The Evolution of Crypto Venture Capital Cycle (Part 2): The Lost Future

Original title: "Evolution of the Crypto Venture Capital Cycle (Part 2): The Lost Future"

Original author: Wenser, Odaily Planet Daily

At the end of "Evolution of the Crypto Venture Capital Cycle (Part 1): Rebuilding a New World", after experiencing the IC0 wave led by Ethereum, the public chain investment boom, DeFi, GameFi and other crazes, crypto venture capital is about to enter the "industry pain period" in which NFT will complete the "last dance" and quickly end: on the one hand, there are frequent black swan events in the industry that no one expected, such as LUNA's thunder, 3AC's collapse, FTX's sudden collapse, and Genesis's bankruptcy; on the other hand, there is the "joint encirclement and suppression" and relentless pursuit of the crypto industry by government departments such as the US SEC and CFTC.

During the bear market, the reduction in liquidity made the industry development only rely on the alternating speculation of "sector rotation". The Bitcoin ecosystem and L2 ecosystem became one of the few "narrative-level positives" in this stage. Although the subsequent market performance was mixed, it also laid the foundation for the achievement of "compliance milestone events" such as the subsequent Bitcoin spot ETF and Ethereum spot ETF to a certain extent.

Standing in 2024, the fifteenth year after the birth of the Bitcoin Genesis Block and the successful completion of the fourth halving of Bitcoin, as the cryptocurrency market including Bitcoin is increasingly closely connected with the US stock market, the US economy and the world's political and economic situation, the vision of "electronic currency system for peer-to-peer payment" envisioned by Satoshi Nakamoto is becoming more and more out of reach. From this perspective, perhaps cryptocurrency is heading towards a lost future - the former sovereign individualism, the concept of a cyber state, and the mission of decentralization are gradually being forgotten, and what awaits us is the "centralized incorporation" with unknown progress but already destined.

Following the brief review of the crypto venture capital cycle from 2016 to 2021 in the previous article 《Part 1》, Odaily Planet Daily will sort out and summarize the representative industry events and crypto venture capital trends in 2022-2024, i.e. this cycle, for readers' reference.

This article is long. To facilitate readers' understanding and reference, the TL, DR (too long not to read) version is as follows:

· NFT became Ethereum’s last encryption glory, and the sale of Monkeyland in May 2022 became the “closing moment”;

· UST, LUNA, 3AC, and FTX exploded one after another, and the encryption industry became a “serial bomb library”;

· After the darkest moment, the Bitcoin ecosystem and Meme coins became the new growth hotspots in the encryption industry;

· Bitcoin and Ethereum ETFs were passed one after another, and the industry compliance milestone may become an “industry tombstone”;

· Three ways to break the path dependence of venture capital: outlier monitoring, internal monster alliance, and external advisory mechanism;

· A detailed list of active investment institutions in 2022-2024: exchange venture capital departments and game tracks are at the forefront;

· The big trend of encryption: the public chain has grown from one to many, the industry structure has risen in the west and fallen in the east, but "liquidity" is eternal.

The last glory of crypto: the non-fungible token (NFT) craze

As time enters 2022, NFT is still an absolute "hot track" at that time - Chinese celebrities and IP companies are rushing in, and related NFT projects such as Jay Chou, Shawn Yue, Edison Chen, and Wilber Pan have appeared one after another and were quickly eliminated by the market; Azuki has become another phenomenal NFT project after BAYC with its highly recognizable "comic style"; dozens of brands including Paco Rabanne, Dolce & Gabanna, Etro, Tommy Hilfiger, Dundas, Cavalli, Nicholas Kirkwood and Elie Saab attended the "First Metaverse Fashion Week" held in Decentraland; Moonbirds was once as high as 100 ETH due to the identity of the project founder Kevin Rose as a "well-known investor" and the previous Proofs series NFT ; the sneaker NFT props related to the GameFi game STEPN, which focuses on the concept of "Move To Earn", have also become a "hype target" that has broken the circle.

As the largest NFT trading platform at the time, OpenSea also ushered in its own "peak moment"-on January 5, 2022, Opensea completed a US$300 million Series C financing, with a valuation of US$13.3 billion, led by Paradigm and Coatue.

In contrast, BAYC is "unparalleled" - Yuga Labs (the parent company behind BAYC) announced in March that it had completed a new round of financing of US$450 million with a valuation of US$4 billion, led by a16z, and participated by Adidas Ventures, Animoca Brands, Samsung, Google Ventures, Tiger Global, FTX Ventures, Coinbase Ventures, Moonpay and others. This round of financing was the largest financing in the NFT industry at that time. At that time, Yuga Labs had completed the airdrop and launch of ApeCoin tokens. A new round of FOMO was ready to start with the news of the OtherSide metaverse game project. Owning a BAYC NFT became the "capital of showing off" for countless crypto players, but when the floor price fell from 120 ETH at its peak to less than 30 ETH in the future, it also became an "unforgettable painful memory" for countless holders.

It is worth mentioning that veterans of the domestic Internet venture capital circle, such as Zhu Xiaohu of Jinshajiang and Cai Wensheng of Meituan, are also among them.

