Large platforms and small specialized funds will prevail, while mid-tier platforms will be eliminated.

Written by: Dara, Partner at Hashgraph Ventures

Translated by: Luffy, Foresight News

The next decade of crypto venture capital belongs to specialized boutique funds in the $50 million range. I am firmly convinced of this, and I will elaborate on my reasons below.

First, let me introduce my theory of polarization. Polarization refers to an industry splitting into two distinctly different branches of comparable size. Large platforms and small experts will prevail, while mid-tier platforms will be eliminated.

In the crypto space, in the first quarter of 2026, venture capital completed a total of 217 investments, deploying $4.56 billion, with funding scale down 38% and the number of transactions down 22% compared to the previous quarter.

Late-stage C rounds and beyond saw an explosive year-on-year increase of 1020%, while early-stage project investment enthusiasm significantly cooled. In April 2026, the total transaction volume across the industry plummeted to $659 million, marking the lowest monthly figure in nearly two years.

If one only looks at the overall data, one might think the industry is just slightly weakening; however, digging deeper reveals that a handful of super large financings have absorbed the vast majority of funds, while a large number of seed-stage and pre-seed small funds are struggling.

In just the first half of 2025, Founders Fund raised 1.7 times more than all emerging fund managers combined; meanwhile, veteran top-tier platform funds raised amounts that are 8 times that of emerging funds. Well-known native crypto funds like MechanismCap and Tagent have also exited the market gradually between 2025 and 2026.

If you are an emerging crypto venture manager, you will certainly understand the signals behind these data: every time a contributor says they want to "focus their allocation on top-tier established institutions," and each time entrepreneurs insist on "waiting for primary institutions to lead," you can truly feel the changes in the industry.

The core argument of this article is that mid-sized comprehensive crypto funds are structurally on the path to extinction. The industry is polarizing; at the top are platform giants, and at the bottom are vertical boutique small funds. In the next decade, almost all that outperform the market will be vertical funds with a scale below $50 million and a clear and steadfast investment logic. Mid-sized players have only a remaining survival window of 36 months.

The following sections will dissect the data logic, structural causes, and breakout strategies of specialized funds one by one. If you are a contributor (LP), entrepreneur, or venture partner (GP), this content is directly related to your future positioning.

The Twilight of Mid-Sized Comprehensive Funds

We define mid-sized comprehensive funds, with a scale of $100 million to $500 million, a wide investment range, investing in 15 to 25 projects per fund, balancing equity and tokens, as the mainstream players in the 2020-2022 cycle, with around 80 globally.

Their fundraising rhetoric back then was highly similar: “We deeply engage in the crypto-native track with flexible investment strategies, single investments ranging from $500,000 to $20 million, can lead or follow investments, covering all tracks from infrastructure to application layers.”

This line of reasoning was effective because LP funds were overflowing at the time, and the potential in the crypto market seemed limitless. Even in comprehensive investments, the dividends inherent in the tracks themselves were enough to create differentiation.

Today, the dividend window has completely closed, and the game is over.

Three Major Structural Changes

Change One: Digital Asset Listing Financial Products Divert Institutional Funds

In 2025, publicly listed digital asset companies (holding spot crypto assets on their financial reports) received about $29 billion in institutional funds, with large volumes flowing into micro-strategy-related stocks and crypto ETFs.

For LPs, wanting to allocate to crypto assets no longer requires going through venture capital funds. They can directly buy listed financial products, ETFs, or spot assets, gaining immediate liquidity without enduring the high costs of ten-year lock-in periods, 2% management fees, and 20% profit sharing from venture capital. Where mid-sized comprehensive funds used to be the only choice for crypto allocations, they are now seen as “less hassle alternatives.”

Change Two: With market risk aversion, LP funds concentrate at the top

When LPs feel market unease, they don't directly withdraw from the space but rather concentrate their funds further into the top. This is a commonality in every cycle.

The trend in 2025 is particularly evident: the top 10% of elite institutions took the vast majority of LP contributions. Practitioners from pension funds and endowment funds never face accountability for investing in top-tier firms like a16z; however, if they invest in a $200 million ordinary comprehensive fund that ultimately returns only 0.4 times, they bear the professional risk instead.

