Original author: Keng Ying Sim, Nicholas Tan Yi Da
Original source: Binance Research
Key Takeaways
"Data Insights: Crypto Funding Overview" is a compilation of funding charts and insights from the past year compiled by Binance Research.
1. Overall trend: As financing gradually stabilizes, there are signs of optimism
Despite the downward trend in 2023, the market has shown resilience, with transactions and investments maintaining steady growth. Blockchain games and infrastructure projects account for a considerable share of this continued growth.
2. Venture Capital Details: Traditional Venture Capital Enters Web3
Since the beginning of this year, the proportion of traditional VCs participating in investments has increased to 45%, and the gap between traditional VCs and Web3 investors has gradually narrowed. Hack VC is in a leading position among traditional venture capital institutions, and it has made diversified investments in areas such as games and infrastructure.
3. Popular projects by sector: Infrastructure financing still tops the list
In the past four quarters, infrastructure projects have been the track with the most funding, with the total quarterly financing gradually increasing from 26% in the fourth quarter of 22 to 44% in the third quarter of 23.
Overall trend
Review of funding trends over the past few years
The number of transactions and capital invested in a specific time period
Source: Messari, RootData, and Binance Research. Data snapshot as of September 30, 2023.
Total funding has continued to grow during the hot bull market of 2021 and early 2022. Funding peaked in April 2022 at $6.8 billion, up 361.8% from January 2021.
However, due to the FTX crash, funding dropped sharply between the second and third quarters of 2022, with total investment funding in the third quarter being only $2.4 billion. After this drop, funding levels have stabilized.
Despite this, the number of transaction funds increased in January and February 2023, mainly due to significant growth in the infrastructure and Web3 gaming sectors.
Seed round financing accounts for more than 30% of investment
Number of deals by funding round per quarter
Source: Messari, RootData, and Binance Research. Data snapshot as of September 30, 2023. Other items refer to undisclosed financing, private token issuance, and M&A.
The total number of transactions peaked at 272 in the first quarter of 2023 and fell to 169 in the third quarter of 2023, a decrease of 37.9%.
Seed rounds surged to 47.9% last quarter. Despite a decline in overall deal count, seed rounds increased from 77 to 81 between Q2 and Q3 2023.
The popularity of seed rounds may be due to the fact that there are many unproven technologies in the market today. Seed rounds usually support ideas that have no mature products or customers, so the investment risk is higher, but the valuation of seed round projects is usually lower, so the risk can be spread over multiple projects.
Although pre-seed financing is the riskiest, it is the second largest investment round and is crucial for research and development of minimum viable products (MVPs) in the cryptocurrency space.
Gaming, payment and trading platforms lead the way in funding
Top 10 financing sectors in the past 4 quarters
Source: Messari, RootData, and Binance Research. Data snapshot as of September 30, 2023.
Please note that a project may involve multiple sectors, only its main sub-sectors are considered
The income sector had only 10 funding deals, but had the highest average funding amount. This was mainly due to Amber Group, a centralized financial company focused on asset management, receiving $300 million in Series C funding.
Although the gaming sector has received the highest amount of cumulative funding, its average investment amount is also the smallest, at only $7.42 million.
This may indicate that investors see opportunities in the gaming industry. However, due to the speculative nature of Web3 games and the possible lack of real game enthusiasts, investment amounts remain conservative.
Venture capital remains optimistic about opportunities in the gaming sector
The most funded sectors in each quarter
Source: Messari, RootData, and Binance Research. Data snapshot as of September 30, 2023.
The gaming sector continues to attract venture capital interest, indicating that people are full of expectations for this emerging field. Investments in artificial intelligence and data have also increased in recent quarters. The third quarter of 2023 mainly shifted to four major sectors including DEX.
There are 6 unicorn projects (valued at over $1 billion)
Project valuations and financing over the past four quarters
Source: RootData and Binance Research. Data snapshot as of September 30, 2023.
The projects mentioned are those for which valuation data is publicly available on RootData.
There are similar numbers of projects in the three valuation tiers: less than $30 million, $100 million to $299 million, and $30 million to $59 million.
Payment solution Ramp tops the list with a valuation of $5.8 billion. It is followed by full-chain interoperability protocol LayerZero and institution-focused infrastructure project Copper, both valued at $3 billion.
Venture Capital (VC) Details
Investment Trends
List of well-known investment companies
Source: RootData and Binance Research. Data snapshot as of October 10, 2023
The data shown above is not limited to the past four quarters
The reputation and involvement of other investors are important considerations for many venture capitalists when making investment decisions, highlighting the importance of “social proof”.
The chart illustrates that well-known venture capital firms such as Pantera Capital, Dragonfly, Coinbase Ventures, a16z and Polychain Capital often co-invest in some projects.
The chart shows that Polychain Capital and Coinbase Ventures have the most co-investments (40). This may be because Polychain’s founder Olaf Carlson-Wee was once the Chief Risk Officer of Coinbase.
The most active VC firm closed 51 deals
Some of the most active investors in the past four quarters
Source: Messari, RootData, and Binance Research. Data snapshot as of September 30, 2023. Please note that a project may be involved in multiple sectors, only its main sub-sectors are considered
In the past four quarters, Coinbase Ventures has topped the list in terms of transaction volume, of which 33.3% went to DeFi and another 39.2% was invested in infrastructure. DWF Labs is a new investor on the list, having only started its investment activities in October 2022. In addition, although the number of deduplicated investors has decreased every quarter, the decline slowed to 5.9% last quarter.
DWF Labs leads 39 projects
Top 10 Lead Investors in the Past Four Quarters
Number of deals led by investors
Source: RootData and Binance Research. Data snapshot as of September 30, 2023.
