Dragonfly Capital closed its fourth fund this week with $650 million, the same size as its 2022 business, raised in a venture market that Fortune calls a “mass extinction event.”
The headlines read like a vote of confidence: the return of institutional capital, the thaw of crypto’s winter, and the seasonal loading of alternatives. But if you peel off one layer, the image becomes distorted.
Dragonfly partners describe a shift to fintech rails and tokenized real-world assets in anticipation of a decline in “native app tokens.”
This is not a blanket “alternative to the moon” signal. This is a bet that there will be value in businesses that don’t need tokens at all, or in tokens that trade like asset wrappers rather than reflexive beta plays.
Contrarians say that a flood of VC money could allow them to recreate exactly the strategies that failed in 2025.
When private capital is injected into the same low-flying launch structures that trained the market to unlock the calendar early, instead of spot buying firepower, it creates more planned selling walls.
Manufacturing shortages, planned dilution
The dominant token launch design of the last cycle worked like an engineered hype.
The team launched with a tiny circulating supply, often in the single digits as a percentage of total issuance, and locked most allocations behind a multi-year vesting schedule while allowing prices to soar on token generation events.
Binance Research tracked launches in 2024 and found that the median valuation to fully diluted market cap ratio was 12.3%, indicating buyers purchased structures with 87.7% of supply fixed.
The calculations were difficult. The report estimates that this cohort will require approximately $80 billion in additional demand-side liquidity to keep prices stable within that supply stream.
Without it, every unlock became a known dilution event.
Keyrock analyzed over 16,000 token unlock events and documented recurring patterns. The drawdown increases over the 30 days before unlocking, accelerates towards the final week, and then stabilizes after about 14 days.
Animoca Brands Research quantified the impact. For unlocks of more than 1% of circulating supply, prices fell by an average of 0.3% in the previous week and by a further 0.3% in the following week.
The unlock calendar will be a permanent short paper baked into the token’s forward curve.
Memento Research’s 2025 Launch Tracker makes this verdict empirical. Of the 118 tokens that went live last year, 84.7% are currently trading below their TGE valuation, with a median drawdown of 71.1% on a fully diluted basis and 66.8% on a market cap basis.
A high FDV launch will perform worse than a basket of the same weight. The bigger the hype, the steeper the fall.
Why “cryptocurrency VC funding is back” doesn’t mean spot purchases
Dragonfly’s $650 million does not translate into $650 million in market purchases that would drive the token price higher today.
Venture capital flows into private allocations, including equity contributions, short-term contracts for future tokens at discounted rates, and early-stage rounds that give supply to insiders before going public.
Price support arrives later and is often structured as an unlocking mechanism itself.
Binance Research clearly links the rise of low float, high FDV structures to the influx of private capital and aggressive pre-launch evaluations.
You can recreate the same output by putting in more VC money. That means more dilution overhangs, more front-run unlockable calendars. Dragonfly’s own paper supports this.
Fortune quotes partner Tom Schmidt as describing a “financial era” for cryptocurrencies, where native protocol tokens are replaced by tokenized stocks and fintech rails. While this is bullish for some companies, it signals a world where upside will be in stocks and regulated products rather than free-floating alternative products.
Let’s take a look at this week’s example. On February 20th, LayerZero will unlock approximately $46 million of ZRO tokens, representing 5.98% of the circulating supply and concentrated in insider allocations.
Tokenomists are warning of a short-term overhang, with liquidity becoming low. This is what a “bullish VC” actually looks like. A public unlock calendar that provides a known exit window for sophisticated participants and a predictable drawdown for retail holders.
scale issues
Tokenomist’s 2025 review shows that the total amount of tokens released during the year was $97.43 billion, split between $18.77 billion unlocked by insiders and $78.66 billion allocated by non-insiders.
The week of February 16th to 22nd alone will bring in over $700 million in scheduled releases. This is not background noise, but structural sell-side flows that dwarf intrinsic demand in all but the most liquid assets.