Zhu Xiaohu, managing partner of Jinshajiang Venture Capital, purchased BAYC#9279, which was regarded as a "peak signal"

On the other hand, STEPN, which has been iteratively updated based on the Axie Infinity model and advantages, has made "rapid progress": the public beta version was launched in December 2021; in January 2022, a $5 million seed round of financing was completed, led by Sequoia Capital India and Folius Ventures; on April 6, Binance announced a strategic investment in StepN. Half a year after its establishment, its global monthly active users have exceeded 3 million. Driven by the crazy wealth-making effect, "sports shoes NFT" has become a topic of conversation for countless sports enthusiasts and the "only goal of daily exercise." Folius Ventures has made a lot of money from this, and has since determined the subsequent investment route of "focusing on encrypted C-end applications and investing in projects with the mission of industry Mass Adoption."

In the first half of 2022, at the end of the bull market, countless people thought that Mass Adoption had begun to see the light of day driven by the development of many NFT and GameFi projects, but they didn't know that it was already the "afterglow of the cycle." According to statistics, there were 1,660 investment and financing events in 2022, with a total amount of funds exceeding US$34.8 billion. Compared with the 1,351 investment and financing events of different rounds announced in 2021 and the total amount of US$30.5 billion disclosed, the number of projects that received financing increased by 22.87% year-on-year, and the total scale of funds increased by 14.08% year-on-year.

· There were 426 investment and financing events in the DeFi track that year, with a total financing scale of US$1.6 billion, of which the US$165 million Series B financing completed by Uniswap Labs, led by Polychain Capital and participated by institutions such as a16z, was the only financing of over 100 million yuan;

· There were 334 investment and financing events in the NFT and Metaverse track, with a total financing scale of US$4.4 billion, and 10 events with a scale of US$100 million or more. The largest one was the US$450 million seed round of financing completed by Yuga Labs mentioned above, led by a16z;

· There were 334 investment and financing events in the GameFi track, with a total financing scale of US$4.4 billion, and 7 events with a scale of US$100 million or more; game developer and venture capital company Animoca Brands became the big winner in the track, completing 3 different rounds of financing of US$358 million, US$75 million and US$110 million, with a total financing amount of over US$540 million;

· There were 208 investment and financing events in the CeFi track, with a total financing scale of US$9.6 billion, and 27 events with a scale of US$100 million or more, accounting for 13%. Large-scale financing accounts for the highest proportion among all tracks. It is worth mentioning that FTX US announced in January of that year that it had completed a $400 million Series A financing round with participation from SoftBank, Temasek, Paradigm, Multicoin Capital, Lightspeed Venture Partners, etc., with a valuation of $8 billion;

· There were 426 investment and financing events in the Infra track, with a total financing scale of $12.5 billion, 35 of which were $100 million or more. The largest was the $1 billion financing completed by Luna Foundation Guard (LFG) through the over-the-counter sale of LUNA, led by Jump Crypto and Three Arrows Capital (3AC).

And words such as LUNA, UST, 3AC, and FTX will become an indelible shadow of the entire crypto venture capital industry starting in May 2022.

The Darkest Year: One Thunderbolt Event After Another

On May 1, 2022, the Otherside NFT casting activity of the new metaverse project launched by Yuga Labs, the parent company of BAYC, successfully ended after burning ETH Gas fees worth $170 million, and another industry storm is already brewing-The cryptocurrency industry will usher in its own "Lehman moment" in just a few days, and this is only the first time this year.

· From May 7 to May 13, the algorithmic stablecoin leader UST experienced two decouplings. The "left foot stepping on the right foot" model that Terra Labs and Korean cryptocurrency leader Do Kwon had previously worked hard to maintain eventually fell into a death spiral. Both LUNA and UST collapsed, and the coin price fell more than 100 times in a short period of time.

· On June 13, the crypto lending platform Celsius announced the suspension of withdrawals. It was later discovered that it was insolvent and fell into a vicious cycle due to its use of on-chain leverage and derivatives stETH. On July 14, Celsius filed for bankruptcy protection.

· On June 14, there were rumors that Three Arrows Capital (3AC) was insolvent and in a liquidity crisis. On June 15, 3AC co-founder Zhu Su responded that "we are communicating with relevant parties and working hard to solve the problem." But in the end, affected by the Luna explosion, because 3AC had previously heavily invested in GBTC and stETH, on July 2, it had no choice but to file for bankruptcy protection. According to subsequent court documents, it owed 27 companies a total of US$3.5 billion.

· On July 6, 3AC creditor Voyager Digital announced that it had filed for bankruptcy protection, mainly because 3AC defaulted on its $670 million loan and suffered huge losses.

· On August 8, the crypto lending platform Hodlnaut announced that it would stop trading and seek creditor protection in Singapore on August 16.

· On November 2, CoinDesk, a cryptocurrency industry media under DCG, disclosed that there were great risks in the balance sheet of crypto market maker Alameda, which caused market panic. At that time, the world's second largest cryptocurrency exchange FTX fell into a liquidity crisis. On November 8, FTX announced that it would stop withdrawals. On the evening of November 9, Binance, which originally planned to acquire FTX, announced that it would abandon the transaction, and FTX collapsed completely. On November 11, FTX filed for bankruptcy.

