We Raised $2.2B. Here’s Why.

The A16Z Crypto team announces Crypto Fund 5, highlighting a significant shift in the crypto landscape. They see a move away from ideological, revolutionary fervor towards pragmatism, product focus, and integration with existing systems. This evolution is driven by increased regulatory clarity, particularly with the passage of the Genius Act for stablecoins, and growing interest from traditional financial institutions. Chris Dixon emphasizes that the most successful founders will be product- and go-to-market focused, and pragmatic rather than ideological. He believes crypto needs to work *with* the system, not overthrow it. Finance is seen as a low-hanging fruit for onboarding a billion users onto blockchains through stablecoins, stocks, bonds, payments, and remittances. Once users are onboarded and familiar with the infrastructure, adjacent services can be offered. Regulation, like the Genius Act, provides a clear path for builders and consumer protections, preventing scandals like Terra Luna. Stablecoins, now a regulated term, are enabling new use cases, with companies like Stripe leveraging them to expand global coverage due to lower fees and faster transactions compared to traditional payment networks. This creates a global financial network analogous to how services like WhatsApp built upon SMS. Lending markets are a natural next step on top of stablecoins. Mainstream adoption is also seen in financial markets, with the rise of DeFi concepts like perps becoming popular for asset exposure. Traditional financial institutions are actively exploring tokenizing stocks and bonds, modernizing their infrastructure. While the stablecoin market has regulatory clarity, there's hope for comprehensive regulation for the remaining 90% of the crypto market, including network tokens like Bitcoin and Ethereum, through bills like the Clarity Act or agency guidance from the SEC and CFTC. Regulation is expected to eliminate scams and bad actors, improving crypto's reputation. Despite market downturns and negative sentiment, the underlying fundamentals are strong, positioning the market for a rebound. Venture capital, particularly when combined with strong fundamentals and a less crowded investment landscape, is seen as a good environment for new funds. Ali Yaya, the first full-time hire on the crypto investing team, notes the cultural shift since 2017. Crypto has moved from a revolutionary, cypherpunk movement aiming to overthrow traditional systems to one focused on solving real-world problems and integrating with existing infrastructure. The technological advancements are significant, with blockchains now handling tens of thousands of transactions per second, enabling near-instant, low-cost global transfers. Innovations like on-chain marketplaces, lending protocols, and stablecoins, coupled with regulatory clarity, have reshaped the industry. The focus is now on pragmatism, product development, and go-to-market strategies. Guy Wlette likens this transition to crypto entering its "colored shirt era," signifying a move from ideological rebellion to building enduring systems. He acknowledges his own past as a cypherpunk but notes that the pursuit of pure ideology didn't lead to commercial success. The industry has matured from building in basements to engaging with major banks. This shift is seen as an improvement, not a capitulation, comparable to open-source software, which began as an ideological movement but became pervasive, even under Microsoft's ownership. The distinction between theoretical ideals and practical application is crucial, making it an opportune time for pragmatists. Eddie Lazarin reframes the evolution as an extension of possibilities rather than a capitulation. He highlights the synergy between AI and crypto, citing an example of using AI to control a Zcash wallet and transfer funds to Coinbase seamlessly. This demonstrates programmable money and direct control, integrated with traditional finance. The focus has shifted to delivering concrete value and rounding out edges for mass adoption, requiring practical solutions. He's excited by the potential of AI agents to become economic actors, transforming programmable money into money that moves as fast as human conversation, especially when combined with AI's ability to control software. Guy Wlette discusses the on-chain finance world, noting the growth of stablecoins necessitates new capital formation ecosystems. Opportunities exist for stablecoins seeking yield, working capital, and for traditional lenders seeking efficiency. He points to shifts in the credit market post-2008, with a move to non-bank lending and longer-duration loans, which has presented challenges like double pledging and redemption issues. This environment, combined with abundant stablecoins seeking yield, makes on-chain lending products compelling. He also highlights crypto's role as a coordination technology, enabling new markets for assets beyond crypto tokens, including compute (GPUs, data centers) and energy (solar