The Second Law of Entropy Failing? Why did the crypto custody star Entropy supported by a16z fall?

Founder Tux Pacific stated in a declaration that this decision was made after “four years of product development, multiple business adjustments, and two rounds of layoffs.” As an emerging project that was initially led by Andreessen Horowitz (a16z) with a $25 million seed round, the closure of Entropy reflects the common challenges faced by the decentralized infrastructure track in a harsh market environment.

Project Overview

Entropy’s story began in 2021. Founder Tux Pacific is a self-taught cryptographer who previously worked at NuCypher. The project was originally positioned as a decentralized alternative to traditional centralized cryptographic custody institutions.

In June 2022, Entropy completed a $25 million seed round led by a16z crypto, with other investors including Dragonfly Capital, Variant, Coinbase Ventures, and other well-known institutions. Along with an earlier $1.95 million pre-seed round in the same year, the company raised approximately $27 million in total. With this funding, Entropy started building a decentralized custody solution based on technologies such as multi-party computation, threshold cryptography, and Trusted Execution Environments (TEEs).

Technical Vision and Business Adjustments

Initially, Entropy aimed to provide cross-chain asset management and automated signing services. Its core technologies included automated signatures based on multi-party computation, secure computing via trusted execution environments, and AI integration. These technologies aimed to enable users to manage and use cryptocurrencies across different blockchain networks while maintaining control over their assets and interacting with funds according to preset rules (such as time-lock constraints).

However, in 2025, facing market changes, Entropy underwent a major business adjustment, transforming into a crypto automation platform described as similar to n8n or Zapier but specifically designed for the crypto field.

Market Challenges and the End of the Road

Despite the business pivot, Entropy still faced severe challenges. Pacific admitted that after initial market research, “this business model was difficult to support risk investment-level growth.”

In fact, Entropy’s predicament is not an isolated case. Industry analysis shows that in 2025, the survival environment for crypto startups became increasingly harsh. The number of crypto venture capital deals decreased by about 60% year-over-year, from over 2,900 in 2024 to around 1,200 in 2025. Against this backdrop, Pacific ultimately made a difficult decision: “After four years of hard work in the crypto industry, I realize I have done my best: it’s time to close shop.”

Changes in the Crypto Custody Track

The closure of Entropy reflects fundamental changes in the crypto custody and asset management industry. As the market matures, the simple “buy and hold” model is no longer sufficient. From early to mid-2025, the number of companies buying and holding Bitcoin surged from 70 to over 130, with fierce market competition. However, many of these companies “may struggle to survive the next correction cycle.”

Industry experts point out that future survivors will be those able to provide additional value, such as products that “bring stable and ongoing returns to their holdings and pass on profits to stakeholders.” Meanwhile, the rise of crypto exchange-traded funds (ETFs) has also put pressure on professional custody institutions. Investors are shifting toward ETFs, viewing them as a convenient way to gain “compliant exposure” to digital assets.

Industry Trends and Project Comparisons

From a broader industry perspective, crypto infrastructure projects are facing structural challenges. On one hand, demand for secure, compliant custody solutions continues to grow; on the other hand, pure technological innovation struggles to translate into sustainable business models.

To clearly illustrate the evolution of the Entropy project from its initial vision to its final reality, the table below compares key aspects:

Current Market Environment and Insights

According to Gate Market data, as of January 26, 2026, the cryptocurrency market shows signs of correction. Bitcoin is priced at $87,777.3, down 1.57% in 24 hours; Ethereum is priced at $2,875.72, down 2.68% in 24 hours. This market environment raises higher demands on infrastructure projects.

The case of Entropy offers multiple insights for crypto industry investors and entrepreneurs. First, technological sophistication does not equate to business viability; second, in a bear market cycle, infrastructure projects need clearer profit pathways; third, as the market matures, differentiated competition becomes crucial. “The crypto vault model needs to shift from speculation to structured financial management,” industry experts point out. “Vault holders should not only hold Bitcoin but actively manage it, integrating it into transparent, yield-bearing systems as digital capital.”

For the entire industry, Entropy’s closure may signal the beginning of a new round of reshuffling. As regulatory frameworks become clearer and institutional participation increases, only projects that can deliver real value and establish sustainable business models will survive long-term.

The crypto world continues to evolve. With Bitcoin fluctuating around $87,777, and market dominance reaching 56.48%, the industry infrastructure is also experiencing a natural淘汰. In his farewell statement, founder Tux Pacific wrote: “A career is a form of cultivation: the goal is not the end, but the journey of innovation.” This founder, who once described himself as an “anti-capitalist anarchist,” now plans to shift into drug research, focusing on hormone delivery innovations.