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Coinbase Ventures 2021-Q3 exercise and takeaways

10/29/2021

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 one of the crucial lively VC buyers in crypto by deal rely. In Q3, Ventures made a document 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 measurement stands at over 200+ firms 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 in 2021.

Motivation & philosophy

Coinbase Ventures main mandate is to assist the rising crypto ecosystem. As such, we make investments broadly throughout the area 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 development within the ecosystem lifts all boats — Coinbase included. Conventional strategic advantages, comparable to business partnerships and potential M&A, are nice, however we view them as icing on the cake.

Funding Classes

Coinbase Ventures investments vary from six-figure seed offers to multi-million greenback development rounds. There are various methods to slice our investments, however on the highest stage 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 lively quarter up to now, we noticed heavy growth throughout centralized finance (CeFi) in the US, Layer-1/Layer-2, cross-chain protocols, in addition to Web3 tooling. Right here’s a number of the main themes we noticed.

Regulators and centralized gamers waded deeper into the crypto waters

Regulatory our bodies made their presence extra extensively recognized in Q3, because the SEC and Treasury Division within the US, and the Monetary Motion Job Drive (FATF) internationally, all stepped up engagement throughout the crypto ecosystem. This has launched some types of regulatory danger for early stage protocols and groups. On the flip facet, the biggest cap asset scored constructive tailwinds within the type of the BTC Futures ETF approval which we imagine will enable latent capital to enter crypto markets, resulting in important volumes, inflows, and curiosity.

Net 2.0 firms like Sq., Twitter, Stripe, and Tik Tok additionally expanded their crypto methods in Q3. Sq. 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 assortment.

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 growth on options designed to alleviate bottlenecks on Ethereum, scaling is lastly right here with a spread 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 suitable L1s like Avalanche, or sidechains/L2s like Polygon*/Arbitrum*/Optimism* with their present wallets. Solidity sensible contracts will also be usually copy + pasted to any EVM suitable L1/L2, which has led to implementations of common DeFi functions 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 suitable functions 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*, Move*) could usher in a wave of recent Net 2.0 builders to the trade.

Higher Web3 UX is on the manner

In Q3 we noticed additional growth of Web3 tooling that can simplify the expertise of Web3 interactions. XMTP* is spearheading a messaging commonplace throughout Web3 addresses. Spruce* is standardizing “OAuth” (open authorization), which can enable customers to securely share digital credentials, personal information, and delicate media with Net 3 functions. Snapshot* is making it easy to entry governance boards and selections throughout Dapps.

In the meantime, an incredible quantity of labor is being completed to create added safety for Web3 functions. OpenZeppelin’s decentralization effort, Forta*, is making progress on real-time safety monitoring of sensible contracts with the aim of offering extra transparency round sensible 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 device 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 means of the creation of a decentralized investing protocol and social community.

NFT 2.0 & crypto gaming took flight

Q3 additionally noticed a ton of growth targeted on NFT creator instruments that can 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 Undertaking additionally captivated the trade by introducing an inverted mannequin for sport growth. This was completed by first releasing NFT based mostly sport property to the general public with a purpose to bootstrap a neighborhood and incentivize additional growth.

Keep tuned

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 could have missed:

  • The Coinbase Ventures Information to NFTs
  • Loot Undertaking: the primary neighborhood owned NFT gaming platform
  • Axie Infinity, Yield Guild Video games & the play-to-earn economic system

Coinbase Ventures 2021-Q3 exercise and takeaways was initially printed in The Coinbase Weblog on Medium, the place persons are persevering with the dialog by highlighting and responding to this story.