· On November 10, BlockFi suspended withdrawals due to the crisis of its creditor FTX and filed for bankruptcy protection on November 28. Previously, on June 17, cryptocurrency analyst Otteroooo said that BlockFi is likely to fall into a liquidity crisis as well, losing a lot of money due to events such as the US SEC fine, the collapse of Luna, and the loan from Three Arrows Capital.

· On November 14, due to the liquidity crunch caused by the collapse of FTX, the crypto broker Genesis sought a $1 billion emergency loan and suspended withdrawals on November 16. On November 21, Genesis said it had "no immediate plans to file for bankruptcy", and then said on December 8 that it would take several weeks to resume withdrawals. Finally, in January 2023, Genesis officially filed for bankruptcy.

If the Russian-Ukrainian war in February of that year set off a "regional hot war" worldwide, then these successive institutional collapses are no less than "nuclear bombs" that bring destruction and pain to the cryptocurrency and venture capital industries.

Many people no longer trust cryptocurrencies because of the FTX collapse. The price of FTT tokens also plummeted hundreds of times in just a few days. Like the previous LUNA, it has completely become an alternative "bankruptcy concept Meme coin"; and FTX, which was valued at $32 billion only three years after its establishment, fell to zero overnight and was swept into the dust of history. The "star exchange" that was once favored by a number of well-known investment institutions such as Paradigm, SoftBank Group, Sequoia Capital, and Temasek has since become yesterday's news.

The dangers of the venture capital trend in the cryptocurrency industry can be seen from this.

Combined with the endless security incidents at that time, the crypto industry was in a state of emergency. According to incomplete statistics, there were about 427 security incidents related to the cryptocurrency industry in 2022, causing direct economic losses of more than US$3.5 billion and a total amount involved of more than US$75.3 billion.

List of major security incidents in 2022

According to Coingecko data, in November 2022, affected by the FTX crash and other events, the price of Bitcoin once fell below US$16,000, as low as around US$15,800; the price of Ethereum once fell below US$1,100, as low as around US$1,090; the market value of cryptocurrencies once fell below US$1 trillion, as low as around US$820 billion.

Cryptocurrency market value low point

Despite this, according to relevant data, the investment and financing market in the first quarter of 2022 still topped the "single-quarter investment and financing record since the birth of Bitcoin" with a total financing amount of over US$10 billion, and set an industry record of "7 consecutive months of positive growth". During this period, the capital increase was as high as more than US$26 billion, which can be called "an unprecedented golden age of crypto venture capital"

In addition, public chain projects such as Near, Polygon, Aptos, Sui, and zkSync (now renamed ZKSync) have successively received more than $100 million in financing. The news that Dapper Labs, the developer behind the well-known NFT project NBA Top Shot and Flow public chain, received $305 million in financing also continued to stimulate the development of L1 and L2 network-related projects, laying the foundation for subsequent large-scale airdrops and the "L2 craze".

Ethereum, once the "new king of encryption", also successfully produced its first PoS block on September 15 of that year, and the consensus mechanism officially changed from PoW to PoS, which also laid the groundwork for the future.

The Return of the Crypto King: Bitcoin Ecosystem and Meme Coin Ecosystem

After experiencing the "darkest year" of "ice and fire" in 2022, crypto venture capital re-entered the "recovery period" after the pain in 2023.

The most obvious manifestation of this is that the scale of industry financing has dropped significantly: According to RootData data, the total financing amount of the crypto industry in 2023 was US$9.043 billion, far lower than the data in previous years. According to a panoramic analysis report on crypto investment and financing in November 2023, 1,957 investors conducted approximately 641 rounds of financing for 617 projects that year, with a cumulative financing amount of only US$5.58 billion. The fact that the most popular round of financing type was the seed round once again proved that crypto venture capital at that time was not very active, and even from a data perspective, it can be said to be extremely bleak. According to statistics from TheBlock, venture capital investment in 2023 was only $10.7 billion, a 68% decrease from 2022 ($33.3 billion).

Statistics of financing in each sub-field in each quarter from 2019 to 2023

The main factor affecting this market performance may be attributed to the fact that the cryptocurrency industry has ushered in a "new flower moment for old trees" - the Bitcoin ecosystem and Meme coin ecosystem that emphasizes "fair launch" have regained vitality - the emergence of the Ordinals protocol and BRC20, as well as the famous Internet Meme PEPE Meme coin project and the Meme coin craze have provided some impetus for the return of Bitcoin and Ethereum prices. After all, Gas fees are an unavoidable part of on-chain operations, and with a relatively increased usage, prices will also rise to varying degrees. Although this has limited benefits to the venture capital sector, it still drives the financing and development of related projects.

List of large financings in Q1 2023

Subsequently, the "inscription fever" gradually expanded to different blockchain network ecosystems, and even reached the stage of "inscriptions must be mentioned". Many old public chains including AAVX and Injective have attracted extremely high market attention in a short period of time due to the launch of the "first inscription project". "Although the project may not be reliable, I can't help but participate" was the most real thought of countless market users at that time. In this wave of "inscription tide", there are both a wave of Rug projects and many "serious projects" including Merlin.

