OKX Ventures: Penetrating the narrative to explore the next steps for Crypto and AI

Abstract: Cycles and narratives have always been the core topics of the global crypto market. In the past, the industry used Bitcoin halving as a reference to perceive cycles and explore the direction of large narratives. However, after the approval of Bitcoin and Ethereum spot ETFs, the crypto market is highly coupled with the trend of the global financial market, and the variables affecting the trend of the crypto market are increasing.

Against the background of soaring chaos values, how to perceive the cycle more clearly and discover the future narrative trend is very important. As an innovative narrative catcher, investment institutions have always been relatively cutting-edge. In view of this, OKX specially planned the "Crypto Evolution" column, inviting mainstream crypto investment institutions around the world to systematically output topics such as the cycle of the current market, the direction of the new round of narratives, and the subdivision of hot tracks, so as to stimulate discussion.

The following is the third issue, which is jointly discussed by OKX Ventures, Polychain and Delphi Digital around topics such as "The Convergence of AI and Crypto". I hope their insights and opinions will inspire you.

AboutOKX Ventures

OKX Ventures is the investment arm of OKX, a leading crypto asset trading platform and Web3 technology company, with an initial capital commitment of US$100 million. It focuses on exploring the best blockchain projects worldwide, supporting cutting-edge blockchain technology innovation, promoting the healthy development of the global blockchain industry, and investing in long-term structural value. Through its commitment to entrepreneurs who support the development of the blockchain industry, OKX Ventures helps build innovative companies and brings global resources and historical experience to blockchain projects.

AboutPolychain Capital

Polychain Capital is an investment company dedicated to investing in blockchain technology and decentralized finance. Since its establishment in 2016, it has been focusing on supporting transformative projects that use blockchain to subvert traditional industries and create innovative financial systems. With a deep understanding of the crypto space, Polychain Capital supports visionary entrepreneurs and cutting-edge technologies to drive the growth and adoption of decentralized networks and protocols.

About Delphi Digital

Delphi Digital is a research-driven company dedicated to promoting the understanding and development of the growing digital asset market. Delphi Digital supports the ecosystem through four business lines: Delphi Research, Delphi Ventures, Delphi Creative and Delphi Labs.

1. When Crypto Meets AI 

OKX Ventures:The development of AI technology is currently highly dependent on the promotion of giants, such as OpenAI, Google, Nvidia, etc. Nvidia controls the "electricity" of the entire AI era, while OpenAI and Google have the most core data and technical solutions. This centralized and highly dependent state of giants will limit the innovation and development of the industry. The decentralized and permissionless nature of Crypto can just break the shackles of giants, promote technological innovation to a certain extent, and bring new prosperity to the industry.  

Currently, the more common scenarios include computing power, data, models and applications.

•    Computing power

Distributed/decentralized computing power markets such as io.net and Prodia can break the computing power monopoly of giants by utilizing idle computing power in the global market. We are very much looking forward to seeing what kind of chemical reaction will occur when the total supply of distributed computing power exceeds the centralized computing power supply at a certain point in the future. In addition, due to the scarcity and high returns of AI computing power assets, computing power RWA projects such as Compute Labs have also emerged, creating an AI-Fi ecosystem by tokenizing computing power assets and developing related derivatives.

•    Data

Crypto's economic model can well motivate users to participate in the field of AI data. For example, various Depin projects can motivate users to participate in data contribution, data labeling or data verification through token economic models, providing data sources for AI model training; Space and Time combines tamper-proof on-chain and off-chain data through proof of SQL to create a verifiable computing layer for the combination of AI and blockchain; 0g.ai has built a scalable data availability layer and storage system; in addition, Crypto's privacy protection features can better achieve the security and privacy of user data. For example, Flock.io, Privasea.ai, etc. emphasize the importance of user data privacy protection during model training.

•   Model

The open model market is expected to break the model monopoly of technology giants. Users can not only support the training and reasoning of AI models by providing computing resources, but also provide data or models and interact directly through network protocols. In addition, distributed model training is currently a difficult point. We especially hope to see technical breakthroughs in distributed model training, and hope to see entrepreneurial teams fill this blank in the near future.

•   Application

At the application level, the combination of AI and Crypto can better realize the content generation of creators. Users can independently build virtual characters and chatbots with customized personalities, such as Myshell. Users can build their own AI Smart Agent by uploading data training models, while also allowing data providers and model trainers to gain dividends from the development of the platform, thereby forming a positive data flywheel.

