In-depth Exploration of the Dynamics of the Second Quarter Encryption Venture Capital Market

Despite venture capital firms' strong claims that bear markets are their time to shine, the reality shows that even the largest companies have recently significantly scaled back on startup investments. Let’s take a look at the venture financing situation in the second quarter and explore which emerging companies have caught the attention of venture capitalists.

As ordinary investors, we usually only have access to publicly available encryption assets. However, the private placement market for cryptocurrencies remains a closed field for most people. Most jurisdictions require investors to obtain certified qualifications before entering the private placement market. In the United States, this qualification is primarily based on income and net worth thresholds, and certain professional qualifications may also qualify individuals.

Although most investors cannot access the private placement market for encryption, its importance to the entire industry cannot be ignored. Without this alternative market structure, emerging projects will struggle to obtain the initial funding needed for development and promotion.

Let's dive into the private placement market for cryptocurrencies! We will review the sluggish state of cryptocurrency venture capital financing in 2023, analyze the funding data of startups in the second quarter, and look for signs of recovery from last month's top crypto project financing.

Encryption Risk Investment Financing Status

Venture capital (VC) refers to companies and individuals active in the private equity market who leverage their own capital, networks, and industry knowledge to help startups grow.

Despite a significant drop in the cryptocurrency market in 2022, crypto VC firms successfully attracted a record-breaking $21.6 billion in new funding. However, even with assets like Ethereum and Bitcoin experiencing a notable rebound in 2023, venture capitalists have failed to garner much continued interest from investors in investing in the industry this year. In short, the investment amount so far this year has shown a linear downward trend, down 98% compared to last year.

Clearly, it has been a challenging year for crypto venture capital firms seeking financing. So, how about the crypto startups hoping to receive funding support from these venture capitalists?

For encryption startups, this has been another tough quarter. According to data platform statistics, the total amount of 382 transactions was $2.34 billion. Notably, this marks the fifth consecutive quarter of decline in venture capital since the first quarter of 2022, when as much as $12.14 billion was injected into encryption startups.

This continued downward trend indicates that we have not yet reached the bottom of investment in encryption startups during this bear market. This phenomenon is not surprising, as the industry faces regulatory pressure following a crackdown by regulators on certain network-related assets. The proactive actions of regulators may threaten the economics of "token warrants", which give investors the right to acquire a specific number of tokens at a predetermined price on a future date. It is understandable that venture capital firms (and their limited partners) are entering the illiquid private sector of the cryptocurrency market more cautiously than in previous years.

Popular Financing Projects in June

Fortunately, for venture capitalists in the cryptocurrency space, they have not come away empty-handed. Although there has not been a significant increase in funding this year, they still hold a substantial amount of capital. Undoubtedly, the trading environment in the private market has noticeably slowed down, but worthy encryption projects can still attract ample financial support.

Venture capitalists still have a large amount of investable funds, and data confirms this. Some lesser-known encryption startups announced some eye-catching financing news last month.

Here are a few projects worth closely monitoring:

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 created proprietary encryption products to support these games. The Mythical platform integrates these games and serves as an encryption layer for optional Web3 features for each game. It operates on a licensed proof-of-authority chain, supporting fiat and cryptocurrency transactions. Additionally, the platform features fraud protection, fee optimization, and buyer/seller pricing suggestions.

Reasons to Follow: Mythical Games, in collaboration with the NFL and the NFL Players Association, launched "NFL Rivals" on iOS and Android platforms on April 26, quickly reaching the top of the sports charts. Currently, the game still ranks 11th in the App Store's free sports games chart. For a game that is native to encryption, this is quite a good market penetration rate, bringing positive signals for future releases. The gaming industry only needs one groundbreaking title to completely change the landscape. Mythical Games seems to have the opportunity to become the developer of this game.

Taiko

Financing Amount: 22 million USD

Industry: L2

Introduction: Taiko is dedicated to solving the Ethereum scaling issue while mimicking Ethereum as closely as possible from both a technical and conceptual perspective. The Taiko team is building a Type 1 zkEVM Layer 2 rollup solution that is equivalent to Ethereum, prioritizing compatibility with Ethereum's architecture over minimizing prover costs. This will allow protocols deployed on L1 to migrate to Taiko without changing code or deployment environments. The development of the protocol follows the principle of "decentralized from the start," meaning that it is deployed alongside decentralized proposers and provers, allowing anyone to participate in the chain's infrastructure layer and earn fees without permission.

Reasons to Pay Attention: The ultimate goal of expanding Ethereum is zero-knowledge rollups, and 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. While it remains to be seen whether strict adherence to Ethereum standards is a successful strategy, Taiko is undoubtedly a unique rollup and a counter-trend bet in a world filled with deviations from EVM Rollups.

Maverick Protocol

Funding Amount: 9 million USD

Industry: DeFi

Introduction: Maverick is an AMM deployed on Ethereum, zkSync, and BNB chains, aimed at revolutionizing the experience of users providing liquidity. The protocol offers 4 out-of-the-box automated liquidity strategies, referred to as "modes," which can intelligently transfer liquidity to keep it active based on predefined parameters. Maverick's position addition feature allows anyone to incentivize highly specific forms of liquidity, opening up new avenues for protocols seeking to rent ETH liquidity and pair it with native tokens held in the treasury. Maverick concentrates liquidity in bins, with these discrete price ranges resembling the real-time quotes of certain DEXs, providing zero-slippage trading within the bins. This feature makes the DEX an extremely attractive trading venue for large players and aggregators.

Reasons for Attention: In many exchanges, institutions looking to provide liquidity for highly volatile asset portfolios face significant challenges, as traditional AMM methods may subject retail LPs to high impermanent loss, and the returns offered are too low. A concentrated liquidity structure of some DEX can only be profitable for professional market makers. Meanwhile, the capital efficiency of an all-encompassing liquidity structure of another DEX is very low. By allowing directional price deviations to affect the liquidity provided by users, Maverick is helping retail LPs achieve profitability. Additionally, Maverick has just launched the MAV token, which means that if you are willing, you can already gain exposure to this project through the public market.