Dragonfly Capital closed its fourth fund at $650 million this week, the same size as its 2022 vehicle, raised into a venture market Fortune calls a “mass extinction event.”
The headline reads like a vote of confidence: institutional capital returning, crypto winter thawing, alt season loading. But peel back one layer and the picture warps.
Dragonfly’s partners describe a pivot toward fintech rails and tokenized real-world assets, with the expectation of fewer “native app tokens.”
This isn’t a blanket “alts to the moon” signal. It’s a bet that value accrues to businesses that don’t need tokens at all, or to tokens that trade like asset wrappers rather than reflexive beta plays.
The contrarian read: VC money flooding back can reproduce the exact playbook that broke in 2025.
More private capital, deployed into the same low-float launch structures that trained markets to front-run unlock calendars, creates more scheduled sell walls instead of spot-buying firepower.
Manufactured scarcity, scheduled dilution
The dominant token launch design of the last cycle worked like engineered hype.
Teams launched with tiny circulating supply, often single-digit percentages of total issuance, pushing prices skyward at Token Generation Events while locking most allocation behind multi-year vesting schedules.
Binance Research tracked 2024 launches and found a median market-cap-to-fully diluted valuation ratio of 12.3%, indicating that buyers purchased into structures in which 87.7% of the supply was locked.
The math was challenging: to keep prices stable during that supply flow, the report estimated the cohort would need approximately $80 billion of incremental demand-side liquidity.
Without it, every unlock became a known dilution event.
Keyrock analyzed more than 16,000 token unlock events and documented a recurring pattern. Drawdowns build across the 30 days before the unlock, accelerate into the final week, then stabilize roughly 14 days after.
Animoca Brands Research quantified the effect: for unlocks exceeding 1% of the circulating supply, prices decline by an average of 0.3% in the week before and by another 0.3% in the week after.
The unlock calendar becomes a permanent short thesis baked into the token’s forward curve.
Memento Research’s 2025 launch tracker makes the verdict empirical: of 118 tokens that went live last year, 84.7% now trade below their TGE valuation, with a median drawdown of 71.1% on a fully diluted basis and 66.8% on a market cap basis.
High FDV launches underperformed the equal-weight basket. The bigger the hype, the steeper the fall.
Why “crypto VC funding is back” doesn’t mean spot buying
Dragonfly’s $650 million doesn’t translate into $650 million in market purchases that would lift token prices today.
Venture funding flows into private allocations: equity stakes, Simple Agreements for Future Tokens at discounted rates, and early-stage rounds that give insiders supply before public listings.
The price support arrives later, often structured as the unlock mechanism itself.
Binance Research explicitly connects the rise of low-float, high-FDV structures to inflows of private capital and aggressive pre-launch valuations.
The same input of more VC money can reproduce the same output: more dilution overhang, more front-runnable unlock calendars. Dragonfly’s own thesis reinforces this.
Fortune quotes partner Tom Schmidt describing crypto’s “financial era,” where native protocol tokens give way to tokenized stocks and fintech rails. That’s bullish for certain businesses, but it implies a world where upside accrues to equity or regulated products, not to freely floating alts.
Take this week’s example. On Feb. 20, LayerZero unlocks approximately $46 million in ZRO tokens, representing 5.98% of the circulating supply and concentrated in insider allocations.
Tokenomist flags it as a near-term overhang in thin liquidity. This is what “bullish VC” looks like in practice: a public unlock calendar that provides sophisticated participants with a known exit window and retail holders with a predictable drawdown.
The scale problem
Tokenomist’s 2025 review tallies $97.43 billion of tokens released across the year, split into $18.77 billion from insider unlocks and $78.66 billion from non-insider allocations.
For the week of Feb. 16-22 alone, scheduled releases exceed $700 million. This isn’t background noise, but a structural sell-side flow that dwarfs organic demand in all but the most liquid assets.
Keyrock’s data confirms recipient type matters, with team and investor unlocks proving more damaging than ecosystem allocations, likely because insiders face fewer coordination costs and clearer profit incentives.
