Liquidity is tightening, strong regulation is coming, do crypto venture capitalists still care about cryptocurrencies?

We took a deep dive into Q2 crypto VC funding and came up with some particularly interesting deals. While VCs are swearing that a bear market will be their time to shine, it's clear that even the largest companies have recently There wasn't as much venture capital investment either. In today's newsletter, we take a look at startup funding in Q2 and see which hot startups are catching the attention of VCs (and the bets we're watching most closely!) - Team Bankless

If you're a regular Bankless reader, we hope you've bought public crypto assets at some point! However, what is out of reach of the general public is the private placement market for cryptocurrencies.

Many jurisdictions require investors to be accredited before investing in private markets. In the United States, accredited investor status is largely based on income and net worth thresholds, and individuals with certain professional qualifications may also qualify.

While the private placement market for cryptocurrencies is inaccessible to most investors, its importance to the industry cannot be overstated. Without this alternative market structure, nascent projects will have a hard time obtaining the start-up capital they need to develop and bring a functional product or service to market!

Today, we're going to delve into the private placement market for cryptocurrencies! We'll take a look back at the dismal state of crypto venture capital funding in 2023, look at Q2 startup funding numbers, and look for signs of life from last month's top crypto project funding rounds.

🧐Crypto venture capital financing status

Venture capital, or VC, is a term used to describe companies (and individuals) active in the private equity markets who use their capital, relationships and industry knowledge to help startups succeed.

Cryptocurrencies plummeted in 2022, but crypto venture capital firms still managed to attract a record $21.6 billion in new funding. While assets like ethereum and bitcoin recover sharply in 2023, venture capitalists haven't found much interest from investors to invest further in the industry this year. In short, investment volumes have plummeted so far this year, down 98% from last year.

Source: Fortune Crypto

While the above chart only includes data through mid-May, it has clearly been a hostile year for crypto venture capital firms looking to raise capital. But what about the crypto startups looking to raise money from these VCs?

It was another tough quarter for crypto startups, with 382 deals worth $2.34 billion, according to TechCrunch (citing data from Pitchbook). Notably, this is the fifth consecutive quarterly decline in venture capital investment since the first quarter of 2022, when a whopping $12.14 billion was pumped into crypto startups.

The fact that this decline suggests we're still not at the bottom of this bear market for crypto startup investing isn't surprising given the SEC's slap on some web-related assets launched by venture-backed startups. Post-offensive, verticals face regulatory headwinds. Regulators’ frenzy could threaten the economics of “token warrants,” which entitle investors to receive a specific amount of tokens at a predetermined price at a future date. VCs (and their LPs) are understandably entering the illiquid private sector of the cryptocurrency market more cautiously than in years past!

🔥Popular financing projects in June

Thankfully, all is not lost for cryptocurrency venture capitalists, who are still sitting on a ton of money despite not having dramatically increased their funds this year. There is no doubt that the trading environment in the private market has slowed down considerably, but crypto projects worthy of raising funds are still able to obtain ample funds.

VCs still have a ton of money to invest, and the data bears it out. A crypto startup you’ve probably never heard of announced some jaw-dropping funding rounds last month!

Source: Alt Asset Allocation

Click above to view all recently announced financings. Below, I'll share some projects from the list above that I'll be keeping an eye on in the coming months: 👇👇👇

🎮Mythical Games

Website | Twitter

Amount: $37 million

Industry: Gaming

Introduction:

Mythical Games is a full-service Web3 game studio. The studio has produced several crypto games and developed proprietary crypto products to serve them.

The Mythical platform integrates these games and acts as an encryption layer for the optional Web3 functionality that each game must provide. It is an exchange for fiat and cryptocurrency transactions running on a permissioned Proof-of-Authority chain. Additionally, the Mythical platform features fraud protection, fee optimization, and buy-side/seller pricing recommendations.

Why we care:

Developed by Mythical Game in cooperation with the NFL and the NFL Players Association, "NFL Rivals" first landed on iOS and Android platforms on April 26, and quickly climbed to the top of the sports charts! Today, the game remains at No. 11 on the App Store's free sports games chart.

From a crypto-native game, this is solid market penetration and very encouraging prospects for future releases. It only takes one groundbreaking game to revolutionize the gaming world. It seems that Mythical Game has a chance to become the developer of this game.

Taiko

Website | Twitter

Amount: $22 million

**Industry:**L2

Introduction:

Taiko is taking on the challenge of scaling Ethereum while mimicking it as closely as possible from a technical and ideological standpoint.

The Taiko team is building a Type 1 zkEVM Layer 2 rollup solution comparable to Ethereum, prioritizing compatibility with the Ethereum architecture rather than minimizing prover costs, which will allow protocols deployed to L1 to migrate to Taiko, while No changes to its code or deployment environment are required.

The development of the guiding protocol is a "decentralized from day one" approach. For Taiko, this means deploying with decentralized proposers and provers, allowing anyone to participate permissionlessly in the infrastructure layer of the chain and earn fees.

Why we care:

The ultimate goal of scaling Ethereum is zero-knowledge rollup, and Taiko is trying to develop a zero-knowledge rollup while taking a road that few people have traveled! Full peering with Ethereum L1 will allow developers to seamlessly deploy Ethereum smart contracts on-chain, and means Taiko can share infrastructure with Ethereum.

While not sure if strict adherence to Ethereum's standards is a winning strategy - only time and the market will tell - Taiko is a very unique rollup and contrarian bet in a world full of rollups away from EVM.

🌊Maverick Protocol

Website | Twitter

**Amount:**9 million US dollars

**Industry:**DeFi

Introduction:

Maverick is an AMM deployed on the Ethereum, zkSync and BNB chains that tries to revolutionize your experience when providing liquidity.

The protocol comes with 4 out-of-the-box automated liquidity strategies called “modes” that intelligently transfer liquidity, keeping it active according to certain predefined parameters. Maverick’s incremental position allows anyone to incentivize a highly specific form of liquidity, opening the door for protocols looking to rent ETH liquidity and pair it with treasury’s holdings of native tokens.

Maverick concentrates liquidity in bins, the discrete price range is similar to Uniswap V3's real-time quotes, and provides zero-slippage transactions in bins. This feature makes DEXs extremely attractive trading venues for whales and aggregators, as found in Delphi Digital’s analysis of Maverick.

Why we care:

Institutions seeking to provide liquidity to volatile portfolios face extreme difficulty on many exchanges, as traditional AMM approaches can expose retail LPs to highly impermanent losses and offer too little return.

A centralized liquidity architecture like Uniswap V3 is only profitable for professional market makers. At the same time, the capital efficiency of a full-scale liquidity architecture like Uniswap V2 is very low.

By allowing directional price bias to affect the way users provide liquidity, Maverick is helping retail LPing become profitable. Also, Maverick just launched the MAV token, which means there is already a way to get exposure to this project through the open market if you want!