Web3 funding is down again as the crypto winter drags on

Cryptoprettymuchseemstohavelostitsallureasfarasventurecapitalistsareconcerned.AccordingtonewdatafromCrunchbase,investmentsintoweb3startupsdeclinedinthethirdquartercomparedtothesecondquarter,markingtheseventhstraightquarterofdeclinesforthesectorsincecryptoventurefundraisingpeakedinQ42021.

TheExchangeexploresstartups,marketsandmoney.

Readiteverymorningontechnewss+orgetTheExchangenewslettereverySaturday.

That’snotshocking.Astechnewss+reportedinAugust,whencryptofundraisingnumberssurpassedmostpeople’sexpectations:

August'sgoodnumbersmightnotbeabletostemthebleeding,though.Toputanoptimisticspinonit,maybeQ32023willbreakthetrendsinceafewinvestmentvehicleslikeVesselCapital's$55millionfundandMoonPay'sventurearmwerelaunchedinrecentweeksandwillstartdeployingcapitalsoon.Butit'sanybody'sguesswhetherinvestorswillmovequickly—orsignbiggerchecks.

Crunchbase’sdataindicatesthatweb3startupsraised$1.3billioninthethirdquarter,downfromaround$2billioninbothQ1andQ2.

Comparedtothepastfewyears,thosenumbersarevanishinglysmall.Onaverage,web3startupsraisedmorethan$8billionineveryquarterbetweenQ32021andQ22022.Andthenthingsfelloffacliff:The$4.5billionthatcryptostartupsraisedinQ32022wasabouthalftheamountraisedinQ2,forreference.

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Here’swhatthetrendlookslike:

DatavisualizationbyMirandaHalpern,createdwithFlourish

Discussingwhathappenedismoreofanacademicendeavoratthispointthananythingelse:Moneygotmoreexpensivebecauseofhigherinterestrates,venturecapitalistsbecamemoreconservative,andinvestorsstartedpreferringstartupswithprovenrevenuesandapathtoprofitabilityratherthancompaniesthathadmorevisionthantraction.Thisreshufflingoftheventuremarkethurteveryone,butitseemsthatalongwiththerestoffintech,web3companiesaresufferingalot,ifnotthemost.

Besidesmacroconditionsindirectlyrelatedtointra-industryperformance,we’realsoseeingsomeworryingsigns.TakealookatthefollowingchartfromTheBlockthattrackscryptotradingvolumeonaseven-daymovingaveragebasis:

Otherdatatellsasimilarstory.TotalvaluelockedinDeFiisdownfromitspriorhighsandisnotgrowing.NFTsarealsosufferingsimilarly,thoughthatmarketmaystillbeshrinking.Searchinterestinbitcoinisalsofalling.

Butallthatbadnewsisnotstoppingsomepeople.There’sanironcladbeliefinblockchain-basedtransactionsandassetsthatnobearmarketcanshake,partlybecausecryptohasmanagedaLazarusandcomeroaringbacksomanytimesnow.It’sstillreasonabletoremainlongoncrypto,ifthat’syourjam.

Andsomeprojectsaretryingprettyuniquestrategiestoattractmorepeopletothedecentralizedworld.Despiteitswhimsicalname,PudgyPenguinsisamongthemoreinterestingcryptocompaniesoutthere.Itspushintophysicaltoys tiedtodigitalexperiencescaughtourattentionlastweek,andyourstrulynowevenownsaPudgyPenguinplushie.Considerthatpurchasemygoodlucktokentocrypto.

Regardless,thedatahaslandedprettymuchwhereweexpecteditto,andthequestionsnowinourmindsarenotneweither:Whatwillittakeforweb3toriseagain?WillbitcoinETFssavetheday?Woulditbethepushtotokenizereal-worldassets?Perhapssomethingabsolutelynovel?

AsappealscourtrulesinfavorofGrayscale,abitcoinspotETFcouldbeonthehorizon

Idon’tknow.Butgiventhedecliningrateoffunding,Isuspectthere’samassivestressinthecryptostartupmarkettodayanditdoesn’tlooklikemuchhelpisontheway.We’llhavemoreonthiswhenwegetagoodamountofQ4datatochewon,butfornow,theblockchainteamsoutthereneedalltheluckintheworld.