48 posts tagged with "Crypto"

Hyperliquid holds $5.97 billion in USDC deposits—nearly 10% of Circle's total circulating supply. At a conservative 4% Treasury yield, that represents $240 million in annual revenue flowing to Circle. Hyperliquid sees none of it.

So Hyperliquid launched USDH.

This isn't an isolated move. Across DeFi, the same calculation is playing out: why surrender hundreds of millions in yield to third-party stablecoin issuers when you can capture it yourself? MetaMask launched mUSD. Aave is building around GHO. A new class of white-label infrastructure from M0 and Agora is making protocol-native stablecoins viable for any platform with scale.

The stablecoin duopoly—Tether and Circle's 80%+ market share—is fracturing. And the $314 billion stablecoin market is about to get much more competitive.

In 2025, while traditional finance debated whether crypto had staying power, one decentralized exchange quietly processed $2.95 trillion in trading volume and generated $844 million in revenue—more than many publicly traded financial companies. Hyperliquid didn't just compete with centralized exchanges; it redefined what's possible for on-chain derivatives trading.

The numbers are staggering: 73% market share at peak, 609,700 new users onboarded in a single year, and a $1 billion token buyback fund that's still growing. But behind the headlines lies a more nuanced story of architectural innovation, aggressive tokenomics, and a market that's shifting faster than most realize.

When the world's largest crypto-focused venture capital firm publishes its annual predictions, the industry listens. But should you believe everything Andreessen Horowitz tells you about 2026?

a16z crypto recently released "17 things we're excited about for crypto in 2026"—a sweeping manifesto covering AI agents, stablecoins, privacy, prediction markets, and the future of internet payments. With $7.6 billion in crypto assets under management and a portfolio that includes Coinbase, Uniswap, and Solana, a16z isn't just predicting the future. They're betting billions on it.

That creates an interesting tension. When a VC firm managing 18% of all U.S. venture capital points to specific trends, capital flows follow. So are these predictions genuine foresight, or sophisticated marketing for their portfolio companies? Let's dissect each major theme—what's genuinely insightful, what's self-serving, and what they're getting wrong.

The Stablecoin Thesis: Credible, But Overstated​

a16z's biggest bet is that stablecoins will continue their explosive trajectory. The numbers they cite are impressive: $46 trillion in transaction volume last year—more than 20x PayPal's volume, approaching Visa's territory, and rapidly catching up to ACH.

What they got right: Stablecoins genuinely crossed into mainstream finance in 2025. Visa expanded its USDC settlement program on Solana. Mastercard joined Paxos' Global Dollar Network. Circle has over 100 financial institutions in its pipeline. Bloomberg Intelligence projects stablecoin payment flows will hit $5.3 trillion by year-end 2026—an 82.7% increase.

The regulatory tailwind is real too. The GENIUS Act, expected to pass in early 2026, would establish clear rules for stablecoin issuance under FDIC supervision, giving banks a regulated path to issue dollar-backed stablecoins.

The counterpoint: a16z is deeply invested in the stablecoin ecosystem through portfolio companies like Coinbase (which issues USDC through its partnership with Circle). When they predict "the internet becomes the bank" through programmable stablecoin settlement, they're describing a future where their investments become infrastructure.

The $46 trillion figure also deserves scrutiny. Much of stablecoin transaction volume is circular—traders moving funds between exchanges, DeFi protocols churning liquidity, arbitrageurs cycling positions. The Treasury identifies $5.7 trillion in "at-risk" deposits that could migrate to stablecoins, but actual consumer and business adoption remains a fraction of headline numbers.

Reality check: Stablecoins will grow significantly, but "the internet becomes the bank" is a decade away, not a 2026 reality. Banks move slowly for good reasons—compliance, fraud prevention, consumer protection. Stripe adding stablecoin rails doesn't mean your grandmother will pay rent in USDC next year.

The AI Agent Prediction: Visionary, But Premature​

a16z's most forward-looking prediction introduces "KYA"—Know Your Agent—a cryptographic identity system for AI agents that would let autonomous systems make payments, sign contracts, and transact without human intervention.

Sean Neville, who wrote this prediction, argues the bottleneck has shifted from AI intelligence to AI identity. Financial services now have "non-human identities" outnumbering human employees 96-to-1, yet these systems remain "unbanked ghosts" that can't autonomously transact.

What they got right: The agentic economy is real and growing. Fetch.ai is launching what it calls the world's first autonomous AI payment system in January 2026. Visa's Trusted Agent Protocol provides cryptographic standards for verifying AI agents. PayPal and OpenAI partnered to enable agentic commerce in ChatGPT. The x402 protocol for machine-to-machine payments has been adopted by Google Cloud, AWS, and Anthropic.

The counterpoint: The DeFAI hype cycle of early 2025 already crashed once. Teams experimented with AI agents for automated trading, wallet management, and token sniping. Most delivered nothing of real-world value.

The fundamental challenge isn't technical—it's liability. When an AI agent makes a bad trade or gets tricked into a malicious transaction, who's responsible? Current legal frameworks have no answer. KYA solves the identity problem but not the accountability problem.

There's also the systemic risk nobody wants to discuss: what happens when thousands of AI agents running similar strategies interact? "Highly reactive agents may trigger chain reactions," admits one industry analysis. "Strategy collisions will cause short-term chaos."

Reality check: AI agents making autonomous crypto payments will remain experimental in 2026. The infrastructure is being built, but regulatory clarity and liability frameworks are years behind the technology.

Privacy as "The Ultimate Moat": Right Problem, Wrong Framing​

Ali Yahya's prediction that privacy will define blockchain winners in 2026 is the most technically sophisticated argument in the collection. His thesis: the throughput wars are over. Every major chain now handles thousands of transactions per second. The new differentiator is privacy, and "bridging secrets is hard"—meaning users who commit to a privacy-preserving chain face real friction leaving.

What they got right: Privacy demand is surging. Google searches for crypto privacy reached new highs in 2025. Zcash's shielded pool grew to nearly 4 million ZEC. Railgun's transaction flows exceeded $200 million monthly. Arthur Hayes echoed this sentiment: "Large institutions don't want their information public or at risk of going public."

The technical argument is sound. Privacy creates network effects that throughput doesn't. You can bridge tokens between chains trivially. You can't bridge transaction history without exposing it.

The counterpoint: a16z has significant investments in Ethereum L2s and projects that would benefit from privacy upgrades. When they predict privacy becomes essential, they're partly lobbying for features their portfolio companies need.

More importantly, there's a regulatory elephant in the room. The same governments that recently sanctioned Tornado Cash aren't going to embrace privacy chains overnight. The tension between institutional adoption (which requires KYC/AML) and genuine privacy (which undermines it) hasn't been resolved.

Reality check: Privacy will matter more in 2026, but "winner-take-most" dynamics are overstated. Regulatory pressure will fragment the market into compliant quasi-privacy solutions for institutions and genuinely private chains for everyone else.

Prediction Markets: Undersold, Actually​

Andrew Hall's prediction that prediction markets will "go bigger, broader, smarter" is perhaps the least controversial item on the list—and one where a16z might be underselling the opportunity.

What they got right: Polymarket proved prediction markets can go mainstream during the 2024 U.S. election. The platform generated more accurate forecasts than traditional polling in several races. Now the question is whether that success translates beyond political events.

Hall predicts LLM oracles resolving disputed markets, AI agents trading to surface novel predictive signals, and contracts on everything from corporate earnings to weather events.

The counterpoint: Prediction markets face fundamental liquidity challenges outside major events. A market predicting the outcome of the Super Bowl attracts millions in volume. A market predicting next quarter's iPhone sales struggles to find counterparties.

Regulatory uncertainty also looms. The CFTC has been increasingly aggressive about treating prediction markets as derivatives, which would require burdensome compliance for retail participants.

Reality check: Prediction markets will expand significantly, but the "markets on everything" vision requires solving liquidity bootstrapping and regulatory clarity. Both are harder than the technology.

The Overlooked Predictions Worth Watching​

Beyond the headline themes, several quieter predictions deserve attention:

"From 'Code is Law' to 'Spec is Law'" — Daejun Park describes moving DeFi security from bug-hunting to proving global invariants through AI-assisted specification writing. This is unglamorous infrastructure work, but could dramatically reduce the $3.4 billion lost to hacks annually.

"The Invisible Tax on the Open Web" — Elizabeth Harkavy's warning that AI agents extracting content without compensating creators could break the internet's economic model is genuinely important. If AI strips the monetization layer from content while bypassing ads, something has to replace it.

"Trading as Way Station, Not Destination" — Arianna Simpson's advice that founders chasing immediate trading revenue miss defensible opportunities is probably the most honest prediction in the collection—and a tacit admission that much of crypto's current activity is speculation masquerading as utility.

What a16z Doesn't Want to Talk About​

Conspicuously absent from the 17 predictions: any acknowledgment of the risks their bullish outlook ignores.

Memecoin fatigue is real. Over 13 million memecoins launched last year, but launches dropped 56% from January to September. The speculation engine that drove retail interest is sputtering.

Macro headwinds could derail everything. The predictions assume continued institutional adoption, regulatory clarity, and technology deployment. A recession, a major exchange collapse, or aggressive regulatory action could reset the timeline by years.

