Crypto venture capital stalls as AI pulls talent and capital

By Nathan Brooks

Michael Dempsey, managing partner at Compound, said crypto venture activity has been “close to dormant” since 2024 as artificial intelligence draws builders and capital away from crypto.

In an October 13, 2026, interview on the Empire podcast, Dempsey described a marked reversal from 2021, when technology entrepreneurs entered crypto eager to build on the next major platform. He said the broader technology sector now focuses almost entirely on AI, pulling both founders and investment toward AI projects.

The lull has lasted nearly two years by Dempsey’s account. His diagnosis has two components: AI now sets the direction for talent and funding, while crypto must contend with a structural weakness in token incentives. The first issue affects who can build; the second raises the bar for maintaining alignment among the parties financing and joining crypto projects.

Compound’s structure gives Dempsey a cross-sector perspective. The firm manages more than $200 million in assets and invests from the seed stage through Series A. Across that capital base, Compound can observe where founders and fund allocators place their next commitments, from company formation through later early-stage rounds.

The $200 million figure covers firmwide assets; Dempsey did not disclose how much Compound allocates to crypto.

Compound spreads those early investments across four areas:

• Artificial intelligence and machine learning
• Robotics
• Biotechnology
• Crypto

That mix gives Dempsey a side-by-side view of founder interest across technology categories rather than a view derived solely from crypto cycles. It also means his assessment does not amount to a firmwide retreat from crypto: Compound still lists crypto as one of its four investment areas.

Dempsey also rejected a talent-drain-only explanation. He identified token incentives as a separate structural problem. He acknowledged that tokenization can provide real benefits, but said token incentives have struggled to deliver long-term alignment. For crypto builders, the practical consequence is that a token-based structure alone has not resolved the challenge of keeping participants aligned over time.

That distinction matters for capital allocation. The issue is not that tokenization lacks potential, as Dempsey acknowledged; it is that incentive design has not consistently produced the durable alignment crypto projects need from contributors and capital providers.

The research summary accompanying Dempsey’s comments interpreted the slowdown as a possible sign of investor caution. Under that reading, backers are moving toward projects with stronger fundamentals and away from speculative stories. That interpretation is consistent with his observation that capital follows founders into AI, although no fundraising totals or comparative deal data quantify the shift.

What does this change for crypto builders and investors?

For founders, the immediate constraint is a thinner pool of experienced builders and less capital willing to fund crypto-specific experiments while AI commands the sector’s attention. For investors, Dempsey’s account points to more selective underwriting, with fundamentals carrying greater weight than speculative narratives. For token designers, the unresolved issue is durable alignment.

Compound’s continued crypto allocation shows that the firm still sees a place for the sector within a broader technology portfolio. It does not, however, contradict the central warning: crypto must rebuild its founder pipeline and demonstrate stronger long-term incentives before it can compete for the same talent and capital now moving toward AI.

The next fundraising cycle is the practical test. If AI retains that pull, crypto’s seed market will remain constrained unless token structures produce stronger alignment and projects offer the fundamentals investors increasingly favor.