Will venture capitalists survive this downturn?

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Welcome back to Chain reaction.

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Last week we saw Musk holding on to the Doge. This week we are talking about where all this crypto-currency venture money might go.

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maybe it’s all a game?

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Weekly Newsletter from TechCrunch Crypto Editor’s Desk Lucas Matney:

The reality is that the dreams of web3 investors and founders are facing a bit of a snag – a crypto downturn usually means less hype, less conversation between friends, and generally less seamless consumer adoption of the consumer experience. It’s far from ideal for VCs who have seen the dream of a consumer web within reach, but fortunately they have deep pockets thanks to recently raised megafunds with cryptocurrency stakes as their only focus.

However, this is a tough time for the mainstream consumer crypto audience, however, the recent helpers have failed and many have probably become frustrated with spending more time, money or effort on new web3 projects. The question is how to make this venture capital work in a bearish cycle; it will take a period of reduced attention to dump into infrastructure and picks and shovels toolkits. Others may become insular, supporting consumer projects that are even more disconnected from the wider worlds of crypto, but open up users to synthetic economies, wallets, and digital goods, an arena especially well served by crypto games.

Games seem like a great consumer springboard for crypto, and I expect many of these specialized crypto funds to invest a significant amount of their funds in the studios and platforms that do it. There are many significant issues, including a generally negative user attitude and gaining support for the platform, given that app stores and gaming platforms continue to view NFTs with a high degree of hostility.

The standalone worlds of gaming titles with dedicated tokens separated from the more self-referential corners of crypto may be the easiest place to find new eyeballs. And as the cost of customer acquisition across the board rises, VCs may be more inclined to subsidize customers directly in terms of user acquisition, going back to the days of the gig economy when VCs bribed new users to sign up.

It has been a strange bullish cycle for crypto gaming. While a lot of money has flowed into SNES-quality DeFi-infused games and pixelated games, it’s fair to say that there hasn’t been anything really good. Most games overestimate profitability and clear ponzinomics that promote growth to the most extreme limits without caring about stability. Great games take time to make, and fun games require a level of user attention that is hard to optimize when you’re trying to maximize short-term profits on both sides of a trade.

last pod

We thought winter had already arrived for crypto, but US regulators have made it much colder. First, the US Department of Justice. arrested three people, including a former Coinbase employee, for alleged insider trading for an exchange. Then the Securities and Exchange Commission accused them of securities fraud, claiming that some of the coins they traded were in fact securities, a designation that comes with a whole host of rules that Coinbase and other exchanges didn’t necessarily follow. We shared our informal thoughts on how the laws might be interpreted and what this could mean for major crypto exchanges (more on that in my This Week on web3 section below).

We also talked about the bitcoin situation, which may finally be enough to turn Elon Musk fans into naysayers and their favorite video game. Minecraft cancels NFTs, at least for now. Our guest was David Nage, portfolio manager at digital asset management company Arca. who helped us make sense of the ongoing chaos in the markets.

Subscribe to Chain Reaction Apple, Spotify or your alternative podcast platform to keep up with us every week.

keep track of money

Where is startup money moving in the crypto world:

  1. Decentralized Social Media Platform (DeSo) DSKVRbuilt on top of the Dfinity Internet computing ecosystem, has raised $9 million in seed funding led by Polychain Capital.
  2. Unstoppable Domainsa popular provider of blockchain naming systems and an identity platform, has raised $65 million in a Series A funding round in a $1 billion valuation led by Pantera Capital.
  3. Aptos Labsa blockchain project from former Meta employees raised $150 million in a Series A round led by FTX.
  4. Blockchain Ecosystem fuel 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.
  5. Crypto lender CLST raised $5.3 million for its seed round from investors including Coinbase and Kraken.
  6. Solana based NFT ownership platform Cardinal announced a $4.4 million seed fundraiser led by Protagonist and Solana Ventures.
  7. Game Company Web3 mighty bear received $10 million in a funding round led by Framework Ventures for its game Mighty Action Heroes.
  8. FTX CEO Sam Bankman-Fried Leads Seed Round Unreliable mediaa startup that is dedicated to creating community-owned web shows.
  9. Blockchain cybersecurity protocol Naoris raised $11.5 million in an equity and token-based funding round from investors including Draper Associates.
  10. South Korean company Metaverse Anipen secured an investment of approximately $12 million in the current Series B funding round from Medici Investment and others.

week in web3

Weekly window in web3 reporter’s thought Anita Ramaswami:

After a former Coinbase employee and two of his assistants were arrested this week by the US Department of Justice for alleged participation in a crypto exchange, the SEC has charged them with securities fraud. Shortly thereafter, Bloomberg reported that the SEC was already investigating Coinbase for potential permission to trade securities on its platform without proper registration and disclosure.

Interestingly, the SEC charges, at least in the securities fraud case, were based on a few nice niche coins. The token they chose says as much in some ways as the ones they didn’t. Despite this, Coinbase is very upset and says it checked all the tokens on its platform before listing them to make sure they are not securities.

If Coinbase falls into this lawsuit, the entire industry will be affected. Other major crypto companies are already facing similar allegations, including Binance, Ripple Labs, and Yuga Labs, either as disgruntled investors filing lawsuits against them hoping to get them into trouble for selling securities illegally, or as a regulatory investigation. USA. , as is the case with Coinbase.

Until we know more about how regulators and lawyers will treat each individual token, it’s worth looking into current securities laws and how they might apply to Coinbase. That’s exactly what I did in my latest article with Alex Wilhelm for TechCrunch+, in which we took a deep dive into the four-part “Howey Test” to try and determine who the SEC or Coinbase has the stronger argument.

TC+ analysis

Here are some of this week’s cryptanalysis available on our TC+ subscription service from a senior reporter. Jacqueline Melinek:

Cryptocurrency valuations could fall before September as VCs bide their time

“Tons of capital have been raised in the crypto industry in recent months, but there is a noticeable pause in the rollout. This may change in the coming months. As cryptocurrency venture deals take longer to close, valuations in the industry have fallen, according to the data. David Nageventure capital portfolio manager Arch“.

Investors are focusing on DeFi as it remains resilient to cryptocurrency market volatility

“As many sub-sectors of the crypto market continue to be hit hard by the recent volatility, some market participants see decentralized finance (DeFi) as resilient and exciting despite the negative macro environment. Centralized financial institutions are like traditional firms where people manage their operations and manage their funds. In contrast, DeFi protocols use technology, not humans, to perform services through things like smart contracts.”

Thanks for reading! And, again, to get this in your inbox every Thursday, you can subscribe to TechCrunch newsletter page.

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