The a16z portfolio effect is distorting. When a firm managing $46 billion in total AUM and $7.6 billion in crypto publishes predictions that benefit their investments, the market responds—creating self-fulfilling prophecies that don't reflect organic demand.

The Bottom Line​

a16z's 17 predictions are best understood as a strategic document, not neutral analysis. They're telling you where they've placed their bets and why you should believe those bets will pay off.

That doesn't make them wrong. Many of these predictions—stablecoin growth, AI agent infrastructure, privacy upgrades—reflect genuine trends. The firm employs some of the smartest people in crypto and has a track record of identifying winning narratives early.

But sophisticated readers should apply a discount rate. Ask who benefits from each prediction. Consider which portfolio companies are positioned to capture value. Notice what's conspicuously absent.

The most valuable insight might be the implicit thesis underneath all 17 predictions: crypto's speculation era is ending, and infrastructure era is beginning. Whether that's hopeful thinking or accurate forecasting will be tested against reality in the coming year.

---

The 17 a16z Crypto Predictions for 2026 at a Glance:

1. Better stablecoin on/offramps connecting digital dollars to payment systems
2. Crypto-native RWA tokenization with perpetual futures and onchain origination
3. Stablecoins enabling bank ledger upgrades without rewriting legacy systems
4. The internet becoming financial infrastructure through programmable settlement
5. AI-powered wealth management accessible to everyone
6. KYA (Know Your Agent) cryptographic identity for AI agents
7. AI models performing doctoral-level research autonomously
8. Addressing AI's "invisible tax" on open web content
9. Privacy as the ultimate competitive moat for blockchains
10. Decentralized messaging resistant to quantum threats
11. Secrets-as-a-Service for programmable data access control
12. "Spec is Law" replacing "Code is Law" in DeFi security
13. Prediction markets expanding beyond elections
14. Staked media replacing feigned journalistic neutrality
15. SNARKs enabling verifiable cloud computing
16. Trading as a way station, not destination, for builders
17. Legal architecture matching technical architecture in crypto regulation

---

This article is for educational purposes only and should not be considered financial advice. The author holds no positions in a16z portfolio companies discussed in this article.

Andreessen Horowitz's crypto team has been remarkably prescient in the past—they called the NFT boom, the DeFi summer, and the modular blockchain thesis before most. Now they've released their 17 big ideas for 2026, and the predictions range from the obvious (stablecoins will keep growing) to the controversial (AI agents will need their own identity systems). Here's our analysis of each prediction, where we agree, and where we think they've missed the mark.

The Stablecoin Thesis: Already Proven, But How Much Higher?​

a16z Prediction: Stablecoins will continue their explosive growth trajectory.

The numbers are staggering. In 2024, stablecoins processed $15.6 trillion in transaction volume. By 2025, that figure reached $46 trillion—more than 20 times PayPal's volume and triple Visa's. USDT alone accounts for over $190 billion in circulation, while USDC has rebounded to $45 billion after its Silicon Valley Bank scare.

Our take: This is less a prediction and more a statement of fact. The real question isn't whether stablecoins will grow, but whether new entrants like PayPal's PYUSD, Ripple's RLUSD, or yield-bearing alternatives like Ethena's USDe will capture meaningful market share from the Tether-Circle duopoly.

The more interesting dynamic is regulatory. The US GENIUS Act and CLARITY Act are reshaping the stablecoin landscape, potentially creating a two-tier system: compliant, US-regulated stablecoins for institutional use, and offshore alternatives for the rest of the world.

AI Agents Need Crypto Wallets​

a16z Prediction: AI agents will become major users of crypto infrastructure, requiring their own wallets and identity credentials through a "Know Your Agent" (KYA) system.

This is one of a16z's more forward-looking predictions. As AI agents proliferate—booking travel, managing investments, executing trades—they'll need to transact autonomously. Traditional payment rails require human identity verification, creating a fundamental incompatibility.

Our take: The premise is sound, but the timeline is aggressive. Most current AI agents operate in sandboxed environments with human approval for financial actions. The jump to fully autonomous agents with their own crypto wallets faces significant hurdles:

1. Liability questions: Who's responsible when an AI agent makes a bad trade?
2. Sybil attacks: What prevents someone from spinning up thousands of AI agents?
3. Regulatory uncertainty: Will regulators treat AI-controlled wallets differently?

The KYA concept is clever—essentially a cryptographic attestation that an agent was created by a verified entity and operates within certain parameters. But implementation will lag the vision by at least 2-3 years.

Privacy as a Competitive Moat​

a16z Prediction: Privacy-preserving technologies will become essential infrastructure, not optional features.

The timing is notable. Just as blockchain analytics firms have achieved near-total surveillance of public chains, a16z is betting that privacy will swing back as a priority. Technologies like FHE (Fully Homomorphic Encryption), ZK proofs, and confidential computing are maturing from academic curiosities to production-ready infrastructure.

Our take: Strongly agree, but with nuance. Privacy will bifurcate into two tracks:

• Institutional privacy: Enterprises need transaction confidentiality without compliance concerns. Solutions like Oasis Network's confidential computing or Chainlink's CCIP with privacy features will dominate here.
• Individual privacy: More contentious. Regulatory pressure on mixing services and privacy coins will intensify, pushing privacy-conscious users toward compliant solutions that offer selective disclosure.

The projects that thread this needle—providing privacy while maintaining regulatory compatibility—will capture enormous value.

SNARKs for Verifiable Cloud Computing​

a16z Prediction: Zero-knowledge proofs will extend beyond blockchain to verify any computation, enabling "trustless" cloud computing.

This is perhaps the most technically significant prediction. Today's SNARKs (Succinct Non-interactive Arguments of Knowledge) are primarily used for blockchain scaling (zkEVMs, rollups) and privacy. But the same technology can verify that any computation was performed correctly.

Imagine: you send data to a cloud provider, they return a result plus a proof that the computation was done correctly. No need to trust AWS or Google—the math guarantees correctness.

Our take: The vision is compelling, but overhead remains prohibitive for most use cases. Generating ZK proofs for general computation still costs 100-1000x the original computation. Projects like RISC Zero's Boundless and Modulus Labs' zkML are making progress, but mainstream adoption is years away.

The near-term wins will be specific, high-value use cases: verifiable AI inference, auditable financial calculations, and provable compliance checks.

Prediction Markets Go Mainstream​

a16z Prediction: The success of Polymarket during the 2024 election will spark a broader prediction market boom.

Polymarket processed over $3 billion in trading volume around the 2024 US election, often proving more accurate than traditional polls. This wasn't just crypto natives gambling—mainstream media outlets cited Polymarket odds as legitimate forecasting data.

Our take: The regulatory arbitrage won't last forever. Polymarket operates offshore specifically to avoid US gambling and derivatives regulations. As prediction markets gain legitimacy, they'll face increasing regulatory scrutiny.

The more sustainable path is through regulated venues. Kalshi has SEC approval to offer certain event contracts. The question is whether regulated prediction markets can offer the same breadth and liquidity as offshore alternatives.

The Infrastructure-to-Application Shift​

a16z Prediction: Value will increasingly accrue to applications rather than infrastructure.

For years, crypto's "fat protocol thesis" suggested that base layers (Ethereum, Solana) would capture most value while applications remained commoditized. a16z is now calling this into question.

The evidence: Hyperliquid captured 53% of on-chain perpetuals revenue in 2025, exceeding the fees of many L1s. Uniswap generates more revenue than most chains it deploys on. Friend.tech briefly made more money than Ethereum.

Our take: The pendulum is swinging, but infrastructure isn't going away. The nuance is that differentiated infrastructure still commands premiums—generic L1s and L2s are indeed commoditizing, but specialized chains (Hyperliquid for trading, Story Protocol for IP) can capture value.

The winners will be applications that own their stack: either by building app-specific chains or by capturing enough volume to extract favorable terms from infrastructure providers.

Decentralized Identity Beyond Finance​

a16z Prediction: Blockchain-based identity and reputation systems will find use cases beyond financial applications.

We've heard this prediction for years, and it's consistently underdelivered. The difference now is that AI-generated content has created a genuine demand for proof of humanity. When anyone can generate convincing text, images, or videos, cryptographic attestations of human creation become valuable.

Our take: Cautiously optimistic. The technical pieces exist—Worldcoin's iris scanning, Ethereum Attestation Service, various soul-bound token implementations. The challenge is creating systems that are both privacy-preserving and widely adopted.

The killer app might not be "identity" per se, but specific credentials: proof of professional qualification, verified reviews, or attestations of content authenticity.

The RWA Tokenization Acceleration​

a16z Prediction: Real-world asset tokenization will accelerate, driven by institutional adoption.

BlackRock's BUIDL fund crossed $500 million in assets. Franklin Templeton, WisdomTree, and Hamilton Lane have all launched tokenized products. The total RWA market (excluding stablecoins) reached $16 billion in 2025.

Our take: The growth is real, but context matters. $16 billion is a rounding error compared to traditional asset markets. The more meaningful metric is velocity—how quickly are new assets being tokenized, and are they finding secondary market liquidity?

The bottleneck isn't technology; it's legal infrastructure. Tokenizing a Treasury bill is straightforward. Tokenizing real estate with clear title, foreclosure rights, and regulatory compliance across jurisdictions is enormously complex.

