Crypto Venture Is Near a Standstill, Compound's Dempsey Says

Crypto venture capital has been running near a standstill for almost two years, according to Compound managing partner Michael Dempsey, who dates the slowdown to 2024 and pins much of the blame on artificial intelligence draining both talent and funding from the sector.

Dempsey's assessment cuts against the usual cycle narrative. This is not simply a post-bear-market hangover, in his telling. It is a structural reallocation. Developers who once built crypto protocols are now building AI products, and the investors who once backed those developers have followed the same migration.

He drew the contrast himself. In 2021, Dempsey noted, technology entrepreneurs flocked to crypto — founders, engineers and operators crowded into the sector at the peak of the last boom. Today the gravitational pull runs the other way, with AI standing where crypto stood four years ago: the default destination for ambitious builders and the capital that chases them.

What does this change for crypto startups?

The practical consequence is a thinner funding environment. If venture activity has genuinely been subdued since 2024, early-stage crypto teams face a market where the pool of interested investors has shrunk and the competition for that residual capital has intensified. Talent scarcity compounds the problem. Projects that do secure backing must hire from a developer base that AI companies are recruiting from the same pool, often with richer offers.

For a firm like Compound, which sits on the venture side of that equation, the environment demands selectivity. Dempsey's decision to speak publicly about a near-frozen market signals that at least some established crypto investors see the lull as prolonged rather than a passing dip to be waited out.

The token incentive problem

Dempsey's second argument is more structural still. He acknowledged that tokenization has genuine practical potential — a notable concession from a crypto venture investor. But he flagged token-based incentives as difficult to align with long-term interests.

That is an old critique wearing a new suit of seriousness. Token incentives were designed to bootstrap networks by rewarding early participants. In practice, they often reward extraction instead: liquidity providers who farm and leave, teams whose unlocks dwarf product milestones, communities whose alignment ends at the next vesting cliff.

Dempsey is saying the industry has not solved this. Tokens can still represent real assets and real utility, in his framing. But as a compensation and alignment mechanism — the thing that was supposed to make crypto networks self-sustaining — they keep failing the long-term test.

Why the two problems reinforce each other

The capital drought and the incentive problem are not separate issues. They feed each other. Investors hesitate to fund token-launched projects when the incentive structures themselves are suspect, and builders hesitate to commit to crypto when both the money and their peers have moved to AI.

The result is the near-standstill Dempsey describes: a market that cleared its speculative excess but has not yet replaced it with a funding and incentive model that institutional capital trusts for decade-long horizons.

The open question now is what breaks the freeze — whether AI's own funding cycle cools and returns builders to crypto, or whether the industry first fixes the token-alignment problem Dempsey identified and earns back the long-term capital that walked away.