Polychain:The AI ​​field is shifting from closed-source models to complex open-source solutions. Although this change has democratized the acquisition of AI capabilities, it has also brought new challenges, especially in terms of value acquisition for model creators. The financialization of open-source models is an innovative area where crypto and AI meet. Blockchain technology combines open source, ownership, and verifiability to lay the foundation for value accumulation. Ora's Initial Model Offering (IMO) demonstrated how tokens can represent AI models, allowing token holders to receive rewards when the model is profitable. This not only incentivizes open-source development, but also ensures fair compensation for creators and contributors.

In addition to financialization, the convergence of crypto and AI has also driven innovations in public governance and system transparency. As concerns about AI model bias and centralized control increase, blockchain-based solutions provide decentralized training, reasoning, and governance mechanisms, ensuring transparent decision-making processes and community participation.

However, the core of innovation lies in the development of infrastructure. Advances in distributed computing networks, new data ownership mechanisms, and new token standards make model ownership and revenue sharing possible. These infrastructure developments lay the foundation for complex applications of crypto and AI.

A promising direction is the emergence of AI agents and executable task systems. They can serve as an extension of individuals and automatically perform complex tasks, from personalized assistants to advanced automation in decentralized finance. But their implementation depends on data privacy protection, verifiable computing systems, and seamless integration of infrastructure.

Although projects that converge crypto and AI are in their early stages, they have made progress through rapid iterative experiments. Although best practices have not yet been established, the potential of crypto technology in solving AI challenges is becoming increasingly clear.

In the future, we will see more sophisticated applications that combine the advantages of crypto and AI. This integration will not only bring a more transparent and responsible system, but will also significantly improve the usability and functionality of AI and blockchain technologies. As exploration continues, this field will see exciting developments.

2. Crypto+AI Investment Methodology 

OKX Ventures:We can start this question from the development trend of the current track.  

• Currently, this track is moving from hype to substance.

In the past year, a large number of Crypto & AI projects have emerged in the market, most of which are concentrated in the infrastructure field, while there are fewer application levels, and they are mainly shell-based, lack innovation, have low technical content, and are largely hyped and conceptual. Hype and bubbles are the companion phenomena of the early stage of technological innovation. After the optimization of market resources, we will see real entrepreneurial teams with technical backgrounds entering the Crypto & AI field in the future. The market will begin to favor projects that can provide real value, scalability and usability, rather than those that rely solely on hype and marketing.

• From speculation to demand

The market will shift from speculation-driven to demand-driven, and the focus will shift from speculation on potential value to actual use and adoption. It is not enough for entrepreneurs to attract investors with narratives alone. Now the market tends to be cautious and conservative for pure narrative projects. In the future, projects with real market demand and business income will become a necessary condition for investors to pay, which is also a basic logic when we lay out the Crypto & AI track.

Based on the above development trends, we have abstracted the corresponding investment logic, which has three core points:

•  Market demand orientation

Many AI startup teams did not find out that the market did not buy their products until they launched them on the market. Users had no demand for their products at all. The root cause is that they did not conduct enough market demand research at the beginning of their business, did not take market demand as the orientation, or mistakenly identified unverified pseudo-demand.

Therefore, when laying out the Crypto & AI track, we pay special attention to meeting market demand. First, in general, we should judge which track the project belongs to in the Crypto & AI field, how big the market capacity will be, how much room for future development the project has, and what the competitors and competition are like. Secondly, what problems the project solves and what needs it meets. Even if it is a very small point, solving the market pain points is a feasible idea and direction.

•  It cannot be purely narrative

The most criticized thing about the Crypto & AI field is that it is narrative-based and has no practical application. It is difficult for us to completely agree with this view, but it is difficult for the market to pay for pure narratives. Therefore, real business scenarios and business models are particularly important.

Entrepreneurial teams must have business income that can support their own survival. Many entrepreneurial teams use NFT/Token sales as the only source of income, which is absolutely not feasible. Entrepreneurial teams must have a clear business model and think clearly about where their business income comes from, rather than just relying on narratives to get the market to pay.

•  The team needs to have an AI background

The popularity of AI quickly ignited the enthusiasm of the Web2 market and VC. This trend naturally blew to the crypto world. Many crypto entrepreneurial teams began to take advantage of AI hotspots and package projects, resulting in a large number of Crypto & AI projects on the market. However, since the team has no AI technical background, most of the projects are shell products and have no market competitiveness, and they are quickly eliminated by the market. AI has a high technical threshold. Especially when Crypto and AI are combined, a deep understanding of both fields is required to effectively combine the two, otherwise it is difficult to be recognized by the market.

