Coinbase Ventures 2021-Q3 Events and Highlights | Via Coinbase | October 2021

Around the block Research from Coinbase Ventures reveals key trends affecting the crypto ecosystem. In this issue, the Ventures team provided the latest information on Coinbase Ventures activities in the third quarter of 2021, as well as important experience from the entire industry.

Calculated by the number of transactions, Coinbase Ventures (or “Ventures”) has grown into one of the most active venture capital investors in the crypto space. In the third quarter, Ventures made a record 49 investments, with an average of one new transaction every 1.8 days. This is an increase from 28 investments in the second quarter and 24 investments in the first quarter. As of the third quarter of 2021, Ventures has more than 200 companies and projects in its portfolio.

Since the beginning of 2021, Ventures has invested a total of 90% of its capital, reflecting the accelerated pace of operations of Coinbase Ventures in the fourth year. 50% of the new unique “marks” in the product portfolio will also be launched in 2021.

The main mission of Coinbase Ventures is to support the evolving crypto ecosystem. Therefore, we invest extensively in the entire field in powerful entrepreneurs who are pushing the development of encryption technology forward. We want the crypto ecosystem to flourish and not just focus on specific results (this is a typical corporate venture capital).

Ultimately, we see encryption as an upward wave, and the development of the ecosystem drives all developments-including Coinbase. Traditional strategic interests, such as business partnerships and potential mergers and acquisitions, are great, but we think they are the icing on the cake.

Coinbase Ventures’ investments range from six-figure seed transactions to multi-million dollar growth rounds. There are many ways to divide our investment, but at the highest level, we segment the market into the following categories: Protocol + Web3 infrastructure, DeFi, CeFi, platform + developer tools, NFT / Metaverse and others.

Our current total investment distribution by company is as follows:

*Coinbase Ventures portfolio company

In our most active quarter to date, we have seen a great deal of development in U.S. Centralized Finance (CeFi), Layer-1/Layer-2, cross-chain protocols, and Web3 tools. Here are some of the main themes we observed.

Regulators became more widely known in the third quarter, because the US SEC and Treasury Department and the International Financial Action Task Force (FATF) have strengthened the participation of the entire crypto ecosystem. This creates some form of regulatory risk for early agreements and teams. On the other hand, the largest market capitalization asset received a positive tailwind in the form of BTC futures ETF approval, which we believe will allow potential capital to enter the crypto market, leading to a large amount of trading volume, inflows and interest.

Web 2.0 companies such as Square, Twitter, Stripe, and Tik Tok also expanded their encryption strategies in the third quarter. square Announced a Bitcoin-based financial services platform, Twitter Revealed the future of BTC Lightning and NFT integration, with stripe Announcing the return of encryption through a new dedicated encryption team. Tik Tok announced that Immutable X* Start one Creator-led NFT collection.

At the same time, banks, fintech companies and brokers began to further integrate cryptocurrencies into their products, thanks to Coinbase Prime, Coinbase cloud And other third-party platforms. All in all, the crypto industry has made tremendous progress in terms of maturity and institutional adoption this quarter.

After years of developing solutions aimed at alleviating the bottleneck of Ethereum, with the rise of a series of layer 1 and layer 2 ecosystems, expansion has finally appeared. The current main attraction lies in the use of EVM (Ethereum Virtual Machine) compatible solutions that allow users and developers to migrate to the new environment at relatively low switching costs. Users can use their existing wallets to access EVM-compatible L1, such as Avalanche, or sidechain/L2, such as Polygon*/Arbitrum*/Optimism*. Solidity smart contracts can usually also be copied and pasted to any EVM-compatible L1/L2, which has led to the implementation of popular DeFi applications across multiple chains.

Due to the slow integration of CeFi Exchange with these new L1/L2, we have seen the newly launched Cross-chain bridgeThese bridges have facilitated the transfer of billions of funds from Ethereum to various L1/L2.

Although EVM-compatible applications written in Solidity in the third quarter were the most attractive on L1s and L2s, other ecosystems are bringing more expressive programmability to the desktop. New primitives focusing on more familiar programming languages ​​such as Rust (Solana, Polkadot), Golang (Cosmos), and Move (Facebook Diem*, Flow*) may bring a new wave of Web 2.0 developers to the industry.

In the third quarter, we see that further development of Web3 tools will simplify the Web3 interactive experience. XMTP* Leading the messaging standard across Web3 addresses. Spruce* “OAuth” (Open Authorization) is being standardized, which will allow users to securely share digital credentials, private files, and sensitive media with Web 3 applications. Snapshot* Make it easy to access governance forums and decision-making across Dapps.

At the same time, a lot of work is being done to create additional security for Web3 applications. OpenZeppelin’s decentralization efforts, strength* Progress is being made in the real-time security monitoring of smart contracts. The goal is to provide more transparency in smart contract code execution, error detection, and ultimately real-time prevention of hacker attacks. Similarly, Certificate* A “quick and easy” automated audit tool is being provided to help Dapps get to market faster.

At the same time, the DAO technology stack continues to develop, and the technology and legal formation of the on-chain community begins to gain the upper hand. syndicate*(Among others) aims to become a “crypto angel list” by creating decentralized investment protocols and social networks.

The third quarter also saw a lot of development focused on NFT creator tools, which will eventually expand Scope of NFT use cases And the audience, while creating new social features.

At the same time, under the leadership of Axie Infinity, NFT-based games continue to accelerate development because of their Earn while playing mode Occupying a place in emerging markets (Philippines, Brazil, India, etc.), attracted 2 million DAU and generated more than 2 billion US dollars in revenue. Loot items It also attracted the entire industry by introducing the inverted model of game development. This is done by first releasing NFT-based game assets to the public to guide the community and encourage further development.

Please stay tuned for more insights and updates from the Coinbase Ventures team in the future. Please also check out previous versions of “Around The Block” that you may have missed:

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