Analysis: The Real Impact of the DeepSeek Revolution Is on AI Tokens

Artificial Intelligence (AI) tokens, with their multi-billion-dollar valuations and substantial capital, are currently overshadowed by a new entrant in the market—DeepSeek, a highly efficient AI model that has disrupted the sector. On Monday morning, during Asian trading hours, AI tokens, as tracked by CoinGecko, saw a 9% decline, underperforming the broader CoinDesk 20 index, which recorded a 5% drop.

Investors are digesting the rise of DeepSeek, a new AI model that outperforms OpenAI while being built on a modest $6 million budget, using significantly fewer GPUs than OpenAI, which recently closed a $6.6 billion funding round, pushing its valuation to $157 billion. What’s more surprising is DeepSeek’s efficiency: it’s so streamlined that it can run on a smartphone.

This efficiency has raised concerns for investors in GPU-based AI projects, as tokens tied to such projects have suffered. For example, Nodes.AI, a smaller-cap company providing GPU access, has seen a 20% drop, while Aethir, with a larger market cap, is only down 6%. This shift has prompted some to reconsider the AI token landscape.

The crypto gaming sector, which has faced similar growing pains, offers another lesson. Despite massive funding, AI-focused crypto projects have yet to match the innovation seen in traditional sectors like gaming. CoinGecko values the gaming sector at $19 billion, with prominent projects like Sandbox, GALA, and Decentraland still struggling to compete with the large market share of traditional gaming companies.

The crypto gaming sector saw its investment plummet by 38% in 2024, with just $1.8 billion invested in blockchain gaming and metaverse projects, according to DappRadar. While daily active wallets in blockchain gaming surged by 421%, the sector’s share remained between 26% and 29%, trailing behind DeFi’s dominance. Notably, even older games on platforms like Steam have outperformed blockchain-based games in terms of user base.

The struggles in gaming and AI point to an ongoing challenge for crypto projects: translating abundant capital into user adoption and engagement beyond financial markets. Despite impressive valuations and funding, many projects are still lagging behind traditional sectors that have solidified their place in the market.