And counting these projects, the "leader" among them is none other than Babylon - on December 7, 2023, Babylon completed a $18 million financing led by Polychain Capital and Hack VC, with participation from Framework Ventures, Polygon Ventures, OKX Ventures, IOSG Ventures, etc. In February 2024, Binance Labs announced its investment in Babylon; in May 2024, Babylon completed a new round of financing of up to $70 million led by Paradigm. Another Bitcoin ecosystem project invested by Paradigm is the old NFT trading platform Magic Eden. After it integrated the Bitcoin wallet entrance, it also became one of the heavyweight players in the Bitcoin ecosystem NFT sector, with trading volume catching up with the OKX Bitcoin NFT trading market.

In addition, the implementation of L1, L2 and even L3 concept-related protocols and applications has also created conditions for high-value financing of cross-chain bridges.

The Ethereum expansion project Scroll completed a new round of financing of US$50 million in March, with participation from Polychain Capital, Sequoia China, Bain Capital Crypto, Moore Capital Management, Variant Fund, Newman Capital, IOSG Ventures, Qiming Venture Partners, and OKX Ventures. The total amount of financing reached US$83 million, and according to sources, the valuation was as high as US$1.8 billion.

Blast, an L2 network based on Optimistic Rollup, completed a $20 million financing in November, with participation from Paradigm, Standard Crypto, eGirl Capital, Mechanism Capital co-founder Andrew Kang, Lido strategic advisor Hasu, and The Block CEO Larry Cermak.

The cross-chain protocol Wormhole completed a $225 million financing in November 2023, with a valuation of $2.5 billion, becoming the highest-funded project of the year. Another "star player" in this track is LayerZero, which competes with the "four major L2 king-level projects" including Starknet and ZKSync. At that time, it completed a $135 million A1 round of financing (valued at $1 billion) and a $120 million B round of financing (valued at $3 billion, with participation from a16z Crypto, Sequoia Capital, OKX Ventures, Circle Ventures, Samsung Next, OpenSea and Christie's) in March and April, respectively. Therefore, it was highly expected by the market and it was speculated that it might surpass Wormhole and "take up the banner of the cross-chain track." But everyone knows the ending later - after nearly two months of vigorous "anti-witch movement", the ZRO airdrop ended with a "pitiful number" of as few as single digits or even less than one token, which attracted a lot of criticism.

It is worth mentioning that, since the launch of ChatGPT in November 2022, a series of AI applications have sprung up, followed by a large number of crypto AI projects, which have become an important part of the crypto venture capital industry in 2024. Representative projects such as the Web3 artificial intelligence platform MyShell completed a US$11 million Pre-A round of financing in April 2024 led by Dragonfly, with participation from Delphi Ventures, Bankless Ventures, Maven 11 Capital, Nascent, Nomad Capital and OKX Ventures. Angel investors also include former Coinbase CTO Balaji Srinivasan, NEAR Protocol co-founder Illia Polosukhin, former Paradigm investment partner Casey Caruso and former Parafi partner Santiago Santos. The UBI project Worldcoin has also become an alternative "AI concept coin" due to the participation of OpenAI founder Sam Altman. The development company behind it, Tools for Humanity, completed a $115 million Series C financing in May 2023, led by Blockchain Capital, with participation from a16z, Bain Capital Crypto and Distributed Global.

Finally, many "VC coins" including Starknet and ZKSync are about to enter the "last step to complete the historical mission" - TGE and corresponding token airdrops.

At the end of 2023, a number of representatives of investment institutions made many forecasts for 2024. At that time, most people had high expectations and optimistic attitudes towards the investment and financing track in 2024.

In November, Bank of America's monthly global fund manager survey showed that investors remained cautious about the macroeconomic outlook, but expected a soft landing in 2024, with lower interest rates and a weaker dollar;

In December, DWF Labs said it had launched its 2024 angel investment program, focusing on GameFi, SocialFi, Meme, RWA, derivatives and innovative DeFi solutions; A spokesperson for Coinbase Ventures said: "Our view is that the combination of increased regulatory transparency (mainly outside the United States), maturity of protocol infrastructure, institutional participation, and innovation in the way users interact with on-chain products has laid the foundation for a bright future in 2024. Our commitment is global and unwavering, and we expect investment activity to grow in 2024."

Animoca Brands co-founder Yat Siu said he was "very optimistic" about the future and expected to reach $400 billion by 2024. In 2024, the cryptocurrency financing environment will be "much healthier". As the crypto market rebounds, "the momentum has changed, which may represent the beginning of a new bull cycle in the crypto market. Games and artificial intelligence with Web3 components may attract more investment in 2024."

Early-stage investment institution Shima Capital is "cautiously optimistic" about crypto industry financing in 2024. Its head of games, Alex Wettermann, said, "Infrastructure, gaming and tokenization verticals are expected to receive more investment in the coming year."