Binance Research warns that without matching buy-side demand, the path forward requires tens of billions in new capital just to tread water.
Dragonfly’s $650 million, even if fully deployed into token deals, represents a fraction of the liquidity needed to absorb the unlock schedule of projects already live.
What good tokenomics actually looks like
The response to failed low-float launches isn’t to eliminate tokens, but to redesign the incentive structure so that unlocks don’t function as ticking time bombs.
Backpack launched with 25% initial float, entirely community-facing, and structured the remaining supply around growth-triggered unlocks tied to user growth and protocol milestones.
Instead of time-based cliffs, supply release connects to key performance indicators. The market can price optimism or pessimism in real time, rather than pricing a deterministic supply schedule.
Jupiter allocated 50% of protocol revenue to token buybacks, creating a verifiable sink tied to actual cash flows. The team has discussed targeting net zero emissions in 2026 by restructuring distributions.
Revenue-linked buybacks convert protocol success into deflationary pressure rather than purely dilutive issuance.
USDai’s $CHIP sale allocated 7% of supply to the public sale, unlocked 100% at TGE, and published explicit mechanics and dates.
The approach trades early price stability for radical transparency. There’s no hidden insider schedule, no surprise vesting tranches. The token launched volatile, but without the structured sell-wall that depresses prices months later.
Dragonfly’s pivot toward fintech rails offers another blueprint: some products don’t need tokens. If the business model is regulated as a financial service, forcing a token onto it creates a dilution instrument rather than a useful asset.
| Model / Example | Initial float | Unlock design | Buy-side sink / support | Why it reduces overhang |
|---|---|---|---|---|
| Low-float / heavy VC unlocks (failed model) | Often low / single-digit to teens % | Time-based vesting with cliffs; large insider tranches | None (relies on new buyers / narrative) | Creates manufactured scarcity at TGE, then a known sell wall as unlocks arrive; market front-runs dilution |
| Backpack | 25% (community-facing) | KPI / growth-triggered unlocks tied to milestones | Implicit: milestones align supply with adoption | Markets price performance (milestones) instead of a deterministic calendar; reduces “scheduled dump” dynamic |
| Jupiter | n/a (token already live) | Emissions restructuring discussed; goal of net-zero emissions in 2026 (proposal/discussion) | Revenue-linked buybacks (50% of protocol revenue) | Converts protocol success into verifiable demand-side support; buybacks act as a sink that can offset issuance |
| USDai ($CHIP) | 7% public sale allocation; 100% of sale unlocked at TGE | Transparent mechanics/dates; avoids hidden cliffs for sale tranche | Transparency / broad distribution at sale | No surprise cliff for the public tranche; reduces “retail as exit liquidity” feel and removes calendar shock from that portion |
| Fintech rails / no token | n/a | No token issuance/unlocks | Equity / revenue capture (traditional) | Eliminates token dilution entirely; avoids creating a dilution instrument where the product doesn’t need one |
The checklist
Before buying a token, investors should check four metrics: market cap to fully diluted valuation, percentage of supply held by insiders, the size of the next three scheduled unlocks as a percentage of circulating supply, and the dates those unlocks land.
If the MC/FDV is below 20%, if insiders control more than half of total issuance, and if the next unlock exceeds 5% of float, they are buying into a structure designed to extract value.
If an investor wouldn’t buy a stock with a known 20% share issuance scheduled for next month, then that token is a pass, too.
The mechanics are identical. The return of venture funding doesn’t change this, and can even amplify it.
Dragonfly’s $650 million signals that institutional LPs still back select crypto managers, even as the broader venture ecosystem contracts.
However, whether that capital flows into token-heavy deals or into fintech rails, whether it reproduces low-float structures or funds businesses that don’t need tokens at all, determines whether “VC is back” translates to upside for liquid assets.
The market learned to price dilution. The question is whether the next wave of projects learned the same lesson.