Original Author: Kit
Original Source: RootData
Compliance Fatigue in Crypto Under AI Technology Iteration
The cryptocurrency market is experiencing the 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 $31 billion peak in 2021 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 not seen a breakthrough technological narrative, while AI continues to release productivity dividends through the evolution of the Transformer architecture. The financing scale differentiation essentially reflects capital's vote on technological application potential - while crypto projects are still repeating the traditional "token issuance-exchange" path, 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 AI MEMES 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 90% at the peak 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 number had fallen to $780 million, a 66% decline. This exposes the inherent contradictions of the "AI+Blockchain" narrative: most current projects are merely stuck at the concept grafting level, failing to solve core pain points like AI model training and data rights confirmation. Traditional AI 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, AI-related crypto financing growth is less than 1% of traditional AI fund growth. 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 funds are willing to bet on finding this rare golden goose.
The Dual Dilemma of Liquidity
Quantitative tightening policies and the divergence of stablecoin issuance have exacerbated market distortions. In March 2025, USDC's on-chain circulation exceeded a new high of $98 billion, but crypto venture capital in the same period only absorbed $4.6 billion. This liquidity blockage reveals deeper contradictions - institutional funds prefer to allocate BTC spot through compliant channels like ETFs rather than supporting early innovative projects.
According to RootData, the total fundraising for crypto institutions plummeted from a peak of $22 billion in 2022 to $2 billion in 2024, a staggering 91% drop. This contraction far exceeds the decline in Nasdaq tech stock financing during the same period (35%). Insufficient macro liquidity, the "once-in-a-century" decline in token issuance and institutional IRR have led to a sharp decrease in institutional LPs and independent investors' interest in crypto project financing. This may indirectly reflect the lack of AI innovation in the current crypto cycle, failing to attract incremental funds from outside the industry.
Quarterly Data Confirms the Downturn: Fundraising amount dropped to $420 million in Q2 2024 (after BTC halving cycle), comparable to the level before the DeFi rise in 2020, with this cycle's bull market failing to bring incremental funds to crypto institution fundraising
Top Institutions Facing Challenges: A16Z encountered a Waterloo after successfully raising funds for three consecutive years from 2020 to 2022, while Paradigm's new fund size in 2024 shrank by 72% compared to its historical peak in 2021
After the public crypto 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 portfolios through customized token unlock terms and repurchase agreements.
Crisis of Immediate Post-Listing Depreciation
The current crypto cycle is dominated by the slogan "short the token immediately upon listing", reflecting independent investors' negative response and rejection of institutional projects. Based on RootData's collection of Binance-listed crypto institutional tokens and project final financing performance, under the "3+1" unlock rule, institutions face strict exit pressure:
a. First-stage unlock requires 5-10x returns to cover overall costs
b. Data shows that since Arbitrum in 2021, few later-stage financing institutions can recover costs without any hedging strategy
c. In newly issued tokens in 2024, over half have an FDV below 5 times the last financing round, directly leading to:
Institutions facing -50% actual book loss with the first 10% unlock
Subsequent unlocks creating cascading selling pressure
This also indirectly confirms the hidden reason for the rise of institutional trading mentioned earlier - declining token investment portfolio returns. In short, tokens listed on Binance are already in this state, and institutions are even more distressed about tokens that can only be listed on T1 and T2 exchanges with depleted liquidity.
Crypto Investment Trending Towards Rationality
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