Cross-Chain Interoperability Matures​

a16z Prediction: The "walled garden" era of blockchains will end as cross-chain infrastructure improves.

Chainlink's CCIP, LayerZero, Wormhole, and others are making cross-chain transfers increasingly seamless. The user experience of bridging assets has improved dramatically from the clunky, risky processes of 2021.

Our take: Infrastructure is maturing, but security concerns linger. Bridge exploits accounted for billions in losses over the past few years. Each interoperability solution introduces new trust assumptions and attack surfaces.

The winning approach will likely be native interoperability—chains built from the ground up to communicate, rather than bolted-on bridge solutions.

Consumer Crypto Applications Finally Arrive​

a16z Prediction: 2026 will see the first crypto applications with 100+ million users that don't feel like "crypto apps."

The argument: infrastructure improvements (lower fees, better wallets, account abstraction) have removed the friction that previously blocked mainstream adoption. The missing piece was compelling applications.

Our take: This has been predicted every year since 2017. The difference now is that the infrastructure genuinely is better. Transaction costs on L2s are measured in fractions of a cent. Smart wallets can abstract away seed phrases. Fiat on-ramps are integrated.

But "compelling applications" is the hard part. The crypto apps that have achieved scale (Coinbase, Binance) are fundamentally financial products. Non-financial killer apps remain elusive.

Our Additions: What a16z Missed​

1. The Security Crisis Will Define 2026​

a16z's predictions are notably silent on security. In 2025, crypto lost over $3.5 billion to hacks and exploits. The ByBit $1.5 billion hack demonstrated that even major exchanges remain vulnerable. State-sponsored actors (North Korea's Lazarus Group) are increasingly sophisticated.

Until the industry addresses fundamental security issues, mainstream adoption will remain limited.

2. Regulatory Fragmentation​

The US is moving toward clearer crypto regulation, but the global picture is fragmenting. The EU's MiCA, Singapore's licensing regime, and Hong Kong's virtual asset framework create a patchwork that projects must navigate.

This fragmentation will benefit some (regulatory arbitrage opportunities) and hurt others (compliance costs for global operations).

3. The Bitcoin Treasury Movement​

Over 70 public companies now hold Bitcoin on their balance sheets. MicroStrategy's playbook—leveraging corporate treasuries into Bitcoin exposure—is being copied worldwide. This institutional adoption is arguably more significant than any technical development.

Conclusion: Separating Signal from Noise​

a16z's predictions are worth taking seriously—they have the portfolio exposure and technical depth to see around corners. Their stablecoin, AI agent, and privacy theses are particularly compelling.

Where we diverge is on timelines. The crypto industry has consistently overestimated how quickly transformative technologies would reach mainstream adoption. SNARKs for general computation, AI agents with crypto wallets, and 100-million-user consumer apps are all plausible—just not necessarily in 2026.

The safer bet: incremental progress on proven use cases (stablecoins, DeFi, tokenized assets) while more speculative applications continue incubating.

For builders, the message is clear: focus on real utility over narrative hype. The projects that survived 2025's carnage were those generating actual revenue and serving genuine user needs. That lesson applies regardless of which a16z predictions prove accurate.

---

BlockEden.xyz provides enterprise-grade blockchain infrastructure for builders focused on long-term value creation. Whether you're building the next stablecoin application, AI agent platform, or RWA tokenization service, our APIs and infrastructure are designed to scale with your vision. Explore our services to build on foundations designed to last.

Bitcoin has sat on the sidelines of the DeFi revolution for years. While Ethereum and its Layer 2 ecosystem accumulated over $100 billion in total value locked, Bitcoin—the original cryptocurrency with a $1.7 trillion market cap—remained largely idle. Only 0.8% of all BTC is currently utilized in DeFi applications.

That's changing fast. The BTCFi (Bitcoin DeFi) sector has exploded 22x from $300 million in early 2024 to over $7 billion by mid-2025. More than 75 Bitcoin Layer 2 projects are now competing to transform BTC from "digital gold" into a programmable financial layer. The question isn't whether Bitcoin will have DeFi—it's which approach will win.

The Problem BTCFi Solves​

To understand why dozens of teams are racing to build Bitcoin Layer 2s, you need to understand Bitcoin's fundamental limitation: it wasn't designed for smart contracts.

Bitcoin's scripting language is intentionally simple. Satoshi Nakamoto prioritized security and decentralization over programmability. This made Bitcoin incredibly robust—no major protocol hack in 15 years—but it also meant that anyone wanting to use BTC in DeFi had to wrap it first.

Wrapped Bitcoin (WBTC) became the de facto standard for bringing Bitcoin to Ethereum. At its peak, over $14 billion worth of WBTC circulated through DeFi protocols. But wrapping introduced serious risks:

• Custodian risk: BitGo and other custodians hold the actual Bitcoin, creating single points of failure
• Smart contract risk: The March 2023 Euler Finance hack resulted in $197 million in losses, including significant WBTC
• Bridging risk: Cross-chain bridges have been responsible for some of the largest DeFi exploits in history
• Centralization: The 2024 WBTC custody controversy, involving Justin Sun and multi-jurisdictional restructuring, shook user confidence

BTCFi promises to let Bitcoin holders earn yield, lend, borrow, and trade without surrendering custody of their BTC to centralized parties.

The Major Contenders​

Babylon: The Staking Giant​

Babylon has emerged as the dominant force in BTCFi, with $4.79 billion in TVL as of mid-2025. Founded by Stanford professor David Tse, Babylon introduced a novel concept: using Bitcoin to secure Proof-of-Stake networks without wrapping or bridging.

Here's how it works: Bitcoin holders stake their BTC using "Extractable One-Time Signatures" (EOTS). If a validator behaves honestly, the stake remains untouched. If they act maliciously, the EOTS mechanism enables slashing—automatically burning a portion of the staked Bitcoin as punishment.

The genius is that users never give up custody. Their Bitcoin stays on the Bitcoin blockchain, timestamped and locked, while providing economic security to other networks. Kraken now offers Babylon staking with up to 1% APR—modest by DeFi standards, but significant for a trustless Bitcoin yield product.

In April 2025, Babylon launched its own Layer 1 chain and airdropped 600 million BABY tokens to early stakers. More importantly, a partnership with Aave will enable native Bitcoin collateral on Aave V4 by April 2026—potentially the most significant bridge between Bitcoin and DeFi yet.

Lightning Network: The Payment Veteran​

The oldest Bitcoin Layer 2 is experiencing a renaissance. Lightning Network capacity hit an all-time high of 5,637 BTC (roughly $490 million) in late 2025, reversing a year-long decline.

Lightning excels at what it was designed for: fast, cheap payments. Transaction success rates exceed 99.7% in controlled deployments, with settlement times under 0.5 seconds. The 266% year-over-year increase in transaction volume reflects growing merchant adoption.

But Lightning's growth is increasingly institutional. Large exchanges like Binance and OKX have deposited significant BTC into Lightning channels, while the number of individual nodes has actually declined from 20,700 in 2022 to around 14,940 today.

Lightning Labs' Taproot Assets upgrade opens new possibilities, allowing stablecoins and other assets to be issued on Bitcoin and transferred via Lightning. Tether's $8 million investment in Lightning startup Speed signals institutional interest in stablecoin payments over the network. Some analysts project Lightning could handle 30% of all BTC transfers for payments and remittances by the end of 2026.

Stacks: The Smart Contract Pioneer​

Stacks has been building Bitcoin smart contract infrastructure since 2017, making it the most mature programmable Bitcoin layer. Its Clarity programming language was specifically designed for Bitcoin, enabling developers to build DeFi protocols that inherit Bitcoin's security.

TVL on Stacks exceeded $600 million by late 2025, driven primarily by sBTC—a decentralized Bitcoin peg—and the ALEX decentralized exchange. Stacks anchors its state to Bitcoin through a process called "stacking," where STX token holders earn BTC rewards for participating in consensus.

The trade-off is speed. Stacks block times follow Bitcoin's 10-minute rhythm, making it less suitable for high-frequency trading applications. But for lending, borrowing, and other DeFi primitives that don't require split-second execution, Stacks offers battle-tested infrastructure.

BOB: The Hybrid Approach​

BOB (Build on Bitcoin) takes a different approach: it's simultaneously an Ethereum rollup (using the OP Stack) and a Bitcoin-secured network (via Babylon integration).

This hybrid architecture gives developers the best of both worlds. They can build using familiar Ethereum tools while settling to both Bitcoin and Ethereum for enhanced security. BOB's upcoming BitVM bridge promises trust-minimized BTC transfers without relying on custodians.

The project has attracted significant developer interest, though TVL remains smaller than the leaders. BOB represents a bet that the future of BTCFi will be multi-chain rather than Bitcoin-native.

Mezo: The HODL Economy​

Mezo, backed by Pantera Capital and Multicoin, introduced an innovative "Proof of HODL" consensus mechanism. Instead of rewarding validators or stakers, Mezo rewards users for locking BTC to secure the network.

The HODL Score system quantifies user commitment based on deposit size and duration—locking for 9 months yields 16x rewards compared to shorter periods. This creates natural alignment between network security and user behavior.

Mezo's TVL surged to $230 million in early 2025, driven by its EVM compatibility, which allows Ethereum developers to build BTCFi applications with minimal friction. Partnerships with Swell and Solv Protocol have expanded its ecosystem.

