Smart Money Tracker: What are crypto VCs investing in?

Despite the poor market sentiment, cryptocurrency VC firms continue to expand aggressively in different sectors and show no signs of stopping.

As the market changes, so does the focus of crypto VCs. Understanding their investment trends means understanding industry needs. This article excavates the investment information of some top VCs in the first quarter of this year, to provide you with some references, and to look at the narratives that may happen in the industry in the future.

First, a summary of the investment profile of crypto VCs in Q1 2022:

Total investment: $14.1 billion

Number of investment projects: 681

The 2021 profile for comparison:

Total investment: $30.4 billion

Number of investment projects: 1349 projects

Only in the first quarter of 2022, the investment volume of crypto VCs has reached half of last year’s entire year.

What are exchange VCs investing in?

We first divide encrypted VCs into two categories:

The first category, Exchange VC  , represents: Coinbase Ventures, Alameda+ FTX, Binance Labs.

The second category, top crypto VCs , represent: a16z, Paradigm, Sequoia, Multicoincap, Polychain, 3AC, DCG, etc.

According to statistics, the investment results of the first type of crypto VC in the first quarter of this year are: Coinbase Ventures ($1.4 billion), Binance Labs ($280 million), and Alameda ($1.3 billion). Investment breakdown:

DeFi: 31 (27%)

CeFi: 13 (11%)

NFTs: 16 (14%)

DAOs: 10 (9%)

Games: 20 (16%)

Others (wallets, Web3 infrastructure, L1, etc.): 24 (20%)

Smart Money Tracker: What are crypto VCs investing in?

Digging through, I observed two investment themes with higher concentration:

Among the 31 DeFi projects, there are 5 cross-chain projects. (16%)

Of the 16 NFT projects, 6 are NFT financialization projects. (38%)

  • Cross-chain of DeFi sector

The 5 bridge projects are: LayerZero (STG), Multichain (MULTI), Swim Protocol (SWIM), Router Protocol (ROUTE), Symbiosis (SIS)

In addition to SIS, several other bridges have raised funds from a number of high-profile VCs, especially STG backers, which are dizzying.

Crypto VCs are not just smart money, but narrative creators. In 2021-2022, FTX, 3AC, Hashed, and DCG chose SOL, AVAX, LUNA and NEAR respectively, and then started the Layer 1 battle.

In 2022, despite Wormhole being hacked, cross-chain is still the hottest topic for VCs.

  • Price discovery of NFTs in the NFT sector

This should extend to the broader topic of NFT financialization. Real-time price discovery doesn’t matter when we’re only trading NFTs themselves. But if NFT is combined with defi, things become different.

Imagine a lending scenario about BAYC. Assuming that the fixed price of BAYC is 100ETH, BAYC is traded every hour. If BAYC is sold for 1ETH by a malicious attacker, many investors who borrow against their BAYC collateral may face a large amount of liquidation, which is why price discovery is important.

What are the top crypto VCs investing in?

Top VC investments for the quarter are broken down into:

DeFi: 34 (28%)

CeFi: 9 (7%)

NFTs: 15 (12%)

DAOs: 6 (5%)

Games: 18 (15%)

Others (wallets, web3 infrastructure, L1, etc.): 40 (33%)

Smart Money Tracker: What are crypto VCs investing in?

Some of the more prominent investment themes were also found:

Among the 34 DeFi projects, there are 4 options projects (12%).

Of the 40 infrastructure projects, there are 8 privacy + scaling projects (20%).

  • Options in the DeFi Sector

The four options are: Ribbon (RBN), Thetanuts (no currency issued), Exotic (no currency issued), and Friktion (no currency issued).

Why are options important? Because it is the most fundamental part of DeFi and the derivatives market is huge compared to the spot market.

Ordinary DeFi protocols provide yields with their own governance tokens, which are minted by the protocol. Unlike options, the returns it provides are generated by market mechanisms, so it is much more sustainable.

In the stock market, the 2021 date weight ($450 million) exceeds the daily spot volume ($405 million). Among cryptocurrencies, Binance’s daily derivatives trading volume ($56 billion) exceeds daily spot trading volume ($18 billion).

Smart Money Tracker: What are crypto VCs investing in?

The on-chain options market is one of the most underserved markets in cryptocurrencies.

  • Rollup of infrastructure

Top VC firms invest in privacy and scaling layers. Almost all infrastructure projects, including EspressoSys and Humanode, try to make blockchains more private and scalable.

With the introduction of the zkEVM solution, ZK Rollup is also becoming more and more important. (Note: zkEVM is a virtual machine that executes smart contracts in a way compatible with zero-knowledge proof computation)

Among them, zkSync supported by a16z, Binance, Coinbase, Dragonfly , the main network has been launched, and many projects are built on zkSync, such as DEX ZigZag, such as Syncswap which has launched the test network, and VovoFinance and Connext which have announced support for the zkSync network.

StarkWare, invested by Paradigm and Sequoia and optimistic about Buterin , has also released StarkNet Alpha 0.8.0. Bridge to StarkNet, StarkGate has released testnet. StarkNet native Dapps, such as JediSwap, yagi, mySwap are also waiting to be launched.

In addition, whether it is an exchange VC or a top crypto VC, they are also keen to invest in DAO governance tools and games.

For DAO governance tools, we need a real Web3 native social platform. For example, there is already a project working on a Discord that can be logged in with Metamask; for games, this has always been a section that VCs like, such as the recent MaviaGame, which also started from Alameda, Binance and Mechanism raised $8 million.

Finally, we make a review of the actions of encrypted VCs in the first quarter of this year:

  1. In 1Q22, crypto VCs invested $14 billion, equivalent to 50% of the total investment in 2021 .
  2. Exchange VCs invest more in “Bridges” and “NFT Fi”
  3. Top VCs invest more in “options ” and “ZKs”
  4. Both exchange VCs and top VCs are showing increasing interest in DAOs and gaming .

Posted by:CoinYuppie,Reprinted with attribution to:
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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