The * on Rootdata indicates the lead investor and the sole investor in the transaction. Some transactions may not indicate the lead investor.
*Some investment amounts are undisclosed, so totals stated may be higher
A lead investor is the investor that provides the most capital in a round of investment.
DWF led 39 investments, the majority of which were solo deals, with a total investment of over $323.8 million*.
Binance Labs has also invested separately in multiple projects including Xterio, Helio Protocol, and Radiant, which are respectively involved in game development, LSTFi protocol, and lending fields.
a16z has led 74% of its total investments, with recent investments in September including near-field communication (NFC) tokenization project IYK and gaming studio Proof of Play.
Coinbase Ventures has 36 non-lead investments
Top 10 non-lead investors in the past four quarters
Number of deals from non-lead investors
Source: RootData and Binance Research. Data snapshot as of September 30, 2023.
Non-lead investors are investors that participate in financing but do not need to set the terms.
Coinbase Ventures is the largest non-lead investor, and its strategy appears to be to diversify its portfolio and allocate less money to more projects. This is in stark contrast to firms such as a16z, which choose to lead fewer projects with more money.
The projects that Coinbase Ventures recently invested in are the cross-chain oracle Supra and the interest-bearing stablecoin Mountain Protocol.
Second-placed Hashkey Capital allocated 22% of its portfolio to infrastructure projects such as self-custody solution PrimeVault and metaverse/gaming project Aethir, indicating an increase in infrastructure demand in the gaming industry.
Active investment environment amid difficult backdrop
The number of deals by venture capital firms varies over time
Source: RootData and Binance Research. Data snapshot as of September 30, 2023.
Despite the difficult market environment, venture capital firms such as Binance Labs and NGC Ventures continued to show bullish sentiment and increased the number of investments. Binance Labs had the largest increase in absolute investment value, with a total of 23 investments in the past two quarters.
Meanwhile, firms like Coinbase Ventures and Shima Capital saw fewer investments, perhaps indicating stricter screening of investments by these firms. Despite this, both remain active investors, with Coinbase Ventures making 19 deals and Shima with 17.
Traditional venture capital enters Web3
Funding Round Types and Leading Traditional VC Firms
Source: RootData and Binance Research. Data collected is for the last 4 quarters ending September 30, 2023
41.6% of traditional venture capital firms participate in seed round investments.
Of the top five traditional VC firms listed, only Bitkraft is primarily focused on investing in games. HackVC has the most deals and has diversified its investments across a variety of sectors, from games to infrastructure. Projects include hybrid derivatives trading platform GRVT and DeGame, a GameFi platform that utilizes a proof of contribution mechanism.
Traditional VCs remain loyal to the industry
Nature of investors in financing in the past four quarters
Source: RootData and Binance Research. Data collected is for the last 4 quarters ending September 30, 2023
Although the number of deals has been declining over the past four quarters, the proportion of deals going to traditional investors has remained fairly stable at between 40% and 45%.
Compared to the fourth quarter of 2022, the gap in the number of transactions between Web3 investors and traditional venture capital firms has narrowed significantly, demonstrating the latter's firm commitment to the industry.
Investment strategies of traditional venture capital firms
The most funded sectors in each quarter
Source: Messari, RootData, and Binance Research. Data snapshot as of September 30, 2023.
Infrastructure-related projects seem to be most favored by traditional venture capital firms, followed by DeFi and the gaming sector. Interest in NFT projects has declined, with the proportion of transactions falling from 11.4% in the fourth quarter of 2022 to 4.6% in the third quarter of 2023. But the attractiveness of tool-related projects has increased significantly, with the proportion of transactions surging from 4% in the fourth quarter of 2022 to 14.9% in the third quarter of 2023.
Projects by sector
Top 5 funding rounds by quarter in 2023
DeFi Section
CeFi Section
NFT Section
Game section
Social and entertainment section
Tools and Information Section
Layer 1/Layer 2 Sections
Infrastructure sector
Note: The above list is not comprehensive. Binance does not recommend or endorse any specific project mentioned.
About Binance Research
Binance Research is the research arm of Binance, the world's leading cryptocurrency exchange. The team is committed to providing objective, independent, and comprehensive analysis, aiming to become the definitive insight platform in the cryptocurrency space. Binance Research analysts regularly publish insightful articles on a variety of topics covering the cryptocurrency ecosystem, blockchain technology, and the latest market hotspots.
Disclaimer
This material is prepared by Binance Research and is not intended to be a forecast or investment advice, nor is it a recommendation, offer or solicitation to buy or sell any security, cryptocurrency or adopt any investment strategy. The terminology used and the opinions expressed are intended to promote understanding of the industry and its responsible development and should not be construed as definitive legal opinions or Binance opinions. The opinions expressed are those of the author as of the date indicated above and are subject to change as circumstances change. The information and opinions contained in this article are obtained from proprietary and non-proprietary sources believed by Binance Research to be reliable, are not necessarily exhaustive and are not guaranteed to be accurate. Therefore, Binance does not provide any guarantee of accuracy or reliability and assumes no liability for errors and omissions in any other manner, including liability to others for negligence. The content of this article may contain "forward-looking" information that is not purely historical in nature. Among other things, such information may include predictions. There is no guarantee that any prediction made will become a reality. Readers should make their own decision whether to rely on the information provided in this article. This article is for informational purposes only and does not constitute investment advice, or an offer or solicitation to buy or sell any security, cryptocurrency, or any investment strategy, nor will any security or cryptocurrency be offered or sold to any person in any jurisdiction where such offer, solicitation, purchase, or sale would be unlawful. Investing involves risk.
Original link
