Capital Report Crypto Ventures - Q2/2023
Posted by Thanh Dat - 10/07/2023
The second quarter of 2023 witnessed significant volatility in the cryptocurrency industry, bringing both opportunities and risks for investors and companies operating in this field. In the Crypto VC sector, which involves cryptocurrency investment activities, Q2/2023 experienced a series of notable events, both positive and negative. Some of the notable events are as follows:
DWF Labs investment fund exposed
DWF Labs carried out "investment deals" without any vesting or token lockup requirements, raising suspicion. Notably, after DWF Labs listed project tokens on CEX exchanges, most of these tokens dropped in value by 10% to 40%, such as SSV, SNX, TIME, and FLOKI. Furthermore, DWF Labs management member Andrei Grachev has been accused of multiple fraud cases since 2018, including conducting an ICO to raise funds but never launching the project. Andrei Grachev is also linked to OneCoin, a Ponzi scheme that defrauded billions of dollars from users.
Market maker Wintermute facing lawsuits
Wintermute, a leading market maker in the cryptocurrency field, recorded revenue of over $1 billion during the 2021 bull run. However, the company has been accused of involvement in fraudulent activities with Celsius. Wintermute engaged in "wash trade" and other inappropriate activities, leading to the collapse of Celsius' lending platform. This has caused controversy and loss of investor trust.
Top Wall Street investment firms narrowing crypto operations
Jane Street and Jump Trading are reducing cryptocurrency trading frequencies in the US. This comes as the US government strengthens regulations in this sector. However, both Jane Street and Jump Trading continue to maintain their roles in providing liquidity and are not fully withdrawing from the cryptocurrency market. Jane Street is considering narrowing its global expansion plans, while Jump Trading is contemplating the possibility of withdrawing from the US market but continuing international expansion.
Binance and Coinbase facing SEC lawsuits
The SEC has accused Binance, a leading exchange, of fraudulent activities and market control violations. Although Binance has denied many of these accusations, it has raised concerns among investors. Coinbase also faces SEC allegations of earning billions from acting as an intermediary in cryptocurrency transactions while evading disclosure requirements to protect investors. The SEC pointed out that Coinbase supported trading of at least 13 unregistered cryptocurrency products, including tokens such as Solana, Cardano, and Polygon.
Three Arrows Capital (3AC) rebranding as an investment fund
At its peak, 3AC Hedge Fund managed assets of up to $10 billion, becoming one of the most influential companies in the market. In June 2022, 3AC Hedge Fund filed for bankruptcy due to severe losses following the collapse of the Terra ecosystem. The company's estimated debt was $3.4 billion, but it was unable to pay.
On June 21, 2023, Kyle Davies, the founder of 3AC, announced on Twitter: "3AC is dead, long live 3AC Ventures". 3AC Ventures will invest in projects within the OPNX ecosystem and develop with a decentralized vision.
The rise of LSDfi trend
LSD Finance (LSDFi) is a term used to refer to DeFi protocols related to Liquid Staking Derivatives (LSD). LSDFi provides opportunities for holders of LSD products, increasing profit-seeking capabilities and maximizing capital efficiency. Binance has also followed this trend as Binance Labs invested in the Maverick project and included it in the Launchpool program. Maverick (MAV) was listed on the Binance exchange on June 28, 2023.
The world's leading asset management organizations are entering the crypto market
Organizations like BlackRock, Fidelity, and Invesco, with assets under management worth trillions of dollars, have submitted applications to the U.S. Securities and Exchange Commission (SEC) to open Bitcoin ETFs. This application holds significant importance because if approved, Bitcoin ETFs would provide easy market access to cryptocurrency for investors through traditional financial instruments. This could create substantial opportunities for traditional investors and enhance the competitiveness of cryptocurrencies in the global financial system.
However, approving a Bitcoin ETF also presents numerous challenges for the SEC, given the high volatility and risks in the cryptocurrency market. Traditional ETFs require strict compliance with regulations concerning liquidity, safety, and risk management. Therefore, the SEC's decision to approve or reject a Bitcoin ETF will be regarded as a crucial milestone in the adoption and potential of cryptocurrencies in the global financial system.
Investment Activity Landscape
In the second quarter of 2023, a total of 212 funding rounds took place in the cryptocurrency industry, with a combined funding amount of $1,553,490,000. It is noteworthy that the smallest project raised only $500,000, while the largest project reached $120 million. On average, each project raised approximately $9,246,964.
Among the various funding rounds, Seed rounds accounted for the highest proportion at 36.8%. This indicates that investors are prioritizing support for early-stage projects to initiate and develop them.
The number of funding rounds has decreased gradually throughout the second quarter. In April, there were 88 projects, in May there were 77 projects, and in June, there were only 47 projects.
Investment funds have deployed capital into different categories within the crypto industry. Among them, Defi emerged as the most highly sought-after investment category, followed by NFT, Infrastructure, Liquidity, Ethereum ecosystem, Collectibles, and several other categories.
According to PitchBook's report on Crypto VC in the first quarter of 2023, blockchain companies raised $2,600,000,000 through 353 funding rounds. Thus, both the funding scale and the number of funding rounds significantly decreased as we entered the second quarter of 2023:
- Funding scale: $2,600,000,000 => $1,553,490,000 (Decrease of 40.2%)
- Number of funding rounds: 353 212 (Decrease of 39.9%)
Key Project Highlights
LayerZero Labs, a promising name in the technology industry, successfully raised funding in a Series B round, securing $120 million and valuing the company at an impressive $3 billion. This funding round saw the participation of leading investment funds in the market, such as A16Z, Sequoia Capital, Samsung Next, BOND, Circle Ventures, Open Sea Ventures, and many others.
LayerZero Labs is the organization behind the development of the LayerZero cross-chain bridging solution. LayerZero is a project that provides advanced infrastructure to support decentralized applications (dApps) on interoperable blockchains (Omnichains). LayerZero simplifies the process of sharing and messaging information between blockchains seamlessly, while ensuring security for both users and dApps.
Some highlights from LayerZero Labs' latest report include:
- LayerZero Transactions have grown from 1.8m to 35m (64% MoM)
- Contracts deployed on Mainnet have grown from 2,100 to 7,161 (23% MoM)
- Stargate transactions have hit 16.3m (61% MoM)
- Stargate DAO has grown to 554k members (19% MoM)
- Stargate has eclipsed $2B monthly transfer volume 3 consecutive months
- (more than 2x ALL other non ecosystem-native bridges combined)
The success of LayerZero Labs in the Series B funding round not only demonstrates the increasing recognition of their groundbreaking contributions but also solidifies their position as a significant leader driving technological innovation in the blockchain industry.
Overall, the first half of Q2 2023 witnessed some negative events in the cryptocurrency market. However, towards the end of Q2 2023, the interest and desire to participate in the cryptocurrency market increased, especially from leading asset management firms like Blackrock and Fidelity.
The resilience of the LSDfi trend will continue to create opportunities and potential for the DeFi market in the near future.
The scale of fundraising and the number of fundraising projects in Q2 2023 decreased significantly compared to Q1 2023. As we enter Q3 2023, with the market's resurgence and the interest of top asset management firms, there is hope for a promising quarter in terms of both fundraising scale and the number of fundraising projects, contributing to a more diverse and robust cryptocurrency market.