Web3 Lawyer: 2025 Web3 Investment New Trend - Potential and Compliance Challenges of AI Crypto Funds

Smarter, or more risky?

Author: Iris, Lawyer Liu Honglin, Mankun Blockchain Legal Services

As early as the end of 2023, "AI+" was one of the key words in the mainstream Web3 track predictions of major research institutions. Now, a year has passed, how is "AI+" doing?

Recently, a16z and VanEck have released their 2025 Web3 forecasts, and these reports have all pointed to the same topic: AI agents, the latest development direction of AI+. Among them, AI-powered investment is a representative, and in the second half of 2024, it achieved eye-catching results - the launch of DAOS.FUN, backed by a16z, with a market capitalization of $80 million in a single day, triggering a new wind vane of "AI Crypto Fund".

This has also aroused the curiosity of Mankun Lawyer, after all, Mankun Lawyer has long advised crypto investors to participate through crypto funds. Will the emergence of AI Crypto Funds bring a smarter investment path for crypto investors?

In this article, Mankun Lawyer will explore the new investment trend of AI Crypto Funds around this topic.

What is an AI Crypto Fund?

An AI Crypto Fund, as the name suggests, has the core logic of using artificial intelligence (AI) to replace the traditional human-managed investment decision-making method, and can realize the full-process automation of on-Chain operations, from data analysis to decision execution, without human intervention. Unlike traditional crypto funds that rely on the experience and intuition of fund managers, AI Crypto Funds rely on algorithmic models and on-Chain data, achieving efficient and precise investment strategies through real-time calculation and execution.

The realization of AI Crypto Funds is benefited by the high transparency and democracy of Web3:

First, the Blockchain as the infrastructure provides rich and real-time data for AI machine learning models, from on-Chain transaction history, asset price fluctuations to market sentiment, which can help AI optimize investment strategies.

Secondly, the decentralized autonomous organization (DAO) architecture provides a permissionless operating environment for AI Crypto Funds. The operation of AI Crypto Funds can be realized through smart contracts, further reducing the subjectivity, operational risks and centralization issues caused by human intervention.

It is precisely because of the characteristics of the underlying infrastructure, the advantages of AI Crypto Funds are more prominent compared to traditional crypto funds:

· Data processing capability. AI can quickly analyze massive on-Chain and off-Chain data, accurately identify trends and make decisions. This processing speed and data scale far exceeds human limits.

· Capturing market sentiment. By analyzing social media, news and industry dynamics, AI can perceive market change signals in advance, helping the fund make more accurate choices before the trend occurs.

· Autonomy and transparency. Relying on DAO and smart contracts, with all operation records on-Chain, AI can promote the transparency of fund investment and management, increasing trust.

· Risk management capability. AI not only can perform real-time monitoring, but also can quickly adjust asset allocation according to market changes, making AI Crypto Funds more advantageous in the face of market volatility.

With more capital participating in Web3, the demand of investors for efficient, stable and transparent investment has driven the emergence of AI Crypto Funds. The concept is good, but the key is implementation. So, what are the representative projects in this field?

What AI Crypto Funds are there?

1. Ai16z and DAOS.FUN

As a phenomenon-level AI crypto fund, Ai16z attracted the attention of the entire industry shortly after its launch in the second half of 2024, successfully triggering a boom in AI crypto investment. The decentralized autonomous organization (DAO) - DAOS.FUN - behind Ai16z is the core technical supporter of the fund, realizing governance transparency and decision automation through smart contracts. Relying on advanced AI algorithms and on-chain data analysis capabilities, Ai16z has truly achieved full-process automation from strategy formulation to execution.

2. Yahctzee Fund

Yahctzee Fund, supported by the well-known crypto figure Arthur Hayes, is another eye-catching autonomous AI-driven fund. Through on-chain governance structure and high-performance AI algorithms, it has demonstrated outstanding flexibility and adaptability in investment decision-making. Yahctzee Fund's goal is not only to optimize returns, but also to explore the optimization path of long-term asset allocation, trying to build a more sustainable investment model.

3. Sekoia Virtuals

Sekoia Virtuals is an experimental AI fund initiated by Anand Iyer, a managing partner of Canonical Ventures, focusing on supporting the Virtuals ecosystem. Although the current market influence of this project is not large, its Web3 small community investment management, not only makes its differentiated advantages obvious, but also expands more vertical fields and directions for the development of AI crypto funds.