Change Three: Investment Logic Becomes Highly Homogeneous, Mid-Sized Funds Lose Differentiation

Since 2024, all mid-sized fund pitch decks nearly look the same: stablecoins, real-world assets (RWA), modular public chains, AI + crypto, decentralized physical infrastructure networks (DePIN). Cover the logos of twelve funds, and it would be impossible to tell them apart.

When investment logic becomes fully homogeneous, the only differentiation left is brand accumulation. However, top institutional brands require a decade to establish, and this batch of mid-sized funds that entered in 2021 lacks both the accumulation and the ability to quickly build a brand.

A True Picture of Mid-Sized Funds in 2026

A mid-sized fund that raised $250 million at the peak of the industry in 2022 has 2 senior partners and 4 junior employees, who invested 60% of the funds between 2022 and 2024 into 18 projects, resulting in a reported ROI of 1.8 times.

However, the partners privately know that the reported valuations are greatly inflated. Secondary market buyers offer only 30-50% of the reported valuations for quality projects, while poor-performing projects are completely unable to secure further financing. The fund's actual cash dividend return rate is only 0.15 times and has been operating for three years.

Now their status is that they claim to be "tilting towards balancing existing projects," but in reality, they are no longer deploying new funds; Phase II fund fundraising has stagnated; they appear operational but have no new business. Senior partners are starting to seek jobs at family offices, and junior employees are submitting their résumés.

This awkward situation covers nearly 40 out of 80 mid-sized funds at the cycle peak. By 2028, half of them will either be proactively liquidated by the partners or completely pivoted to other asset tracks.

The Matthew Effect of Top Funds

Large platform funds like Dragonfly and a16zcrypto have advantages that mid-sized funds cannot replicate:

For a fund of $400 million, a single $30 million Series A investment is just a normal allocation; however, for an $80 million small fund, such an investment would severely skew its portfolio weight.

Top platforms often have teams of 40 to 50 persons, which entrepreneurs will prefer to connect with; the platform itself serves as a source of project leads. Even if 60% of projects in the portfolio perform mediocrely, by investing in 80 projects, they can still achieve excess returns via the power law effect; whereas a small fund that only invests in 12 projects has a very low margin for error, but this is only true if small funds blindly imitate strategies of large platforms.

Paradigm released a research report on perpetual DEXs, which the entire industry eagerly read; meanwhile, an ordinary $80 million fund's research report only circulated within its own projects before quickly falling silent.

Each investment decision by LPs is inherently a balance of professional risk: if an investment goes to zero, can I justify this to the investment committee? Investing in a16z, regardless of the outcome, is beyond reproach; but investing in a $150 million ordinary comprehensive fund entails accountability risks.

What they consider is not just investment quality, but also professional insurance. This effect will only strengthen unidirectionally: as long as top institutions still exist and historical returns remain strong, fundraising will be easy.

For emerging managers, the reality is harsh. Trying to "do better than top funds" to attract institutional LP funds was from the outset a losing proposition. The only funds they can hope to attract are those that do not prioritize professional risk: family offices, high-net-worth individuals, and a handful of specialized LPs that specifically support emerging funds.

Nearly 75% of emerging fund LP contributions are below $150,000, mostly coming from individuals or similar sources.

Since the top has solidified and the middle is vanishing, where will the excess returns in the next decade actually come from?

Small Funds' Advantage: Smaller Size Becomes a Dividend

The traditional VC perspective often defaults to the idea: smaller funds are weaker; they have limited capital, insufficient branding, weaker leading capabilities, and difficulty accessing top projects. These are all facts, but amid a shortage of funds and a highly differentiated landscape, being small becomes a core advantage.

A $40 million specialized crypto fund can focus on investing in 8-12 projects, leading rounds of $1.5-3 million in Pre-Seed and Seed rounds. According to the power law effect, if just 1-2 of those projects succeed, they can cover the entire fund's costs; to achieve an overall return of 3 times, they only need to recover $120 million in cash. If they hit one company with a $1 billion valuation and hold 5%-10%, a single project can achieve the goals.

