Can VCs play crypto out of this downturn? – TechCrunch
Welcome back to Chain reaction.
Last week we saw Musk holding on to doge. This week we talk about where all this crypto VC money is possibly going.
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maybe it’s all a game?
A weekly dispatch from the desk of TechCrunch’s crypto editor Lucas Matney:
The reality is that the dreams of web3 investors and founders are facing a bit of a jam – a crypto downturn generally means less hype, fewer conversations between friends, and generally less organic consumer onboarding to consumer experiences. This is far from ideal for VCs who saw a consumer web dream within reach, but luckily they have some deep pockets thanks to recently raised mega funds with crypto games as their sole focus.
Still, it’s a tough time for the consumer crypt’s core audience, with newly minted acolytes poor and many likely discouraged from sinking more time, money or effort into new web3 projects. The question becomes how to put this VC money to work in a bear cycle; much will take the period of reduced attention to dump into infrastructure and the “picks and spades” toolkit. Others may go into isolation and support consumer projects that are further disconnected from the crypto world, but expose users to synthetic economies, wallets and digital goods, an arena particularly well served by crypto-infused games.
Gaming seems like a big consumer beachhead for crypto, and I expect many of these dedicated crypto funds to dump a significant amount of their money into studios and platforms that do this. There are many significant challenges, including generally negative user sentiment and gaining platform buy-in – given that NFTs are still treated with a high degree of hostility by app stores and gaming platforms.
The self-contained worlds of gaming titles with dedicated tokens disconnected from the more self-referential corners of crypto may be the easiest place to find new eyeballs. And as customer acquisition costs across the board rise, VCs may be more willing to directly subsidize customers as part of user acquisition, returning to the gig economy days of VCs bribing new users to sign up.
It’s been a strange bull cycle for crypto gaming. While tons of money poured into gaming to make titles and pixelated SNES-quality DeFi-infused games, it’s fair to say that nothing that was actually good emerged. Most games over-indexed on profit and clear ponzinomics that drove growth to the most extreme ends without concern for stability. Great games take time to build, and fun games require a level of user concern that’s hard to optimize for when you’re trying to maximize short-term profit on both ends of the deal.
the last pod
We thought winter was already here for crypto, but US regulators made it seem a lot colder. First, the US Department of Justice arrested three people, including a former Coinbase employee, for alleged insider trading on the stock exchange. Then the Securities and Exchange Commission charged them with securities fraud, arguing that several of the coins they had traded were actually securities – a designation that comes with a whole host of rules that Coinbase and other exchanges have not necessarily followed. We shared our unofficial thoughts on how the laws can be interpreted and what this could mean for major crypto exchanges (more on this in the “this week in web3” section below as well).
We also talked about the situation with bitcoin that may finally be enough to make Elon Musk stop skeptics and loved video games Minecraft cancels NFTs, at least for now. Our guest was David Nage, a portfolio manager at digital asset management firm Arca, which helped us understand the ongoing chaos in the markets.
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follow the money
Where startup money moves in the crypto world:
- Decentralized social media (DeSo) platform DSCVRbuilt on Dfinity’s Internet Computer ecosystem, received $9 million in seed funding led by Polychain Capital.
- Unstoppable domainsa popular blockchain naming system and identity platform provider, raised $65 million in its Series A funding round at a $1 billion valuation led by Pantera Capital.
- Aptos Labsa blockchain project from former Meta employees, raised $150 million in an FTX-led Series A round.
- Blockchain ecosystem Top has raised $15 million in a Series A funding round led by Mercury, Republic Asia and Cryptology Asset Group to help companies track and monetize social impact initiatives.
- Crypto lender CLST raised $5.3 million for its seed round from investors including Coinbase and Kraken.
- Solana-based NFT ownership platform Cardinal announced its $4.4 million raise led by Protagonist and Solana Ventures.
- Web3 game company Mighty bear received $10 million in a Framework Ventures-led funding round for its Mighty Action Heroes game.
- FTX CEO Sam Bankman-Fried led a seed round for Trustless Mediaa startup building community-owned web3 shows.
- Cyber security blockchain protocol Naoris raised $11.5 million in an equity and token-based funding round from investors including Draper Associates.
- South Korean metaverse company Anipen secured investment of ~$12M in its ongoing Series B funding round from Medici Investment and others.
the week in web3
A weekly window into the web3 reporter’s thoughts Anita Ramaswamy:
After a former Coinbase employee and his two associates were arrested this week on warrants from the US Department of Justice for allegedly fronting the crypto exchange, they were hit with securities fraud charges by the SEC. Shortly thereafter, Bloomberg revealed that the SEC had already investigated Coinbase for potentially allowing securities to trade on its platform without adequate registrations and disclosures.
Interestingly, the SEC’s charges, at least in the securities fraud case, hinged on several pretty niche coins. The token they chose to go after says as much, in some ways, as the ones they didn’t. Regardless, Coinbase is quite upset and says it has checked all tokens on the platform before listing them to make sure they are not securities.
If Coinbase is nailed in this suit, it will have ripple effects throughout the industry. Already, other major crypto companies are facing similar allegations, including Binance, Ripple Labs and Yuga Labs, either in the form of disgruntled investors filing lawsuits against them hoping to get them in trouble for illegally selling securities or in the form of investigations by US regulators . , as is the case with Coinbase.
Until we know more about how regulators and legal experts are likely to treat each token, it’s worth investigating what the current securities laws even are and how they might apply to Coinbase. That’s exactly what I did in my last piece with Alex Wilhelm for TechCrunch+, where we took a deep dive into the four-part “Howey Test” to try to determine whether the SEC or Coinbase has a stronger case here.
TC+ analysis
Here is some of this week’s crypto analysis available on our subscription service TC+ from senior reporter Jacquelyn Melinek:
Crypto values could drop into September as VCs play a waiting game
“Tons of capital have been raised across the crypto industry in recent months, but there has been a noticeable pause in distribution. That may change over the next few months. As crypto VC deals have taken longer to close, valuations across the industry have fallen, according to David Nageventure capital portfolio manager at Arca.”
Investors are focusing on DeFi as it remains resilient to crypto market volatility
“As many sub-sectors of the crypto market continue to take major hits from recent volatility, some market players see decentralized finance (DeFi) as resilient and growing interest despite the negative macroeconomic environment. Centralized financial institutions are similar to traditional firms, with people running their business and manages its funds. In contrast, DeFi protocols use technology — not people — to perform services through things like smart contracts.”
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