Even by the standards of cryptocurrencies’ infamous volatility, the past six months have been a breeze. The total value of all cryptocurrencies is estimated at plummeted by about $2 trillion from their peak in November 2021, while the price of bitcoin itself has submerged from a high of nearly $70,000 last November to less than $20,000 as I write this. Meanwhile, according to A countAs many as 2,400 cryptocurrencies have somehow disappeared or “died” since 2011.
However, unlike previous market disruptions, the main reason behind crypto’s current slump is the broader economic downturn, coupled with wildfire inflation — which central banks are fighting by raising interest rates — which is driving investors flocking to more stable assets. In addition, the current crisis has revealed how the crypto market has built a very similar financial infrastructure to the infrastructure that underpinned traditional banking in 2008, although part of the rationale behind decentralized finance (DeFi) was that the removal of would help central banks and governments to avoid systemic meltdowns and contagion.
But despite all the turbulence currently sweeping the space, I remain convinced that Web3’s underlying technology — the umbrella term for the new blockchain-based, decentralized Internet, encompassing cryptocurrencies, non-replaceable tokens (NFTs), and DeFi — is robust. , has an extremely wide range of use cases and will stand the test of time, creating dozens of companies worth more than $1 billion.
With approximately 110 pre-seed investments in Web3/crypto and blockchain-related startups, Techstars is one of the most engaged and active early stage investors in the space. In the past five years, our accelerators have received more than 1,000 applications from Web3-focused founders, with over 300 applications in 2021 alone; 2022 is on a similar trajectory. To date, our Web3 portfolio companies have raised nearly $1 billion in follow-on capital — and that number is just a glimpse of things to come, as we’ve invested in about half of those 110 companies in the past two years or more, meaning they are still at a very early stage.
Shades of the dotcom bubble
The reason Web3 and blockchain in particular hold such promise is that I believe we are currently at an inflection point that broadly resembles the dotcom bubble of the turn of the century, when a frenzy of investment in startups with the internet, leveraging a still emerging technology, promised to usher in a more egalitarian future in which the balance of power would shift from the legacy business and the state to individuals. Of course, that dial-up era collapsed and burned when the early promise didn’t live up to the hype. But out of the carnage emerged revolutionary yet resolutely useful companies such as Amazon, eBay, and Google, as well as, gradually, a viable enterprise and startup ecosystem.
The parallels with Web3 are obvious. The early years of crypto’s wild west — which proponents promised would bypass traditional gatekeepers and central banks to establish a new internet built on blockchain technology — were marked by incessant hype and furious speculation. . Ponzi schemeseven outright fraud. But again, in the wake of crypto’s bursting bubble and market volatility, there is clear evidence that we are entering a new era where there are opportunities for builders to create a people-centric Web3, where businesses have practical, real-world problems for individuals and enterprises.
At Techstars, we currently see three market trends. First, while the turmoil will no doubt cause large numbers of startups in space to fail as they run out of runways and are unable to soar, the crypto crash also has an upside: bluntly, it washes away the foam, the crypto. clones, the Web3 wannabes, and the more gimmicky end of the NFT digital art market.
Second, no longer driven by FOMO, VCs have stopped investing unseen and betting multiple times on companies with Web3 tags. While there are still companies with recently closed, overflowing funds ready to bet, the bar for reducing checks is higher, due diligence takes longer, and extending the runway for existing portfolio companies is often prioritized over new projects.
Promisingly, some of the more traditional VCs are also entering the Web3 battle. Fintech VCs we’ve interacted with before now have collaborators (and partners) covering DeFI, VCs targeting marketplaces look at proposals for creator economics in Web3, and sports and entertainment-focused VCs considering blockchain gaming and esports — all that. indicates that a crossover is in progress.
Third, we see strong and, crucially, accessible propositions being funded, with opportunities for startups leveraging the unique properties of Web3’s underlying technology. One of those companies is TransCrypts—a blockchain-powered platform for business data verification—who graduated from the inaugural 2022 Filecoin Techstars Accelerator Class in Seattle in mid-June. Just days later, the team closed a $1.4 million pre-seed round from investors, including: Mark Cuban and protocol labs. Today, TransCrypts already has more than 100 business users, including some well-known names in technology, retail and aviation.
Likewise, we see a trend towards use cases targeting emerging economies, where cryptocurrencies can serve a more practical purpose. For example, Buchi Okoro founded Quidaxa cryptocurrency exchange, in 2018 as a 25-year-old in Lagos, Nigeria.
Okoro wanted to make it significantly easier for young Africans, many of whom do not have bank accounts, to connect financially with the rest of the world. “Trying to send a payment from point A to B, even in Africa, is a nightmare,” Okoro said. “Never mind trying to send money from Nigeria to the US. Crypto makes it significantly easier to transact internationally.” The company is now over 400,000 customers in 72 countriesand has launched its own token, QDX.
New technologies tend to take two or even three waves to mature. The first wave is usually hype-driven, attracting a nutritional frenzy and ending with a decisive crash. In the second wave, as the foam recedes, the really useful applications emerge.
Since the crypto crash, some have concluded that Web3 is an exhausted force; that is to fundamentally misinterpret the situation. It has become abundantly clear that blockchain technology has countless applications, from carbon marketplaces to personal identity protection, cross-border payments and real estate transaction data (just to name a few). The first wave of Web3 is over. Wave two is underway. This is where things start to get interesting.