Is it the right time to start a position? Cryptocurrency investment and financing were bleak in the first half of 2023, but a dark horse investor emerged unexpectedly.

Recently, there has been shocking news from the Sequoia Capital venture capital team, with two cryptocurrency investors resigning. These two investors had invested in the collapsed cryptocurrency exchange FTX, causing Sequoia Capital to lose $214 million. The turmoil at Sequoia Capital also indirectly reflects the situation of blockchain market investment and financing in the first half of this year. According to data from the first half of the year, the overall investment and financing situation was very bleak, with the financing amount decreasing by nearly half compared to the previous period.

However, there is good news as well. The turbulent market is also considered the best time for investment. In the first half of this year, the VC circle saw a “dark horse” emerge – DWF Labs, which made a total of 32 investments in the first half of the year, far exceeding other investment institutions. They also claimed on their official website that they invest in an average of 5 projects every month regardless of market conditions.

On the other hand, in the first half of this year, the cryptocurrency secondary market emerged from the shadow of last year’s deep bear market. The price of Bitcoin rose from a low of 16,477.6 USDT to a high of 31,550 USDT, with a maximum increase of over 90%. This upward trend brought some relief to investors. Perhaps with the secondary market coming out of the bear market, the investment and financing situation in the primary market will improve in the second half of the year.

1. Bleak overall situation, financing amount decreased by nearly half

Let’s first take a look at the overall investment and financing situation in the market over the past six months. Since the collapse of LUNA and FTX last year, the global cryptocurrency market has entered a deep bear market. Whether it’s Bitcoin or NFT, whether it’s the primary market or the secondary market, it can be described as a scene of desolation. From the data, we can see that both the financing amount and the number of financing events have experienced a significant decline compared to the second half of last year, with the financing amount declining by 46.1%, nearly half.

2. Investment amount and quantity are declining, infrastructure remains the hottest track

Looking at the trend, both the investment quantity and amount have been declining for five consecutive quarters since the first quarter of last year. At present, institutions remain cautious about investment, and there is still no sign of the “investment and financing bear market” reaching its bottom.

Source: ROOTDATA

From the perspective of track classification, infrastructure is still the most popular among institutional investors, ranking first in both financing amount and frequency among all tracks. However, when comparing the average financing amount per transaction, CeFi has the highest average financing amount. It seems that although CeFi has fewer financing rounds, each round is able to raise a considerable amount.

Source: ROOTDATA

If we look at it from a vertical perspective, the financing amounts of all tracks are showing a downward trend.

Source: ROOTDATA

Unit: 100 million USD. Source: ROOTDATA

The number of financings has rebounded slightly this year, but there is still a large gap from the previous peak.

Source: ROOTDATA

Financing frequency of each track. Source: ROOTDATA

From the perspective of projects, the top ten projects in terms of financing scale are Blockstream (infrastructure), LayerZero (infrastructure), Worldcoin (digital currency), Ledger (infrastructure), Auradine (infrastructure), Chain Reaction (infrastructure), Taurus (infrastructure), Salt Lending (CeFi), Unchained Capital (CeFi), and EOS (infrastructure).

Source: ROOTDATA

Surprisingly, among the top ten funded projects, the infrastructure track occupies 7 seats, CeFi occupies 2 seats, and digital currency occupies 1 seat. It seems that infrastructure deserves to be the most favored track for investors. The prosperity of Web3 applications requires strong and robust infrastructure as a guarantee. In periods of uncertain industry development prospects, investing in “shovels” is often the optimal choice.

III. Market Surprises with “Dark Horse” Investors, Investing in 32 Projects in Six Months

According to our incomplete statistics, the institution with the highest number of investments in the first half of this year is DWF Labs, with a total of 32 investments, making it a “dark horse” in the VC circle this year.

Investor investment frequency. Source: ROOTDATA

DWF Labs is not a traditional giant, but an emerging investment institution established in 2022. DWF Labs is a Web3 venture capital and market maker, providing market making, secondary market investments, early-stage investments, over-the-counter (OTC) trading services, token listing, and consulting services for Web3 companies.

DWF Labs’ investment philosophy is somewhat aggressive, with its official website stating that they invest in an average of 5 projects per month regardless of market conditions. Andrei Grachev, Managing Partner of DWF Labs, stated in an interview that the current volatile market is the best time to enter the investment field, and they have accumulated enough funds from profits to invest in projects. In most cases, DWF Labs invests in projects by directly purchasing tokens.

In addition, DWF Labs is part of Digital Wave Finance (DWF), one of the world’s top cryptocurrency traders, trading spot and derivatives on over 40 top exchanges. Perhaps the strong background is also an important source of confidence for this “newcomer” to take aggressive action in a bear market.

It is worth noting that the famous investment institution a16z did not appear in the top ten ranking. In the first half of 2023, a16z made a total of 14 investments, significantly less than the 25 investments in the second half of last year. The decrease in the number of investments by a16z may also reflect another aspect of the bear market in the entire cryptocurrency market.

Now let’s take a look at the “investment preferences” of some famous investment institutions:

Investment map of HashKey Capital. Source: ROOTDATA

HashKey is particularly fond of infrastructure, accounting for over one-third of all investment projects, at 34%. The second and third places are DeFi (17.6%) and CeFi (9.4%) respectively.

