Analysis, Investing

Do VCs Still Care About Crypto?

We dig into Q2 crypto venture funding and pull out some particularly interesting plays
Jack Inabinet Jack Inabinet Jul 10, 20235 min read
Do VCs Still Care About Crypto?

Dear Bankless Nation,

While VCs swore that the bear market would be their time to shine, it's clear that even the largest firms aren't making as many startup investments lately.

In today's newsletter, we look at Q2 startup financing and eye which hot startups grabbed the attention of venture capitalists (and which of those bets we're tracking most closely!) 👀

- Bankless team

If you're a regular Bankless reader, we hope you’ve purchased a public crypto asset at some point! Inaccessible to your average degen, however, is the private side of crypto markets.

Many jurisdictions require investors to be accredited before they can invest in private markets. In the United States, accredited investor status is largely based on arbitrary income and net worth thresholds, while individuals with certain professional qualifications can also qualify.

Despite the inaccessibility of crypto’s private markets to most investors, it's impossible to overstate their importance to the industry. Without this alternative market structure, it would be difficult for nascent projects to access the startup capital needed to develop and bring functioning products or services to market!

Today, we’re diving deep into crypto’s private markets! We’ll be reviewing the dismal state of crypto venture capital fundraising during 2023, taking a look at Q2 startup fundraising numbers, and looking to last month’s top crypto project raises for signs of life..

🧐 State of Crypto VC Fundraising

Venture capital, or VC, is a term used to describe the firms (and individuals) active in private markets who leverage their capital, connections, and industry knowledge to help startups succeed.

Crypto tumbled in 2022, but crypto’s VCs still managed to pull in a record $21.6B in new funds. While assets like ETH and BTC have been making big recoveries in 2023, venture capitalists have not been finding much appetite from their investors to further invest in the sector this year. In short, so far this year, fundraising has gone straight down the crapper, falling 98% from last year's haul.

Source: Fortune Crypto

While the chart above only includes data through mid-May, it has clearly been an adversarial year for crypto VCs looking to fundraise. But what about crypto startups looking to raise from these VCs?

It was another tough quarter for crypto startups, with $2.34 billion across 382 deals according to TechCrunch (citing Pitchbook data). This was notably the fifth consecutive quarter of declining venture investments since Q1 2022 when a whopping $12.14 billion was pumped into crypto startups.

The decline signals that we still haven't found a bottom for the crypto startup investing element of this bear market, an unsurprising fact given the regulatory headwinds facing the vertical after the SEC has gone on the offensive against a number of assets tied to networks launched by venture-backed startups. Regulator fervor could threaten the economics of "token warrants,” which entitle investors to a specific number of tokens for a predetermined price at a future date. It’s understandable that VCs (and their limited partners) are growing more wary to ape into the illiquid, private side of the crypto markets than they have in years past!

🔥 Top Project Raises of June

Thankfully, all is not lost for crypto’s venture capitalists, who – despite not making significant additions to their war chests this year – are still sitting on plenty of funds. Undoubtedly, the deal environment for private markets has slowed substantially, but crypto projects that deserve to raise capital are still able to access ample amounts of it.

VCs have plenty of dry powder remaining to invest and the proof is evident in the data. Crypto startups you’ve probably never heard of announced some eye-popping raises last month!

Source: Alt Asset Allocation

Click through above to check out all all of the recent raises being announced. Below, I'm sharing a few deep dives on projects from the above list that I'll be watching closely over the coming months 👇👇👇

🎮 Mythical Games

Website | Twitter
Amount: $37.0M
Sector: Gaming

Mythical Games is a full-service Web3 gaming studio that has produced multiple crypto games and developed proprietary crypto products to service them.

The Mythical Platform integrates with these games and serves as the crypto layer for the optional Web3 features each game has to offer. It is an exchange for fiat and crypto transactions running on a permissioned Proof of Authority chain. Additionally, the Mythical Platform has fraud protection, fee optimization, and buyer/seller pricing recommendation features.

Why we’re watching:
NFL Rivals, developed by Mythical Games in partnership with the NFL and NFL Players Association, debuted to iOS and Android on April 26th and quickly found its way to the top of the sports charts! Today, it remains at #11 on the App Store's top free sports games.

This is solid market penetration to see from a crypto native game and very encouraging for the prospects of future releases. All it takes is one breakthrough title to revolutionize the world of gaming; it would appear Mythical Games has a legitimate shot at being the developer of that title.

🟣 Taiko

Website | Twitter
Amount: $22.0M
Sector: L2

Taiko is tackling the challenge of scaling Ethereum, while emulating it as closely as possible, from both the technical and ideological perspectives.

The Taiko team is building an Ethereum-equivalent, Type 1 zkEVM Layer 2 rollup solution, prioritizing compatibility with Ethereum's architecture over minimization of prover costs, which will allow protocols deployed to the L1 to migrate to Taiko without needing to alter their code or deployment environment.

Guiding the development of the Protocol is a "decentralized from day 1" approach. To Taiko, this means deploying with decentralized proposers and provers, allowing anyone to permissionlessly participate at the chain's infrastructure level and earn fees.

Why we’re watching:
The endgame for scaling Ethereum is the zero-knowledge rollup and Taiko is attempting to develop one while taking a road traveled by few! Complete equivalence with the Ethereum L1 will allow devs to seamlessly deploy Ethereum smart contracts to the chain and means that Taiko can share infrastructure with Ethereum.

While it is not certain that puritanical adherence to Ethereum’s standards is a winning strategy – only time and the market will tell – Taiko is a highly unique rollup and a contrarian bet in a world full of rollups distancing themselves from the EVM.

🌊 Maverick Protocol

Website | Twitter
Amount: $9.0M
Sector: DeFi

Maverick is an AMM deployed to Ethereum, zkSync, and BNB chain that is trying to revolutionize your experience when providing liquidity.

The protocol comes with 4 out-of-the-box automated liquidity strategies called “Modes” that can intelligently shift liquidity, keeping it active according to certain predefined parameters. Maverick’s boosted positions allow anyone to incentivize highly specific forms of liquidity, opening the door for protocols seeking to rent ETH liquidity and pair it with native tokens held by their treasury.

Maverick concentrates liquidity within bins, discrete price ranges similar to ticks on Uniswap V3’s ticks, and offers zero-slippage trading within bins. This feature makes the DEX a highly attractive exchange venue for whales and aggregators, a discovery unearthed in Delphi Digital’s analysis of Maverick.

Why we’re watching:
The odds are heavily stacked against those seeking to provide liquidity for volatile asset pairs on many DEXs, with traditional approaches to the AMM opening retail LPs up to high degrees of impermanent loss and providing too little compensation in return.

Concentrated liquidity architectures, like Uniswap V3, are only profitable for professional market makers. Meanwhile, full range liquidity architectures, like Uniswap V2, are frightfully capital inefficient.

By allowing directional price biases to inform the way users provide liquidity, Maverick is helping to make retail LPing profitable. Plus, Maverick just launched the MAV token, meaning that there is already a way to gain exposure to this project via public markets if you so choose!

Jack Inabinet

Written by Jack Inabinet

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Jack Inabinet is a Senior Analyst with a passion for exploring the bleeding edge of crypto and finance. Prior to joining Bankless, Jack worked as an analyst at HAL Real Estate where he conducted market research and financial analysis for commercial apartment development and acquisition activities in the Seattle region. He graduated from the University of Washington’s Michael G. Foster School of Business and remains based out of the Seattle area.

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