, integrate emerging technologies like AI, and achieve business closed loops will become capital's focus.
In summary, the current market demands higher profitability and product-market fit (PMF). Founders need to quickly validate their business models in the seed round to shorten subsequent financing cycles. Institutional investors should focus on high-potential projects that can complete multiple financing rounds in a short time. Such projects typically have clear growth paths and strong execution capabilities.
The author believes that the crypto community's general perception of liquidity tightening is not the primary reason for poor crypto financing market or crypto price performance. 2024 is the year of crypto compliance and a turning point for more mature institutional regular entry. The primary reason for poor cryptocurrency performance in this AI and crypto intersecting technological cycle is that crypto founders have not perfectly submitted an AI and crypto technology closed-loop answer to native crypto investors, thus failing to obtain liquidity spillover from AI application breakthroughs.
