We took a deep dive into Q2 crypto venture funding and came up with some particularly interesting deals While VCs swear that the bear market will be their time to shine, it’s clear that even the biggest firms haven’t been making as many startup investments lately. In today’s newsletter, we take a look at Q2 startup funding to see which hot startups are catching the attention of venture capitalists (and the bets we’re watching most closely!) — The Bankless Team
If you’re a regular reader of Bankless, we hope you’ve purchased a public crypto asset at some point! However, what’s inaccessible to the average person is the private market for cryptocurrencies.
Many jurisdictions require investors to be accredited before investing in private markets. In the United States, accredited investor status is largely based on income and net worth thresholds, while individuals with certain professional qualifications can also qualify.
While the private markets for cryptocurrencies are inaccessible to most investors, its importance to the industry cannot be overstated. Without this alternative market structure, it would be difficult for nascent projects to obtain the seed funding needed to develop and bring a functional product or service to market!
Today, we’re taking a deep dive into the private markets for crypto! We’ll review the dismal state of crypto venture capital funding in 2023, look at Q2 startup funding numbers, and look for signs of life from last month’s top crypto project funding rounds.
Crypto Venture Capital Funding Status
Venture capital, or VC, is a term used to describe firms (and individuals) active in the private markets who use their capital, relationships, and industry knowledge to help startups succeed.
Cryptocurrencies plummeted in 2022, but crypto venture capital firms still managed to attract a record $21.6 billion in new funding. While assets like Ethereum and Bitcoin have recovered significantly in 2023, venture capitalists have not found much interest from investors to further invest in the industry this year. In short, investment has plummeted so far this year, down 98% from last year.
Source: Fortune Crypto
While the chart above only includes data through mid-May, it’s clearly been a hostile year for crypto VCs looking to raise money. But what about the crypto startups looking to raise money from those VCs?
It was another tough quarter for crypto startups, with $2.34 billion in deals across 382 deals, according to TechCrunch (citing data from Pitchbook). Notably, this is the fifth consecutive quarter of declining venture capital since the first quarter of 2022, when a whopping $12.14 billion was pumped into crypto startups.
This decline suggests that we are still not at the bottom of crypto startup investing in this bear market, a fact that is not surprising given the regulatory headwinds facing the vertical after the SEC went on the offensive against some cyber-related assets launched by venture-backed startups. The regulatory frenzy could threaten the economics of “token warrants”, where investors have the right to receive a specific number of tokens at a predetermined price at a future date. Venture capital firms (and their limited partners) are understandably more cautious about entering the illiquid private sector of the cryptocurrency market than in past years!
?Hot financing projects in June
Thankfully for cryptocurrency venture capitalists, all is not lost, and despite not having significantly increased their funds this year, they are still sitting on a ton of capital. While there is no doubt that the deal environment in the private markets has slowed down significantly, crypto projects that are worth raising funds are still able to obtain ample funding.
VCs still have plenty of money to invest, and the data proves it. Crypto startups you’ve probably never heard of announced some jaw-dropping funding rounds last month!
Source: Alt Asset Allocation
Click above to see all the recently announced funding rounds. Below, I’ll share a few projects from the list above that I’ll be keeping a close eye on in the coming months: ???
?Mythical Games
Website | Twitter
Amount: $37 million
Industry: Gaming
Introduction:
Mythical Games is a full-service Web3 game studio that has produced multiple crypto games and developed proprietary crypto products to serve them.
Mythical Platform integrates these games and acts as a cryptographic layer for the optional Web3 features that each game must offer. It is an exchange for fiat and crypto transactions running on a permissioned proof-of-authority chain. In addition, Mythical Platform also features fraud protection, fee optimization, and buyer/seller pricing recommendations.
Why we care:
Developed by Mythical Game in partnership with the NFL and the NFL Players Association, NFL Rivals first launched on iOS and Android on April 26th and quickly shot to the top of the sports charts! Today, the game remains#11on the App Store’s free sports games chart.
This is a solid market penetration from a crypto-native game, and very encouraging for the prospects of future releases. It only takes one breakthrough game to revolutionize the gaming world. It looks like Mythical Game has a chance to be that game developer.
Taiko
Website | Twitter
Amount: $22 million
Industry: L2
Introduction:
Taiko is tackling the challenge of scaling Ethereum while trying to emulate it as closely as possible from a technical and ideological perspective.
The Taiko team is building a Type 1 zkEVM Layer 2 rollup solution comparable to Ethereum, prioritizing compatibility with the Ethereum architecture rather than minimizing prover costs, which will allow protocols deployed to L1 to migrate to Taiko without changing their code or deployment environment.
Guiding the development of the protocol is a “decentralized from day one” approach. For Taiko, this means deploying with decentralized proposers and provers, allowing anyone to permissionlessly participate in the infrastructure layer of the chain and earn fees.
Why we care:
The ultimate goal of scaling Ethereum is zero-knowledge rollup, and Taiko is attempting to develop a zero-knowledge rollup while taking a path less traveled! Full parity with Ethereum L1 will allow developers to seamlessly deploy Ethereum smart contracts to the chain, and means Taiko can share infrastructure with Ethereum.
While it’s uncertain whether strict adherence to Ethereum’s standards will be a successful strategy — only time and the market will tell — Taiko is a very unique rollup and contrarian bet in a world full of rollups that are moving away from the EVM.
Maverick Protocol
Website | Twitter
Amount: $9 million
Industry: DeFi
Introduction:
Maverick is an AMM deployed on Ethereum, zkSync, and BNB chains that seeks to revolutionize your experience when providing liquidity.
The protocol comes with 4 out-of-the-box automated liquidity strategies, called “modes,” that intelligently move liquidity around, keeping it active based on certain predefined parameters. Maverick’s increased position allows anyone to incentivize highly specific forms of liquidity, opening the door for protocols looking to rent ETH liquidity and pair it with native tokens held in the treasury.
Maverick concentrates liquidity in bins, with discrete price ranges similar to Uniswap V3's instant quotes, and provides zero-slippage trading within bins. This feature makes DEXs an extremely attractive trading venue for whales and aggregators, as found in Delphi Digital's analysis of Maverick.
Why we care:
On many exchanges, institutions seeking to provide liquidity for volatile asset portfolios face significant difficulties because traditional AMM approaches can expose retail LPs to high levels of impermanent loss while providing too little return.
Centralized liquidity architectures like Uniswap V3 are only profitable for professional market makers. Meanwhile, all-inclusive liquidity architectures like Uniswap V2 are very capital inefficient.
By allowing directional price deviations to influence the way users provide liquidity, Maverick is helping retail LPing become profitable. In addition, Maverick just launched the MAV token, which means there is already a way to gain exposure to this project through the open market if you so desire!