Cryptocurrency is bad, but VCs keep pouring money – decryption

according to Contagion And the chaos we’ve seen since Sam Bankman-Fried’s FTX acquired a sudden multibillion-dollar coronary artery, you might be tempted to conclude that the entire cryptocurrency industry is heading toward a Chapter 11 bankruptcy filing in the sky, and that no one in their right mind might still believe in it. .

However, even in the bitter cold of Crypto Winter, venture capital continues to pour in for some lucky builders.

Analysts at Pitchbook Transfer Crypto capital investment in 2022 (a rough year across all technologies) has outperformed investment in both fintech and biotech, bringing in $6.5 billion over the past 12 months, $879 million of which was in the last quarter.

Just look at the past week or so of lousy press releases for the cryptocurrency industry. You will see a file $4.75 million For something called Earn Alliance. a $70 million increase For something called Ramp Network. For more $15 million for Roboto games, $3.1 million For the game NFT Burn Ghost and Vertigo $72 million for Keyrock market maker. There is even giddy plans to acquire $2 billion Metaverse fund from Animoca Brands, while crypto-derivatives exchange Matrixport, led by former Bitcoin mining chief Jihan Wu, is… Gun For an increase of $100 million – at a valuation of $1.5 billion.

It is easy to understand why venture capital firms continue to take on these risks. Venture capital is like sharks – they have to keep swimming by investing in crap (sorry, “decentralized technologies”) or they will die, even in a bear market. But Why do they keep investing their fortunes in things that keep failing?

Everywhere you look, the industry seems to be completely spinning. Just last month, Kyle Samani’s formerly high-flying and energetic firm Multicoin Capital, Its assets have been frozen due to FTX exposure. Some of the biggest financiers in the space, such as Babel Finance, Three Arrows Capital, and the private equity investment arm of FTX, have caused some of the biggest blowouts. Meanwhile, star-studded companies like Blockstream are taking note of their reviews orders of magnitudeThe $1.5 billion valuation Matrixport sought seems positively modest compared to the $32 billion valuation commanded by its now-deceased competitor.

All this caused a chilling effect. Every venture capital or venture capital firm I’ve spoken to says they’re more cautious than ever with investments. A Coinbase spokesperson carefully noted that funding “has been tightened.”

Meanwhile, Animoca Brands CEO Yat Siu tells me vaguely that “some deals may not make as much sense as they did a few months ago due to market conditions or changes in valuations.”

Ramp Network’s head of business, Paulina Jusko, told me she’d heard of a number of projects that failed to meet growing demands, along with a number of deals that fell through at the last minute. She added that not many projects are looking forward to anything bigger than a Series B before the VC taps are closed. Kevin De Patol, CEO of market maker Keyrock, said he’s noticed a new emphasis on “due diligence” — something completely unnoticeable in most other industries, but one that marks a groundbreaking shift in cryptocurrency.

But the eight-figure increases and skyrocketing ratings remain, and much of it comes from the usual suspects. These are well-capitalized companies that know when to cash in and how to manage risk. Their ranks include original industry participants like Ripple, Coinbase Ventures, Paradigm, Polychain Capital, Pantera, and the elephant in the room, Andreessen Horowitz. They are joined by companies from the Web3 sector, such as Animoca Brands, which are raising this optimistic $2 billion fund. (There are also a few more obscure specialists like venture capital firm gumi Cryptos Capital, Argonautic Ventures, and Harrison Metal.)

Presumably, the main way for these companies to stay afloat was simply by not being exposed to FTX. which model I invested in the stock market, managed to get away from FTT shitcoin FTX. (Whether this is the result of investment savvy or luck is up for debate.)

But experience is also important. Animoca’s Siu told me his company learned a lot from enduring the “colder, more challenging environments” of the 2017-2019 bear market. Does this mean that “crypto-native” venture capital investors stand a better chance than companies planted in the relatively healthy financial world? Don’t forget, after all, that the biggest financiers of FTX weren’t Animoca or Eagle Capital, but the old giants Tiger Global, Sequoia and Softbank. Were those undeciphered names easily influenced by the SBF song and dance?

It’s also interesting to see where post-bubble money goes without all the hype behind it. Many of the VCs and portfolio projects I have spoken with since the crash have emphasized a clear and renewed focus on “decentralized” investments.

Chris Perkins, of venture capital firm Coinfund, said the multiple disasters of 2022 only confirmed his longstanding wariness of highly centralized crypto companies. He attributes his company’s continued survival to avoiding those ventures.

“As we started to watch centralized entities unravel, I’m not saying we wanted to — but it fueled our hypothesis that we need to stay focused on decentralized technologies,” Perkins told me. After the crash, he went so far as to trim his portfolio with a number of central investments. (Although he put it indirectly: “We have taken many deliberate measures to mitigate counterparty risk.”)

It is true that a number of the projects receiving funding are very important ‘infrastructure’ projects. Finterest, a peer-to-peer Bitcoin lending protocol, raised $1.5 million, for example, while decentralized digital content hosting Fleek raised $25 million. And there is a file hosting From else The decentralized projects that have raised money after the FTX crisis, though, are not all tame and uncontroversial: many of them already underpin the infrastructure for things like high-stakes decentralized derivatives trading.

The thinking is that decentralized technology is more transparent and less vulnerable to the kind of financial scams that brought FTX down. (DeFi degeners have cried out since the FTX crash, “This is why you shouldn’t put your cryptocurrency on centralized exchanges!”) But it wasn’t Terra, the stable algorithm that I got buy from Coinbase and Galaxy, some kind of decentralization? and not even Polycystic-Technically, also kinda decentralized? Kinda?

It is important to remember that “decentralization” exists along a very long and complex spectrum – it is never absolute, it is never absolute trust. In some cases, it only allows you to monitor in real time where fraud is taking place and “transparently” drains your life savings.

So it’s worth asking: Is Marxist’s latest peer-to-peer VC money-making token truly “decentralised”, or do its three developers run each new board proposal through a strange and experimental governance mechanism that is only legal in Estonia? Note that almost all of the “decentralized” companies I have contacted have their own internal PR. would mempool Send a canned PR quote?

The alleged shift to decentralization is not an overwhelming trend, and there are still signs of the long-standing trend towards esoteric cryptography. A company called Dogami only sells adoptable dogs from outer space Raised $7 millionhaving apparently shown a strong user base of 200,000. The blockchain game is inspired by the popular soccer manga series “Captain Tsubasa” in the 1980s. Starch $15 million.

These projects are not obvious safe bets by any ordinary standard. It actually looks like the ICO era of 2017. But venture investors still believe in cryptocurrency.

in a interview with a swearing outlet BlocDogami’s founder stressed that VCs did “a lot” of due diligence before cashing in.

“No matter how geeky, esoteric, maybe even geeky a project is,” Siu of Animoca, who previously co-raised Dogami, told me, “you need content in order to drive demand.” “Build it and they will come,” he added, is a difficult strategy when there is no demand. You must have both for them to feed on each other.”

Or maybe it’s the old 2000s-era tech absurdity that these particular projects embody, allowing them to keep their toes in the flashy, reliably more profitable world of Web2. Burn Ghost has raised $3.1 million and develops casual games that feature optional NFT rewards, and has “a lot of flexibility about how and where we find our players, not just dependent on crypto market conditions,” its founder and CEO, Steve Curran, told me.

Of course, no one is claiming that companies like Burn Ghost and Finterest will be unicorns in an hour. The period of cryptocurrency craze is definitely on the wane, and may never recover. But it’s still amazing how much cash, even in these very trying times, is out there.

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