The Numbers: BTCFi by the Data​

The BTCFi landscape can be confusing. Here's a clear snapshot:

Total BTCFi TVL: $7-8.6 billion (depending on measurement methodology)

Top Projects by TVL:

• Babylon Protocol: ~$4.79 billion
• Lombard: ~$1 billion
• Merlin Chain: ~$1.7 billion
• Hemi: ~$1.2 billion
• Stacks: ~$600 million
• Core: ~$400 million
• Mezo: ~$230 million

Growth Rate: 2,700% increase from $307 million in early 2024 to $8.6 billion by Q2 2025

Bitcoin in BTCFi: 91,332 BTC (approximately 0.46% of all Bitcoin in circulation)

Funding Landscape: 14 public Bitcoin L2 financings totaling over $71.1 million, with Mezo's $21 million Series A being the largest

The TVL Controversy​

Not all TVL claims are created equal. In January 2025, leading Bitcoin ecosystem projects including Nubit, Nebra, and Bitcoin Layers published a "Proof of TVL" report exposing widespread problems:

• Double counting: The same Bitcoin counted across multiple protocols
• Fake locking: TVL claims without actual on-chain verification
• Opaque methodology: Inconsistent measurement standards across projects

This matters because inflated TVL numbers attract investors, users, and developers based on false premises. The report called for standardized asset transparency verification—essentially, proof of reserves for BTCFi.

For users, the implication is clear: dig deeper than headline TVL numbers when evaluating Bitcoin L2 projects.

What's Missing: The Catalyst Problem​

Despite impressive growth, BTCFi faces a fundamental challenge: it hasn't found its killer application yet.

The Block's 2026 Layer 2 Outlook noted that "launching the same existing primitives seen on EVM-based L2s on a BTC chain is not enough to attract liquidity or developers." Bitcoin L2 TVL actually declined 74% from its 2024 peak, even as headline BTCFi numbers grew (largely due to Babylon's staking product).

The Ordinals narrative that sparked the 2023-2024 Bitcoin L2 boom has faded. BRC-20 tokens and Bitcoin NFTs generated excitement but not sustainable economic activity. BTCFi needs something new.

Several potential catalysts are emerging:

Native Bitcoin Lending: Babylon's BTCVaults initiative and the Aave V4 integration could enable Bitcoin-collateralized borrowing without wrapping—a massive market if it works trustlessly.

Trustless Bridges: BitVM-based bridges like BOB's could finally solve the wrapped Bitcoin problem, though the technology remains unproven at scale.

Stablecoin Payments: Lightning Network's Taproot Assets could enable cheap, instant stablecoin transfers with Bitcoin's security, potentially capturing remittance and payments markets.

Institutional Custody: Coinbase's cbBTC and other regulated alternatives to WBTC could bring institutional capital that has avoided BTCFi due to custody concerns.

The Elephant in the Room: Security​

Bitcoin L2s face a fundamental tension. Bitcoin's security comes from its simplicity—any added complexity introduces potential vulnerabilities.

Different L2s handle this differently:

• Babylon keeps Bitcoin on the main chain, using cryptographic proofs rather than bridges
• Lightning uses payment channels that can always be settled back to Layer 1
• Stacks anchors state to Bitcoin but has its own consensus mechanism
• BOB and others rely on various bridge designs with different trust assumptions

None of these approaches are perfect. The only way to use Bitcoin with zero additional risk is to hold it in self-custody on Layer 1. Every BTCFi application introduces some trade-off.

For users, this means understanding exactly what risks each protocol introduces. Is the yield worth the smart contract risk? Is the convenience worth the bridging risk? These are individual decisions that require informed evaluation.

The Road Ahead​

The BTCFi race is far from decided. Several scenarios could play out:

Scenario 1: Babylon Dominance If Babylon's staking model continues to grow and its lending products succeed, it could become the de facto BTCFi infrastructure layer—the Lido of Bitcoin.

Scenario 2: Lightning Evolution Lightning Network could evolve beyond payments into a full financial layer, especially if Taproot Assets gains traction for stablecoins and tokenized assets.

Scenario 3: Ethereum Integration Hybrid approaches like BOB or native Bitcoin collateral on Aave V4 could mean BTCFi happens primarily through Ethereum infrastructure, with Bitcoin serving as collateral rather than execution layer.

Scenario 4: Fragmentation The most likely near-term outcome is continued fragmentation, with different L2s serving different use cases. Lightning for payments, Babylon for staking, Stacks for DeFi, and so on.

What This Means for Bitcoin Holders​

For the average Bitcoin holder, BTCFi presents both opportunity and complexity.

The opportunity: Earn yield on idle Bitcoin without selling it. Access DeFi functionality—lending, borrowing, trading—while maintaining BTC exposure.

The complexity: Navigating 75+ projects with varying risk profiles, understanding which TVL claims are legitimate, and evaluating trade-offs between yield and security.

The safest approach is patience. BTCFi infrastructure is still maturing. The projects that survive the next bear market will have proven their security and utility. Early adopters will earn higher yields but face higher risks.

For those who want to participate now, start with the most battle-tested options:

• Lightning for payments (minimal additional risk)
• Babylon staking through regulated custodians like Kraken (institutional custody, lower yield)
• Stacks for those comfortable with smart contract risk on a mature platform

Avoid projects with inflated TVL claims, opaque security models, or excessive token incentives that mask underlying economics.

Conclusion​

Bitcoin's DeFi awakening is real, but it's still early. The 22x growth in BTCFi TVL reflects genuine demand from Bitcoin holders who want to put their assets to work. But the infrastructure isn't mature, the killer application hasn't emerged, and many projects are still proving their security models.

The winners of the Bitcoin L2 race will be determined by which projects can attract sustainable liquidity—not through airdrops and incentive programs, but through genuine utility that Bitcoin holders actually want.

We're watching the foundation being laid for a potentially massive market. With less than 1% of Bitcoin currently in DeFi, the room for growth is enormous. But growth requires trust, and trust requires time.

The race is on. The finish line is still years away.

---

This article is for educational purposes only and should not be considered financial advice. Always conduct your own research before interacting with any DeFi protocol.

In the first quarter of 2025 alone, 1.8 million crypto projects died. That's not a typo—it's nearly half of all project failures ever recorded, compressed into just three months. The carnage included well-funded startups backed by tier-one VCs, heavily marketed tokens that debuted on major exchanges, and political memecoins that briefly touched $10 billion valuations before collapsing 90%.

The crypto graveyard of 2025 isn't just a cautionary tale. It's a masterclass in what separates projects that survive from those that become case studies in failure. Here's what went wrong, who fell hardest, and the patterns every builder and investor should recognize.

The Numbers: A Year of Unprecedented Failure​

The statistics are staggering. According to CoinGecko data, 52.7% of all cryptocurrencies ever launched have now failed—meaning they stopped trading entirely or dropped to zero liquidity. Of the nearly 7 million tokens listed on GeckoTerminal since 2021, 3.7 million are now dead coins.

But the velocity of death in 2025 broke all records:

Metric	Figure
Q1 2025 project failures	1.8 million
2024 project failures	1.4 million
Percentage of all-time failures in 2024-2025	86%+
Daily new token launches (Jan 2025)	73,000
Pump.fun graduation rate	<2%

The math is brutal: with 73,000 tokens launching daily and less than 2% surviving past their first week, the crypto space became a factory for failure.

The Memecoin Massacre: 98% Failure Rate​

No category collapsed harder than memecoins. A Solidus Labs report found that 98.6% of tokens launched on Pump.fun—the dominant memecoin launchpad on Solana—were rug pulls or pump-and-dump schemes.

Of the 7+ million tokens issued through Pump.fun since January 2024, only 97,000 maintained even $1,000 in liquidity. In August 2025 alone, 604,162 tokens launched but just 4,510 "graduated" to real trading—a 0.75% success rate.

The poster children for memecoin failure were the political tokens:

TRUMP Token: Launched to celebrate the incoming administration, TRUMP rocketed from under $10 to $70 within 48 hours of inauguration, briefly hitting a fully diluted value above $10 billion. Within weeks, it collapsed 87% from peak. Reports emerged that insiders profited over $100 million by buying before public launch.

MELANIA Token: Following the same playbook, MELANIA launched to fanfare and promptly crashed 97% from its high.

Pi Network: The "mine crypto on your phone" project spent years building hype among millions of users. When the token finally launched and price discovery met unlock schedules, Pi spiked to nearly $2.98 in February before collapsing over 90% to around $0.20 by year-end.

The memecoin market as a whole went from a $150.6 billion peak in December 2024 to $47.2 billion by November 2025—a 69% collapse.

Case Study: Movement Labs—How Opaque Token Deals Kill Credibility​

Movement Labs offered something more substantial than meme tokens: a Move-VM-powered Ethereum scaling solution with slick marketing and prominent exchange listings. Yet by mid-2025, it had become "a case study in how opaque token deals destroy credibility faster than any technical failure."

What happened: Reports surfaced that Movement handed roughly 66 million MOVE tokens—approximately 5% of total supply, worth $38 million at the time—to a market maker linked to Web3Port through an intermediary. Most of those tokens hit the market immediately.