4. Cod3x and BigTonyXBT

Cod3x is an organization focused on building the next-generation AI agent infrastructure, and its flagship project BigTonyXBT is an autonomous trader based on the Base chain. BigTonyXBT focuses on the DeFi field, and gradually builds a complete ecosystem for AI crypto funds in financial investment through AI automated trading and asset management functions.

These projects have their own focuses in terms of technical implementation and ecosystem layout, comprehensively promoting the model innovation of crypto funds. However, while AI crypto funds are demonstrating their huge potential, whether they can achieve compliant implementation under the gradually clarified global regulatory environment is also a key issue - compliance or not determines whether they can truly inject sustainable growth momentum into the Web3 ecosystem.

Exploration of Compliance for AI Crypto Funds

The emergence of AI crypto funds has undoubtedly brought innovation to the crypto investment field, but whether this emerging model is compliant remains an unresolved issue. This is mainly due to the special nature of AI crypto funds:

First, the issue of legal entity. Traditional funds must be approved by the judicial jurisdiction when established and have a clear legal identity. However, most of the AI crypto funds currently seen are often based on DAO operations, and DAO is not clearly defined as a legal entity in most countries. This means that if AI crypto funds are involved in asset custody, contract signing or legal disputes, the current legal framework may not be able to provide effective support. In some jurisdictions, fund operations without a license may be seen as illegal fundraising, which exposes AI crypto funds to greater legal risks in cross-border operations.

Secondly, the issue of licenses and regulations. Existing financial market rules require fund managers to obtain relevant licenses and fulfill regulatory obligations, such as disclosing risks to investors and regularly reporting fund performance. But AI crypto funds do not have a clear manager, and investment strategies and execution are all completed by AI algorithms. How to define the identity of the "fund manager" itself is a compliance challenge. In addition, this "unlicensed operation" model may be seen as regulatory avoidance, especially in regions with strict regulations on fund establishment and management, such as the US and Europe, which will become a major obstacle to the compliance of AI crypto funds.

The third is the issue of governance transparency and algorithm compliance. Although the DAO architecture provides technical support for the on-chain transparent governance of AI crypto funds, this transparency is more for technology and community, rather than for regulatory authorities. Traditional funds need to disclose their investment strategies and governance structures to regulatory authorities, but the algorithms of AI crypto funds are complex and difficult to explain. Whether regulatory authorities can accept this "black box" mode of operation is still questionable. Especially in regions like Europe that have clear requirements for algorithm transparency and interpretability, AI crypto funds may face greater compliance pressure.

In addition, AI crypto funds usually serve the global market, but the regulatory attitudes of different countries towards crypto assets and AI technology are not consistent. For example, the US Securities and Exchange Commission may view it as an unregistered security, while in China, all activities involving coins are clearly prohibited, and AI crypto funds may be unable to conduct business due to touching the policy bottom line. This inconsistency in regional regulations poses more compliance challenges for AI crypto funds in expanding their business.

Furthermore, whenever AI is mentioned, data privacy and cross-border issues are always unavoidable core regulatory issues. Currently, many countries and regions around the world have begun to establish regulatory laws related to AI, such as the Chinese Ministry of Industry and Information Technology deciding to establish an AI Standardization Technical Committee to revise industry standards; the European Union's AI Act is gradually being promoted, aiming to classify AI applications by risk level and formulate strict requirements for transparency and data use; the US White House's Blueprint for an AI Bill of Rights, although a principle-based guide, also clearly proposes basic principles of algorithm transparency, user privacy protection, and prevention of data abuse. The gradual establishment of these regulatory rules will also impose more stringent compliance requirements on AI crypto funds.

Summary by Mankun Lawyer

The emergence of AI crypto funds has brought a brand new imagination space to the crypto investment field. Mankun Lawyer believes that AI crypto funds are not only a technological innovation, but also a challenge to the traditional financial logic. However, whether it is the legal status of DAO, the interpretability of AI algorithms, or the diversity of the global regulatory environment, compliance is always the key to determining whether AI crypto funds can go mainstream.

Although there are still obvious gaps between the traditional regulatory framework and new technologies, developers and investors should also do: not only actively adapt to the existing legal framework, but also be prepared for future regulatory rules in the face of uncertainty.

Mankun Lawyer believes that only by seeking innovation in compliance and creating value within the rules can AI crypto funds inject sustainable development momentum into the entire industry.

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