Investment map of Coinbase Ventures. Source: ROOTDATA

Coinbase Ventures also prefers to invest in infrastructure (29.4%), but compared to HashKey, the investments are more evenly distributed, with DeFi (24.9%) as the second highest and CeFi (11.6%) as the third highest.

Investment map of Circle Ventures. Source: ROOTDATA

Circle Ventures prefers to invest in DeFi and infrastructure, with both accounting for 30.6%. The third place is CeFi (13.3%).

Investment map of a16z. Source: ROOTDATA

Unlike the preferences of the previous three institutions, a16z’s investment preferences are more unique. Unlike the previous three institutions’ preferences for infrastructure, DeFi, and CeFi, a16z’s second and third highest investments are in gaming and NFT. a16z’s investments are also more evenly distributed. In addition to dominating the infrastructure (28.3%), the proportions of Games (13.3%), NFT (11.8%), DeFi (11.8%), and Social & Entertainment (11%) are similar.

IV. Top Ten Most Popular Projects

In the first half of this year, the top ten projects with the highest financing amounts are as follows:

1. Blockstream

Blockstream is a leading blockchain development company founded in 2014. Blockstream’s core focus is to develop new infrastructure for traditional financial systems, with key development centered around Bitcoin sidechains and other blockchain-related applications. Their flagship technologies include their own implemented Lighting protocol and Elements Project, which is a blockchain platform that supports open-source sidechains. Blockstream has launched many products such as Liquid (a Bitcoin-based inter-exchange settlement network), Blockstream Green (a secure Bitcoin wallet), and other products that provide real-time and historical cryptocurrency trading data, as well as hosting services for Bitcoin mining operations.

The investors include Blockchain Capital, Ethereal Ventures, and other well-known investment parties.

2. LayerZero

LayerZero is an interoperability protocol designed for lightweight cross-chain messaging. LayerZero provides trusted and secure message delivery with configurable decentralization.

The investors include Coinbase Ventures, Circle Ventures, Binance Labs, a16zCrypto, and FTX Ventures. It seems that many top institutions have high expectations for this project.

3. Worldcoin

Worldcoin is a new global cryptocurrency designed to become the largest and most inclusive cryptocurrency network by providing Worldcoin free to everyone. Worldcoin has built a device called Orb, which captures an individual’s eye image and converts it into a short digital code to check if the person has registered. If not, they will receive a free share of Worldcoin. The original image does not need to be stored or uploaded.

The investors include Coinbase Ventures, a16z Crypto, Blockchain Capital, etc.

4. Ledger

Ledger is a cryptocurrency hardware wallet company that develops secure infrastructure solutions and blockchain applications for individuals and companies using unique proprietary technology.

The investors include Blockchain Capital, etc.

5. Auradine

Auradine is dedicated to developing breakthrough solutions for the future of internet infrastructure, supported by revolutionary blockchain, security, zero-knowledge, and artificial intelligence technologies.

The investors include DCVC, Mayfield, etc.

6. Chain Reaction

Chain Reaction is designing the future of disruptive blockchain and privacy technologies by accelerating computational performance. The company collaborates with cloud service providers and data centers to optimize energy-efficient, high-performance computing through custom ASICs and system-transforming infrastructure. Its 3PU™ (Privacy Protection Processing Unit) greatly accelerates real-time operations on encrypted data for privacy-enhancing technologies, transforming the cloud into a trusted environment, enabling vertical industries relying on privacy big data to utilize the cloud (including financial institutions, healthcare and pharmaceuticals, defense and government, and oil and gas).

The investors include Morgan Creek Digital, Hanaco Ventures, etc.

7. Taurus

Taurus provides enterprise-grade infrastructure for issuing, custody, and trading any digital assets, including staking, tokenized assets, and cryptocurrencies. Taurus also operates a regulated private assets and tokenized securities market.

The investors include Tezos, Credit Suisse, etc.

8. Salt Lending

SALT lending offers personal and business loans to members who use blockchain assets as collateral.

9. QuickNode

Unchained Capital is a Bitcoin-native financial services company that provides collaborative custody, trading desk, Bitcoin-backed loans, and Bitcoin retirement accounts.

Investors include Valor Equity LianGuairtners, NYDIG, etc.

10. EOS

The EOS public blockchain is built on the open-source software framework EOSIO, allowing developers to create decentralized applications for the real world.

Investors include DWF Labs, etc.

Conclusion

Looking at the overall primary market investment and financing situation, off-market investors lack confidence in the entire crypto circle, and both the amount and quantity of investment and financing have declined significantly compared to previous years. But even in such a poor market, there are still aggressive players like DWF Labs who “bottom fish” vigorously, which truly embodies the investment concept of “others fear, I greed”.

R3PO believes that it is not advisable to be too pessimistic about the bleak primary market situation, because the secondary market has already begun to gradually emerge from the shadow of a bear market. Generally speaking, the investment situation of the primary and secondary markets will not deviate from each other for a long time, and the profit effect of the secondary market will inevitably be transmitted to the primary market. Therefore, even in a deep bear market, one should remain sensitive to the investment and financing situation. Tracking the projects and tracks that investors favor may be the ignition point for a new round of crypto bull market.

Is it the right time to start a position? Cryptocurrency investment and financing were bleak in the first half of 2023, but a dark horse investor emerged unexpectedly.