Original author: THOR HARTVIGSEN
Original compilation: Luffy, Forsight News
Financing plays an important role in both cryptocurrency and traditional markets, as it is a way for projects to raise early capital by selling equity to private investors and funds. While these opportunities are often inaccessible to the average investor, understanding industry funding is helpful for a number of reasons. For example, when analyzing token economics, knowing whether a project sells tokens to investors through a private placement is important information.
The funding landscape has changed significantly over the past few years as new crypto projects and protocols attract significant amounts of capital. Today’s report will cover the past few years of funding and dive into the details of this year’s funding.
Venture capital and angel investing can be divided into different stages:
Pre-Seed
Seed round
AE wheel
strategic investment
In 2023 alone, 617 projects completed 641 rounds of financing from 1,957 independent investors, with a cumulative financing amount of US$5.58 billion. The most common round was the seed round.
Financing Overview
In the years leading up to the 2021 bull market, most financings were fairly concentrated in terms of the number of independent investors participating in them. As the industry matures, more and more investors are seeking opportunities in this area. In 2021 and early 2022, we saw crypto projects receiving incredible funding due to “one-sided” price performance and low interest rates. It’s clear that this period for cryptocurrencies is over, with cumulative funding amounts in 2023 only slightly higher than in 2019 and 2020.
When it comes to funding, certain companies like a16z, Paradigm, and Jump Crypto have made a name for themselves by actively leading multiple high-profile funding rounds and taking out large amounts of cash from seemingly endless pockets. Most big investments happen when the industry is vibrant.
Which categories received the most funding during this period? As shown in the chart below, DeFi investments accounted for 29% of total financing during this period. Some of the larger DeFi investment cases include Li.Fi, M^ZERO, and Radiant. Additionally, gaming is also a popular category, with the majority of investment occurring in 2021 and 2022. But to this day, it remains one of the most funded areas.
Another popular category for USD venture capital is Layer 1 blockchain. Layer 1 tokens led the bull run in 2021, with some achieving over 100x returns. The chart below shows the 8 largest Layer 1 blockchain financings in 2021-2023, with NEAR, Aptos and Solana at the top. Projects that have recently raised funds include Celestia and Sei, who are also on the list, but these projects have raised much lower amounts compared to blockchain projects launched in the 2021 bull market.
Note that this is not the valuation of these L1 projects, but the dollar amount they have raised from investors.
Financing in 2023
As mentioned in the previous section, the most popular round among investors is the seed round. This can be attributed to high ROI, as solid products with good market fit have proven time and time again that their valuations can reach astronomical levels, enough to convince investors that this is a viable investment strategy.
Times are difficult because market conditions in 2023 are not as good as the previous two years, liquidity is difficult to obtain and investors are unwilling to take additional risks. Most projects receive funding in the $1 million to $10 million range, with only a few mature projects raising $50 million or more.
Which established companies have successfully attracted significant funding this year? As shown below, these include LayerZero, Worldcoin, Scroll, and Eigenlayer, among others. It is worth noting that most of them are blockchain infrastructure, either cross-chain bridges, chains, or privacy protocols.
Despite not making the list of this year’s largest funding rounds, DeFi projects remain the most popular cryptocurrency sector among venture capital and private investors. An example of Binance Labs investing heavily in DeFi, investing in Pendle, Radiant, Helio, etc. this year.
Below, lets take a look at some interesting investments happening in the second half of the year.
L1 financing in the second half of 2023
Sei
Sei is a Layer 1 blockchain based on Cosmos that specializes in optimizing the infrastructure of trading applications through the Twin Turbo consensus mechanism. Sei claims to be able to process up to 20,000 transactions in 0.5 seconds and is focused on enhancing the decentralized exchange (DEX) ecosystem.
About a week ago, Sei received an undisclosed strategic investment from Circle Ventures in an effort to continue expanding USDC’s business on various blockchains. This investment benefits from Sei’s fast transaction processing capabilities and good scalability.
Noble
Noble is a new application-specific blockchain in the Cosmos ecosystem, built for native asset issuance. It is designed to improve the efficiency and interoperability of native assets within the Cosmos ecosystem. Noble’s vision is to become the world’s premier digital asset issuance center, facilitating seamless connections with other blockchains.
Noble raised $3.3 million in a seed round led by Polychain Capital with participation from Circle Ventures, Wintermute and many other investors.
Linera
Linera is a Layer 1 blockchain that uses “microchains” to enhance scalability, which allows lightweight blockchains to run in parallel on a single validator set. This multi-chain infrastructure is designed for scalable Web3 applications to address block space scarcity and deliver predictable performance, security, and responsiveness at scale.
Led by Borderless Capital and with participation from investors including DFG, a16z, and GSR, Linera has raised $6 million in seed funding to set out to create the first low-latency blockchain that will be as easy to implement as Web2 applications Extension.
L2 financing in the second half of 2023
Blast
Blast is a hot topic in the community right now, attracting over $500 million in funding within seven days of launch. Blast successfully raised $20 million with the help of major investors including eGirl Capital, Manifold, Standard Crypto, Paradigm, and Santiago R. Santos. Blast aims to introduce native yields to various assets such as ETH and stablecoins, allowing for automatic compounding while earning additional Blast rewards. Blast plans to distribute all revenue to protocol developers through sequencer fee sharing.
Fhenix
Fhenix is an L2 with fully homomorphic encryption focused on creating a confidential environment for Ethereum-compatible smart contract development.
Fhenix raised $7 million in seed funding from an investment led by Multicoin Capital, Collider Ventures, with participation from Node Capital, Robot Ventures, Tane, Hack VC, Metaplanet and Bankless Ventures. The funding will be used to deploy Rollup, which focuses on encryption and privacy.
Layer N
In an investment led by dao 5 and Founders Fund, Layer N secured $5 million to bootstrap financial applications with speed and scalability on high-performance L2, striving to replicate the efficiency of traditional financial markets while providing CEX Provide decentralized, non-custodial products.
DeFi financing in the second half of 2023
Ekubo Protocol
In a separate Uniswap DAO funding, Ekubo Protocol received funding of 3 million UNI tokens (valued at $18 million) in exchange for 20% of the supply of its upcoming governance token. Ekubo is an AMM DEX designed specifically for the Starknet architecture, placing great emphasis on capital efficiency and third-party developer support.
Definitive
With its non-custodial execution platform and API, Definitive raised $4.1 million in a seed round led by BlockTower Capital earlier this month, with participation from notable investors including Coinbase Ventures, Nascent, and Robot Ventures. Definitives ultimate goal is to enhance the DeFi trading experience by providing trade execution with optimal slippage and advanced yield strategies.
Flashwire
Gate.io Labs, VeChain, CyberX, Legend Trading, Cobo and SuperChain Capital invested $10 million in Flashwire in a Series A round in October. Flashwire is a Singapore-based digital bank with a mission to increase the visibility of financial services by making them more accessible and user-friendly.
in conclusion
Some key takeaways from our research:
Compared with 2021 and 2022, total funding this year has dropped significantly. However, given the recent market uptrend and Bitcoin ETF expectations, this number may increase in 2024.
DeFi is the category with the most financing, and the projects with the largest financing amount are concentrated in L1 and L2 blockchains.
Gaming remains one of the most important bets for cryptocurrency funds.
Seed rounds are the most common funding rounds.
There have been only a few RWA-related funding rounds this year, and we expect this number to grow significantly in 2024.