panels, batteries). He predicts an inflection point where building new markets and exchanges on-chain becomes the default, similar to how open-source became standard. Traditional financial players are drawn to on-chain solutions for their low latency, capital mobility, 24/7 operation, and reduced counterparty risk, which is reframed as a more concrete benefit than "decentralization." Chris Dixon explains that technologies roll out in different use cases over time, similar to AI's current focus on encoding. Finance is a low-hanging fruit for crypto due to weaker financial systems globally compared to more established sectors like social networking. The goal is to onboard a billion users via financial tools, with adjacent services following. He reiterates that finance is the foundation for the broader vision of blockchains. Ali Yaya shares his experience at Google, where crypto was initially dismissed. He notes the historical cultural divide between AI (centralized control) and crypto (individual empowerment, free markets). However, this is changing as the financial system proves inadequate for AI agents. He believes AI agents will conduct the majority of future transactions, and stablecoins, being free, programmable, and internet-native, are ideal for converting AI agents into economic actors. He contrasts this with traditional payment networks like Visa, which charge significant fees, making them inefficient for AI agents. The intersection of AI and crypto also offers solutions to AI-generated problems like deepfakes, with companies developing proof-of-humanity systems. Ali envisions a future where AI agents, empowered with crypto wallets, autonomously generate value, pay for compute, and become self-sustaining entities. This autonomous economic activity, driven by AI's exponential progress, could fundamentally reshape capitalism. Guy Wlette notes that LPs are highly focused on AI, questioning how to build software beyond AI in this new landscape. He emphasizes that crypto projects are network-effect businesses, requiring deep integrations and regulatory compliance, creating moats. He sees crypto as an overlooked area for talented founders. He also highlights the societal benefit of venture capital returns and the importance of VCs using crypto products themselves, noting LP interest in funding capital calls with stablecoins and transitioning business on-chain. Ali Yaya emphasizes that privacy is becoming the only moat in crypto. Most blockchains are public, making mainstream adoption, especially for institutional use cases, impossible without privacy. As blockchains become more interoperable, blockspace is commoditized, but privacy can create defensibility by increasing switching costs. He discusses technological approaches to privacy, including trusted parties, trusted hardware, and zero-knowledge cryptography (ZKP). ZKPs are crucial for solving the scalability dilemma, allowing nodes to verify work without redoing it, enabling millions of transactions per second. He sees this as a return to cypherpunk ideals of democratization and privacy. Chris Dixon addresses the consolidation of power in the AI industry, mirroring the internet's journey from decentralization to consolidation by a few large services. AI's capital intensiveness and reliance on data further fuel this trend. He believes crypto is the only credible technology that can counterbalance this consolidation, starting with financial services and hopefully expanding to other areas. He advocates for tools that help nudge the internet back towards its original decentralized vision. Guy Wlette explains how crypto can address AI centralization through proof of personhood and by coordinating fundraising for compute and data. He believes capital markets for compute will be built on-chain, creating new, relevant markets rather than simply digitizing existing ones. He views access to compute (GPUs) as a critical asset, and crypto can facilitate more open and equitable markets for it, fostering individual freedom and technical progress. Eddie Lazarin hopes Fund 5 will fund projects with concrete mainstream benefits, ideally leading to an intensification of competitive dynamics and new ways for software to enable ownership for both people and machines. Ali Yaya aims for a billion or more people interacting with blockchains daily, significant transformation of global finance onto chain, and AI agents becoming first-class economic actors. Guy Wlette envisions a dollar-denominated stablecoin-powered neo-banking account for every human, alongside accelerated production of energy and compute, and more efficient, open markets. Chris Dixon reiterates the goal of mainstream use cases and a billion users, likely through financial services, enabled by regulatory clarity and world-class entrepreneurs. He stands by his book's core thesis on technology's essence, believing that despite changing apps and interactions, the fundamental strengths and problems addressed by technologies like crypto will remain constant drivers of progress.