The fallout:

• Coinbase delisted MOVE as the scandal unfolded
• The foundation suspended and terminated co-founder Rushi Manche
• MOVE crashed 97% from its December 2024 all-time high
• An external governance review was commissioned

The lesson: Even technically sound projects can implode when token economics and insider dealings undermine trust. The market punishes opacity ruthlessly.

Case Study: Mantra (OM)—The $6 Billion Evaporation​

Mantra positioned itself as the premium play in the RWA (Real-World Asset) tokenization narrative. A January 2025 partnership with UAE's DAMAC Group to tokenize $1 billion in real estate assets seemed to validate the vision.

On April 13, 2025, OM crashed from approximately $6.30 to under $0.50 in a single day—a 90%+ collapse that erased over $6 billion in market cap within hours.

The red flags that preceded the crash:

• OM's fully diluted valuation reached $10 billion while total value locked (TVL) was just $4 million
• Token supply was abruptly doubled from 1 billion to 2 billion
• In the week before the crash, at least 17 wallets deposited 43.6 million OM ($227 million) to exchanges
• Two of these addresses were linked to Laser Digital according to Arkham data

The official story vs. reality: Co-founder John Patrick Mullin blamed "reckless forced closures initiated by centralized exchanges." Critics pointed to the concentration—multiple sources alleged the team controlled 90% of token supply.

OKX founder Star Xu called it "a big scandal to the whole crypto industry," promising to release investigation reports.

Whether technically a "rug pull" or not, Mantra became a textbook example of how disconnected valuations and concentrated token ownership create catastrophic risk.

The GameFi and NFT Apocalypse​

Two narratives that defined the 2021-2022 bull market became graveyards in 2025:

GameFi: Down 75.1% year-to-date, making it the second-worst performing crypto narrative (behind only DePIN at -76.7%). Projects that shut down included COMBO, Nyan Heroes, and Ember Sword. The GameFi market collapsed from $237.5 billion to $90.3 billion.

NFTs: The market fell from $92 billion to $25 billion. Platforms like Royal, RECUR, and X2Y2 closed operations entirely.

AI Tokens: Lost roughly 75% of combined value year-over-year, wiping out an estimated $53 billion from the market—despite AI being the hottest narrative in tech.

The pattern: narrative-driven valuations that far outpaced actual usage or revenue.

The Warning Signs: How to Spot a Dying Project​

Across the wreckage of 2025, consistent warning signs emerged:

1. Valuation-TVL Disconnect​

Mantra's $10 billion FDV vs. $4 million TVL was an extreme example of a common problem. When a project's market cap dwarfs actual usage metrics by 1000x or more, that gap eventually closes—usually violently.

2. Token Unlock Concentration​

Movement's market maker deal and Mantra's concentrated holdings demonstrate how token distribution can make or break a project. Check:

• Vesting schedules and unlock timing
• Wallet concentration (top 10 holders %)
• Recent large deposits to exchanges before major announcements

3. Development Activity Stagnation​

Use GitHub and other repositories to check commit frequency. If the last meaningful code commit was six months ago, the project may already be dying.

4. Transaction Volume vs. Hype​

Blockchain explorers reveal the truth. Low daily transactions or minimal wallet activity despite high social media presence suggests artificial demand.

5. Team Transparency Issues​

Pseudonymous teams aren't inherently bad—Bitcoin had Satoshi—but combine anonymity with large insider allocations and you have a recipe for disaster.

Lessons for Builders​

The survivors of 2025 share common traits:

1. Revenue Over Narrative Projects that generated actual fees, usage, and economic activity—not just token speculation—weathered the storm. Hyperliquid capturing 53% of on-chain trading revenue demonstrates that real business models matter.

2. Transparent Token Economics Clear vesting schedules, on-chain verifiable allocations, and honest communication about insider sales build the trust that sustains communities through downturns.

3. Regulatory Pragmatism Projects that ignored legal frameworks found themselves delisted, sued, or shut down. The FCA's placement of Pump.fun on its Warning List and the class-action lawsuits that followed show regulators are paying attention.

4. Focus on User Experience As the a16z State of Crypto report noted, 2025 marked the transition from infrastructure-building to application-building. Revolutionary tech that's inaccessible won't gain adoption.

The Systemic Risk: Security Failures Beyond Individual Projects​

Individual project failures were painful. The systemic security crisis was catastrophic.

Total crypto losses from hacks and exploits crossed $3.5 billion in 2025, making it one of the most damaging years in crypto history. The February ByBit hack alone—at $1.5 billion—represented the largest DeFi breach ever recorded.

The $150 billion in forced liquidations throughout the year, including a single 24-hour period that erased $20 billion in leveraged positions, demonstrated how interconnected the ecosystem has become.

What's Next: The 2026 Outlook​

The carnage of 2025 cleared out the speculative excess, but the underlying infrastructure kept building. Stablecoin volumes continued growing, institutional adoption accelerated, and the survivors emerged stronger.

For builders entering 2026:

• Focus on real utility over token price
• Prioritize transparency in all token dealings
• Build for users who need your product, not speculators hoping for returns
• Treat regulatory compliance as a feature, not an obstacle

The crypto graveyard of 2025 holds valuable lessons for those willing to learn. The 1.8 million projects that died in Q1 alone represent billions in lost capital and countless broken promises. But buried among the failures are the patterns that distinguish lasting projects from elaborate exits.

The best time to build is when speculative money has left. The projects starting now, with the lessons of 2025 fresh in mind, may well define the next cycle.

---

BlockEden.xyz provides enterprise-grade blockchain infrastructure designed for the long term. We believe in building sustainable technology that serves real users, not speculation cycles. Explore our API services to build on foundations designed to last.

Six months into full enforcement, Europe's Markets in Crypto-Assets Regulation (MiCA) has fundamentally transformed the continent's crypto landscape. Over €540 million in fines, 50+ license revocations, and the delisting of USDT from major exchanges—the world's first comprehensive crypto regulatory framework isn't just setting rules, it's actively reshaping who can operate in a market projected to reach €1.8 trillion by year-end.

For crypto businesses worldwide, MiCA represents both a template and a warning. The regulation demonstrates what comprehensive crypto oversight looks like in practice: what it costs, what it demands, and what it excludes. Understanding MiCA isn't optional for anyone building in the global crypto ecosystem—it's essential.

---

The MiCA Framework: What It Actually Requires​

MiCA entered into force on June 29, 2023, with a phased implementation that reached full effect on December 30, 2024. Unlike the fragmented regulatory approaches in the US, MiCA provides uniform rules across all 27 EU member states, creating a single market for crypto-asset services.

The Three-Tier Licensing System​

MiCA classifies Crypto-Asset Service Providers (CASPs) into three tiers based on services offered:

License Class	Minimum Capital	Services Covered
Class 1	€50,000	Order transmission, advice, order execution, placing crypto-assets
Class 2	€125,000	Crypto-to-fiat exchange, crypto-to-crypto exchange, trading platform operation
Class 3	€150,000	Custody and administration of crypto-assets on behalf of third parties

Beyond capital requirements, CASPs must:

• Have at least one EU-based director
• Maintain a registered office within the EU
• Implement comprehensive cybersecurity measures
• Meet AML/CFT (Anti-Money Laundering/Counter-Terrorism Financing) obligations
• Conduct customer due diligence
• Establish governance structures with qualified personnel

The Passporting Advantage​

The killer feature of MiCA licensing is passporting: authorization in one EU country grants the right to serve clients across all 27 member states plus the broader European Economic Area (EEA). This eliminates the regulatory arbitrage that previously characterized European crypto operations.

---

The Stablecoin Shakeout: USDT vs. USDC​

MiCA's most dramatic immediate impact has been on stablecoins. The regulation classifies stablecoins as either Asset-Referenced Tokens (ARTs) or Electronic Money Tokens (EMTs), each with strict requirements for 1:1 backing with liquid reserves, transparency, and regulatory approval.

Tether's European Exit​

USDT, the world's largest stablecoin with approximately $140 billion in market capitalization, has been effectively banned from regulated European trading. Tether has not pursued MiCA compliance, choosing instead to prioritize other markets.

The delisting cascade has been dramatic:

• Coinbase Europe: Delisted USDT in December 2024
• Crypto.com: Removed USDT by January 31, 2025
• Binance: Discontinued spot trading pairs for EEA users in March 2025

Tether's spokesperson stated the company would wait until a more "risk-averse framework" is established in the EU. The company even discontinued its euro-pegged stablecoin (EUR€) in late 2024.

Circle's Strategic Win​

In contrast, Circle obtained an Electronic Money Institution (EMI) license from France's ACPR in July 2024, making USDC the first major MiCA-compliant stablecoin. For European users and platforms, USDC has become the de facto dollar-denominated stablecoin.

The European Alternative​

Recognizing the opportunity, nine major European banks announced in September 2025 that they're launching a euro-denominated stablecoin—a direct response to what they call the "US-dominated stablecoin market." With US-issued tokens currently commanding 99% of global stablecoin market share, Europe sees MiCA as leverage to develop domestic alternatives.

Transaction Caps and Euro Protection​

MiCA includes controversial transaction caps for non-EU currency stablecoins: 1 million transactions daily or €200 million in payment value. Designed to protect the Euro's prominence, these limits significantly restrict the utility of dollar-denominated stablecoins for European payments—and have drawn criticism for potentially hindering innovation.

