Inside Dragonfly Capital’s $650 million fourth fund and its early bets on Polymarket and Rain

Crypto is the forgotten middle child of tech right now, sandwiched in between AI labs and vertical AI startups. Despite small glimmers of hope for blockchain technology, from continued hype around stablecoins to sustained hope for market structure legislation, sentiment is at an all-time low, especially because there’s no easy villain like Gary Gensler or Sam Bankman-Fried to blame for sinking prices. 

Amid the winter, the blockchain venture firm Dragonfly Capital managed to close its $650 million fourth fund, avoiding the “mass extinction event” suffered by its peers, as general partner Rob Hadick put it. The simple reason for its success is timely investments into a number of category winners that convinced its backers to re-up the war chest, including Polymarket and the stablecoin card issuer Rain. But beneath that is a years-long belief that crypto would be hurtling toward Wall Street, and not toward a Web3 version of the internet that other VCs saw in the glimmering future. 

Dragonfly began in 2018 as a partnership between Alex Pack, then leading crypto deals for Bain Capital Ventures, and Bo Feng, a veteran of the early Chinese internet ecosystem. The firm had a rocky first few years, including a breakup with Pack that has become lore in blockchain VC circles, as well as an abandonment of China amid the government’s crypto crackdown. But led by Haseeb Qureshi and Tom Schmidt, Dragonfly built a name for itself as one of the top investors in the space. After Hadick came over from the traditional finance side in 2022, though, Dragonfly shifted its focus, realizing that crypto was quickly converging with fintech. 

Schmidt told me that crypto is going through “the biggest meta shift” he has experienced during his time in the industry, as investors realize that there will be fewer native tokens for apps—the previous model for crypto VCs—and more tokens that represent real-world assets like stocks and private credit funds. 

Is this a comedown for blockchain technology, which began as a rebellion against Wall Street and governmental control of global finance? Probably. But even as crypto loses its sheen, Schmidt says it’s important to not lose sight of the bigger picture, which is that digital internet money has gone from “zero to a trillion dollars in 10 years.” 

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Leo Schwartz
X: @leomschwartz
Email: leo.schwartz@fortune.com

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This story was originally featured on Fortune.com