Venture capital is not entirely dried up for crypto projects, but it is becoming more selective. VC funding continued to target projects in July, with varied sources including VC firms, but also accelerators and ecosystem funds.
VC funding for top projects ranges between estimates of $400M for the biggest rounds, to a total of over $1B for all inflows to smaller projects. Various forms of backing and fundraising are growing, while token-based financing and new asset sales are still slow.
Some of the leading financing rounds go as high as $50M, though the most usual backing is under $5M. BlockMining was among the top VC stories in July, raising more than $90M.
There is no single methodology to measure funding, as some of the inflows are tied to the crypto reserves of leading platforms and count as community development, rather than VC rounds.
At the same time, leaders like Pantera Capital continue to pick out prominent projects, driving the liquidity mostly for Web3 products. Some of the teams selected by Pantera Capital funding raised additional rounds in July.
VC funding is retaining relatively stable levels, despite the criticism of creating imbalances in crypto trading. The 2024 bull market managed to absorb some of the selling coming from unlocked VC tokens.
đź’§ Top Funding Rounds in July@BlockMiningInc @sentient_agi @PartiorOfficial @b3dotfun @AlliumLabs @Lombard_Finance
👉 https://t.co/4g8pWcd9sP pic.twitter.com/YsHwrxE3ol
— DropsTab (@Dropstab_com) July 31, 2024
VC returned to mining investments
The most prominent categories for VC inflows included infrastructure, decentralized finance and blockchain services. Infrastructure projects gained 11 rounds for a total of $149M for the past month. For the whole of Q2, infrastructure projects drew in 46 funding rounds, totaling $664.8M.
VC funding also propped up the DeFi industry, becoming a source of liquidity and a fund for incentives. In the past 12 months, DeFi projects received more than $880M in a total of 178 funding rounds. The more developed infrastructure and available liquidity meant VC-backed projects could release a product faster compared to earlier large-scale ICOs that took years to start building.
The first half of 2024 is not comparable to a crypto winter, though the larger inflows happen only for projects that have shown some success. Among the biggest VC deals in H2 was the $200M investment in Bitstamp, valuing the exchange at $2B.
In Q2, social projects also expanded, with 22 funding rounds and inflows of $220.4B. Crypto social media projects are related to the boom in meme tokens, aiming to create communities for improved liquidity.
Inflows also targeted tokenless projects, the most high-profile among them Pichi Finance with $25M raised by 12 backers. Tokenless projects have a different fundraising profile, with low presence on X as the main crypto social media. However, platforms like MetaDAO and Morpho were singled out by funds. In the case of Morpho, the funding also lined up among top inflows, raising $500M.
The most high-profile fundraising on social media was that of Pudgy Penguins, one of the most prominent NFT brands. Pudgy Penguins raised $110M from four backers, including 1kX, Fenbushi Capital and Everest Ventures.
Bitcoin lags in crypto VC funding
The recent positive performance in VC funding correlates with the performance of Bitcoin (BTC). But when it comes to direct investment, Bitcoin’s network only receives funding for mining operations. The other source of funding is for direct buying, as in the case of MicroStrategy. The firm may raise another $2B for outright buying and holding BTC.
Other projects built on top of the Bitcoin chain are relatively small community experiments, with limited fundraising potential. For now, venture capital has skipped scalable solutions for Bitcoin, and has focused more on Ethereum and Solana, as well as L2 chains. While venture capital helped build Optimism and Arbitrum, no similar L2 exists for Bitcoin. Rough estimates see 60% of VC funding flow into Ethereum-compatible projects, with 15-20% for the Solana ecosystem.
The tide may start turning soon, as there are a handful of scalable solutions for L2. The latest Bitcoin conference has drawn more interest to potential L2, and some of the available VC investors already reported new proposals.
Additionally, Bitcoin already has up to 85 L2 solutions, and some may become eligible for venture funding, following the model of Ethereum.
Cryptopolitan reporting by Hristina Vasileva