Big Bets on Web3, DeFi Continues Despite Crypto Concerns

Casting an eye over the crypto industry, attendees would be forgiven for thinking that several sectors, including DeFi and Web3, are in trouble.

With confidence in retail and institutional players shaken – spurred on by the crypto-lending antics – deploying capital at a time of uncertainty is not without its inherent risks.

Regulation promises to tighten controls over how crypto capital is used, engaged with and distributed, although more work needs to be done to protect investors, according to some.

Looking through a global macroeconomic lens also highlights less promising signs of an early recovery in the broader markets, namely equities, which have often been closely correlated with crypto.

Concerns about global food shortages as a result of the pandemic – exacerbated by Russia’s invasion of Ukraine – as well as rising inflation along with central banks’ interest rate hikes to combat it, have almost increased the case for a “risk-off” environment.

In fact, investment in the crypto capital market has slowed with money that had flowed into budding projects during the fourth quarter of last year, until the first quarter of this year eased.

Although for some, like Stan Miroshnik, a partner at mid- to late-stage digital asset-focused private equity firm 10T Holdings, “unique opportunities” for investment in the market still exist and are beginning to turn around.

“We’re just now starting to see interesting deals come back into the market at more reasonable values,” Miroshnik told Blockworks in an interview.

Others in the crypto capital investment sector have also stepped up their efforts to scoop up or further the efforts of companies seeking to build Web3 and DeFi infrastructure amid bear market conditions in hopes of reaping bigger profits in better times.

Crypto investment firm Multicoin Capital, which has backed several Web3 and decentralized finance projects, announced earlier this month that it would provide an additional $430 million to crypto startups.

Continuing this trend, early-stage investment firm Konvoy Ventures launched a $150 million fund targeting budding gaming companies focused on a number of verticals including Web3, while the venture capital and incubation arm of Binance closed its $500 million fund in early June.

Most venture capital firms and funds are betting heavily on the internet’s transition to a more decentralized and democratized version in information sharing and engagement including the tools and infrastructure decentralized finance is promising for this transition.

The discussion from those developing the most important infrastructure rails in the industry is now about building on top of a less than frothy market after the contagion from crypto borrowers caught in Singapore-based hedge fund Three Arrows Capital’s implosion.

Turn a threat into an opportunity

“Every time there’s a significant event, you watch and learn,” Bette Chen, co-founder of DeFi layer-1 smart contract platform Acala told Blockworks in a separate interview. “This is a moment where you can see problems being exposed, and for builders there are actually opportunities where you can build strong systems.”

It’s companies like Acala that continue to improve the deficiencies in industry sectors — including DeFi and Web3 that — Miroshnik and others like him are most interested in.

The 10T co-founder said his fund was looking at many blue-chip names, including Fireblocks, OpenSea, Dapper Labs, Alchemy and Chainalysis, which he believed had previously been too expensive on a multiple-income basis where they had traded. 50 times the companies’ combined turnover.

“Now those valuations are coming down in the secondary market. And then in theory you can buy some of these blue chip names at more reasonable values,” he said.

10T, like other funds in the industry, approaches its investment mission by deploying capital across four verticals, including NFTs and metaverses, DeFi infrastructure, gateways like wallets and exchanges as well as companies using a token incentive engine for real-world use cases like this seen in decentralized wireless network Helium.

Asked about the fund’s short- to medium-term outlook, Miroshnik said “the money waits, not the trade,” and offered some sage advice to retail and institutional investors looking to follow the capital allocation of some of the industry’s larger funds in lockstep. .

“If you want to go deeper, and you want to make these vertical efforts, they are the clear leaders already,” the co-founder said. “You don’t need to buy the new GameFi tokens. Ideally, just buy something where you know there’s already a lot of speed.”

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