2022 Crypto Industry Investing and Funding Report: Hot Sectors and Investment Trends in light of Capital Flows
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Author: Flowie、Zeng Xiang，ChainCatcher
From the perspective of investing and funding in 2022, infrastructure (including Layer1, Layer2, developer platforms, wallets, middleware and other sub-sectors), NFT, Web3 social entertainment, and on-chain data analytics are the more popular areas that are likely to continue to be hot in 2023.
Contents:
I. Crypto market overview in 2022
II. Crypto venture capital fundraising in 2022
III.Project fundraising in 2022
- Analysis of the number and amount of funding for each sector
- Top 10 projects in terms of annual funding amount
IV. Active investors in 2022
- Investment Institutions
- Individual Investors
V. Conclusion
I. Crypto market overview in 2022
“Crypto winter” is a keyword for 2022, where the chill can be felt at each level.
At the macro level, the global inflation, the tightened monetary policy by central banks, coupled with aggressive interest rate hikes by the Federal Reserve have led to repercussions in almost all asset classes: stock markets, currency markets, and treasuries around the world have fallen sharply; the 2-year/10-year U.S. treasury yield inversion continues to reach record highs; the tech-heavy NASDAQ index has tumbled.
Crowed with spectaculars, the crypto industry is more leveraged than the traditional ones, and thus has witnessed a more volatile deleveraging process in the context of tightening global capital.
First, the secondary market plunge shows that crypto market has entered a deep bear market. Approximately $2 trillion of crypto market were erased from its highs reached in November 2021, and by the end of 2022, the total crypto market cap has fallen below $1 trillion. Cryptocurrency prices as a whole dropped significantly in 2022, with bitcoin price plummeting by more than 60%.
The total supply of stablecoins, the cornerstone of the crypto industry, peaked at $161.5 billion in March 2022, but has since seen massive redemptions of over $14.3 billion.
In the DeFi field, DeFi’s TVL fell nearly 75% from $171 billion in January 2022 to a low of $50 billion in October 2022, according to Defillama data. DeFi’s TVL has also seen two significant declines with a series of events such as Terra depeg, which exacerbated the bear market situation.
In the NFT field, NFT trading remains at a low ebb as the market continues to cool. The ultra-high trading volumes in May 2022 were primarily due to the FOMO caused by issuance of otherdeed by otherside. Throughout 2022, the total market capitalization of NFT fell from approximately $35 billion to $21 billion, with a decline of over 40%.
Second, the crypto market has seen more negative risk events in 2022 against the backdrop of a long bear secondary market. We have witnessed several crypto giants fall like dominoes: Terra, Three Arrows Capital, Voyager Digital, Celsius, FTX, BlockFi … and right now, the list is going on.
The overall downturn of macro environment, the deep bear secondary market and many black swan events have dealt a blow to consumer sentiment. The Luna crash in mid-2022 also has become an important “watershed” for the investment and funding market. In the first half of this year, the overall VC market continued and even surpassed the performance in the bull market of 2021, but the second half of the year took a sharp turn for the worse, with the pace of both institutional fundraising and the investment and funding market slowing down, and this decline may continue to the first half of 2023.
How is the pace of investment in the crypto investment market in 2022, and where is the money going? According to crypto data platform Rootdata and other data, ChainCatcher has compiled the crypto market fundraising data, overall investment and funding data, distribution of investment and funding sectors and the most active investors in 2022 to review the overview of the crypto investment and funding market in 2022.
II. Crypto venture capital fundraising in 2022
In terms of fundraising, the strong performance of the crypto market in 2021 has attracted a flood of money into this field in early 2022 and the crypto venture capital market has seen a significant increase in fundraising in the first two quarters. 54 fundraisings have been made in the first quarter of 2022, up 500% from 2021, and the total fundraising was $11.723 billion, up 2245% year-over-year. The second quarter of 2022 saw 96 fundraisings, up 500% year-over-year, with a total fundraising of $24.193 billion, up 635.12% year-over-year.
However, the bear market compounded by series of investment failures such as Luna and Three Arrows Capital in the middle of the year made the performance of investment institutions questioned, and the strong fundraising momentum soon weakened. The number of fundraisers and total fundraising amount in the third quarter of 2022 saw a precipitous decline, with the number of fundraisers down 54.16% and the total fundraising amount down 25.43% compared to the second quarter.
Towards the end of 2022, the FTX black swan event emerged and hundreds of millions of dollars of investments by top funds investing in crypto, such as Sequoia Capital, Paradigm, Temasek, Multicoin, evaporated, and the reputation of crypto investors was severely damaged, with little upstream capital allocated to the crypto market. The total amount raised was $150 million.
