Across the Block from Coinbase Ventures sheds mild on key developments in crypto. Written by Connor Dempsey, Ryan Yi & Justin Mart.
2021 was a historic 12 months for each crypto markets and enterprise capital funding. Pushed partially by institutional inflows, Bitcoin soared to new highs to start out the 12 months, all the market adopted go well with nearing a document $3T market cap in November. In the meantime, $30B in enterprise funding poured into the area: greater than all prior years of crypto’s historical past mixed.
2021 was additionally a document 12 months for Coinbase Ventures, with slightly below 150 offers, averaging a brand new deal each 2.5 days. On a cumulative foundation, greater than 90% of the capital Coinbase Ventures has deployed since inception was deployed in 2021, reflecting an accelerated tempo of exercise in our fourth 12 months of operation.
Coinbase Ventures is among the many most energetic company enterprise funds in operation, with the mandate of accelerating financial freedom all over the world by supporting the main entrepreneurs and initiatives within the ecosystem. In the end, we see crypto and Web3 as a rising tide that lifts all boats, Coinbase included, and Coinbase Ventures is devoted to creating investments which are essential to the area’s total development.
On this version of Round The Block, we’ll peer into the long run by means of the lens of Coinbase Ventures’ 2021 exercise. (Find out how Ventures aligns with Coinbase and its clients right here).
Coinbase Enterprise’s portfolio now consists of over 250 firms, and broadly breaks down throughout the next verticals.
Let’s break down the pie, slice by slice.
Protocols & Web3 infrastructure
2021 noticed crypto attain new heights by way of utility, significantly within the nascent “Web3” area, which we typically consider as a trustless, permissionless, and decentralized web that leverages blockchain know-how: basically, the plumbing that underpins all the things from DeFi, NFTs, metaverses, and DAOs. On the backside of the Web3 stack sit Layer 1 protocols, led by Ethereum, however 2021 noticed Web3 start to broaden to different Layer 1s like Solana, Polygon, Avalanche, Terra, Stream, amongst dozens of others.
To assist scale present Layer 1s and allow increased throughput, we supported Layer 2 options together with Matter Labs, Optimism, and Arbitrum. As a number of Layer 1s have proliferated, so has the demand to soundly and simply transfer funds throughout blockchains. As such, Ventures’ was energetic in investing in initiatives working to facilitate this cross-chain motion, together with Biconomy, Movr, LayerZero, Chainflip, and extra. We additionally noticed and funded new protocols working to carry higher privateness to Web3 by means of varied zero-knowledge options (Aleo, MobileCoin, and a 3rd TBA).
We have been additionally energetic throughout the infrastructure layer of the Web3 stack: primitives that type the spine of person purposes. Particularly, applied sciences that introduce requirements to Web3 for knowledge storage (Arweave), messaging (XMTP), and id (Spruce). On condition that 2021 was a nice 12 months for DAOs, we have been energetic throughout infrastructure initiatives centered on enabling DAO creation/incorporation (Syndicate, Utopia), discovery/participation (Snapshot/Consensys’ Metamask), payroll/operations (Diagonal), and coordination (Orca).
Given investments remodeled the 12 months, in 2022 we count on to see Web3 mature throughout a number of Layer 1 and Layer 2 ecosystems with UX that extra intently resembles Web2 purposes. Moreover, we count on to see the continued flourishing of DAOs within the 12 months forward, in addition to higher privateness options for Web3 purposes.
Whereas 2021 hinted at a future the place Web3 exercise takes place throughout a number of Layer 1 and Layer 2 platforms, DeFi exercise already started its migration over the course of the 12 months. A lot of this exercise happened inside EVM suitable chains (Avalanche, Polygon, BSC and so on.) and Layer 2 environments (Arbitrum, Optimism). In the meantime, non-EVM chains (Solana, Terra, Cosmos, Polkadot and so on.) additionally noticed spectacular development.
We’re believers within the multichain future, and though we remained most energetic inside Ethereum’s DeFi ecosystem, we additionally invested throughout Solana (Orca, Solend), Cosmos (Umee), Algorand (People), Polkadot (Acala, Moonbeam), NEAR, Polygon and Bitcoin. The multichain way forward for France seems vivid, with nearly each monetary primitive one may think about in growth.
Whereas DeFi made nice strides in 2021, exploits of those nascent monetary protocols hampered the ecosystem, amounting to over $10B. Higher person safety stays paramount, which is why Coinbase Ventures supported DeFi insurance coverage monetary protocols together with Neptune Mutual, Danger Harbor, Cozy Finance, and Nayms.