---

The Licensing Landscape: Who's In, Who's Out​

By July 2025, 53 entities had secured MiCA licenses, enabling them to passport services across all 30 EEA countries. The licensed firms represent a mix of traditional financial institutions, fintech companies, and crypto-native businesses.

The Winners​

Germany has attracted major players including Commerzbank, N26, Trade Republic, BitGo, and Tangany—positioning itself as the choice for institutions wanting "bank-grade optics."

Netherlands approved multiple crypto-native firms on day one (December 30, 2024), including Bitvavo, MoonPay, and Amdax—establishing itself as a hub for brokerage and on/off-ramp models.

Luxembourg hosts Coinbase, Bitstamp, and Clearstream, leveraging its reputation as a financial center.

Malta has licensed OKX, Crypto.com, Gemini, and Bitpanda—cementing its role as a trading hub.

Notable Approvals​

• OKX: Licensed in Malta (January 2025), now operational across all EEA states
• Coinbase: Licensed in Luxembourg (June 2025), establishing its "European crypto hub"
• Bybit: Licensed in Austria (May 2025)
• Kraken: Built on existing MiFID and EMI licenses with Central Bank of Ireland approval
• Revolut: Recently added to the MiCA compliance watchlist

The Holdout​

Binance, the world's largest crypto exchange by trading volume, remains notably absent from the MiCA-licensed entities. The exchange has hired Gillian Lynch as head of Europe and UK to navigate regulatory engagement, but as of early 2026, it lacks MiCA authorization.

---

The Cost of Compliance​

MiCA compliance isn't cheap. Roughly 35% of crypto businesses report annual compliance costs exceeding €500,000, and one-third of blockchain startups worry these expenses could curb innovation.

The Numbers​

Metric	Value
Businesses achieving MiCA compliance by Q1 2025	65%+
Licenses issued in first six months	53
Penalties issued to non-compliant firms	€540 million+
Licenses revoked by February 2025	50+
Largest single fine (France, single exchange)	€62 million

Transitional Period Fragmentation​

Despite MiCA's harmonization goals, implementation has revealed fragmentation across member states. Transitional periods vary dramatically:

Country	Deadline
Netherlands	July 1, 2025
Lithuania	January 1, 2026
Italy	December 2025
Estonia	June 30, 2026
Other member states	Up to July 1, 2026

Each national authority interprets requirements differently, processes applications at varying speeds, and enforces compliance with different intensity. This creates arbitrage opportunities—and risks—for businesses choosing where to apply.

---

What MiCA Doesn't Cover: DeFi and NFT Grey Zones​

MiCA explicitly excludes two major crypto categories—but with significant caveats.

The DeFi Exception​

Services provided "in a fully decentralized manner without any intermediary" fall outside MiCA's scope. However, what constitutes "fully decentralized" remains undefined, creating substantial uncertainty.

The practical reality: most DeFi platforms involve some degree of centralization through governance tokens, development teams, user interfaces, or upgrade mechanisms. While permissionless smart contract infrastructure may escape direct authorization, front-ends, interfaces, or service layers provided by identifiable entities can be in scope as CASPs.

The European Commission is expected to assess DeFi developments and may propose new regulatory measures, but the timeline remains open.

The NFT Exemption​

Non-fungible tokens representing unique digital art or collectibles are generally excluded from MiCA. Approximately 70% of NFT projects currently fall outside MiCA's financial scope in 2025.

However, MiCA applies a "substance-over-form" approach:

• Fractionalized NFTs fall under MiCA rules
• NFTs issued in large series may be considered fungible and regulated
• NFTs marketed as investments trigger compliance requirements

Utility NFTs offering access or membership remain exempt, covering approximately 30% of all NFTs in 2025.

---

The 2026 Outlook: What's Coming​

MiCA is evolving. Several developments will shape European crypto regulation in 2026 and beyond.

MiCA 2.0​

A new MiCA amendment proposal is under discussion to address DeFi and NFTs more comprehensively, expected to be finalized by late 2025 or early 2026. This "MiCA 2.0" could significantly expand regulatory scope.

AMLA Launch​

The EU's Anti-Money Laundering Authority (AMLA) is launching in 2026 with direct supervisory authority over the largest cross-border crypto firms for AML/CFT compliance. This represents a significant centralization of enforcement power.

DORA Implementation​

The Digital Operational Resilience Act (DORA), the EU's framework for managing IT and cybersecurity risks across the financial sector, applies to MiCA-licensed crypto firms as of January 2025—adding another compliance layer.

Market Projections​

• Over 90% of EU crypto firms projected to achieve compliance by 2026
• Regulated crypto investment offerings predicted to grow 45% by 2026
• Institutional involvement expected to increase as investor protection measures mature

---

Strategic Implications for Global Crypto​

MiCA's impact extends beyond Europe. The regulation serves as a template for other jurisdictions developing crypto frameworks and sets expectations for global firms seeking European market access.

For Exchanges​

Licensed platforms now handle over 70% of Europe's spot trading volume. Non-compliant exchanges face a clear choice: invest in licensing or exit the market. Binance's absence from MiCA licensing is notable—and increasingly consequential.

For Stablecoin Issuers​

The USDT delisting demonstrates that market dominance doesn't translate to regulatory acceptance. Stablecoin issuers must choose between pursuing licensing or accepting exclusion from major markets.

For Startups​

The 35% of businesses spending over €500,000 annually on compliance highlights the challenge for smaller firms. MiCA may accelerate consolidation as compliance costs favor larger, better-capitalized operations.

For DeFi Projects​

The "fully decentralized" exemption provides temporary shelter, but the expected regulatory evolution toward DeFi coverage suggests projects should prepare for eventual compliance requirements.

---

Conclusion: The New European Reality​

MiCA represents the most ambitious attempt to date at comprehensive crypto regulation. Six months into full enforcement, the results are clear: significant compliance costs, aggressive enforcement, and a fundamental restructuring of who can operate in the European market.

The €1.8 trillion projected market size and 47% increase in registered VASPs suggest that, despite the burden, businesses see value in regulatory clarity. The question for global crypto operations isn't whether to engage with MiCA-style regulation—it's when, as other jurisdictions increasingly adopt similar approaches.

For builders, operators, and investors, MiCA offers a preview of crypto's regulatory future: comprehensive, expensive, and ultimately unavoidable for those seeking to operate in major markets.

---

References​

• ESMA - Markets in Crypto-Assets Regulation
• MiCA Update – Six Months in Application - Skadden
• EU MiCA Regulations Statistics 2025 - CoinLaw
• What MiCA Means for Tether (USDT) - Vaultody
• Europe's MiCA Moment: Stablecoin Wars - Oxford Law Blogs
• MiCA Regulation: 2025 Guide for Licensing & Compliance
• Coinbase Wins European MiCA License - CoinDesk
• OKX Gains MiCA License - Finance Magnates
• EU Grants MiCA Licenses to 53 Crypto Firms - CryptoSlate
• MiCA Regulation: What Crypto Projects Must Know - Hacken

In May 2023, something strange happened on Paradigm's website. The homepage quietly removed any mention of "Web3" or "crypto," replacing it with the anodyne phrase "research-driven technology." The crypto community noticed. And they weren't happy.

Three years later, the story has taken unexpected turns. Co-founder Fred Ehrsam stepped down from managing partner to pursue brain-computer interfaces. Matt Huang, the remaining co-founder, is now splitting time as CEO of Stripe's new blockchain Tempo. And Paradigm itself has emerged from a period of relative quiet with a portfolio that tells a fascinating story about where crypto's smartest money thinks the industry is actually heading.

With $12.7 billion in assets under management and a track record that includes Uniswap, Flashbots, and the $225 million Monad bet, Paradigm's moves ripple through the entire crypto VC ecosystem. Understanding what they're doing—and not doing—offers a window into what 2026 funding might actually look like.

---

The AI Controversy and What It Revealed​

The 2023 website change wasn't random. It came in the aftermath of Paradigm's most painful moment: watching their $278 million investment in FTX get written down to zero after Sam Bankman-Fried's empire collapsed in November 2022.

The ensuing crypto winter forced a reckoning. Paradigm's public flirtation with AI—scrubbing crypto references from their homepage, making general "research-driven technology" noises—drew sharp criticism from crypto entrepreneurs and even their own limited partners. Matt Huang eventually clarified on Twitter that the firm would continue crypto investing while exploring AI intersections.

But the damage was real. The incident exposed a tension at the heart of crypto venture capital: how do you maintain conviction through bear markets when your LPs and portfolio companies are watching your every move?

The answer, it turns out, was to go quiet and let the investments speak.

---

The Portfolio That Tells the Real Story​

Paradigm's golden era ran from 2019 to 2021. During this period, they established their brand identity: technical infrastructure, Ethereum core ecosystem, long-termism. The investments from that era—Uniswap, Optimism, Lido, Flashbots—weren't just successful; they defined what "Paradigm-style" investing meant.

Then came the bear market silence. And then, in 2024-2025, a clear pattern emerged.

The $850 Million Third Fund (2024)​

Paradigm closed an $850 million fund in 2024—significantly smaller than their $2.5 billion 2021 fund, but still substantial for a crypto-focused firm in a bear market. The reduced size signaled pragmatism: fewer moonshots, more concentrated bets.