However, overall, despite the market gloom, investment institutions still made some progress in 2022. 195 fundraisings were completed in 2022, up 87.5% year-over-year, with a total fundraising size of $54.105 billion, up 186% year-over-year.
From the perspective of specific investment and funding data, with the sharp retraction of crypto market and the impact of multiple institution failures, the investment pace of crypto investment and funding market shows a gradual slowdown from the first half to the second half of the year, and it is estimated that the investors will take a more cautious position in 2023.
III. Project Fundraising in 2022
This report counts 1,528 investment and funding events in 2022 in 9 categories: DeFi, CeFi, Infrastructure, Gaming, NFT, Social Entertainment, DAO, Tools & Information Services, and Other.
In 2022, according to open data, the crypto industry has seen funding of $26.77 billion and 1528 funding rounds down 4.5% and up 28%, respectively from 2021. There were 57 M&A events in the year, of which 10 announced acquisitions for a total of $1.64 billion.
In Q1 of 2022, the crypto investment and funding market maintained its record of over $10 billion investment and funding in a single quarter since Q4 2021 with $11.686 billion in total funding and 405 funding events. For five consecutive months, the amount and number of funding have been higher than or at least equal to the last month, ushering in an unprecedented golden age for crypto investment.
However, following that is the Fed’s continuous interest rate hikes and the Luna crash and other frequent institution failures, the crypto investment market began to take a sharp turn for the worse starting from Q2 2022. The total amount of funding in Q2, Q3 and Q4 2022 were $7.204 billion, $4.558 billion and $3.346 billion respectively, and the number of funding was 358, 329 and 254 respectively. Both the total amount and the number of institutional bids have started to decrease significantly.
From the breakdown of investment and funding rounds, we can see that the distribution of funding rounds for crypto projects is basically similar to that of 2020 and 2021, still concentrated in the early stages of angel round, pre-seed round and seed round. This is most obvious in the fields of games, NFT and DeFi, accounting for 68%, 65% and 63% of all early funded projects early. This hints that the industry is evolving for development.
What are the main sectors receiving crypto VC funds in 2022? And what are the changes compared to 2021?
In terms of the distribution of investment and funding areas, the top three areas in terms of the number of funding in 2022 are infrastructure (252), gaming (213) and DeFi (193), accounting for 16.49%, 13.94% and 12.63% of the total funding respectively; the top three sectors in terms of total funding amount are infrastructure ($7.565 billion), CeFi ($5.68 billion), and NFT ($3.456 billion), accounting for 28.20%, 21.22%, and 12.92% of the total funding size, respectively.
Compared to 2021, the total amount of funding and the total number of investment and funding events in each sector in 2022 showed higher growth, with most growing by more than 50%. Areas where the number and amount of funding are on the rise are infrastructure, NFT, social entertainment, and tools & information services, with the number of funding events up 19.4%, 68.2%, 134.2%, and 125%, respectively, and the amount of funding up 82.3%, 181.32%, 265.2%, and 78.5%, respectively, year-over-year.
In addition, there were 63 funding events in 2022 that raised more than $100 million in a single round, with several projects securing large sums of hundreds of millions of dollars through consecutive funding rounds. Among them, Animoca Brands raised a cumulative $544 million in three funding rounds, Amber raised a cumulative $500 million in two funding rounds, NEAR Protocol raised a cumulative $500 million in two funding rounds, Aptos raised four consecutive funding rounds and a cumulative $350 million in two funding rounds with disclosed funding amounts, and Sui raised a cumulative Sui raised $315 million in two funding rounds.
Infrastructure is the most popular choice for top funds, including Layer1, Layer2, developer platform, wallet, middleware and other sub-sectors), of which there are 19 funding events over $100 million, mainly concentrated in the public chains and scaling. In addition to Polygon, which raised $450 million at the beginning of the last round of new public chain narrative, many newcomers in this sector have completed significant fundraising, including Aptos raising a total of $350 million in two rounds, Sui raising $200 million, zkSync raising $200 million.
NFT, which burst onto the scene in 2021, remained strong in a sluggish 2022. 12 events in the NFT field completed over $100 million in funding, and they were mainly focused on mid- to late-stage major projects, with typical funded projects such as Animoca Brands ($544 million in three rounds), Yuga Labs ($450 million), Opensea ($350 million), Dapper Labs ($305 million.)
