Even by the standards of cryptocurrencies’ notorious volatility, the last six months have been a bumpy ride. All cryptocurrencies are estimated to have a total value collapsed About $2 trillion from the November 2021 peak, and the price of bitcoin itself sunk From a high of around $70,000 in November of last year, it has fallen below $20,000 as I wrote. Meanwhile, according to a numberSince 2011, a staggering 2,400 cryptocurrencies have disappeared or “died” in one way or another.
Unlike previous market failures, the cryptocurrency’s current rout is largely driven by a broader economic downturn and inflation, which has been combated by central banks raising interest rates, causing investors to flock to more stable assets. Furthermore, the current crisis has exposed how the cryptocurrency market has built a financial infrastructure very similar to the one that underpinned traditional banking in 2008, although part of the basis of decentralized finance (DeFi) is that abolishing central banks and governments will help prevent systemic collapses. was contagion.
Despite all the turmoil currently engulfing the space, I am convinced that the underlying technology of Web3 is an umbrella term for a new blockchain-based, decentralized internet, including cryptocurrencies, non-fungible tokens (NFTs) and DeFi. robust, has extremely broad use cases and will stand the test of time, creating over $1 billion companies in the process.
With close to 110 investments in web3/crypto and blockchain related startups, Techstars is one of the most engaged and active early stage investors in the space. Over the past five years, our accelerators have received more than 1,000 applications from Web3-focused founders, with more than 300 applications in 2021 alone; 2022 is on a similar trajectory. To date, our Web3 portfolio companies have raised close to $1 billion in follow-on capital, and that number is just a glimpse of what’s to come, as we’ve invested in nearly half of those 110 companies in the last two years or more. which means they are still at a very early stage.
Shades of the dot-com bubble
The reason why Web3 and blockchain in particular hold such promise is that I believe we are now at an inflection point similar to the dot-com bubble at the turn of the century. a yet-to-be-formed technology that promises to usher in a more egalitarian future in which the balance of power will tilt from legacy businesses and the state to the individual. Of course, the dial-up era crashed and burned when its initial promise didn’t live up to the hype. Still, out of the carnage emerged revolutionary but decidedly useful companies like Amazon, eBay, and Google, as well as a gradually viable enterprise and startup ecosystem.
The parallels with Web3 are clear. Cryptocurrency’s early, wild-west years — when proponents promised it would bypass traditional gatekeepers and central banks to create a new internet built on blockchain technology — were marked by constant hype and frenzied speculation. Ponzi schemesand even outright fraud. However, once again amid the cryptocurrency explosion and market volatility, there are clear signs that we are about to enter a new era where companies are solving practical, real-world problems and opportunities for developers to create a human-centric Web3. -world problems for individuals and businesses.
At Techstars, we are currently seeing three market trends. First, while the turmoil has certainly seen many startups in the space fail when they run out of runway and can’t take off, the crypto crash has a positive side: frankly, it washes away the bubble, crypto clones, Web3 enthusiasts, and more of the NFT digital art market. tricky ending.
Second, VCs, no longer driven by FOMO, stopped making unprecedented investments and big bets on Web3-labeled companies. While there are still firms that have recently closed and have large amounts of funds ready to deploy, the bar to cut checks is higher, due diligence takes longer, and runway extensions for existing portfolio companies are often preferred over new projects.
It promises that a number of more traditional VCs are also entering the Web3 fray. For example, the fintech VCs we covered before now have partners (and partners) covering DeFI, markets-focused VCs are looking at creative economy offerings on Web3, and sports and entertainment-focused VCs are looking at blockchain gaming and esports. this indicates that the crossover is gone.
Third, we see strong and, most importantly, affordable offerings continuing to be funded, with opportunities opening up for startups that leverage the unique features of Web3’s underlying technology. One such company is TransCrypts.a blockchain-powered enterprise data verification platform—which finished its opening Class of 2022 Filecoin Techstars Accelerator In mid-June in Seattle. A few days later, the team closed a pre-seed round worth $1.4 million from investors Mark Cuban and Protocol laboratories. Today, TransCrypts has over 100 enterprise users, including a number of household names in tech, retail and aviation.
Similarly, we see a trend towards use cases targeting developing economies where cryptocurrencies can serve a more practical purpose. For example, Buchi Okoro was established Quidaxcryptocurrency exchange, 25 years old in Lagos, Nigeria in 2018.
Okoro wanted to significantly facilitate the financial connectivity of young Africans, a large proportion of whom are unbanked, with the rest of the world. “Trying to send a payment from point A to point B even in Africa is a nightmare,” Okoro said. “Trying to send money from Nigeria to US Cryptocurrency makes international transactions significantly easier.” The company is already over 400,000 customers in 72 countriesand initialized his token, QDX.
New technologies take two or even three waves to reach maturity. The first wave usually causes hype, attracts feeding frenzy and ends in a decisive crash. In the second wave, as the foam deflates, truly useful applications come to the fore.
Since the cryptocurrency crash, some have concluded that Web3 is a spent force; this is a fundamental misreading of the situation. It turns out that blockchain technology has countless applications, from carbon markets to protecting personal identity, cross-border payments, and recording real estate transactions (to name a few). The first wave of Web3 is over. The second wave continues. This is where things start to get interesting.