Entropy, Decentralised Storage with Support from a16z, Shuts Down

The shutdown of Entropy, a decentralized crypto custody startup backed by Andreessen Horowitz (a16z), has sent a quiet but meaningful signal across the Web3 infrastructure landscape. 

Founded in 2021 by Tux Pacific, Entropy positioned itself at the intersection of cryptography, decentralized custody, and cross-chain asset management, an area widely believed to be foundational for the next phase of blockchain adoption.

Entropy was not short on ambition or capital. It built advanced systems using multi-party computation (MPC), threshold cryptography, and trusted execution environments (TEEs) to challenge centralized custodians. 

Yet, despite technical sophistication and top-tier investors, the project ultimately failed to discover a business model capable of sustaining venture-scale growth.

On January 26, 2026, Entropy officially announced its closure, marking another notable retreat in the decentralized infrastructure sector amid a prolonged crypto market recalibration.

Key Takeaways

• Entropy shut down due to the absence of a scalable business model, not a lack of funding or technical capability

• Despite backing from a16z and other major VCs, decentralized custody remains commercially challenging

• The closure highlights a broader reset in Web3 infrastructure and venture expectations since 2025

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What Was Entropy?

Entropy was a decentralized crypto custody startup designed to eliminate reliance on centralized asset managers. Its core mission revolved around enabling secure, automated, and cross-chain cryptographic asset management without single points of failure.

Instead of storing private keys traditionally, Entropy leveraged MPC-based signing, splitting cryptographic authority across multiple parties. This design aimed to reduce custodial risk while preserving usability for institutions and advanced users.

In theory, Entropy offered the best of both worlds: institutional-grade security with decentralized trust assumptions. In practice, adoption proved far more complex.

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Entropy’s Funding and a16z Backing

From an investment standpoint, Entropy appeared well-positioned for long-term success. The startup raised approximately $27 million, including a $25 million Series A round in 2022, led by Andreessen Horowitz (a16z).

Other participants included Dragonfly, Variant, and Coinbase Ventures, a roster that signaled strong confidence in Entropy’s vision and technical roadmap.

This level of backing placed Entropy among the most promising decentralized custody experiments of its time making its eventual shutdown all the more instructive for the industry.

Why Did Entropy Shut Down?

The official reason behind the Entropy shutdown was not security failure, regulatory pressure, or capital exhaustion. Instead, founder Tux Pacific cited a more structural issue: the lack of a viable venture-scale business model.

After four years of operation, multiple strategic pivots, and two rounds of layoffs, Entropy was unable to align product-market fit with sustainable revenue growth. While the technology worked, demand failed to scale fast enough to justify continued venture investment.

In an environment where capital efficiency replaced growth-at-all-costs especially after 2025 this gap became impossible to ignore.

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The Broader Context: Crypto Infrastructure After 2025

Entropy’s closure is emblematic of a wider trend in the crypto sector. Since 2025, venture capital has increasingly favored revenue-generating protocols, exchanges, and infrastructure with clear paths to profitability.

Highly technical, research-heavy startups particularly in decentralized storage and custody have struggled to translate cryptographic elegance into commercial traction.

This does not invalidate the technology itself. Rather, it underscores a growing divide between theoretical decentralization and market-driven adoption realities.

What Happens Next to Entropy’s Assets and Funds?

According to the shutdown announcement, Entropy will return its remaining funds to investors, an outcome that reflects disciplined capital management rather than collapse.

No acquisition, token wind-down, or protocol continuation has been announced, suggesting that Entropy’s technology will not transition into an open-source or DAO-led successor at least for now.

Its intellectual legacy, however, may quietly influence future custody designs across Web3.

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What Entropy’s Closure Means for Decentralized Custody

The end of Entropy does not mark the failure of decentralized custody as a concept but it does recalibrate expectations.

Security alone is no longer enough. Infrastructure projects must now demonstrate clear economic value, strong distribution, and real-world integration. 

The next wave of custody solutions will likely emerge closer to exchanges, liquidity venues, and regulated on-ramps rather than as standalone cryptographic platforms.

In that sense, Entropy’s story is less a cautionary tale and more a strategic lesson.

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FAQ

What is Entropy in crypto?

Entropy was a decentralized crypto custody startup using MPC and threshold cryptography to manage digital assets without centralized key control.

Why did Entropy shut down?

Entropy closed due to the absence of a scalable business model capable of supporting venture-level growth, despite strong funding.

Was Entropy backed by a16z?

Yes, Andreessen Horowitz (a16z) led Entropy’s $25 million Series A funding round in 2022.

When did Entropy officially close?

Entropy announced its shutdown on January 26, 2026, after four years of operation.

Does Entropy’s shutdown affect decentralized storage projects?

While not directly, it highlights the commercial challenges facing decentralized infrastructure projects in the current crypto market.

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