In 2022, the good contract wars will rage on as Layer 1s and Layer 2s battle for person and developer mindshare. Hacking dangers will persist however we’ll see elevated maturity in DeFi insurance coverage options. Lastly, it’s shaping as much as be the 12 months we see establishments enter the fray by way of “permissioned DeFi”, full with KYC’d person swimming pools and on-chain attestations.
NFT / Metaverse
2021 was additionally a 12 months that noticed the speedy rise of NFTs and renewed curiosity in “the metaverse.” Initiatives like CryptoPunks and Bored Ape Yacht Membership took NFT gross sales from $200M in 2020 to a staggering $25B in 2021. In the meantime, NFT primarily based recreation Axie Infinity put play-to-earn gaming on the map as folks within the Philippines have been in a position to flip the sport right into a full time job. And elsewhere, Fb’s rebrand to “Meta” catalyzed pleasure across the metaverse.
Largely, NFTs spent 2021 of their “V0” section, with most exercise centered round easy shopping for and promoting on marketplaces like OpenSea and Rarible. 2021 additionally noticed NFTs emerge throughout L1/L2 ecosystems comparable to Stream (MomentRanks, Everlasting GG) and Solana (Magic Eden, Solanalysis).
Ventures has now invested closely within the NFT “utility” section — one by which NFT belongings broaden to new varieties of mediums comparable to audio (Royal, Mint Songs, Sturdy), avatars (Genies, OFF), AR (Anima, Jambo), and gaming/GameFi (Ancient8, GuildFi). This can enable fascinating social options to be layered on prime of the programmatic recognition of NFTs (Gallery).
These NFT and gaming investments can broadly be bucketed with the metaverse, as they inch us nearer to a potential future the place we’ve got a sequence of decentralized, interconnected digital worlds with absolutely functioning economies. In 2022, search for a number of recent gaming titles and purposes, together with these launched by conventional gaming studios. Additionally count on metaverse purposes to broaden from each decentralized initiatives like Decentraland and the Sandbox and incumbent Web2 firms like Microsoft/Activision and Meta.
Platform & Developer Instruments
With out builders, there can be no crypto or Web3 purposes for anybody to make use of. As such, help for the tooling that builders have to make crypto and Web3 thrive is a crucial a part of advancing the ecosystem.
Over the 12 months, we adopted the “developer journey” from staging (Tenderly), collaboration (Radicle), question (Covalent), audit (Certik, OpenZeppelin, Certora) and real-time simulation/monitoring (Chaos Labs, Gauntlet). We additionally invested in developer toolkits like API suppliers (Alchemy, Consensys’ Infura).
We count on the trade’s collective funding made in dev tooling to pay dividends within the years to come back. With the entire builders pouring into Web3 from Web2, they’re sorely wanted.
A lot of the worth that finds its approach into crypto initially does so by means of centralized platforms, and as such, centralized finance (CeFi) stays an energetic class. We imagine that crypto is inherently international and there’s a want for localized platforms that function onramps throughout distinct regulatory, banking, and infrastructure regimes. Because of this in 2021, we have been energetic buyers in crypto monetary service suppliers all over the place from LatAm, Pan-Africa, MENA, South Asia, Europe, and North America.
The 12 months additionally noticed a transfer in direction of conventional automobiles for crypto publicity — IRAs, IAs, ETFs, Trusts, and so on. — punctuated by the approval of the BTC Futures ETF within the US. Coinbase Ventures actively invested in asset managers and brokers together with AltoIRA, Onramp, Valkyrie, ForUsAll, Ledn, and One River Digital. We have been additionally buyers in varied CeFi “picks and shovels”, with follow-on investments in TaxBit and CoinTracker, which automate crypto tax reporting throughout platforms. As well as, we supported initiatives serving to startups combine crypto with conventional fintech choices, together with Paxos, Tribal Credit score, and Meow.
2021 set the stage for extra regulated and compliant methods for institutional and particular person investor capital to achieve crypto publicity by means of centralized exchanges and conventional funding automobiles and fintech platforms in each the US and overseas. We count on this to be an ongoing theme in 2022.
2022 & past
Macro uncertainty has costs falling sharply into the brand new 12 months, however one factor is definite: this isn’t the crypto ecosystem of 2018. Between the most effective performing asset class of the final decade being far more accessible to buyers all over the world, the maturation of the Web3 stack, and an explosion of thrilling new use circumstances throughout DeFi, NFTs, DAOs, gaming, and the metaverse, this trade seems to be hitting escape velocity.
Simply because the increase of 2017 fueled investments that laid the groundwork for the purposes which are thriving immediately, what do you suppose the document $30B funneled into crypto and Web3 in 2021 will yield? The market seems unsure within the close to time period, however the future seems brighter then it’s ever been.