Polygon Ventures CEO Abhishek Saxena said: "Web3 financing may have bottomed out and will attract more investment in the new year. A positive indicator is that even in the bear market, we have seen resilient developer activity, which highlights that infrastructure construction is still continuing." In addition, he expects investment and financing for consumer-oriented use cases (including social, financial services and entertainment) to pick up, and new leaders may emerge in these fields.

Although the speech at that time was still full of the old sayings of "path dependence", the subsequent success of Meme coin craze, AI concept coin craze, Solana DePIN craze, Base ecosystem craze and many social products including Farcaster, which is valued at US$1 billion, have indeed proved the foresight of this group of industry veterans.

But it is obvious that the main theme of the market has quietly changed.

New progress in industry compliance: milestone or tombstone?

On January 10, local time, the U.S. Securities and Exchange Commission (SEC) announced that it had officially approved the first Bitcoin spot exchange-traded fund (ETF), and corresponding trading began the next day. After years of grievances and entanglements, the cryptocurrency field has finally taken this historic step.

Just the night before, a ridiculous thing happened. The official account of the SEC's X platform was hacked and a tweet "Bitcoin spot ETF has been approved" was posted. Later, SEC Chairman Gary Gensler clarified that the SEC's official account was stolen and "unauthorized messages" were posted. The SEC did not actually approve the spot Bitcoin ETF, which once caused the price of Bitcoin to fluctuate by more than $3,000 in half an hour, and the long and short positions in the contract market exploded.

Perhaps due to this, the good news was digested in advance, and the price of Bitcoin did not react strongly after the ETF was passed, and even fell at one point; on the contrary, Ethereum rose fiercely because the market focus shifted to "Ethereum spot ETF expectations."

With the achievement of this "compliance milestone", the cryptocurrency market, including Bitcoin, has become increasingly related to the U.S. stock market, the U.S. economy, and the world economic system, which also indicates to a certain extent that the cryptocurrency industry can no longer be as "self-sufficient" as before and become the preferred target of safe-haven funds.

In February, the Starknet Foundation announced that the STRK airdrop has been opened for application, and the deadline is June 20. At this point, Starknet, one of the "Four Heavenly Kings of L2" that once raised $261 million and was valued at $8 billion, has come to an end in stages. Market users are beginning to look forward to the performances of projects such as ZKSync, LayerZero, and Blast - no one would have expected that this would be the last glory of "VC coins".

ZKSync official tweet, perhaps also a hint of the subsequent market trend

In March, after the initial "dumping" and high-volume transactions, the market sentiment of Bitcoin spot ETF gradually warmed up, and on the 14th, it successfully hit a record high of around $73,000. A large amount of funds preferred to invest in Bitcoin spot ETFs and Bitcoin, and new liquidity was increasingly tightened. At the same time, a number of mainstream exchanges including Binance, OKX, and Coinbase also started a new round of listing tides under the impetus of the crazy market conditions. The Solana Meme craze led by BOME, which achieved the "three-day listing on Binance", has also gradually spread. The Solana ecosystem one-click coin issuance platform pump.fun has also gone through the initial trough and gradually got on the right track. In the following months, it has gradually become the "biggest protagonist of the Meme coin cycle", and the protocol revenue quickly exceeded US$90 million after 5 months.

According to Rootdata data, the Web3 primary market generated a total of 459 financing events in the first quarter of 2024, a year-on-year increase of 28.7%, and the total financing amount reached US$2.545 billion, a year-on-year increase of 4.7%. Among them, infrastructure, DeFi and CeFi are the three tracks with the largest investment and financing amounts; the number of early financing projects increased by 10.5% compared with 2023, and there are still many unverified technologies and solutions in the market. It is worth mentioning that the CeFi and DAO tracks have hardly received the favor of the top 10 active investment institutions in Q1, perhaps because the market has been saturated at a certain stage, or due to compliance issues, commercialization difficulties and other reasons.

EigenLayer ($100 million in Series B), HashKey Group ($100 million in Series A), Optimism ($89 million in OTC), Zama ($73 million in Series A), and Figure Markets ($60 million in Series A) are among the top five projects in terms of financing in Q1. Thanks to the popularity of the re-staking track, DeFi has become one of the popular choices at this time, but in the following months, many people will "regret joining the ranks of the staking army."

In April, the market's hype expectations began to shift to the "Bitcoin halving event", and countless Bitcoin ecosystem participants, including retail investors and investment institutions, have high hopes for this, expecting Bitcoin to achieve a surge in price after the fourth block reward halving at block height 840,000.

But there were some different views in the market at that time. For example, Binance founder CZ wrote that Bitcoin halving is different from stock splits. Some people asked such questions, indicating that we are still in the early stages. Based on the experience of the previous three halving events, he judged that the price will not double overnight after the halving; within a year after the halving, the price of Bitcoin will hit a record high many times. Coinbase analyst David Han believes that "cryptocurrency may be largely affected by exogenous factors, including increased geopolitical tensions, rising long-term interest rates, reflation and rising national debt." Looking at it today, a few months later, after experiencing the Middle East situation such as the Iran-Israel conflict and the Hamas movement, as well as the impact of the US stock market, the Nikkei, and the Korean stock market on the price of Bitcoin, these views have been fulfilled.

