Encryption first quarter review and market outlook

Quick Facts:

  • Despite the market downturn, crypto investment remained very active in the first quarter.
  • On the infrastructure side, we see a lot of movement in cross-chain solutions and DAO tools. The new layer-1 is still incubating.
  • DeFi primitives developed on Ethereum are expanding to the newer L1, and Polkadot is accelerating.
  • NFT projects are focused on bringing more utility to the space, and Yuga Labs made a big wave this quarter.
  • The rise of Axie Infinity has attracted many successful traditional game developers to develop games on Web3, and Southeast Asia has become the main force of games.

After peaking in November 2021, the inherently liquid cryptocurrency market entered the new year and showed a more or less stagnant state in the first quarter. However, the private market remains the same as it was last year.

Venture capital reached a record $12.5 billion in the first quarter of 2022, a figure that has grown for seven consecutive quarters, according to The Block. But we’re noticing that there are now signs of a slowdown, especially in late-stage investments, which may be seen in our Q2 activity.

Encryption first quarter review and market outlook

The transaction volume reflects the continuous emergence of new companies and projects in the field. This is thanks to the low start-up costs of crypto and Web3 companies, but also to open source code and the ability to self-fund or self-fund by issuing tokens.

Our investments are divided into six categories. Across those six categories, here’s how we performed in the first quarter of 2022.

Encryption first quarter review and market outlook

This allows us to see what will happen to the industry in the near future, given that we will be investing early in the project.Next, let’s dive into some of the trends and themes identified in the first quarter.

Cross-chain and Web3 infrastructure flourishes

In the early days of cryptocurrencies, Bitcoin and Ethereum dominated. With the launch of the new Layer 1 in recent years, the ecosystem beyond BTC/ETH has exploded, with more than 10 chains now hosting over $1 billion in value.

Encryption first quarter review and market outlook

Growing value across multiple networks has created an increasing need for value on one chain to flow to another. As such, we will continue to see the construction of cross-chain infrastructure to facilitate activity between blockchains.

Even if the future of multi-chain technology is assured, we are still developing the new L1. Our investments in Aptos (generic L1 from ex-Diem employees), Celestia (modular blockchain) and Subspace show that the industry is not innovating at the grassroots level. It also begs the question – will the L1 that dominates today be replaced one day?

There are also plenty of tools to help the DAO and Web3 community thrive. Solutions for payroll (Diagonal, Zebec), social engagement and networking (Taki, Backdrop, Bonfire) and business (Rain) all point to a future where online communities can coordinate more seamlessly.

Multi-chain proliferation of DeFi

Speaking of the multi-chain world, we see a lot of familiar patterns in these rapidly growing L1 networks. Basically, Ethereum sets the tone for ecosystem prosperity: AMMs (Uniswap), money markets (Compound/Aave), oracles (Chainlink) and yield aggregators (Yearn.Finance) to name a few.

For the emerging L1 competition, the teams understand that they will need those same basic primitives. As such, it’s no surprise to see Ethereum’s DeFi building blocks embodied in projects like Solana, Avalanche, NEAR, Polkadot, and more.

For example, from our Q1 investments, Aurigami on NEAR and Solend on Solana are similar to Compound. Katana and Francium on Solana are similar to Yearn.finance. Redstone is similar to Chainlink, leveraging Arweave for cheaper storage, oracle services for longer-tail tokens and NFT data feeds. While these projects are similar to applications originally created on Ethereum, they all innovate.

polka dots 

Particularly active in the first quarter was the Polkadot ecosystem. With the long-awaited Polkadot parachain launching in late 2021, we are seeing momentum around DOT.

We can launch L1’s network on Polkadot. These L1s, called parachains, are all capable of interoperating. With the parachain going live, Polkadot is now able to host user applications.

NFT Expansion Pack

After a breakout summer, NFT sales have retreated from earlier highs. Beneath the surface, however, innovation is more dynamic than ever.

Encryption first quarter review and market outlook

While NFT activity in 2021 revolves around simple buying and selling (aka flip jpegs), the next wave of projects revolves around building utility around NFTs. For example, NiftyApes and PawnFi are working to bring liquidity to NFT holders, allowing them to access NFT-backed loans. Platforms like Cymbal aim to bring more community and social features around NFT ownership.

Yuga Labs, the studio behind Bored Ape Yacht Club, achieved a $4 billion valuation in the quarter, building a Metaverse of BAYC brands. Next, they acquired the IP property rights of the NFT collection cryptopunk and Meebits. They announced the start — a movie trilogy, where BAYC NFT holders can submit their NFTs to be cast in movies and receive a license fee — an interesting new experiment in on-chain licensing.

Encryption first quarter review and market outlook

GameFi 2.0

Blockchain-based gaming is prevalent in 2021 with the rise of Axie Infinity. Sales of Axie Infinity NFTs hit a staggering $848 million in August before falling sharply. (It’s worth noting that in March, Axie’s NFT sales reached $30 million, despite a clear trend reversal and serious hacking.)

Encryption first quarter review and market outlook

Axie’s multi-billion dollar revenue was enough to grab the attention of the entire gaming world, and since then, the next wave of blockchain-based games has quietly emerged. It is worth noting that many teams have created very successful mobile, web and AAA games (eg Clockwork Labs, Block Tackle, Summoners Arena, Third Time, Avalon).

Future blockchain-based games will inject encrypted NFTs into more familiar Web2 game formats – MMORPG, FPS, MOBA, etc. Other CBV investment firms, such as Joyride, will make it easier for game developers to integrate crypto/NFT into existing games.

Currently, led by countries like the Philippines and Vietnam, Southeast Asia is turning itself into the center of the crypto gaming world. We are particularly excited about developments in the region and the development of the Vietnam Gaming Association and CBV portfolio company Ancient8.


Amid the volatile macro situation, many cryptocurrency investors are uneasy. More often, we’ll be asked how a market downturn will affect CB Ventures’ activity. To date, there is no shortage of high-quality entrepreneurs in the crypto and Web3 space. However, if prices continue to fall, as observed in the broader VC space (down 19% quarter-on-quarter), it would not be unreasonable to expect a slowdown. Either way, our strategy won’t change much.

It’s worth reminding that some of the most successful projects right now were funded during the 2018/19 bear market.From this perspective, our early investments include Compound, OpenSea, Polygon, Arweave, Starkware, Blockfi, NEAR, and Messari, among others. As such, we will continue to invest in high-quality founders and projects that advance the industry, regardless of broader market conditions.

It is worth repeating that the investable field of Web3 has expanded a lot: DeFi, NFTs, DAOs, Metaverses and games are all developing in L1. Then there’s the cross-chain infrastructure to stitch everything together, and L2 solutions to help everything scale. Not to mention that there are thousands of other ideas that haven’t come up yet.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/encryption-first-quarter-review-and-market-outlook/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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