Even by the standards of cryptocurrency’s notoriously volatile volatility, the past six months have been a self-made journey.The total value of all cryptocurrencies is estimated to be plummet About $2 trillion is down from its November 2021 peak, while the price of Bitcoin itself has plummet From a high of nearly $70,000 last November to under $20,000 as I write.At the same time, according to a notea staggering 2,400 cryptocurrencies have somehow disappeared or “died” since 2011.
However, unlike the earlier market rout, the cryptocurrency’s current malaise is largely due to a broader recession, coupled with wildfire inflation — which central banks are responding to by raising interest rates — causing investors to flock to more stable assets. Furthermore, the current crisis has exposed how the crypto market can build a financial infrastructure very similar to the one underpinning traditional banking in 2008, although part of the rationale behind decentralized finance (DeFi) is that divesting central banks and governments would help Prevent systemic collapse and contagion.
However, despite all the current turmoil sweeping the space, I remain a firm believer in the underlying technology of Web3 — the umbrella term for a new decentralized internet based on blockchain, including cryptocurrencies, non-fungible tokens (NFTs) and DeFi — — is robust, has an extremely broad range of use cases, and will stand the test of time, creating multi-billion dollar companies in the process.
Techstars has made around 110 pre-seed investments in Web3/crypto and blockchain related startups and is one of the most engaged and active early stage investors in the space. Over the past five years, our accelerator has received over 1,000 applications from Web3-focused founders, with over 300 applications in 2021 alone; 2022 is on a similar trajectory. Our Web3 portfolio companies have raised nearly $1 billion in follow-on capital to date – this figure is only a glimpse into the future, as we have invested in roughly half of these 110 companies in the past two years or more , which means they are still in a very early stage.
Shadow of the Internet Bubble
The reason Web3 and blockchain in particular hold this promise is that I believe we are currently at an inflection point, broadly similar to the dot-com bubble at the turn of the century, when a frenzy of investment in internet startups, leveraging still-emerging technologies, promised to Usher in a more egalitarian future in which the balance of power will shift from traditional corporations and states to individuals. Of course, that dial-up era fell apart when early promises failed to live up to the hype. In the midst of this carnage, however, revolutionary but absolutely useful companies like Amazon, eBay, and Google emerged, and gradually formed a viable venture capital and startup ecosystem.
The similarities with Web3 are obvious. The early, wild west crypto era — where proponents promised to bypass traditional gatekeepers and central banks to bring about a new internet based on blockchain technology — was marked by constant hype and intense speculation, Ponzi schemeeven outright fraudOnce again, however, with cryptocurrencies busted and markets volatile, there are clear signs that we are entering a new era where builders have the opportunity to create a human-centric Web3 and companies are solving real, real problems – individuals and businesses world problems.
At Techstars, we are now seeing three market trends. First, while this turmoil will no doubt cause a slew of startups in the space to fail, there are benefits to a crypto crash if they run off the track and fail to raise capital: frankly, it’s flushing the bubble, crypto clones, Web3’s Followers, and a fancier end to the NFT digital art market.
Second, no longer driven by FOMO, VCs have stopped investing in the unseen and making multiple bets on companies marked with Web3. While there are still some companies that have recently closed with sufficient capital ready to deploy, the bar for cutting inspections is higher, due diligence takes longer, and expanding runway for existing portfolio companies often takes precedence over new projects.
Hopefully, some more traditional VCs are also joining the Web3 race. For example, the fintech VCs we’ve approached before now have partners (and partners) in charge of DeFI, market-focused VCs are working on creator economic propositions in Web3, and sports and entertainment-focused VCs are Consider blockchain gaming and eSports – all of which suggest a crossover is taking place.
Third, we see strong, vital, and accessible proposals continue to receive funding, opening up opportunities for startups that leverage the unique properties of Web3’s underlying technology. TransCrypts is one such company –Blockchain-driven enterprise data verification platform——Graduated from inauguration 2022 Filecoin Techstars Accelerator Course Mid-June in Seattle.A few days later, the team closed a $1.4 million pre-seed round from investors, which included Mark Cuban and Protocol LabsToday, TransCrypts has more than 100 corporate users, including some household names in tech, retail and aviation.
Likewise, we are seeing a trend of use cases targeting developing economies, where cryptocurrencies can serve more practical purposes.For example, Buchi Okoro founded Quettaxa cryptocurrency exchange, in Lagos, Nigeria in 2018 at age 25.
Okoro wants to make it easier for young Africans, a large percentage of whom are unbanked, to connect financially with the rest of the world. “Even in Africa, trying to pay from point A to point B is a nightmare,” Okoro said. “It’s okay to try sending money from Nigeria to the US, it makes international transactions much easier.” The company is now closed 400,000 customers in 72 countriesand launched its own token, QDX.
New technologies often require two or even three waves to reach maturity. The first wave is usually hype-driven, creates a frenzy, and ends in a decisive crash. In the second wave, as the bubble subsided, truly useful applications emerged.
Since the cryptocurrency crash, some have concluded that Web3 is a waste of power; that’s a fundamental misreading of the situation. Clearly, there are countless applications for blockchain technology, from carbon markets to personal identity protection, cross-border payments and real estate transaction recording (to name a few). The first wave of Web3 is over. A second wave is underway. This is where things start to get interesting.