The AI-Crypto Intersection Bet​

In April 2025, Paradigm led a $50 million Series A for Nous Research, a decentralized AI startup building open-source language models on Solana. The round valued Nous at $1 billion in tokens—Paradigm's largest AI bet to date.

This wasn't random AI investing. Nous represents exactly the kind of intersection Paradigm had been hinting at: AI infrastructure with genuine crypto native properties. Their flagship model Hermes 3 has over 50 million downloads and powers agents across platforms like X, Telegram, and gaming environments.

The investment makes sense through a Paradigm lens: just as Flashbots became essential MEV infrastructure for Ethereum, Nous could become essential AI infrastructure for crypto applications.

The Stablecoin Infrastructure Play​

In July 2025, Paradigm led a $50 million Series A for Agora, a stablecoin company co-founded by Nick van Eck (son of the prominent investment management CEO). Stablecoins processed $9 trillion in payments in 2025—an 87% increase from 2024—making them one of crypto's clearest product-market fit stories.

This fits Paradigm's historical pattern: backing infrastructure that becomes essential to how the ecosystem operates.

The Monad Ecosystem Build-Out​

Paradigm's 2024 $225 million investment in Monad Labs—a layer 1 blockchain challenging Solana and Ethereum—was their biggest single bet of the cycle. But the real signal came in 2025 when they led an $11.6 million Series A for Kuru Labs, a DeFi startup building specifically on Monad.

This "invest in the chain, then invest in the ecosystem" pattern mirrors their earlier Ethereum strategy with Uniswap and Optimism. It suggests Paradigm sees Monad as a long-term infrastructure play worth cultivating, not just a one-off investment.

---

The Leadership Shift and What It Means​

The most significant change at Paradigm isn't an investment—it's the evolution of its leadership structure.

Fred Ehrsam's Quiet Exit​

In October 2023, Ehrsam stepped down from managing partner to general partner, citing a desire to focus on scientific interests. By 2024, he had incorporated Nudge, a neurotechnology startup focused on non-invasive brain-computer interfaces.

Ehrsam's departure from day-to-day operations removed one of the firm's two founding personalities. While he remains involved as a GP, the practical effect is that Paradigm is now primarily Matt Huang's firm.

Matt Huang's Dual Role​

The bigger structural change came in August 2025 when Huang was announced as CEO of Stripe's new blockchain Tempo. Huang will stay in his role at Paradigm while leading Tempo—a layer 1 blockchain specializing in payments that will be compatible with Ethereum but not built on top of it.

This arrangement is unusual in venture capital. Managing partners typically don't run portfolio companies (or in this case, companies launched by their board affiliations). The fact that Huang is doing both suggests either extraordinary confidence in Paradigm's team infrastructure, or a fundamental shift in how the firm operates.

For crypto founders, the implication is worth noting: when you pitch Paradigm, you're increasingly pitching a team, not the founders.

---

What This Means for 2026 Crypto Funding​

Paradigm's moves offer a preview of broader trends shaping crypto venture capital in 2026.

Concentration Is the New Normal​

Crypto VC funding surged 433% in 2025 to $49.75 billion, but this masks a brutal reality: deal count fell roughly 60% year over year, from about 2,900 transactions to 1,200. The money is flowing to fewer companies at larger check sizes.

Traditional venture investment in crypto reached about $18.9 billion in 2025, up from $13.8 billion in 2024. But much of the headline $49.75 billion figure came from digital asset treasury (DAT) companies—institutional vehicles for crypto exposure, not startup investments.

Paradigm's smaller 2024 fund size and concentrated betting pattern anticipated this shift. They're making fewer, bigger bets rather than spreading across dozens of seed rounds.

Infrastructure Over Applications​

Looking at Paradigm's 2024-2025 investments—Nous Research (AI infrastructure), Agora (stablecoin infrastructure), Monad (L1 infrastructure), Kuru Labs (DeFi infrastructure on Monad)—a clear theme emerges: they're betting on infrastructure layers, not consumer applications.

This aligns with broader VC sentiment. According to top VCs surveyed by The Block, stablecoins and payments emerged as the strongest and most consistent theme across firms heading into 2026. The returns are increasingly coming from "picks and shovels" rather than consumer-facing applications.

The Regulatory Unlock​

Hoolie Tejwani, head of Coinbase Ventures (the most active crypto investor with 87 deals in 2025), noted that clearer market structure rules in the U.S. following the GENIUS Act will be "the next major unlock for startups."

Paradigm's investment pattern suggests they've been positioning for this moment. Their infrastructure bets become significantly more valuable when regulatory clarity enables institutional adoption. A company like Agora, building stablecoin infrastructure, benefits directly from the regulatory framework the GENIUS Act provides.

Early-Stage Remains Challenging​

Despite the optimistic macro signals, most crypto investors expect early-stage funding to improve only modestly in 2026. Boris Revsin of Tribe Capital expects a rebound in both deal count and capital deployed, but "nothing close to the 2021–early 2022 peak."

Rob Hadick of Dragonfly noted a structural issue: many crypto venture firms are nearing the end of their runway from prior funds and have struggled to raise new capital. This suggests the funding environment will remain bifurcated—lots of capital for established firms like Paradigm, much less for emerging managers.

---

The Paradigm Playbook for 2026​

Reading Paradigm's recent moves, a coherent strategy emerges:

1. Infrastructure over speculation. Every major 2024-2025 investment targets infrastructure—whether that's AI infrastructure (Nous), payment infrastructure (Agora), or blockchain infrastructure (Monad).

2. Ecosystem cultivation. The Monad investment followed by the Kuru Labs investment shows Paradigm still believes in their old playbook: back the chain, then build the ecosystem.

3. AI-crypto intersection, not pure AI. The Nous investment isn't a departure from crypto; it's a bet on AI infrastructure with crypto-native properties. The distinction matters.

4. Regulatory positioning. The stablecoin infrastructure bet makes sense precisely because regulatory clarity creates opportunities for compliant players.

5. Smaller fund, concentrated bets. The $850 million third fund is smaller than prior vintage, enabling more disciplined deployment.

---

What Founders Should Know​

For founders seeking Paradigm capital in 2026, the pattern is clear:

Build infrastructure. Paradigm's recent investments are almost exclusively infrastructure plays. If you're building a consumer application, you're likely not their target.

Have a clear technical moat. Paradigm's "research-driven" positioning isn't just marketing. They've consistently backed projects with genuine technical differentiation—Flashbots' MEV infrastructure, Monad's parallel execution, Nous's open-source AI models.

Think multi-year. Paradigm's style involves deep involvement in project incubation over years, not quick flips. If you want a passive investor, look elsewhere.

Understand the team structure. With Huang splitting time at Tempo and Ehrsam focused on neurotechnology, the day-to-day investment team matters more than ever. Know who you're actually pitching.

---

Conclusion: The Quiet Confidence​

The 2023 website controversy seems almost quaint now. Paradigm didn't abandon crypto—they repositioned for a more mature market.

Their recent moves suggest a firm that's betting on crypto infrastructure becoming essential plumbing for the broader financial system, not a speculative playground for retail traders. The AI investments are crypto-native; the stablecoin investments target institutional adoption; the L1 investments build ecosystems rather than chase hype.

Whether this thesis plays out remains to be seen. But for anyone trying to understand where crypto venture capital is heading in 2026, Paradigm's quiet transformation offers the clearest signal available.

The silence was never about leaving crypto. It was about waiting for the right moment to double down.

---

References​

• Fortune - Paradigm makes $50 million bet on decentralized AI startup Nous Research
• Fortune - Stablecoin startup Agora raises $50 million Series A led by Paradigm
• Fortune - Matt Huang to lead Stripe blockchain Tempo as CEO
• Fortune - Paradigm leads $225 million round for Monad Labs
• Fortune - Crypto venture firms like Paradigm enjoy banner years
• The Block - Top crypto VCs share 2026 funding and token sales outlook
• DL News - Five VCs on how crypto investment will change in 2026
• Cryptopolitan - Crypto venture capital funding surges by 433.2% to $49.75 billion in 2025
• CoinDesk - Paradigm leads $11.6M round for Kuru Labs
• Wikipedia - Paradigm (venture capital firm)
• ChainCatcher - The stall moment of Paradigm

AllScale.io is a legitimate, venture-backed stablecoin payment platform—not a token project—targeting freelancers and small businesses in emerging markets. Founded in February 2025 and backed by $6.5M from reputable crypto VCs including YZi Labs, Draper Dragon, and KuCoin Ventures, the company shows positive signals: a publicly doxxed team with verifiable experience at Kraken, Capital One, and Block, plus institutional backing from Hong Kong's Cyberport incubator. However, the absence of public security audits and the platform's extreme youth (under one year old) warrant careful due diligence before significant engagement.

---

What AllScale does and the problem it solves​

AllScale positions itself as the "world's first self-custody stablecoin neobank," specifically designed for the 600+ million global microbusinesses—freelancers, content creators, SMBs, and remote contractors—who struggle with traditional cross-border payments. The core problem: international freelancers face bank account barriers, high wire fees, currency conversion losses, and settlement delays often exceeding 5 business days.

The platform enables businesses to create invoices, receive payments in USDT or USDC regardless of how clients pay (credit card, wire, or crypto), and access funds instantly through a non-custodial wallet. Key products include AllScale Invoice (live since September 2025), AllScale Pay (social commerce via Telegram, WhatsApp, Line), and AllScale Payroll (cross-border contractor payments). The company emphasizes "invisible crypto"—clients may not know they're using blockchain rails while merchants receive stablecoins.