Keyrock’s data supports the issue of recipient type, with team and investor unlocks proving more detrimental than ecosystem allocations, likely due to the lower adjustment costs and clearer profit incentives faced by insiders.
Binance Research warns that if buy-side demand is not met, tens of billions in new capital will be needed just to move forward.
Dragonfly’s $650 million, even if fully deployed into token trading, represents a fraction of the liquidity needed to absorb the project’s unlock schedule, which is already running.
What good tokenomics actually looks like
The response to failed low-float launches is not to eliminate tokens, but to redesign the incentive structure so that unlocks no longer act as ticking time bombs.
Backpack launched with an initial float of 25% entirely for the community, with the remaining supply structured around user growth and unlocking growth triggers tied to protocol milestones.
Instead of time-based cliffs, supply releases lead to key performance indicators. Rather than setting prices based on a deterministic supply schedule, the market can price optimism and pessimism in real time.
Jupiter allocated 50% of protocol revenue to token buybacks, creating a verifiable sink tied to actual cash flow. The team discussed aiming for net zero emissions in 2026 by restructuring logistics.
Earnings-linked share buybacks, rather than purely dilutive issuances, translate the protocol’s success into deflationary pressures.
USDai’s $CHIP sale has 7% of supply allocated to general sale, 100% unlocked in TGE, and explicit mechanics and dates published.
This approach gains radical transparency in exchange for initial price stability. There are no hidden insider schedules or surprise vesting. The token launched on a volatile note, but there was no structural sell wall that drove the price down after a few months.
Dragonfly’s transformation into fintech rails offers a different blueprint. Some products do not require tokens. If the business model is regulated as a financial service, the forced introduction of tokens creates a dilutive instrument rather than a useful asset.
Model/Example Initial Float Unlock Design Buy-Side Sink/Support Why Reduce Overhang Low Float/Heavy VC Unlock (Failed Models) Often time-based vesting with low/single digits to teens % cliffs. Large Insider Tranche None (new purchaser/story dependent) Creates scarcity manufactured in TGE and creates a wall of known sales once unlocks arrive. Market Frontier Dilution Backpack 25% (for the community) Unlocks growth triggers tied to KPIs/milestones Implicit: Milestones adjust supply and adoption Market price performance (milestones) instead of a definitive calendar. Reduce “scheduled dumps”. dynamicJupitern/a (token already live) Discussing emissions restructuring. 2026 Net Zero Emissions Target (Proposal/Discussion) Revenue-linked buybacks (50% of protocol revenue) Translate protocol success into verifiable demand-side support. Share buybacks serve as a sink that can offset the issuance amount of 7% of USDai’s ($CHIP) public sale allocation. 100% of the sale is unlocked by TGETransparent Mechanics/Date. Transparency Avoiding Hidden Cliffs in Sales Tranches / There are no hidden cliffs in widely distributed public tranches during sales. Reduces the “retail as exit liquidity” feeling and removes the calendar shock from that part fintech rails/no tokens/no token issuance/unlocked shares/revenue earning (traditional) completely eliminates token dilution. Avoid creating diluters that are not needed for your product
checklist
Before purchasing tokens, investors need to review four metrics: the market capitalization to fully diluted valuation, the percentage of supply held by insiders, the size of the three upcoming unlocks as a percentage of circulating supply, and the date on which they will be unlocked.
If MC/FDV is below 20%, if insiders control more than half of the total issuance, and if the next unlock is more than 5% of the float, they are buying into a structure designed to extract value.
If an investor does not buy a stock that is known to have a 20% equity issue scheduled for next month, that token is also a pass.
The mechanism is the same. The return of venture capital may not change this situation, but may even expand it.
Dragonfly’s $650 million shows that institutional LPs are still backing select crypto managers even as the broader venture ecosystem shrinks.
But whether that capital flows into token-heavy trades or fintech rails, whether it reproduces low-float structures or funds businesses that don’t require tokens at all, will determine whether the “VC resurgence” leads to a rise in liquidity.
The market has learned the price of dilution. The question is whether the next wave of projects learned the same lessons.
