Crypto took a back seat as AI investments accelerate

Artificial intelligence is the shiny new thing venture capitalists are throwing money at – leaving once red-hot crypto projects scrambling for funding.

Mysten Labs co-founder and CEO Evan Cheng said this shift is due to the ability of AI products and applications to cater to a wider audience while the crypto industry continues to focus on itself.

“Multidisciplinary venture capitalists are increasingly turning their attention to AI investments, driven by the technology’s proven value to consumers,” Cheng said, contrasting the explosion in AI with that of cryptocurrency since 2017.

“ChatGPT came out, and [developers] building products and applications for consumers and for developers – widespread use at scale is immediately possible,” he said. “In crypto, the industry has built products for crypto people.”

Founded in 2021, Mysten Labs provides a technology infrastructure platform dedicated to the development and deployment of Web3 projects, and has a leadership team that includes former Apple and Meta (then Facebook) researchers and engineers. In March last year, Mysten Labs launched the Sui blockchain, which aims to provide fast transactions with low latency and cost.

Cheng says the growing interest in AI among VCs is evident in their activities on social media, especially Twitter.

While Cheng did not provide specific examples of the shift in investment, a $150 million investment in Character AI last month by long-time crypto investment firm Andreessen Horowitz may be illustrative. Lightspeed Venture Partners also participated in a $101 million raise for Stability AI, the team behind AI text-to-image platform Stable Diffusion, in October 2022.

Even blockchain companies are investing in AI. In February, Tron founder Justin Sun said the company would launch a $100 million AI development fund.

Cheng believes that AI, blockchain and Web3 technologies are still complementary areas and can also be used in consumer products. Conversely, he expressed skepticism about incorporating AI as a core component, as it may not be necessary or suitable for all applications.

“One area we’re very interested in, and where we see a lot of opportunity, is using AI technology in developer tools,” Cheng said. “We’ve already seen the value of smart contract auditing and code assistance, for example.

“While there are buzzword products combining AI and crypto, I would be skeptical of their true utility,” he continued. “But in terms of developer tools for smart contract developers, it’s definitely a fertile area.”

VCs tend to follow trends and invest in compelling narratives, Cheng said, citing the rise of decentralized finance (DeFi) and non-fungible tokens (NFT) as an example. However, he emphasizes the importance of delivering tangible value to attract VC attention. If crypto projects can do that, he said, they can raise the necessary investment to continue to innovate and grow.

Cheng said that showcasing innovative, consumer-focused products will revive investment interest in the blockchain and crypto sectors, and he maintains a positive outlook on the future of the Web3, blockchain and crypto sectors.

“I think there will be a lot of big, powerful and exciting products aimed at consumers, and that’s what really excites me,” he said. “By presenting a few compelling, imaginative ideas to people, we can attract investment back into this area.”