Paradigm's New Arithmetic: When Crypto Can't Hold 12.7 Billion, AI Becomes the Answer

Let’s start with a math problem.

A venture capital firm manages $12.7 billion in assets. Its previous fund raised $850 million. The one before that was $2.5 billion.

The trend is in the opposite direction.

The size is shrinking, not because they can’t raise money, but because there aren’t enough worthwhile targets. Now, this company wants to reverse this trend. Where should they look for the next large pool of opportunities?

On February 28, 2026, The Wall Street Journal provided an answer: Paradigm, a cryptocurrency investment firm, is raising a new fund with a maximum size of $1.5 billion, expanding its investment scope to include artificial intelligence, robotics, and other cutting-edge technologies.

This wasn’t a sudden decision. It was a calculation that started long ago, only now the answer is being revealed.

Let’s lay out the numbers

In 2025, global crypto VC investments totaled $49.8 billion. That sounds like good news. But looking at this number alone can be misleading.

In the same year, the number of crypto VC deals plummeted by about 60% year-over-year, from roughly 2,900 to 1,200. Money is increasing, but projects are decreasing. Capital flowing into crypto is becoming more concentrated in a few large deals, rather than spread across hundreds of early-stage projects.

For most small and medium funds, this might not be a problem. But for Paradigm, it’s a structural challenge. Managing $12.7 billion, one of the largest crypto-focused VCs globally, their issue isn’t finding projects—it’s finding enough, large enough, early enough projects to deploy this scale of capital while maintaining their expected returns.

In 2021, Paradigm raised the largest-ever crypto fund at $2.5 billion. In 2024, they announced their third fund, at $850 million—only a third of the previous one.

This contraction isn’t a sign of weakness; it’s an active adaptation to a narrower market. But it also shows one thing: relying solely on crypto, Paradigm is finding it hard to sustain its scale.

After FTX, Paradigm started asking a question

To understand the current $1.5 billion fund, we need to go back to November 2022.

That month, FTX collapsed. Sam Bankman-Fried’s empire turned to ashes in days, taking countless institutions’ funds with it. Paradigm’s paper investment in FTX was $278 million. Ultimately, it was wiped out.

For a top-tier firm known for research-driven approaches and technological insight, this was more than a bad debt. It was a public misjudgment, requiring explanations to LPs, the market, and themselves.

What happened afterward seemed quite strange at the time. In 2023, some noticed that Paradigm’s official website quietly changed: all references to “crypto” and “Web3” were removed and replaced with more neutral terms like “technology investments.”

There was no official announcement about this change, but the community quickly spotted it and sparked intense discussion. The biggest concern: Is Paradigm leaving crypto?

Co-founder Matt Huang had to step in to clarify. He tweeted that Paradigm “has never been more excited about crypto,” adding, “The development in AI is too compelling to ignore. Framing AI and crypto as zero-sum competition is a popular but mistaken narrative. We disagree. Both are fascinating and will have significant overlap.”

This was a PR clarification, but it also revealed a truth: internally, Paradigm has been seriously considering AI.

After FTX, the pressing question was: what to bet on for the next decade?

Matt Huang is already working on the answer

If you only look at Paradigm’s official announcements, the company’s shift seems to have started today. But if you examine Matt Huang’s actions over the past two years, you’ll see he’s long been more than just a crypto investor.

In 2024, Paradigm invested $50 million in Nous Research, an AI infrastructure company focused on open-source large language models. This isn’t a small exploratory bet; $50 million is a serious commitment for Paradigm.

In February this year, Paradigm co-launched EVMbench with OpenAI, a benchmark tool to evaluate AI models’ ability to detect and fix smart contract security vulnerabilities. Core crypto infrastructure and AI capability assessment—these two areas are being brought together.

Meanwhile, Matt Huang is building another company: Tempo. A stablecoin payment infrastructure firm, where he is co-founder. His board membership at Stripe aligns with this focus. Stripe partnered strategically with Paradigm in 2025, and that same year launched a stablecoin payment product.

Looking at all this together, Matt Huang isn’t just “going into AI”; he’s been living at the intersection of AI and crypto for at least two years.

His bet isn’t solely on AI or crypto, but on the moment when these two will collide. When AI agents need to execute on-chain transactions, and robots require programmable monetary systems—that intersection will be Paradigm’s next battlefield.

Why AI×Crypto instead of a full AI pivot

Paradigm’s move into AI doesn’t mean it’s competing with a16z or Sequoia for the same projects.

A common narrative mistake is to see Paradigm’s new fund as “another VC shifting to AI.” But if that’s all it is, Paradigm has no advantage—traditional VC giants with deeper backgrounds and more resources are already crowded in the general AI race.

Paradigm’s real strategy is: it doesn’t aim to compete in the broad AI market; it wants to invest in the niche intersection that others haven’t yet recognized.

AI agents are among the hottest concepts today. These autonomous, task-performing intelligences are already replacing humans in various scenarios: search, coding, data analysis, process management. But there’s one thing they haven’t solved: money.

When an AI agent needs to pay, receive, or transfer funds across services, what does it use? PayPal? Bank accounts? These systems are designed for humans, requiring identity verification and manual authorization, incompatible with autonomous machine logic.

But stablecoins can. Smart contracts can. Programmable money can.

That’s why Matt Huang is involved in both Tempo (stablecoin payments) and Nous Research (AI infrastructure): he believes these two lines will eventually merge. Paradigm has the capacity to bet on both sides simultaneously and reap the maximum rewards when they do.

This isn’t a pivot; it’s an expansion—into a space he believes others haven’t fully grasped yet.

LPs need a new story

There’s also a practical aspect to clarify.

Paradigm’s LPs—institutions and individuals who entrust it with their capital—saw a $2.5 billion fundraising ambition in 2021, and a more restrained $850 million in 2024.

The stark difference between these two fund sizes requires an explanation. More importantly, it calls for a compelling narrative for the next fund.

“Continuing to invest in early crypto projects” was a viable story in 2024, but it struggles to justify a $1.5 billion raise today. Instead, “leveraging crypto’s technological advantages to enter the frontier of AI and robotics” is more convincing.

In 2025, 61% of global VC funding—about $258.7 billion—flowed into AI. This is the largest pool of capital today in venture investing. Paradigm’s $1.5 billion fund aims to tap into this pool, not just hold onto a shrinking lake. For LPs, this is a bigger story and a more credible growth trajectory.

Now, returning to 2023. When Matt Huang was forced to clarify the website change, he said: “AI and crypto are not zero-sum competition.”

Back then, it was more of a defensive statement—reassuring the community, preventing LP panic, and leaving room to explore AI. But if you read it in today’s context, it sounds more like a prelude.

Paradigm took three years to recover from the FTX wreckage. It didn’t choose the easiest path of shrinking and waiting for the next bull market. Instead, it chose a more challenging but potentially larger space: betting on the convergence of AI and crypto, building positions in both, and waiting for their moment of intersection.

Today, this $1.5 billion fund marks a milestone in that journey.

Matt Huang hasn’t publicly responded to The Wall Street Journal’s report. But his Tempo is still being built, Nous Research is ongoing, and EVMbench has been released.

He doesn’t need to explain anymore. His actions have spoken louder than any statement.