Current development stage: The platform is in public beta with a working product live on BNB Chain mainnet. Users can access the dashboard at dashboard.allscale.io, though a waitlist may apply.

---

Technical architecture relies on BNB Chain and account abstraction​

AllScale builds on existing blockchain infrastructure rather than operating its own chain. The primary technology stack includes:

Component	Implementation
Primary blockchain	BNB Chain (official ecosystem partner)
Secondary networks	Undisclosed "high-efficiency Layer 2 networks"
Wallet type	Non-custodial, self-custody smart contract wallets
Authentication	Passkey-based (FaceID/TouchID)—no seed phrases
Gas handling	EIP-7702 paymaster architecture—zero user gas costs
Account model	Account Abstraction (likely ERC-4337)
AI features	LLM-enabled "financial copilots"

The passkey-based approach eliminates the notorious UX friction of seed phrase management, lowering the barrier for mainstream adoption. The multi-chain paymaster sponsorship architecture handles transaction costs behind the scenes.

What's missing: AllScale maintains no public GitHub repositories—the infrastructure is proprietary and closed-source. No smart contract addresses have been published, no public APIs or SDKs are available, and technical documentation at docs.allscale.io focuses on user guides rather than architecture specifications. This opacity prevents independent technical verification of their claims.

---

No native token—the platform uses USDT and USDC​

AllScale does not have a native cryptocurrency token. This is a critical distinction from many Web3 projects: there is no ICO, IDO, token sale, or speculative asset involved. The company operates as a traditional Delaware C-corp raising equity funding.

The platform uses third-party stablecoins—primarily USDT and USDC—as the payment medium. Users receive payments in stablecoins, with automatic conversion from fiat or card payments. Integration with BNB Chain also provides access to USD1 (the Binance-affiliated stablecoin).

Revenue model (estimated, not publicly disclosed):

• Transaction fees on invoice/payment processing
• Currency conversion spreads on fiat-to-stablecoin exchanges
• B2B payroll management services
• On/off-ramp integration fees

The absence of a token eliminates certain risks (speculative volatility, tokenomics manipulation, regulatory securities concerns) but also means there's no token-based exposure for investors beyond equity participation.

---

Four publicly doxxed founders with verifiable backgrounds​

AllScale's team demonstrates strong transparency—all founders are publicly identified with verifiable professional histories:

Shawn Pang (CEO & Co-Founder): Computer Science and Business from Western University. Former Product Manager for payment fraud at Capital One; first PM in Canada at TikTok; co-founded HashMatrix, a growth marketing agency for AI products.

Ruoyang "Leo" Wang (COO & Co-Founder): Computer Engineering from University of Toronto. Background at PingCAP (distributed databases), IBM, AMD, and Scotiabank. Previous startup experience with CP Clickme.

Jun Li & Khalil Lin (Co-Founders): Additional co-founders with legal/compliance expertise, reportedly including OKX background. LinkedIn profiles available.

Avrilyn Li (Founding Product Manager): AI-to-Web3 entrepreneur from Ivey Business School, leading the payroll product.

The team claims collective experience from Binance, OKX, Kraken, Block (Square), Amazon, Dell, and HP. Total team size is approximately 7-11 employees.

Funding and investors​

Round	Date	Amount	Lead Investors
Pre-Seed	June 30, 2025	$1.5M	Draper Dragon, Amber Group, Y2Z Capital
Seed	December 8, 2025	$5M	YZi Labs, Informed Ventures, Generative Ventures
Total		$6.5M

Notable participating investors include KuCoin Ventures, Oak Grove Ventures, BlockBooster, Aptos, GSR Ventures, and V3V Ventures. Angel investors include Gracy Chen and Jedi Lu. The company is a member of the Hong Kong Cyberport Incubation Program, a government-backed tech accelerator.

---

Major security concern: no public audits or bug bounty program​

This is the most significant red flag in the research. Despite handling user funds through smart contract wallets:

• No public smart contract audits from recognized firms (CertiK, Hacken, Trail of Bits, OpenZeppelin, SlowMist)
• Not listed on CertiK Skynet or similar security databases
• No bug bounty program on Immunefi, HackerOne, or Bugcrowd
• No insurance or coverage mechanisms disclosed
• No security disclosure policy publicly visible

AllScale claims security features including self-custody architecture, automated KYC/KYB/KYT compliance, hardware security module (HSM) integration for passkeys, and 2FA support. The self-custody model does reduce platform counterparty risk—if AllScale were compromised, users' funds in their own wallets would theoretically be safer than in a custodial service.

On the positive side: No security incidents, hacks, or exploits have been reported for AllScale. However, given the platform's youth, this absence of incidents may simply reflect limited exposure rather than robust security.

---

Competitive landscape and market positioning​

AllScale competes in the rapidly evolving stablecoin payments space:

Competitor	Positioning	Key Difference
Bitpace	UK-based crypto payment gateway	B2B merchant focus vs. AllScale's SMB focus
Loop Crypto	Stablecoin payment processor	More developer/API-oriented
Swapin	European stablecoin processor	Fiat settlement focus
Bridge (Stripe acquired for $1.1B)	Stablecoin API infrastructure	Enterprise-focused, acquired
PayPal/Stripe	PYUSD, USDC integration	Massive distribution, established trust

AllScale's differentiation factors:

• Self-custody model (users control funds)
• Passkey authentication eliminating seed phrase UX
• Zero gas fees via account abstraction
• Emerging market focus (Africa, Latin America, Southeast Asia)
• "Last-mile" SMB targeting vs. enterprise focus

Disadvantages: Extreme youth, small team, limited track record, competing against well-funded incumbents with established distribution channels.

---

Community presence is early-stage and B2B-focused​

AllScale maintains standard Web3 social channels:

• X (Twitter): @allscaleio (active since April 2025)
• Telegram: AllScaleHQ community group
• Discord: Active server with community ID visible
• LinkedIn: AllScale Inc company page
• Newsletter: "The Stablecoin Scoop" on Substack

The community is early-stage, with engagement primarily through AMA sessions, X Spaces, and partnership announcements. AllScale hosted the Scale Stablecoin Summit in Hong Kong (June 2025) with HashKey Group and Amber Group.

No traditional DeFi metrics apply: AllScale is a payments platform, not a DeFi protocol, so TVL (Total Value Locked) metrics are not applicable. The platform is not listed on DeFiLlama or Dune Analytics. User count and retention metrics are mentioned by investors but not publicly disclosed.

Notable partnerships include BNB Chain (official ecosystem partner), Skill Afrika (African freelancer communities), Ethscriptions (L1 permanence), and Asseto (RWA tokenization for yield products).

---

Risk assessment reveals moderate-risk early-stage venture​

Positive legitimacy signals​

• Publicly doxxed team with verifiable professional backgrounds
• Reputable crypto VCs (YZi Labs, Draper Dragon, Amber Group, KuCoin Ventures)
• Hong Kong Cyberport institutional backing
• Delaware C-corp legal structure
• Working product live on BNB Chain mainnet
• No scam allegations, BBB complaints, or community warnings found
• No anonymous team concerns
• No unrealistic yield promises or token speculation
• Compliance-forward positioning (GENIUS Act, Hong Kong Stablecoin Ordinance)

Areas requiring caution​

• Extreme youth: Founded February 2025, under one year old
• No public security audits despite handling funds
• No bug bounty program
• No independent user reviews or community feedback available
• Closed-source infrastructure—cannot independently verify claims
• Press coverage primarily press release syndication, not independent journalism
• Centralization risks: Company-operated platform, BNB Chain dependency
• Small team (~7-11 people) executing ambitious global scope

Not found (potential yellow flags by absence)​

• No user metrics publicly disclosed
• No revenue figures
• No formal advisory board
• No specific regulatory licenses (Hong Kong framework not yet effective)

---

Recent developments and roadmap​

Recent milestones (2025):

• December 8: $5M seed round announced (YZi Labs led)
• November: AllScale Pay live on BNB Chain; Skill Afrika partnership
• October: Ethscriptions partnership for L1 permanence
• September: AllScale Invoice product launch
• August: BNB Chain integration with USD1 support
• June: Scale Stablecoin Summit Hong Kong; $1.5M pre-seed funding

Upcoming:

• Q1 2026: Latin America market expansion
• Future: DeFi yield options, expanded cross-chain capabilities, B2B enterprise solutions

---

Conclusion​

AllScale.io emerges as a legitimate early-stage startup rather than a scam concern, backed by credible investors and a transparent, verifiable team. The project addresses a real market problem—cross-border payment friction for emerging market freelancers—with a thoughtful technical approach leveraging account abstraction and stablecoins.

However, two significant gaps demand attention before meaningful engagement: the complete absence of public security audits and the closed-source infrastructure that prevents independent verification. For a platform handling user funds, these omissions are material concerns regardless of the team's credentials.

Overall risk rating: Moderate. The venture shows strong legitimacy signals but carries inherent early-stage risks. Potential users should start with small amounts until security audits are published. Potential partners should request direct access to technical specifications and audit reports. The project is worth monitoring as it matures, particularly for any security audit announcements in Q1 2026.