In addition, according to BlocksBridge Consulting's analysis of the financial returns of 12 listed Bitcoin mining companies, 10 of them raised a total of US$2 billion through equity financing activities, and profitability is expected to decline after the halving. These companies raised $1.25 billion in Q4 2023. Marathon Digital, CleanSpark, and Riot Platforms were the companies that raised the most in the first quarter of this year, accounting for 73%. As of the end of March, Marathon, CleanSpark, and Riot held a total of $1.33 billion in cash and more than 32,200 bitcoins.

After entering the second quarter, the social track became a "star track", Bitcoin ETF became an important part of the market, and the number of investment institutions' shots also increased significantly.

According to the "RootData: 2024 Q2 Web3 Industry Investment Research Report", the total financing amount in the second quarter of 2024 reached US$2.75 billion, a year-on-year increase of 38.9%. The total financing amount of the social track increased by 650% month-on-month, mainly due to Farcaster's completion of US$150 million in financing at a valuation of US$1 billion, led by Paradigm, and participated by a16z crypto, Haun, USV, Variant, Standard Crypto, etc.

The total net inflow of Bitcoin spot ETF reached US$2.394 billion, a decrease of 80% month-on-month, and the total asset management amount decreased by 12.4% month-on-month.

Financing data shows that the total amount of financing for mid- and late-stage projects increased by 20.7% month-on-month. In the current increasingly stable market environment, most investment institutions may prefer to make strategic large investments in advance. Animoca Brands became the most active institution in the quarter with 36 investments, and the top ten institutions' investment in the GameFi track increased by 71% month-on-month.

The star projects in the second quarter also include two L1 public chains: Monad announced the completion of a $225 million financing, led by Paradigm, with participation from Electric Capital, SevenX Ventures, IOSG Ventures and Greenoaks. With the main concept of "challenging public chains such as Solana and Sui", Monad's financing has become the largest cryptocurrency financing in 2024; Berachain, with the main concept of "community-driven L1 public chain", increased its financing amount to $100 million in the B round of financing in April, with a valuation of up to $1.5 billion, led by Brevan Howard Digital's Abu Dhabi branch and Framework Ventures, with participation from Polychain Capital, Hack VC and Tribe Capital.

As for the "VC coin" that many people are concerned about, it has once again become the focus of market discussion with the title of "high FDV and low circulation project". Bankless DAO founder David Hoffman, Dragonfly managing partner Haseeb Qureshi, cryptocurrency trader and KOL Jordan Fish (nicknamed Cobie on the X platform) have expressed their views on this. In July, Hack VC partner Ro Patel also discussed possible solutions to this problem from a VC perspective, believing that a lock-up mechanism based on "liquidity" and "milestones" may alleviate this problem, but the market, which is deeply trapped in the FOMO and Meme craze, is obviously not satisfied with this answer, so it is difficult for the project party to strictly implement this strategy.

From past experience, when a project is about to hold TGE, the search volume on various platforms will reach a peak, and then it will show a cliff-like downward trend. For many people, including project owners, "issuing coins is the peak" is not a joke, but a cruel and helpless reality.

The second quarter is also the "peak period" for Binance to list coins, and the competition for various projects to be listed has entered a white-hot stage: the average valuation of Launchpool projects reached US$217 million, but the investment rate of institutions was less than 2%. At that time, the market expected that more than 30 large projects would conduct TGE in the third quarter, but in the face of the current wide-ranging "monkey market", many projects that were eager to try and wait for listing have died down.

In addition, the approval of the Ethereum spot ETF in July could not hide the decline of Ethereum prices against the backdrop of the decline in the world economic situation and the turbulent political situation in some regions. It was only recently that "weekly capital flow growth" was achieved for the first time.

Finally, from the perspective of investment institution fundraising, public data since 2015 shows that there have been 177 fund-raising events in the cryptocurrency field, with a total fundraising amount of more than US$39.6 billion. The bull market from 2021 to 2022 benefited from this, and high-valuation projects such as Starknet and ZKSync were also the tail end of that time.

In the first half of 2024, cryptocurrency-related Web3 funds raised a total of US$1.38 billion. Paradigm announced in June that it had raised US$850 million, becoming the largest fund-raising event in the second quarter and even in the first half of this year. Unfortunately, one thing that more and more investors have realized is that there are fewer and fewer projects to invest in, more and more homogeneous projects, and new narratives and new technologies are becoming increasingly scarce resources.

Cryptocurrency investors, including retail investors in the market, are like mice trapped in a "cage", and can only run fast along the predetermined wheel. What awaits them in the future is not sure whether it will be the next milestone or a tombstone with the epitaph "The ideal of the industry is dead".

Revelation of the venture capital cycle: path dependence is the only obstacle

Looking at several representative success cases in the past, "Ethereum's key man" - Xiao Feng and Wanxiang Lab, "Solana's early investment institution Multicoin Capital, which "success or failure is due to the same source of profit and loss", and Folius Ventures, an investment institution focusing on the Asia-Pacific region that has obtained excess returns by investing in STEPN and believes that "consumer applications lead Mass Adoption", one very obvious feature is path dependence.

As we mentioned in many previous articles: "What makes you successful can also hinder your progress."

