Analysis of the Current Situation of the Encryption Venture Capital Market and Outlook on Hot Projects

In the second quarter of 2023, the cryptocurrency risk investment sector exhibited some interesting trends. Although venture capital firms had claimed that bear markets were their time to shine, the recent entrepreneurial investment activities of large companies have noticeably decreased. Let’s take a look at the entrepreneurial financing situation in the second quarter and see which emerging projects have caught the attention of venture capital.

For ordinary investors, the private equity market is often difficult to access. Many regions require investors to obtain certification qualifications before participating in private equity, which often depends on income and net asset thresholds, or specific professional qualifications.

Nevertheless, the importance of the private equity market to the encryption industry cannot be ignored. Without this alternative market structure, new projects will struggle to secure the necessary startup capital to develop products and bring them to market.

Encryption Venture Capital Financing Status

Venture capital ( VC ) refers to companies and individuals who are active in the private equity market, using their own capital, connections, and industry experience to help startups grow.

The cryptocurrency market experienced a significant downturn in 2022, yet encryption venture capital firms successfully raised $21.6 billion in new funding, setting a historic high. However, despite a strong rebound of assets like Ethereum and Bitcoin in 2023, venture capitalists have struggled to spark further interest from investors in the industry this year. In short, investment amounts so far this year have plummeted, down 98% compared to the same period last year.

For crypto startups seeking financing, it has been another tough quarter. According to data platform statistics, the total financing amount for 382 transactions in the second quarter was $2.34 billion. Notably, this marks the fifth consecutive quarter of decline in venture capital since the first quarter of 2022, when funding injected into crypto startups reached as high as $12.14 billion.

This downward trend suggests that we have not yet reached the bottom of investment in crypto startups in this bear market. This is not surprising, as the industry is facing regulatory headwinds following a crackdown by regulators on certain internet-related assets. Stricter regulations may threaten the economics of "token warrants," which give investors the right to acquire a specific number of tokens at a predetermined price in the future. It is understandable that venture capital firm ( and its limited partners ) are entering the illiquid private sector of the cryptocurrency market more cautiously than in previous years.

June's Hot Financing Projects

Despite the overall cooling of the financing environment this year, venture capitalists still hold a large amount of funds. Although trading activities in the private equity market have significantly slowed down, high-quality encryption projects can still receive ample funding support.

Data shows that there is still a large amount of investable capital in the hands of venture capitalists. Last month, some lesser-known encryption startups announced impressive funding. Here are a few projects I will be closely watching in the coming months:

Mythical Games

Financing Amount: 37 million USD

Industry: Gaming

Introduction: Mythical Games is a full-service Web3 game studio. The studio has developed multiple encryption games and built proprietary encryption products to support these games.

The Mythical platform integrates these games as an encryption layer for the optional Web3 features of each game. It operates on a permissioned authoritative proof chain, supporting fiat and cryptocurrency transactions. Additionally, the platform features fraud protection, fee optimization, and pricing recommendations for buyers and sellers.

Reason for Concern: Mythical Games collaborated with the NFL to develop "NFL Rivals," which was first released on iOS and Android platforms on April 26, quickly reaching the top of the sports game charts. Currently, the game still ranks 11th on the App Store's free sports games chart.

For a native encryption game, this is quite a good market penetration rate, bringing positive prospects for future game releases. The gaming industry only needs a groundbreaking work to completely change the landscape, and Mythical Games is expected to be the developer of this game.

Taiko

Funding Amount: 22 million USD

Industry: L2

Introduction: Taiko is addressing the challenges of Ethereum scaling while trying to mimic Ethereum as much as possible both technically and conceptually.

The Taiko team is building a Type 1 zkEVM Layer 2 rollup solution that is equivalent to Ethereum, prioritizing compatibility with the Ethereum architecture rather than minimizing prover costs. This will allow protocols deployed on L1 to migrate to Taiko without the need to change code or deployment environment.

The development of the protocol follows the principle of "decentralized from the start." For Taiko, this means deploying alongside decentralized proposers and validators, allowing anyone to participate in the infrastructure layer of the chain and earn fees without permission.

Reason for Attention: The ultimate goal of expanding Ethereum is zero-knowledge rollup. Taiko is attempting to develop a zero-knowledge rollup while taking a path less traveled. Being fully equivalent to Ethereum L1 will allow developers to seamlessly deploy Ethereum smart contracts on-chain and means that Taiko can share infrastructure with Ethereum.

Although it is still uncertain whether strict compliance with Ethereum standards is a successful strategy, Taiko is undoubtedly a unique rollup and a counter-trend bet in an environment filled with a trend away from EVM Rollups.

Maverick Protocol

Financing Amount: 9 million USD

Industry: DeFi

Introduction: Maverick is an AMM deployed on Ethereum, zkSync, and BNB Chain, aiming to revolutionize the experience of liquidity provision.

The protocol features four built-in automatic liquidity strategies, referred to as "modes", which can intelligently shift liquidity based on predefined parameters to maintain its activity. Maverick's enhanced positions allow anyone to incentivize specific forms of liquidity, opening new avenues for those looking to rent ETH liquidity and pair it with native tokens held by the treasury.

Maverick concentrates liquidity within bins, and these discrete price ranges are similar to the real-time quotes of certain DEXs, providing zero slippage trading within the bins. This feature makes the DEX highly attractive to large traders and aggregators.

Reason for Attention: Institutional players providing liquidity for volatile asset portfolios face enormous challenges on many exchanges. Traditional AMM models may expose retail LPs to high impermanent loss and inadequate returns.

The concentrated liquidity framework is only profitable for professional market makers, while the capital efficiency of the comprehensive liquidity framework is very low.

By allowing directional price deviations to influence the liquidity provided by users, Maverick is helping retail LPs achieve profitability. In addition, Maverick has just launched the MAV token, which means investors can now gain exposure to the project through the public market.