Written by: Thor Hartvigsen
Compiled by: TechFlow
How has the crypto market funding landscape evolved over time? Which categories have received the most funding? Who are the top investors? This report will answer these questions and more.
Topics of this article
introduce
Financing Panorama
Fundraising this year (2023)
Selected Financing Highlights
introduce
Fundraising plays an important role in both cryptocurrency and traditional markets, as it is a way for projects to raise early funds by selling equity to private investors and funds. While these opportunities are not usually available to the average investor, it is a good idea to understand general fund raising for a number of reasons. On the one hand, when analyzing token economics and processes, it is key to understand whether a project is selling tokens to investors through a private placement.
The funding landscape has changed significantly over the past few years as new crypto industries and protocols attract significant amounts of capital. Today’s report will cover the last few years of funding and dive into the details of this year’s funding.
Investments by venture capital and angel investors can be divided into different stages.
Pre-Seed
Seed Round
Series (A-E)轮
Strategy Wheel
In 2023 alone, 1957 unique investors raised approximately 641 rounds for 617 projects, totaling $5.58b. The most popular round type is the Seed round.
Financing Panorama
In the years leading up to the 2021 bull run, most rounds were fairly concentrated in terms of the number of unique investors participating. As the industry matures, more and more investors have been seeking exposure to the space. In 2021 and early 2022, we saw incredible amounts being issued to projects seeking investor funds due to “only up” price action and low interest rates. It’s clear that this period in crypto is over, with cumulative funding in 2023 only slightly above 2019 and 2020 levels.
In terms of fundraising, firms like a16z, Paradigm, and Jump Crypto are known for aggressively leading many high-profile rounds and distributing large amounts of cash from their seemingly inexhaustible pockets. Most of the large rounds occurred during more bullish times, though activity has not completely died out. 3AC, a recent crypto relic, also made the list with seven rounds led by Su Zhu and other members of the firm.
Beyond that, it’s worth examining which categories received the most funding during this period. As shown in the chart below, DeFi investments accounted for 29% of total funding during this period. Some of the larger DeFi investments include Li.Fi, M^ZERO, and Radiant. Additionally, gaming was also a popular category for VCs, with the majority of investments occurring in 2021 and 2022. However, to this day, it remains one of the most funded crypto tracks.
Another category popular with USD investment is L1 blockchains. These respective tokens have led the 2021 bull run, with some of these tokens seeing 100x returns since launch. The chart below shows the 8 largest layer 1 blockchain fundings from 2021-2023, with Near, Aptos, and Solana at the top. More recent projects that have raised funds include Celestia and Sei, who also made the list, but the amounts raised by these projects are much lower than those launched during the 2021 bull run.
Note that this is not the valuation of these L1 rounds, but rather the dollar amount they raised from investors.
Financing in 2023
As mentioned in the previous section, the most popular rounds for investors are seed rounds. Their popularity can be attributed to having the highest ROI, as solid products with good market fit have proven themselves many times over to reach astronomical valuations, enough to convince investors that this is a viable investment strategy.
Times are tough because market conditions in 2023 are not as good as in previous years, liquidity is hard to come by, and investors are more reluctant to take on additional risk. Most projects tend to receive funding of $1 million to $10 million+, with only a few mature projects raising $50 million or more.
What are the established companies that have managed to attract a lot of funding this year? As shown in the figure below, these include LayerZero, Worldcoin, Scroll, and Eigenlayer. It is worth noting that most of these products are some kind of blockchain infrastructure, either a cross-chain bridge, a blockchain, or a privacy protocol.
Despite not making the list of the largest financings this year, DeFi projects remain the most sought-after cryptocurrency sector for venture capitalists and private investors. Binance Labs is an example of venture capitalists investing heavily in DeFi, having invested in Pendle, Radiant, Helio, and others this year.
With all of this in mind, let’s take a look at some interesting investments that took place in the second half of the year.
Selected L1 financing projects in the second half of 2023
Be
Sei is a layer 1 blockchain based on Cosmos that specializes in optimizing infrastructure for trading applications through the “Twin Turbo” consensus mechanism. Sei claims to be able to process up to 20,000 transactions in 0.5 seconds and is particularly focused on enhancing the decentralized exchange (DEX) ecosystem.