In general, the basic idea of ​​investment is to discover market needs and problems in a track with huge market development potential, find the most suitable team, provide assistance to entrepreneurs, and meet market needs and solve problems from 0 to 1.

Polychain:Currently, the landscape of crypto and AI projects is mainly narrative-driven, which is a typical feature of early transformative technologies. This narrative is not only part of marketing, but also a necessary part of ecosystem development, which helps to attract attention, drive community participation and early adoption. However, we recognize that when evaluating these projects, we need to go beyond narratives and focus on their technical foundations and practical applications. Therefore, our investment strategy is based on in-depth research on crypto and AI technologies and their potential synergies, giving priority to projects with attractive visions, clear market adoption paths and solid technical foundations. Filtering out these noises requires in-depth research.

Currently, the combination of crypto and AI is mainly at the infrastructure level, in areas such as GPU networks, inference and intelligent networks, verifiable and private computing, and data management solutions, which will lay the foundation for the next wave of innovation.

In the future, data privacy technologies such as homomorphic encryption, multi-party computing, and zero-knowledge proofs will become important means to protect AI privacy. Decentralized data markets, verifiable reasoning networks, and AI agent infrastructure will continue to grow, promoting the popularization of AI functions and building fair, transparent, and efficient systems. The integration of AI and blockchain may bring a new wave of crypto applications, such as AI analysis for decentralized finance, predictive models for asset management, and governance mechanisms for DAOs. Small and efficient models trained on high-quality data sets will also continue to develop, promoting more personalized AI experiences and reducing application friction.

Delphi Digital:Software is eating the world, and AI is eating software. The essence of AI is data and computing, so whoever can most effectively obtain these two key inputs (infrastructure), coordinate them (middleware), or use them to meet user needs (applications) will gain tremendous value.

Currently, Delphi Ventures’s core investment logic focuses on theDeAIecosystem, and is actively deploying projects at every layer of theDeAIstack.

First, at the infrastructure level, DeAI relies on data and computing, especially through cryptocurrency incentive mechanisms to efficiently obtain these resources. This is the most challenging but also the most promising part of the stack. Currently, distributed training protocols and the GPU market provide low-cost solutions for large technology companies by coordinating heterogeneous hardware, while the DePIN network occupies an important position in the future intelligent economy with its ability to build hardware networks at low cost.

Second, at the middleware level, DeAI aims to achieve efficient composable computing, similar to the "Lego" model of DeFi. We are particularly optimistic about efficient routing mechanisms (i.e., how to choose the most cost-effective and performant model for the right use case), graph neural networks, coprocessors for scaling data and computing in a restricted on-chain environment, and encryption-based mechanisms to solve the incentive problem for open source developers. If executed properly, DeAI middleware will depict a compelling vision of a modular approach to AI that could eventually outperform the integrated closed-source versions of today's tech giants.

Finally, at the application level, on-chain proxy protocols may be the key to improving user experience in the crypto space. By connecting computing networks and users, these protocols can not only reduce costs, but also unlock the potential of web3 infrastructure and promote the development of new economic models.

In general, AI will profoundly change our economic form. Although DeAI's current narrative may be overly optimistic, the scale of the opportunity is indeed huge. For those who have patience and insight, DeAI's true vision of composable computing may prove the value of blockchain itself.

Three, on future opportunities

OKX Ventures: Technological breakthroughs and innovations are eternal opportunities.

There is a serious technological monopoly in the field of AI, and data and core technologies are more in the hands of tech giants, squeezing the living space of start-ups very small. How to deal with the technological monopoly and cannibalization of tech giants is the primary problem that entrepreneurs need to face. We are very much looking forward to seeing more entrepreneurial teams in the future step out of their followers' status, break the monopoly of centralized technology giants through the combination of Crypto & AI, achieve technological breakthroughs and innovation, truly implement narratives and products, and meet market demand.

How not to leave the table is a question that entrepreneurial teams need to think about.

•  Entrepreneurial teams need to explore the business model and sustainability of their own business. Pure narrative projects are no longer accepted by the market. Entrepreneurial teams need to have stable business income or a clear and feasible monetizable business model in the future.

•    Entrepreneurial teams need to have reasonable financial management and cost control skills to ensure the long-term stable operation of the project. Financial issues are the most problematic points for entrepreneurial teams. Many entrepreneurial teams fail due to poor financial management.

