Welcome Chain Reaction.
Last week, we saw Musk holding a doge. This week, we talk about where all this VC crypto money could be going.
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Maybe, that’s the whole game?
A weekly post from TechCrunch’s crypto editor’s desk Lucas Matney:
The reality is that the dreams of web3 investors and founders have hit a snag — the crypto downturn generally means less hype, fewer conversations among friends and generally less organic to the consumer experience. This isn’t ideal for VCs who see consumer web dreams within reach, but luckily they’ve got deep pockets thanks to the recently raised mega-fund with crypto betting as their sole focus.
However, it is a difficult time for the core audience of consumer crypto, as the recently minted acolytes have gone bad and many are unable to devote more time, money or effort to new web3 projects. The question is how to put this VC money to work in the bear cycle; many will take less time to pay attention to the infrastructure and toolsets “picks and shovels”. Others may be insular, supporting consumer projects that are more disconnected from the broader crypto world but expose users to synthetic economies, wallets and digital goods, an arena well served by crypto-provided games.
Gaming looks like a good consumer beach for crypto and I expect many of these specialized crypto funds to throw significant amounts of funds into studios and platforms that pursue this. There are many significant challenges, including the generally negative user sentiment and gaining platform buy-in – as NFTs are still considered hostile with a high degree of hostility by app stores and gaming platforms.
The world of independent gaming titles with dedicated tokens separated from the more independent corners of crypto can be the easiest place to find new eyeballs. And as on-board customer acquisition costs rise, VCs may be more willing to directly subsidize customers as part of user acquisition, a return to the gig economy days of VCs bribing new users to sign up.
It has been a strange bull cycle for the crypto game. While a lot of money flows into play-to-earn titles and pixelated SNES-quality DeFi-infused games, it is said that nothing comes out that is actually good. Most games are over-indexed on profit and clearcut ponzinomics that juice growth for the most extreme ends without concern for stability. Great games take time to build, and fun games take on a level of user concern that’s hard to optimize when you’re trying to maximize short-term profits on both sides of the deal.
the newest pod
We thought the future had arrived for crypto, but US regulators just made it look cooler. First, the US Department of Justice jailed three people, including a former Coinbase employee, for alleged insider trading in exchange. Then, the Securities and Exchange commission charged with securities fraud, arguing that some of the coins they have traded are, in fact, securities – a designation that comes with a whole host of rules that Coinbase and other exchanges have not had to follow. We share our informal thoughts on how the law can be interpreted and what it means for major crypto exchanges (more on this in the “this week on web3” section below as well).
We also talk about the bitcoin-related situation that might be enough to turn Elon Musk’s booth into a skeptic and video game lover. Minecraft cancels NFTs, at least for the time being. Our guest is David Nage, portfolio manager at digital asset management firm Arca, which has helped us understand the chaos that remains in the markets.
follow the money
Where the startup money is moving in the crypto world:
Decentralized social media platform (DeSo). DSCVRbuilt on the Dfinity Computer Internet ecosystem, snagged $9 million in seed funding led by Polychain Capital.
An unstoppable domainprovider of the popular blockchain naming system and identity platform, raised $65 million in a Series A funding round at a valuation of $1 billion led by Pantera Capital.
Aptos Labsa blockchain project from a former Meta employee, raised $150 million in a Series A round led by FTX.
The blockchain ecosystem Top has raised $15 million in a Series A funding round led by Mercury, Republic Asia and Cryptology Asset Group to help the company track and monetize its social impact initiatives.
Crypto lenders CLST nabbed $5.3 million for a seed round from investors including Coinbase and Kraken.
Solana-based NFT proprietary platform Cardinal announced a $4.4 million seed round led by Protagonist and Solana Ventures.
Web3 gaming company Strong Bear raised $10 million in Framework Ventures’ funding round for Mighty Action Heroes game.
FTX CEO Sam Bankman-Fried led the seed round for Untrustworthy mediaa startup that builds community-owned web3 events.
Cybersecurity 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 ~$12 million in series B funding round from Medici Investment and others.
week on the web3
A weekly window into the minds of web3 journalists Anita Ramaswamy:
After a former Coinbase employee and two of his associates were arrested this week at the behest of the US Department of Justice for allegedly running the crypto exchange, they were hit with securities fraud charges by the SEC. Shortly thereafter, Bloomberg announced that the SEC had investigated Coinbase for potentially allowing securities to be traded on the platform without adequate filings and disclosures.
Interestingly, the SEC’s charges, at least in securities fraud cases, depend on a few niche coins. The chosen token will be told, in some ways, as it is not done. Regardless, Coinbase is pretty upset and says it checks all tokens on its platform before listing them to make sure they aren’t securities.
If Coinbase nails this setting, it will have a ripple effect throughout the industry. Already, other major crypto companies are facing similar charges, including Binance, Ripple Labs and Yuga Labs, either in the form of disgruntled investors filing lawsuits against them hoping to get them into trouble for selling illegal securities or in the form of being investigated by US regulators. , as is the case with Coinbase.
Until we know more about how regulators and legal experts are likely to treat each individual token, it is worth checking what the current securities laws are even and how they can apply to Coinbase. That’s exactly what I did in the latest piece with Alex Wilhelm for TechCrunch +, in which we take a deep dive into the four-part “Howey Test” to try and determine whether the SEC or Coinbase has a strong argument here.
Here’s some crypto analysis this week available on the TC+ subscription service from a senior reporter Jacquelyn Melinek:
Crypto valuations may sink until September as VCs play the waiting game
“Tons of capital have been raised in the crypto industry in recent months, but there is a noticeable pause in deployment. That may change in the coming months. Due to the longer time it takes to close crypto VC transactions, valuations across the industry have decreased. according to David Nageventure capital portfolio manager at Arca.”
Investors focus on DeFi as it remains resistant to the volatility of the crypto market
“As many subsectors in the crypto market continue to take a heavy hit from the recent volatility, some market players see decentralized finance (DeFi) as resistant and gain interest despite the negative macroeconomic environment. Centralized financial institutions are similar to traditional companies, with people running. Instead, the DeFi protocol uses technology — not people — to run services through things like smart contracts.
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