Messari Q3 Financing Report: Public chain infrastructure accounts for the largest share, and total financing hits a three-year low

Written by: Messari
Compiler: Nick
The current bear market situation is best reflected in the crypto industry’s financing data. The third quarter of 2023 was no exception, continuing the downward trend seen in multiple quarters since the beginning of 2022, with both overall financing amount and deal count in the third quarter hitting new lows since the fourth quarter of 2020. There were 297 rounds in Q3 totaling less than $2.1 billion, which was down 36% from the previous quarter.
 Investment and Financing Rounds
Breaking down Q3’s deals by funding round, we can see that the majority of deals are concentrated in the early stages. Seed rounds accounted for the largest share of funding, with 98 rounds raising $488 million. Trends in deal counts indicate a clear shift from late-stage to early-stage projects over the past three years.
The share of early-stage deals (pre-seed, seed, and Series A) increased from 37% in Q4 2020 to 48% in Q3 2023. Meanwhile, the share of late-stage deals (Series B or higher) decreased from 8% in Q4 2020 to 1.4% in Q3 2023. This suggests that investors are strategically positioning themselves for the bear market, trying to fund projects that will provide greater multiples in the next bull market.
There was also a large amount of strategic investment in the third quarter, with corporate and private equity transactions being more prominent, such as the $200 million investment in Islamic Coin. Strategic financing transactions have been steadily increasing throughout the bear market. At the peak of the bull market in Q4 2021, strategic rounds accounted for only 0.2% of total financing. In the third quarter of 2023, this proportion rose to 22%, indicating that severe market conditions are forcing projects to raise short-term bridge funds or eventually be acquired by larger projects.
Investment and Financing Track
Track Trends
In the third quarter of 2023, the distribution of crypto industry financing followed a similar pattern to the past 12 months. The public chain infrastructure, DeFi, and gaming sectors have been the most well-funded sectors during this period. The service sector, which includes business functions such as marketing, incubators, security, and legal services, is the only sector with an average fundraising of more than $100 million in the past 12 months. While other sectors are also important to the development of the entire crypto industry, these four sectors continue to attract the attention of most investors.
Another notable trend last year was that infrastructure projects received more funding than user-facing applications. This is best demonstrated by classifying the consumer, DeFi and gaming sectors into the “Applications” category, and the application infrastructure, public chain infrastructure, custody and DePIN sectors into “Infrastructure”.
When looking at the share of funding per category, we see a subtle shift away from user-facing applications and toward infrastructure projects. This relationship is aided by continued funding support for infrastructure projects compared to the application category. However, this trend may not last long as more investors begin to realize that without successful user-facing crypto applications, infrastructure investments are unlikely to achieve the returns they expect.
Mainstream track
Financing in the third quarter was relatively scattered across various tracks. Public chain infrastructure accounted for the largest proportion, reaching 18%, DeFi led in terms of transaction volume with 67, and blockchain games attracted nearly $250 million in investment in the quarter.
Public chain infrastructure
Despite only 21 deals, the public chain infrastructure track accounted for the largest share of funding in Q3, with a third of deals occurring in the smart contract platform subcategory.
Scaling solutions accounted for 43% of the funds raised in this track. This represents a continued shift in funding from smart contract platforms to scaling solutions. In the first quarter of 2022, Polygon raised $450 million for its scaling solution, marking the first time that the funds raised by scaling solutions exceeded those of smart contract platforms. In three of the past four quarters, the ratio of funding invested in scaling solutions to funding invested in smart contract platforms exceeded the highest ratio in the first quarter of 2022. The ratio reached 7 times in the fourth quarter of 2022, mainly due to relatively low investment activity in the smart contract platform category in that quarter.
More than 40% of the $387 million raised in public chain infrastructure in the third quarter of 2023 came from the Optimism Foundation’s sale of approximately 116 million OP tokens in late September. Other notable deals in the space include Flashbots’ $60 million Series B round and Bitmain’s $54 million strategic investment in Core Scientific.
DeFi
DeFi was the sector with the most funding projects in Q3, with 68 deals. Investment within the sector was highly concentrated, with the exchange category accounting for 38% of all investment capital, with 33 deals. DeFi projects raised a total of $210 million, with an average deal size of $3 million.
Binance Labs is an active investor in the DeFi space, completing seven deals this quarter, including $10 million strategic investments in Helio Protocol (liquidity staking platform on the BNB chain) and Radiant Capital (money market on LayerZero). In addition, the largest DeFi deal this quarter came from a $16.5 million Series A round for Brine, an order book DEX built on Starkware.
In terms of the number of transactions in Q3, three of the top four DeFi investors are ecosystem entities. Binance Labs, Base Ecosystem Fund, and Polygon completed 16 transactions in total.
Chain Games
Gaming saw some early-stage deals, helping it become the third most funded sector in Q3, with $249 million raised across 33 deals. Compared to other user-facing consumer sectors, gaming accounted for 67% of funding in Q3.
Most deals in the gaming sector came from long-tail investors. Only seven entities had deals with two or more projects, while 104 investors made single-project investments within the sector.
The largest deal in the gaming space was a $54 million Series A for Futureverse, a platform that combines AI and the metaverse world. Other metaverse gaming projects in the space, such as Mocaverse and Mahjong Meta, also received funding during the quarter. Proof of Play raised a $33 million seed round from lead investors a16z and Greenoaks.
Crypto Industry Investors
The 10 most active investors in the crypto industry made 98 investments in Q3. However, they only accounted for 7% of all investor transactions, indicating that crypto investment is still dominated by a large number of tail investors.
Binance Labs is by far the most active investor. In the third quarter, its 23 transactions were more than twice that of the second-place investor, Robot Ventures. Binance Labs has been actively investing in 2023, focusing on the DeFi and gaming sectors. In addition, projects with zero-knowledge and privacy technologies are also investment targets for Binance Labs. It is worth noting that 12 of Binance Labs' 23 transactions were projects participating in its accelerator program. But even if these projects are excluded, Binance Labs' other 11 investments still put it on par with Robot Ventures in terms of transaction activity in the third quarter.
Finally, 54% of active investors in Q3 2023 were from the United States. This figure is consistent with the quarterly average of the past four years (55%). Despite the gradual departure of project founders from the United States for more regulatory friendly jurisdictions, the United States remains the gathering place for most crypto professional investors.