•    Entrepreneurial teams need to have sufficient flexibility and mobility. Market development is changing rapidly. A technological breakthrough may cause a group of entrepreneurial teams to disappear. Entrepreneurial teams need to have flexibility and adaptability, adjust strategies and directions in time according to the market, and learn to choose the right time and take advantage of the situation.

Polychain:Currently, sentiment in the AI ​​and crypto industries is shifting significantly. The attitude of institutions and regulators towards the crypto market has improved, as reflected in the approval of Bitcoin and Ethereum ETFs in the United States, and the increase in mainstream acceptance paves the way for further innovation. At the same time, the AI ​​field is also undergoing a transformation, with some of the founding members of OpenAI leaving to promote the concept of "super alignment", which brings new innovative opportunities for AI development and governance, and is in line with the decentralized spirit of crypto projects, forming a unique synergy.

Although the AI ​​field is still in its early stages, demand remains strong, but the dominant strategy has not yet been clarified. Combined with a fairer and more open AI concept, projects that can effectively combine AI and blockchain technology have broad development prospects. The concept of "super alignment" alleviates concerns about the impact of AI on employment and information authenticity, and also promotes interest in user-owned AI systems. Crypto projects that can promote user ownership and interest alignment have received widespread attention.

However, opportunities are accompanied by challenges. The global economy is facing pressures such as conflict, recession, high inflation and high interest rates, leading to cautious consumption, which may affect investment in crypto assets. However, this environment may also prompt people to see cryptocurrencies as an alternative to the traditional financial system, and Bitcoin is therefore regarded as "digital gold" and a means of storing value in uncertain times.

Regulatory uncertainty remains an issue. The legal environment for cryptocurrencies and AI varies from region to region, and projects must remain flexible in this uncertainty. Talent scarcity is also a major challenge. There is fierce competition for professional talents in the fields of AI and blockchain, which may affect the progress of project development.

Looking forward, the current market cycle may become a filter for crypto and AI projects. Projects that can effectively respond to real needs, adapt to regulations and integrate technology will lead the next stage of development in the industry. As the market matures, crypto and AI technologies will develop in a more sustainable and practical direction. In the future, more attention may be paid to user ownership and data rights of AI systems, the development of decentralized AI infrastructure, and the deep integration of AI capabilities with the blockchain ecosystem to promote the emergence of new economic models. Delphi Digital: The biggest challenge for DeAI is at the infrastructure layer, especially the capital intensity required to build the underlying models and the returns on data and computing at scale. Large tech companies have a clear advantage in this regard: by building a huge capital pool with monopoly profits during the second-generation Internet era and reinvesting it in cloud infrastructure during a decade of low interest rates, they are now trying to monopolize the data and computing markets and thus control the intelligence market, a key factor in AI. Due to the capital requirements and high bandwidth requirements of large training, super clusters remain the best choice, which provides large tech companies with the most powerful closed-source models and plans to rent them out at monopoly profits and then invest the proceeds in the next generation of technology. However, AI's moat is shallower than the network effect of web2. The value of cutting-edge models is rapidly depreciating, especially as Meta turns to a "scorched earth" strategy and invests tens of billions of dollars to develop open source models with SOTA performance such as Llama 3.1. With the rise of low-latency decentralized training methods, the commoditization trend of cutting-edge models is gradually emerging. This shift shifts competition away from hardware superclusters that favor big tech companies and toward an environment more favorable to open source and crypto software innovation. At the same time, the price of smart technology is falling rapidly.

We explore the tension between big tech and DeAI in depth in our DeAIseries of reports, which are free to read.

Given the computational efficiency of “hybrid of experts” architectures and LLM synthesis/routing, the future may not be a world dominated by 3-5 super models, but an intelligent network of millions of models of different shapes, sizes, and use cases. This poses huge coordination challenges, which blockchain and crypto incentive mechanisms have the potential to solve.

For OKX Ventures Disclaimer, please read OKX Disclaimer.

For Delphi Digital Disclaimer, please read Delphi Digital Disclaimer.

Risk Warning and Disclaimer

This article is for reference only. This article only represents the author's views and does not represent the position of OKX. This article is not intended to provide (i) investment advice or investment recommendations; (ii) an offer or solicitation to buy, sell or hold digital assets; (iii) financial, accounting, legal or tax advice. We do not guarantee the accuracy, completeness or usefulness of such information. Holding digital assets (including stablecoins and NFTs) involves high risks and may fluctuate significantly. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. Please consult your legal/tax/investment professionals regarding your specific situation. You are solely responsible for understanding and complying with applicable local laws and regulations.