When an investment institution obtains excess returns in a track field or a project, due to the limitations of perspective and the dividends of the times, this "return" is often regarded as a reward for its investment strategy, vision of people, track model, network resources and other advantages, and then falls into the "copy thinking" and expects to "invest in the next XXX".

Public chains, DeFi, GameFi, NFT, SocialFi, Infra, DApps, Bridge, DID and other sub-tracks are all included. The reason for this is that, in addition to the requirement for the stability of the business model and profit model, to a certain extent, it also reflects the "mental inertia" and "curse of knowledge" of human beings - when you know that one road can successfully reach the other side, it is difficult to try to find a second road, and return to the "ignorant state" of not knowing this road and imagine how those who have never reached the other side will find new paths.

In traditional venture capital fields such as Web2, this phenomenon is called the embodiment of the "endowment effect" by many investors, and some people associate it with the "genetic determinism" of major Internet companies - just like the sayings that "Tencent is not good at e-commerce", "Ali can't do social networking", and "Baidu is not good at operations".

In order to break through the blockade of "path dependence", I personally think that venture capital institutions can try to make changes from the following angles:

· Establish an "outlier" monitoring mechanism. Just as the sudden rise of TON ecology in this cycle depends on the fact that game projects with Meme coin attributes such as NotCoin have developed the Tap2Earn model based on the previous GameFi field and combined with the Telegram ecology. This can be seen from the previous data of the NotCoin project, and this often represents new opportunities;

· Establish an "internal monster alliance".Just like the various monsters in Journey to the West who "take responsibility for their own lives", each investment institution may also consider setting up a small number of self-financing "monster departments" to use a small amount of affordable funds as a lever to leverage a larger range of innovative projects and innovative technologies, and establish a corresponding personnel promotion and elimination system and project incentive evaluation system to increase the probability of "internal innovation" and avoid "going down the same path";

· Introduce an "external advisory mechanism". As the cryptocurrency market has developed to this point, the market segments have become increasingly complex, and investors in investment institutions are not all-knowing and omnipotent "know-it-alls". Micro-innovation often requires cross-border thinking and the introduction of external perspectives. Investment strategies, track research, project analysis and other matters can also obtain new information gaps by exchanging perspectives with external consultants to obtain greater vision dividends.

In short, the first principle of breaking path dependence is to recognize the limitations of path dependence and find new opportunities and possibilities on the premise of consolidating existing advantages.

Those "rainmakers" in the crypto venture capital cycle

In the business world, those who can bring new business opportunities and win new customers to the company are called rainmakers (English name RainMaker). They often bring new economic breakthroughs to a company through innovative business activities, just like being able to use magic to bring rainy seasons. Unexpectedly, those investment institutions that bring new funds and attention to the cryptocurrency field can also be regarded as "rainmakers" who create miracles.

Looking back on this cycle, Odaily Planet Daily will briefly organize the list of major active investment institutions and show it as follows:

In 2022, based on the institutional activity evaluated by the number of investments, the top ten investment institutions are Coinbase Ventures, Animoca Brands, Shima Capital, GSR, Spartan Group, Dragonfly, Solana Ventures, Alameda Research, a16z, and Jump Crypto.

Source: Rootdata

2023 can be regarded as the trough period of venture capital. Despite this, veteran capitals including a16z Crypto, Paradigm, Sequoia Capital, Polychain Capital, Shima Capital, and exchange venture capital departments such as Coinbase Ventures are still frequently investing; the already grown Solana Ventures, Circle Ventures, and Polygon Ventures are also not to be outdone and have started their own venture capital journey; market makers such as DWF Labs have also become an important part of cryptocurrency venture capital.

In terms of the number of lead investments, a16z, Polychain, Bitkraft Ventures, Dragonfly, 1kx, Hack VC, Shima Capital, Jump Crypto, and ABCDE Capital are among the top 10 investment institutions, with at least 8 lead investments.

In addition, major institutions actively participating in Bitcoin ecosystem investment include venture capital departments of mainstream exchanges such as Binance, OKX, and KuCoin, as well as ABCDE, Waterdrop Capital, and LK Ventures.

2023 Q1 Crypto Investment and Financing Report

In the first half of 2024, representative investment institutions include Animoca Brands, OKX Ventures, Cogitent Ventures, MH Ventures, Big Brain Holdings, Spartan Group, Foresight Ventures, Hashkey Capital, GSR, Cypher Capital and other organizations, Games, social networking and infrastructure construction have become popular investment targets for institutions.

List of 20 active investment institutions in the first half of 2024

Crypto Trends: From One to Many, From East to West

Finally, let’s briefly talk about the “evolutionary” trend in past venture capital cycles. From the perspective of the public chain landscape and the evolution of discourse power, we can summarize it in eight words: From One to Many, From East to West.

Public Chain Landscape: From One to Many

After Ethereum, built on the Solidity language, became the “benchmark ecology” of the public chain in the cryptocurrency industry, the L2 network built on ZK Rollup and Optimism Rollup has expanded its territory with the expansion of Ethereum. According to statistics from the L2 Beat website, the number of L2 networks has now exceeded 70, reaching 71, with a total TVL of over $37.46 billion.

