Across the Block from Coinbase Ventures sheds mild on key traits impacting the crypto ecosystem. On this version, the Ventures crew supplies an replace on Coinbase Ventures exercise in 2021-Q3, and key learnings from across the trade.
Coinbase Ventures (or “Ventures”) has grown into probably the most energetic VC traders in crypto by deal depend. In Q3, Ventures made a file 49 investments, averaging a brand new deal each ~1.8 days. That is up from 28 investments made in Q2, and 24 in Q1. As of Q3 2021, the Ventures portfolio dimension stands at over 200+ corporations and tasks.
On a cumulative foundation, 90% of the capital invested by Ventures has been deployed in 2021 YTD, reflecting the accelerated tempo of Coinbase Ventures in its fourth yr of operation. 50% of the brand new distinctive “logos” within the portfolio have additionally are available 2021.
Motivation & philosophy
Coinbase Ventures major mandate is to assist the rising crypto ecosystem. As such, we make investments broadly throughout the house in sturdy entrepreneurs driving crypto ahead. We wish the crypto ecosystem to bloom and aren’t targeted completely on particular outcomes (as is typical with company enterprise capital).
Finally, we see crypto as a rising tide, and progress within the ecosystem lifts all boats — Coinbase included. Conventional strategic advantages, akin to industrial partnerships and potential M&A, are nice, however we view them as icing on the cake.
Coinbase Ventures investments vary from six-figure seed offers to multi-million greenback progress rounds. There are a lot of methods to slice our investments, however on the highest degree we break down the market throughout the next classes: Protocols + Web3 infrastructure, DeFi, CeFi, Platform + Developer Instruments, NFT / Metaverse, and Miscellaneous.
Our present distribution of whole investments by firm is as follows:
Key Themes & Learnings
*Coinbase Ventures portfolio firm
In our most energetic quarter thus far, we noticed heavy improvement throughout centralized finance (CeFi) in the US, Layer-1/Layer-2, cross-chain protocols, in addition to Web3 tooling. Right here’s among the main themes we noticed.
Regulators and centralized gamers waded deeper into the crypto waters
Regulatory our bodies made their presence extra broadly recognized in Q3, because the SEC and Treasury Division within the US, and the Monetary Motion Process Drive (FATF) internationally, all stepped up engagement throughout the crypto ecosystem. This has launched some types of regulatory threat for early stage protocols and groups. On the flip facet, the most important cap asset scored optimistic tailwinds within the type of the BTC Futures ETF approval which we consider will permit latent capital to enter crypto markets, resulting in important volumes, inflows, and curiosity.
Internet 2.0 corporations like Sq., Twitter, Stripe, and Tik Tok additionally expanded their crypto methods in Q3. Square introduced a Bitcoin based mostly platform for monetary companies, Twitter revealed future BTC Lightning and NFT integrations, and Stripe introduced its return to crypto with a brand new devoted crypto crew. Tik Tok introduced a partnership with ImmutableX* to launch a creator-led NFT collection.
In the meantime, banks, fintechs, and dealer sellers moved to additional combine crypto into their product choices, enabled by Coinbase Prime, Coinbase Cloud and different third get together platforms. All in all, the crypto trade made great strides with respect to maturation and institutional adoption over the quarter.
The multichain ecosystem hit its stride
Following years of improvement on options designed to alleviate bottlenecks on Ethereum, scaling is lastly right here with a variety of Layer-1 and Layer-2 ecosystems taking off. The bulk of the present traction is on options leveraging EVM (Ethereum Digital Machine) compatibility, permitting customers and builders emigrate to new environments with comparatively low switching prices. Customers can entry EVM appropriate L1s like Avalanche, or sidechains/L2s like Polygon*/Arbitrum*/Optimism* with their present wallets. Solidity good contracts will also be usually copy + pasted to any EVM appropriate L1/L2, which has led to implementations of in style DeFi purposes throughout a number of chains.
As CeFi exchanges have been sluggish to combine with these new L1s/L2s, we noticed traction throughout newly launched cross-chain bridges. These bridges facilitated the motion of billions in funds from Ethereum to numerous L1s/L2s.
Whereas EVM appropriate purposes written in Solidity noticed essentially the most traction on L1s and L2s in Q3, different ecosystems are bringing extra expressive programmability to the desk. New primitives targeted on extra acquainted programming languages like Rust (Solana, Polkadot), Golang (Cosmos), and Transfer (Fb Diem*, Movement*) might usher in a wave of recent Internet 2.0 builders to the trade.
Higher Web3 UX is on the method
In Q3 we noticed additional improvement of Web3 tooling that may simplify the expertise of Web3 interactions. XMTP* is spearheading a messaging normal throughout Web3 addresses. Spruce* is standardizing “OAuth” (open authorization), which can permit customers to securely share digital credentials, non-public recordsdata, and delicate media with Internet 3 purposes. Snapshot* is making it easy to entry governance boards and selections throughout Dapps.
In the meantime, an amazing quantity of labor is being accomplished to create added safety for Web3 purposes. OpenZeppelin’s decentralization effort, Forta*, is making progress on real-time safety monitoring of good contracts with the aim of offering extra transparency round good contract code execution, detection of bugs, and ultimately, the prevention of hacks in real-time. Equally, Certik* is offering a “fast-and-easy” automated audit instrument to assist Dapps go-to-market extra rapidly.
Concurrently, the DAO tech stack continues to evolve, with the technical and authorized formation of on-chain communities starting to take maintain. Syndicate* (amongst others) goals to be the “AngelList of crypto” by way of the creation of a decentralized investing protocol and social community.
NFT 2.0 & crypto gaming took flight
Q3 additionally noticed a ton of improvement targeted on NFT creator instruments that may in the end broaden the scope of NFT use circumstances and audiences whereas creating new social options.
In the meantime, NFT based mostly gaming continued to speed up led by Axie Infinity, as its play-to-earn mannequin took maintain in rising markets (Philippines, Brazil, India amongst others) attracting 2M DAUs and producing over $2B in income. Loot Challenge additionally captivated the trade by introducing an inverted mannequin for recreation improvement. This was accomplished by first releasing NFT based mostly recreation belongings to the general public with a purpose to bootstrap a group and incentivize additional improvement.
Stayed tuned for extra insights and updates from the Coinbase Ventures crew sooner or later. Additionally try earlier editions of Round The Block that you will have missed:
- The Coinbase Ventures Information to NFTs
- Loot Challenge: the primary group owned NFT gaming platform
- Axie Infinity, Yield Guild Video games & the play-to-earn financial system
Coinbase Ventures 2021-Q3 exercise and takeaways was initially revealed in The Coinbase Weblog on Medium, the place persons are persevering with the dialog by highlighting and responding to this story.