Entropy, a decentralized crypto custody startup backed by Andreessen Horowitz (a16z), is winding down and plans to return remaining capital to investors, according to founder and chief executive Tux Pacific.

Pacific wrote on X over the weekend, “I am winding-up Entropy.” They added, “After four years, several pivots, and two rounds of layoffs, I’ve decided to wind-up Entropy and return capital to our investors.”

Crypto Automation Bet Fell Short After Investor Feedback

The shutdown follows a late-stage push in 2025 to reposition the company around a crypto automations platform, which Pacific described as “basically n8n/zapier/etc for crypto,” with automated signing via threshold cryptography, secure computation using trusted execution environments, and “deep AI integrations.”

That product direction still failed to clear a venture-style growth bar. “After an initial feedback request revealed that the business model wasn’t venture scale, I was left with the choice to find a creative way forward or pivot once more,” Pacific wrote.

Entropy first drew attention in 2022 when it raised $25M in a seed round led by a16z crypto, with participation including Dragonfly Capital, Coinbase Ventures, Robot Ventures, Ethereal Ventures, Variant and Inflection. The company had earlier raised a $1.95M pre-seed round.

Founder Looks Beyond Digital Assets Toward Pharmaceuticals Research

At launch, Entropy pitched itself as a decentralized alternative to custody providers such as Fireblocks and Coinbase, leaning on cryptographic approaches like multi-party computation to let users control how funds could move, including rule-based constraints.

Pacific also thanked a16z crypto and Guy Wuollet for helping steer the wind-down, calling their guidance “invaluable.”

The closure lands in a tougher funding climate for early-stage crypto startups. Crypto venture deal count fell about 60% year-on-year in 2025, dropping to roughly 1,200 transactions from more than 2,900 in 2024.

Next, Pacific said they plan to step back before deciding what comes after Entropy. “My time in crypto might be coming to an end, as I feel myself drawn specifically into pharmaceuticals,” they wrote, adding they want to work on hormone delivery and validate research on new estradiol drug formulations.

The post a16z-Backed Crypto Custody Startup to Shut Down, Return Investor Funds appeared first on Cryptonews.

The US Securities and Exchange Commission’s Crypto Task Force is facing renewed pressure from industry groups and individual contributors as questions around self-custody rights and the scope of dealer regulation in decentralized finance move back into focus.

On Tuesday, the Task Force’s public “Written Input” page added two new submissions that reflect a broader tension shaping US crypto policy: how to protect investors without collapsing core features of on-chain markets, particularly self-custody and non-custodial trading.

SEC Filings Spotlight Self-Custody Protections and DeFi Market Structure

One submission, filed by an individual identified as DK Willard, centers on the experience of retail crypto users in Louisiana and ties state-level protections directly to the federal debate now unfolding in Washington.

Willard points to Louisiana legislation such as House Bill 488, which explicitly affirms residents’ right to self-custody digital assets, arguing that these protections should not be diluted by federal market structure proposals.

The filing shows that Congress is considering frameworks that include registration, transparency, and anti-fraud standards, but certain exemptions risk allowing developers or platforms to sidestep core investor protections.

In Willard’s view, weakening self-custody protections could expose consumers to fraud and financial crime rather than supporting responsible innovation.

At the same time, a more technical submission from the Blockchain Association’s Trading Firm Working Group focuses on how proprietary trading firms should be treated when providing liquidity in tokenized equity markets that operate on DeFi infrastructure.

The group argues that long-standing distinctions in securities law between dealers and traders should continue to apply on-chain.

Trading for one’s own account, without customer solicitation, custody, or agency execution, should not trigger dealer registration under the Exchange Act, the filing says, even when that trading occurs through smart contracts and decentralized venues.

The association frames this issue as central to whether tokenized equity markets can function at all during any SEC-approved innovation exemption or sandbox.

Without legal certainty, proprietary trading firms may avoid on-chain markets altogether, leaving tokenized equities without reliable liquidity, price discovery, or arbitrage.

The group stresses that existing broker-dealer rules, including those governing clearing, custody, reporting, and capital, were designed for intermediated markets and will take time to adapt to atomic settlement and smart contract execution.

Allowing proprietary firms to participate immediately, they argue, would give regulators space to modernize those frameworks without freezing market activity in the interim.

SEC’s New Crypto Approach Takes Shape After 2025 Restructuring

These submissions land within a broader shift at the SEC that began after the agency’s restructuring in early 2025.

Under Commissioner Hester Peirce, the Crypto Task Force has moved away from what industry participants long criticized as regulation by enforcement and toward formal rulemaking and guidance.

Over the past year, that approach has included dismissing the SEC’s lawsuit against Coinbase, pausing enforcement actions against Binance, and closing investigations into other major platforms.

The agency has also rescinded restrictive custody guidance and clarified that certain crypto activities do not constitute securities transactions.

The latest filings also intersect with an increasingly complex legislative backdrop.

Negotiations over the CLARITY Act, which aims to establish a comprehensive federal market structure for digital assets, remain unsettled.

A scheduled markup in the Senate Banking Committee was postponed following industry opposition, while the Senate Agriculture Committee is still expected to review the bill later this month.

Other recent submissions to the Crypto Task Force highlight how contested the custody question remains.

Industry groups, including SIFMA, have cautioned against granting broad exemptions to wallet providers that perform broker-dealer functions, while policy groups tied to the Solana ecosystem are calling for clearer distinctions between non-custodial software and regulated intermediaries.

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