Subsequently, Solana, built in Rust, focused on the concept of "Ethereum killer". After a series of ups and downs, it finally achieved a phased "overtaking" - in July, the trading volume of Solana's ecological DEX surpassed Ethereum for the first time, reaching $55.876 billion (Ethereum was $53.868 billion); the number of active addresses on the Solana chain reached 54.33 million, a record high, a significant increase of 151% from 21.6 million at the beginning of 2024, and the number of non-voting transactions reached a peak of 1.3 billion, and the on-chain activities were very active; in addition, according to Qiao Wang, founder and core contributor of Alliance DAO, in the past 6 to 12 months, a large number of application developers have switched from Ethereum to Solana, and almost no migration in the opposite direction has been seen.

At the same time, based on the Rust language, blockchain networks such as Aptos, Sui, Linera built on the Move language, and Movement Labs, which previously raised more than $40 million, have also been on the right track and have received continued support from star institutions such as a16z and Polychain.

It can be said that although we are still some distance away from the day when "10,000 chains are launched simultaneously", the multi-chain ecosystem is a foregone conclusion.

Evolution of discourse power: from east to west

As for the evolution of discourse power, the subjects and levels involved are more complicated.

In the early days of the cryptocurrency industry, Bitcoin mining resources, which are related to the industry's discourse power, were mainly in the hands of Eastern industry professionals. Companies that are well-known to industry insiders, including Canaan Technology, Antminer, and Bitmain, were recognized as the "backbone" of the industry at that time. After all, the situation at that time was "whoever controls the mining machine (computing power resources) controls Bitcoin."

However, with the development of the industry, especially the rise of Ethereum and various sub-tracks based on the development of the Ethereum ecosystem, more and more attention has been paid to the support of investment institutions in terms of funds, resources, and platform endorsements. Although Eastern industry professionals have occupied a leading position in the exchange field with their strong technical strength, first-mover advantage, and operational means, they are affected and pressured by the regulatory level, and project development and investment activities are much worse than before. As a result, the current discourse power is mainly controlled by Western capital.

After American mining companies became the main force of Bitcoin computing power, the top stablecoin issuers Tether, Circle and Coinbase became the first US stock listed exchange and other events also further strengthened the influence of Western capital on the development of the industry. Including the "Web3 wave" from 2021 to 2022, it is also inseparable from the advocacy and dissemination of American capital such as a16z.

In the end, Western capital with more capital power has mastered the discourse power of project investment in the upstream of the industry, and thus takes the initiative in the market structure; although the Eastern community is good at the development of exchanges, the industry role eventually moves down to the downstream ecological niches such as market users. The successive approval of Bitcoin ETF and Ethereum ETF in the United States has once again boosted this situation.

As Zweig said, all the gifts of fate have already been secretly marked with a price. Today's venture capital landscape is a concentrated reflection of the foreshadowing of yesterday.

To some extent, Asian capital is more focused on projects related to the Mass Adoption track, which is also a helpless choice. After all, compared with the Western market that is good at promoting narratives and leading "innovation", Eastern forces are better at applications and operations. This is one of the reasons why some Eastern capital chooses to bet on the TON ecosystem that focuses on operations.

Summary of investment preferences of six top VCs

Conclusion: Everything for liquidity, for all liquidity, for everything about liquidity

Finally, please allow me to end this article with a classic syllogism: Looking back at the venture capital cycle of the cryptocurrency industry, individuals, institutions and projects that can understand the theory of evolution are all focused on the word "liquidity". The so-called asset distribution, technological innovation, track evolution and resource allocation are essentially for the purpose of developing liquidity, undertaking liquidity, guiding liquidity and retaining liquidity. Only in this way can the vitality of DeFi be preserved and it can become an "evergreen" in the cryptocurrency market.

And fields such as NFTFi, SocialFi, GameFi, and DAO organizations, due to lack of liquidity, inefficiency, and lack of positive externalities, can only become countless fine grains of sand in the surging market wave, and are gradually falsified. Including highly PVP markets such as Meme coins, if the lack of liquidity is not unbearable, the number and scope of participating players will be far less than now.

Now that the market has high expectations for the Fed's interest rate cut and hopes that it can bring about another "violent bull market", where is the next step in the development of the cryptocurrency industry in the future? Perhaps only time can tell us the answer. In any case, the cryptocurrency wave led by Bitcoin is far from over and will continue.

Thanks to Mandy, the founder of Odaily Planet Daily, for her reference, thanks to Mr. Fang Zhou, the editor-in-chief of Odaily Planet Daily, for the editing and correction, and thanks to Erin, the business director of YBB Capital, for the additional information. This article took more than a month to write, but due to my limited writing skills, I can only give a one-sided summary of the past history. If there are any mistakes or omissions, please forgive me.

Reference articles:

"A 10,000-word analysis of the investment profile and strategic layout of six top crypto VCs"

"Review of the 15-year evolution of crypto venture capital: difficult but generally upward"

"RootData: 2023 Web3 Industry Development Research Report and Annual List"

"2024 First Half of the Year 20 Active Investment Institutions Performance Review and Investment Philosophy Sharing"

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