In contrast, a $400 million comprehensive fund needs to recover $1.2 billion to achieve a 3-times return, requiring multiple billion-dollar projects, which becomes increasingly difficult. Similarly, betting on the next Polymarket, the small fund needs the project to reach a valuation of $4 billion to elevate overall returns; the large fund must wait until it hits $40 billion for a noticeable contribution. For the same investment target, the difficulty for a small fund to produce returns is directly ten times lower.

This is the reverse Cambrian effect: even if brands, resources, and connections are not as strong as the top, the performance of specialized small funds over the next decade will still surpass that of platform giants.

However, merely being small is not enough; specialized funds must possess four hard-core capabilities that platforms cannot replicate:

• Speed of decision-making. A two-person partnership fund can complete a payment in 6 hours; top funds often take six weeks to navigate through investment committees, legal reviews, partner alignments, and platform processes. Many quality early-stage projects are acquired precisely because of the speed of small funds.
• No need for committees, willing to go against the tide with heavy investments. The layers of filtering through platform investment committees will exclude all non-mainstream, controversial, and lesser-known targets. By the time eight partners reach a consensus, the investment logic has already become a market consensus, and excess returns vanish. Dragonfly's Haseeb has also noted that the most successful investments by institutions were often in non-mainstream targets that no one dared to touch at the time. The profit logic of crypto venture capital inherently rewards players who dare to place heavy bets during disagreements, a feat that committee mechanisms inherently cannot achieve.
• Partners have no career worries. If a platform partner bets on a lesser-known project and it fails, it could harm their career prospects; however, partners at small specialized funds are the core of the fund itself, with no concerns of reassignment, demotion, or marginalization. Decisions can be made based solely on correctness rather than personal relations or public opinion, thus allowing for more rational judgments on non-mainstream targets.
• Clear public logic of the track, naturally attracting precise entrepreneurs. The wide-ranging nature of comprehensive funds fails to accurately draw vertical entrepreneurs, only receiving generic business proposals from all over the internet; whereas once a specialized fund openly adheres to a specific subsector, such as "Latin American stablecoin distribution," "non-U.S. institution tokenized private credit," or "application chain L2's MEV mitigation layer," entrepreneurs within that track will actively submit proposals first. There is no need to assemble a forty-person platform team; as long as the viewpoint is sharp enough and the track is adequately focused, it can naturally attract the right audience.

These four advantages rely not on capital, not on brand, not on seniority, but on operating discipline and decisiveness.

The Fate and Conclusion of Mid-Sized Funds

From 2026 to 2027, mid-sized funds that cannot rise to the top and are unwilling to contract and focus will find themselves in the same predicament:

• They remain scaled somewhere between $80 million and $300 million, lacking the leading capital strength of the top funds and failing to meet the concentrated investment conditions of small funds;
• Holding 18-25 projects, with largely inflated reported valuations that the secondary market completely disregards;
• Some apparent star projects look good but cannot achieve cash dividends; they may either have equity locked before being listed or tokens that crash upon unlocking;
• Founding partners transition from working together to distance, with returns seemingly diminishing, making it difficult to reach consensus;
• LP communication shifts from quarterly reports to "on-demand communication," unwilling to confront real performance;
• They stop hiring, junior employees seek other opportunities, the official site still claims "active investments," while in fact, there have been no new deployments for nine months.

Nearly a third of the funds established in 2021 find themselves in such a state. They will not immediately collapse but will slowly devolve into a low-effort family office mode, hoping for market recovery to reactivate existing projects.

However, the reality is that a market upturn benefits only two types of entities: long-established top-tier and specialized small funds. Mid-sized funds stuck in the middle, without stories and logic, will never receive new incremental funds.

For those in such funds, the only rational choice is to either shrink proactively, return uncommitted funds, and focus on sustainable operations around 2-3 core tracks; or liquidate entirely.

The most irresponsible approach is to lay passive, with partners secretly looking for alternative paths, leaving LPs to bear the unnecessary burden of profit dilution for another 4-6 years.

Plainly advising, if you are an LP in such a zombie mid-sized fund, it is better to dispose of your shares in the secondary market sooner rather than regret in 2028.

