Layer 1, blockchain game studios, social platforms, DAO infrastructure, the bear market is a real opportunity to incubate innovation.

*Table of contents

*TL; DR

*2022 Q2 Q3 comparison

*Trading Platform VC

*1. Capital’s attention to Layer 1 remains unabated

*2. Crypto Game Studio

*3. NFT market saturation

*4. Social Platform

*5. DAO Infrastructure

Winter is coming. The total amount of crypto venture capital in Q3 2022 has shrunk to 33% of Q2, but we still can’t take it lightly, after all, the bear market is the time for real innovation. This article will analyze the VC capital trends in Q3 2022

TL;DR

Crypto VC investment totaled $5.1 billion in Q3 2022, down approximately 67% from the previous quarter.

VCs are focusing on Layer 1 blockchains, blockchain game studios, NFT and DAO infrastructure, and social platforms.

These are tough times for the crypto industry, but we will get through this once real use cases emerge.

2022 Q2 Q3 Comparison

2022 Q3 Overview: Total investment of US$5.1 billion, 386 investment projects.

2022 Q2 Overview: Total investment of US$15.4 billion, 656 investment projects.

Compared to the previous quarter, the number of venture capital projects in Q3 reached only 59% of Q2, and the total investment amount decreased by 67%. However, this also shows that VCs conducted more thorough due diligence.

We divide VCs into two categories, namely trading platform VCs and top venture capital firms. Trading platform VCs include Coinbase, FTX, and Binance Labs; top venture capital firms include Paradigm, a16z, Pantera Capital, Polychain Capital, Dragonfly Capital, Sequoia Capital, Electric Capital, Multicoin Capital, ParaFi Capital, and DCG.

Trading Platform VC

Trading platform VC has invested in 55 projects:

DeFi: 11 (20%)

CeFi: 4 (7%)

NFTs: 4 (7%)

Infrastructure: 24 (44%)

Games: 4 (7%)

Web 3：8 ( 15 %) 

What investment priorities can we extract from this?

1. Capital’s attention to Layer 1 remains unabated

Mysten Labs has raised a total of $300 million from Coinbase, FTX, Binance, a16z, etc. Mysten Labs is building a fast and secure Layer 1 blockchain Sui, built on the Move language, supporting various on-chain activities. Sui originated from the Meta team's Libra project. Aptos is another Layer 1 project based on the Move language. In Q3 2022, Aptos raised a total of $150 million from FTX, a16z, Dragonfly Capital, Multicoin, etc. Both teams have senior engineers who are committed to expanding the Layer 1 ecosystem.

These investments show that investment in Layer 1 is far from over. Ethereum scaling solutions attracted a lot of attention in the first half of 2022, but VCs are still eager to find the next Layer 1.

2. Crypto Game Studio

Limit Break raised $200 million from Coinbase, FTX, Paradigm and other companies, with the goal of building F2O (Free-to-Own) games on the chain. Recently, Limit Break also caused market discussion by releasing the Japanese anime-style NFT collection DigiDaigaku.

It should be noted that VCs are looking for crypto game studios, not investing in individual GameFi projects. Game studio Theorycraft Games and metaverse platform Ready Player Me completed financing of $50 million and $56 million respectively.

Top VC Institutions

Top VC institutions invested in 76 projects:

DeFi: 16 (21%) 

CeFi: 4 (5%)

NFT: 7 (9%) 

Infrastructure: 27 (36%)

Games: 10 (13%)

Web3: 10 (13%) 

KNIFE: 2 (3%)

Overall, its portfolio looks pretty much like a trading desk VC, but we can dig out more narratives from it.

3. NFT Market Saturation

Unlike the previous two trends, investment in the NFT field in Q3 2022 showed the opposite trend, and VCs showed little interest in the NFT market. Data from Messari's financing report showed that the NFT market was more favored by VCs in the first half of 2022.

However, VCs are still very interested in sub-areas of NFT, such as NFT infrastructure, such as Coral, the developer of NFT crypto wallet Backpack, and NFT fragmentation protocol Tessera.

4. Social Platforms

Farcaster, a decentralized social protocol founded by former Coinbase vice president Dan Romere, has raised $30 million in funding, led by a16z, with participation from Multicoin, Coinbase and others. Farcaster hopes to decentralize the core performance of the platform, including username registration and social data, in order to build a sufficiently decentralized social network.

Social platforms are becoming increasingly popular: in May, Aave launched the social networking service Lens Protocol; in June, Nansen launched the messaging platform Nansen Connect.

Social platforms have many potential application scenarios and can provide data support for marketing, digital identity, and DeFi credit.

Although there are still obstacles for crypto-native social platforms, we can expect more projects to integrate social networks with blockchain.

5. DAO Infrastructure

Gnosis Safe has raised $100 million from ParaFi Capital, DCG, Coinbase, etc., and has almost monopolized the DAO treasury management track. As of press time, the assets in the Safe treasury contract exceed 39 billion.

This means that VCs are bullish on DAO infrastructure, and they expect a “positive feedback loop” to occur in the DAO ecosystem. Better DAO tools will encourage people to build more DAOs, which will also increase the demand for DAO tools.

Times are tough, and so are VCs. However, they are still looking for real use cases in the cold winter. I believe that with such resilience, we will eventually get through the cold winter.

A review of VC investments in the crypto industry in Q2 2022

Source: BlockBeats

Original author: Alphanonce, the investment arm of the Nonce Foundation

Original translation: 0x214, BlockBeats

*Copyright belongs to the original author

*Reprinted content is for learning and communication only, not as investment advice