And the social entertainment and tools & information services fields have risen sharply in both the number and the amount of funding. Social entertainment (has been regarded as one of the content entrances for Web3 to break through user growth. In 2022 “decentralized social” “Web3 social network”, “Web3 music” and other social entertainment content are major hot topics, and new concepts such as soul binding have emerged. With Elon Musk’s high-profile acquisition of Twitter, the buzz about Web3 social has been pushed to the forefront again. But since the field is still relatively early in development with the direction not clear and no high-growth platform, most of such projects are invested in (a total of 56) seed rounds with fewer funds. Typical funding events include decentralized social protocol Farcaster which completed a16z-led funding of $30 million.
In the tools & information services sector, the main focus of investments was in the seed round, with a total of 53 projects. The sector of crypto data & analysis is the most active, with 36 funding rounds, accounting for 36.73% of the total number of funding rounds in this field, among which projects with over $100 million in funding include Chainalysis ($170 million), a blockchain data analysis company, and Lukka ($110 million), a crypto asset software company. In addition, with a number of major projects collapsed one after another this year, the platform or solutions for tools such as taxation and accounting related to crypto projects have also attracted a wave of first-tier investment, and well-known institutions such as Tiger Global and Sequoia Capital have made investments in these fields.
In the CeFi, DAO and gaming sectors, the number of funding rounds rose slightly, but the amount of funding fell sharply, by 54.2%, 17.2% and 46%, respectively, year-on-year.
In the CeFi field, before Luna, Celsius and other accidents in the middle of the year, CeFi major players represented by FTX, Amber and others were in the limelight, completing a number of large funding rounds of over 100 million. At the same time, in the third quarter the momentum basically subsided, with the number of funding rounds and the amount of funding falling sharply. Moreover, with the collapse of FTX, many associated CeFi institutions were rumored to be in crisis, and CeFi funding remained relatively low in the fourth quarter. The CeFi channel is relatively mature, with 38 projects in early stage and 33 projects invested in Series A round, showing a relatively balanced ratio.
Although CeFi is hit hard, Uniswap, dYdX and other DeFi major protocols worked well in various collapse events, and the market generally believed that DeFi has attracted a new wave of opportunities. However, there were no major innovative protocols in the DeFi in 2022, and there was no new round of funding fever in the primary market. The only project that completed over $100 million in fundraising was Uniswap, which completed $165 million in funding in October 2022.
Compared with the steady development of NFT, blockchain games, which also shot to fame in 2021, have significantly weakened momentum in 2022. Major projects Axie and STEPN have suffered serious setbacks and are highly questioned and there are no new game projects similar to such phenomenal games as Axie and STEPN. Although there is a slight investment fervor around projects of 3A blockchain games, NFT games, meta-verse and other concepts, it is obvious that investment institutions are more cautious in placing bets on this field judging from the significant drop in total funding amount.
DAO, which was considered the next hot topic after NFT in 2021, has not only failed to explode as expected in 2022, but also barely made any progress, both in terms of market discussion, substantive progress of projects, and the performance of primary market investment and funding.
1. Detailed funding data for each sub-sector
Infrastructure
The infrastructure sector includes Layer1, Layer2, developer platforms, wallets, middleware and many other areas. 252 investment and funding events took place in the infrastructure sector in 2022, raising a total of $7.55 billion in funding, ranking first in scale across all sectors. The number of funding events increased by 19.4% year-on-year, and the total amount of funds increased by 82.3% year-on-year. In terms of funding rounds, there were 115 early-stage and 48 Series A investment projects in infrastructure filed in 2022.
DeFi
DeFi sectors include DEX, lending, asset management, income generators, stablecoins. The DeFi field saw 193 investment and funding events in 2022, raising $1.65 billion in total. DeFi investments were primarily at the seed stage, with 110 investments.
CeFi
The CeFi field ranked second across all sectors with 128 investment and funding events in 2022, raising a total of $5.68 billion. Funding events increased 7.6% year-over-year and total funding increased -54.2% year-over-year.
NFT
The NFT field saw 180 investment and funding events in 2022, raising $3.46 billion in capital. This represents a 68.2% year-over-year increase in funding events and a 181.3% year-over-year increase in total funding. From 2021 to the present, the NFT sector has been on the rise in terms of total funding and number of events in each quarter. 100 NFT investments were mainly in the seed round.
Gaming
There were 213 investment and funding events in the gaming sector in 2022, raising $1.61 billion in total. This represents an 80.5% year-over-year increase in funding events and a -46.0% year-over-year increase in total funding. The main focus of investment in the gaming sector was in seed rounds, with 113 projects in total.
DAO
The DAO sector saw 35 investment and funding events in 2022, raising $270 million in total, up 25% year-over-year and -17.2% in total funding.
