- Crypto startup Entropy is returning all remaining capital to its backers after deciding it cannot scale its current business model.
- The startup spent four years attempting to find a place in the market after moving from decentralised custody to AI-driven crypto automation.
- Tux Pacific is leaving the crypto space to pursue pharmaceutical research. It plans to focus on hormone delivery for women and transgender health.
Crypto startup, Entropy, which was once regarded as one of the most promising names in the decentralised custody space, recently announced it is closing its doors.
This decision is the end of a four-year journey that saw the team calculate its way through multiple market cycles.
However, unlike many projects that quietly fade away or burn through their reserves, Entropy is closing down with a plan to return remaining capital to the people who funded it.
Why Entropy Is Closing Down
The company launched in late 2021 with a plan to create a decentralised alternative to custodians like Fireblocks and Coinbase.
At the time, the idea of using multi-party computation to give users more control over their funds was a major attraction. This vision even helped the startup secure a $25 million seed round in June 2022 with Andreessen Horowitz leading that round.
entropy is shutting down after raising $25m in a seed round led by a16z back in 2022.
four years of building, the founder decided the business model “wasn’t venture scale” and chose to return capital to investors.
in just four years, the narrative shifted so hard that nobody… https://t.co/XrBE8rBtWC pic.twitter.com/HY0m2ThrpK
— Mertcan (@merttcanc) January 26, 2026
The company also had help from Coinbase Ventures and Dragonfly Capital, including a pre-seed round, which raised about $27 million in total.
However, despite the strong foundation, the market for institutional custody became crowded very quickly.
Large players took up much of the space and made it hard for a new decentralised protocol to gain any ground. Tux Pacific, its parent company, noted that it went through several pivots and two rounds of layoffs during its four-year run.
The team also worked hard to stay relevant, but each change in direction brought new challenges.
The Final Pivot to Crypto Automations
In the latter half of the year, the team tried one last pivot by developing a crypto automations platform with AI.
Pacific described this new direction as a version of Zapier or n8n, which was specifically built for the blockchain space.
It used threshold cryptography to allow automated transaction signing and the goal was to make crypto workflows as easy to manage as regular office tasks.
However, early feedback on this product was harsh, and speculators said that the business model simply was not large enough to justify the level of investment it had received.
Because of this, Pacific was forced to find yet another way forward or admit that the best work had already been done. After years of effort, the founder has now decided it is time to close up shop.
The Venture Capital Environment
Returning capital to investors is becoming more common as the crypto market matures.
Recently, another project backed by Andreessen Horowitz called Farcaster returned $180 million to its backers. For Entropy, however, the refund process is a way to make sure that the relationship with its backers ends on good terms.
🚨 BIG MOVE: Farcaster’s parent company will return $180M to VCs, signaling a rare liquidity event post Neynar acquisition. pic.twitter.com/FNF6nVo87f
— The Crypto Times (@CryptoTimes_io) January 23, 2026
The general environment for startups has become much tougher and data shows that the number of crypto venture deals fell by roughly 60% last year, compared to the previous year.
Investors are now focusing their money on late-stage companies with proven revenue models. This makes it much harder for early-stage teams to raise more money if their first few ideas do not take off.