About a week ago, L1, based on the Cosmos SDK, received a strategic investment of an undisclosed amount from Circle Ventures to continue expanding USDC’s presence on various blockchains. Sei’s fast transaction processing and promising scalability features warranted the investment.
Noble
Noble is a new application-specific blockchain in the Cosmos ecosystem, built for native asset issuance. It aims to improve the efficiency and interoperability of native assets within the Cosmos ecosystem, starting with the USDC stablecoin. Noble's vision is to become the world's premier digital asset issuance center, facilitating seamless connectivity with other blockchains.
Noble raised $3.3 million in a seed round led by Polychain Capital, with participation from Circle Ventures, Wintermute, and a number of other investors.
Linera
It is a layer 1 blockchain that uses "microchains" to enhance scalability, allowing lightweight blockchains to run in parallel within a single validator set. This multi-chain infrastructure is designed for scalable Web3 applications, aiming to solve the problem of block space scarcity and provide predictable performance, security, and responsiveness at scale.
With Borderless Capital at the helm and participation from investors including DFG, a16z, and GSR, Linera has raised another $6 million in seed funding to set out to create the first low-latency blockchain that will scale as easily as web2 applications.
Selected L2 financing projects in the second half of 2023
Blast
Blast attracted over $500 million in funding within 7 days of launch. With the help of major investors such as eGirl Capital, Manifold, Standard Crypto, Paradigm, and Santiago R. Santos, Blast successfully raised $20 million. Blast aims to introduce native yields for various assets such as ETH and stablecoins, allowing automatic compounding while earning additional Blast rewards. Blast further plans to distribute all revenue to protocol developers through sequencer fee sharing.
Fhenix
An L2 using fully homomorphic encryption focused on creating a confidential environment for Ethereum-compatible smart contract development.
Fhenix has raised $7 million in seed funding led by Multicoin Capital and Collider Ventures, with participation from Node Capital, Robot Ventures, Tane, Hack VC, Metaplanet, and Bankless Ventures. The funding will be used to deploy a crypto-focused Rollup.
Layer N
In a collaborative seed project led by dao5 and Founders Fund, Layer N received $5 million in funding to bootstrap the delivery of a high-performance L2 that meets the needs of financial applications that require speed and scalability, striving to replicate the efficiency of traditional financial markets while enabling decentralized, non-custodial products for CEXs.
Selected DeFi financing projects in the second half of 2023
It's Protocol
Ekubo Protocol, which is solely funded by the Uniswap DAO, received 3M UNI tokens ($18M value) in exchange for 20% of their upcoming governance token supply. Ekubo is an AMM DEX designed for the Starknet architecture, with a strong emphasis on capital efficiency and third-party developer support. Received 3M UNI tokens ($18M value) in exchange for 20% of their upcoming governance token supply. Ekubo is an AMM DEX designed for the Starknet architecture, with a strong emphasis on capital efficiency and third-party developer support.
Definitive
Definitive, a non-custodial execution platform and API, raised $4.1 million in seed funding earlier this month led by BlockTower Capital, with participation from well-known entities such as Coinbase Ventures, Nascent, and Robot Ventures. The ultimate goal is to enhance the trading experience in the DeFi space by providing trade execution with optimal slippage and price impact, as well as advanced yield strategies.
Flashwire
Gate.io Labs, VeChain, CyberX, Legend Trading, Cobo, and SuperChain Capital invested a cumulative $10 million in Flashwire in its Series A round in October. Flashwire is a Singapore-based digital bank whose mission is to increase the visibility of financial services by making them more accessible and user-friendly.
in conclusion
Some key points from this study:
This year’s funding totals have dropped significantly compared to 2021 and 2022. However, given the recent market uptrend and BTC ETF expectations, it would not be surprising to see this number increase in 2024.
DeFi is the category with the most funding, but the largest individual fundings are L1 and L2 blockchains.
Gaming remains one of the biggest bets for cryptocurrency funds.
Seed rounds are more common than any other type of funding round.
There have been only a few RWA-related funding rounds this year. We expect this number to grow significantly in 2024.