Social Entertainment
The social entertainment sector saw 89 investment and funding events in 2022, raising a total of $840 million. This represents a 134.2% year-over-year increase in funding events and a 265.2% year-over-year increase in total funding. The majority of investments in social entertainment were in seed rounds, with 56 investments.
Tools & Information Services
Tools & Information Services 2022 saw 90 investment and funding events, raising a total of $1.16 billion in funding across all sectors. The number of funding events increased 125% year-on-year, and the total amount of funds increased 78.5% year-on-year. Tools & Information Services investment projects are mainly concentrated in the seed round stage, with 53 projects.
Other
The Other sector had 164 investment and funding events in 2022, raising $4.43 billion in total and ranking third among all sectors in terms of funding size. The number of funding events increased 51.9% year-over-year, and the total amount of funding increased 2.5% year-over-year. The majority of investments were in seed rounds, with 61 projects.
2. Top 10 funded projects in 2022
The 10 projects with the highest single funding rounds in 2022 in the crypto field are public chain Terra ($1 billion), digital asset custody platform Fireblocks ($550 million), Ethereum infrastructure development company ConsenSys ($450 million), BAYC developer Yuga Labs ($450 million), Ethereum scaling project Polygon ($450 million), crypto exchange FTX ($400 million), crypto exchange FTX US ($400 million), Web3 gaming software company and venture capital firm Animoca Brands ($358 million), green mining company Crusoe Energy ($350 million), public chain NEAR Protocol ( $350 million), Flow openers Dapper Labs ($305 million).
However, among the top 10 funded projects, Terra, FTX, and FTX US all experienced a crash this year which caused a huge impact on the entire crypto market. This has exposed the large bubble and risk created by the last round of the bull market.
IV. Active investors in 2022
For major funds with sufficient capital, it is perhaps a better time to invest in the crypto market under the bear market as the high market value full of bubbles is gradually returning to a normal level and project valuation is returning to rationality compare to a bull market where the FOMO sentiment pushed people to rush in this field.
Looking at the number of investments to see how active the investment houses are, the top 10 investment establishments in 2022 are Coinbase Ventures, Animoca Brands, Shima Capital, GSR, Spartan Group, Dragonfly, Solana Ventures, Alameda Research, a16z, and Jump Crypto.
Among them, institutions with more than 100 investments are Coinbase Ventures (119), (118). Animoca Brands (Coinbase Ventures has significantly accelerated its investment pace in 2022, with a cumulative total of 259 investments from 2018 to date, and 119 investments throughout 2022, accounting for almost half of the total number of investments. In terms of investment distribution, Coinbase Ventures mainly focused on infrastructure and DeFi sectors, with 30% and 24% of investments respectively. In terms of the amount of individual funding, the only projects it has participated in this year that exceeded the $100 million level are Yuga Labs ($200 million), Sui ($300 million), Aptos and Layer Zero ($135 million), and Gnosis Safe ($100 million).
With 118 investments in 2022, games have always been at the heart of Animoca Brands’ investment landscape, accounting for more than 60% of all its investments this year in terms of volume, with six of the projects raising more than $100 million, namely Yuga Labs ($450 million), Polygon ($450 million), soccer media platform OneFootball ($300 million), Web3 game provider Immutable ($200 million), cricket NFT platform Rario ($120 million), and cross-chain infrastructure LayerZero ($135 million).
Institutions making over 50 investments is Shima Capital (88), GSR (76), Spartan Group (63), Dragonfly (61), Alameda Research (59), Solana Ventures (59), a16z (56), Jump Crypto (55).
Among them, a16z, a top-tier venture capital firm with large assets, has a relatively balanced distribution of investment areas, with the number of investments in each area not varying greatly, mainly in infrastructure, NFT and gaming. In terms of investment stage, a16z prefers mature crypto startups, with a total of 57 investments in 2022, including 18 projects with more than $100 million, such as Yuga Labs, Aptos, Sui, LayerZero and Helium, a centralized wireless hotspot network, accounting for nearly 30% of the total number of investments, far exceeding Coinbase Ventures and Animoca Brands, and many of the large investments are in public chains and scaling sectors.
Shima Capital, a crypto-native fund second only to Coinbase Ventures and Animoca Brands in terms of number of investments, was founded in 2021 with 86 investments, focusing primarily on early-stage projects. It participated in nearly 80% of the year’s funding projects under $10 million in 2022, with no investments over $100 million. No investments were made in projects with funding over $100 million.