Operational Strategies for $50 Million Specialized Funds

If you agree with the theory of polarization, you must adhere to this set of boutique fund operational principles:

• Stick rigorously to a single vertical track. The track must be narrow to the extreme, ensuring elevation to authority within the field within 12 months. Do not merely state "stablecoin infrastructure," be precise with "Latin American stablecoin distribution channel," "non-U.S. institution tokenized private credit," "application chain L2's MEV mitigation primitives."
• Highly concentrated holdings. Invest in at most 8-15 projects, averaging $1-3 million per investment. Restrain the impulse to "take a look at one more quality project;" diversification is the biggest killer of returns for specialized funds; the power law effect inherently demands concentrated bets.
• Transform your public investment logic into a customer acquisition weapon. Continuously produce in-depth long articles, investment retrospectives, reviews of projects invested in/missed, and podcasts in the vertical field. The two compounding effects: entrepreneurs in the track prioritize submitting their business plans; LPs form a clearer understanding through your content and are more willing to support emerging managers. High-quality content output adds far more value than a forty-person platform team.
• Make decision processes transparent and publicly reflect on missed projects. Most VCs are reluctant to disclose failing cases, but this is precisely a high-leverage plus for specialized funds. LPs value your judgment far more than project resources. Stating “Why I missed Ondo at a $200 million valuation” is far more indicative of your investment framework and insight than “Why I invested in Ondo.”
• Re-select people, focus less on industry analysis. 70% of crypto Pre-Seed projects undergo multiple business transformations before launch. The essence of your investment is betting on the founding team’s ability to weather three strategic adjustments. The due diligence should not get lost in industry data but should focus on whether the founders are worth a long-term commitment; if you approve, invest reasonably; if not, decisively abandon.
• View fundraising as a marathon, spanning 24 months, and don't fantasize about short-term sprints. The average closing cycle for the first fund is 17.5 months, and behind every intention to commit, there are typically 5-10 refusals. Maintain a calm mindset and accept a slower pace.

If the theory of polarization holds true, in the next 24 months, we should observe the following scenarios:

• 5-10 well-known mid-sized crypto funds converting to a family office mode or liquidating directly; indications include hiring freezes, partner departures, rhetoric shifting to "balancing existing portfolios," and absence from annual disclosure.
• A batch of specialized small funds with focused tracks and openly displayed logic emerging as dark horses, attracting top LP co-investment for their Phase II funds; not relying on scale to stand out, but firmly rooted in cash dividend speed and industry influence.
• At least one top platform fund delivering a product yielding 0.7-1.2 times cash return, yet still successfully raising for the next round, confirming that the moat of top connections remains unshakeable.
• LPs will develop a new analytical framework to benchmark fund book values against secondary market quotes, publicly disclosing valuation discrepancies for the first time in the industry, accelerating the elimination of zombie mid-sized funds.

By mid-2028, if the above three outcomes do not materialize, then my theory is incorrect, and I will publicly revisit my errors; however, I firmly believe that the core trend will not deviate.

Conclusion

If you've read this far and you are a GP: as a specialized small fund, there is no need to be self-satisfied, and if you are in a mid-sized fund, there is no need to panic excessively. This is a structural industry division, unrelated to individual emotions.

Those stuck in the middle still have time to save themselves, return idle funds, shrink and focus on 2-3 core tracks, and accept a smaller but more refined operation. The survival logic of small specialized funds is harsh, but there remains a path; mid-sized comprehensive funds, however, are left with unresolved internal friction.

If you are a manager of a specialized small fund, the next decade is undoubtedly yours; do not miss this opportunity again. The top will always occupy the headlines, but the excess alpha returns will ultimately flow to the professional players.

If you are an LP: in your upcoming allocation decisions, rethink using this framework of differentiation. Can you bear to invest in an apparently ordinary $40 million specialized fund that can deliver stunning returns after three years of hibernation? Most LPs cannot, but those few daring enough to invest will eventually surpass their peers.

If you are an entrepreneur: recognize the polarization and choose your financing source accordingly. If you need scale endorsement and brand resources, seek the top platforms; if you need fast decision-making and resolute heavy investments, look for vertical funds.

The industry is not dying; it is merely self-cleansing and re-ranking.

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