GSR, a crypto market maker established in 2013, has made 76 investments, mostly in early to mid-stage projects, and nearly 64% of its investments in 2022 were in projects with less than $10 million in funding, with two projects with more than $100 million in funding, including Gnosis Safe ($100 million) and Terra ($1 billion in post-IPO funding), which crashed in 2022. .
Spartan Group, a crypto-native fund founded in 2018, invested mainly in DeFi, infrastructure and gaming on early stages. Nearly 64% of its 2o22 investment was made in projects with funding under $10 million. The only project with more than $100 million funding it participated in was Polygon ($450 million).
Dragonfly, a crypto-native fund founded in 2018, invested mainly in DeFi, infrastructure and CeFi. In terms of the investment stage. The projects with more than $100 million funding it was involved in 2022 were zkSync / Matter Labs, an Ethereum scaling solution ($200 million), NEAR Protocol (two rounds of funding, $350 billion / $100 million), and Polygon ($450 million, for three projects).
Solana Ventures, which invested mainly in the Solana ecosystem, invested mainly in the DeFi and gaming sectors in early stages. 73% of its invested projects had funding less than $10 million
Projects with over $100 million in funding invested by Jump Crypto were Sui ($300 million ), Aptos ($150 million), and crypto exchange Kucoin ($150 million).
In general, major funds prefer to inject capital into infrastructure, DeFi, and gaming field, especially the public chain and scaling sector.
In addition to investment institutions, individual investors also played an important part in the crypto industry’s primary market. Angel investors with more than 10 investments in 2022 include Balaji Srinivasan (44), Sandeep Nailwal (37), Sebastien Borget (14), Santiago Roel Santos (14), Jaynti Kanani (14), Stani Kulechov (11), and Ryan Selkis (11). Jaynti Kanani (14), Stani Kulechov (11), Ryan Selkis (11).
The most active angel investor was Balaji Srinivasan with 44 investments. Balaji Srinivasan was the CTO of Coinbase and General Partner of A16z, an early investor in many successful tech companies and crypto protocols, including Alchemy, Ava Labs, Bitcoin, Cameo, Chainlink, Clubhouse. Balaji Srinivasan has started several companies, including Earn.com, Counsyl, and Teleport, which were acquired by Coinbase, Myriad, and Topia, respectively, as well as being the creator of the concept of “cybernation”.
In 2022, Balaji Srinivasan invested mainly in the field of tools & information services, infrastructure, DAO, with 5 investment projects completing $20 million in funding, namely modular blockchain Celestia ($50 million), Web3 data index Nxyz ($40 million), decentralized Social Farcaster ($30 million), decentralized trading platform Hashflow ($26 million).
Polygon co-founder Sandeep Nailwal is the second most active individual investor after Balaji Srinivasa, with 37 investments in 2022, mainly in the infrastructure and NFT field, where projects with more than $20 million in funding included interoperability protocol LayerZero ($135 million), African Web3 super app Jambo ($30 million), and crypto banking and payment company Zamp ($20 million).
V. Conclusion
Overall, the market bubbles created by the 2021 bull market burst in 2022, and many mainstream crypto investors have paid their price due to the bankruptcies of crypto giants. Thus the pace of investment and funding in the crypto market is rapidly slowing down, and capital will favor “new infrastructure” in crypto with long-term value.
From the perspective of investment and funding in 2022, infrastructure (including Layer1, Layer2, developer platform, wallet, middleware, and other sub-sectors), NFT, Web3 social entertainment, and data analytics are the more popular areas, and will probably continue to be hot in 2023.
It is worth noting that industries related to bitcoin payment technology and lightning networks are gaining traction in 2022, and while the amount of funding is much less than projects such as infrastructure and NFT, it is still worth keeping an eye on in 2023.
So how are other establishments predicting trends for 2023?
As usual, analysis and venture capital institutions such as a16z, Messari, and Pantera have made their own predictions on investment trends in 2023. Among them, a16z mentions that areas such as blockchain’s mobile, multi-party computing, and ZK technology-related projects and development will receive continuous attention. Messari expects crypto infrastructure in 2023 to continue to be as hot as it was in 2022, and in addition, security audit companies will continue to receive funding due to the high number of on-chain security incidents in 2022, and Messari’s bearish area is the overhyped GameFi.
Messari founder Ryan Selkis himself prefers decentralized social (DeSoc). Paul Veradittakit, the partner at Pantera Capital, mentions ZKtechnology, and on-chain data analytics in his predictions. Changpeng Zhao also mentions that infrastructure and data tools will continue to evolve and those non-custodial and multi-chain wallets will rise.
