šSpecial editionšThe most popular stories of 2022, according to our readers; 2022 Private Equity & Venture Capital blockchain-related investments; Readers articles & research; Holiday reading list!
22 December 2022
Hello there and welcome to our last Blockchain From First Principle of 2022š. To celebrate this special occasion we have decided to give back to you, the readers, and engage our community in creating this special editionāØ.
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A special thanks goes to the article contributors to this special edition namely, Justin, Jawaher, and Thanos. Make sure to read them below!
Table of Content
šļø 2H 2022 most popular stories, according to our readers
šø 2022 Private Equity and Venture Capital blockchain-related investments by our Research Team
āļø Articles and research from some of our readers and the University of Cambridge
š Holiday bonus
šļø2H 2022 most popular stories, according to our readers
Dec 15 - Binance temporarily halts withdrawals of stablecoin USDC
Dec 8 - Alchemy releases Web3 App Store to streamline dapp access
Nov 30 - State Street terminates $3.5 bln deal for Brown Brothers unit
Nov 23 - BFS explains why FTX collapsed in a letter to employees
Nov 9 - HSBC to launch Orion blockchain bond tokenization platformĀ
Nov 2 - J.P. Morgan executes its first live trade on a public blockchain
Oct 26 - Bloomberg's Matt Levine writes 40,000-word article on Crypto
Oct 19 - Aptos unveils controversial Tokenomics, APT Incentive Plans
Sep 29 - Chainlink Labs reveal work on cross-chain proof-of-concept
Sep 15 - The Ethereum Merge
Sep 1- Crypto startup salaries: hereās how much devs get paid
Aug 18 - Unstoppable Domains streamlines use of Web3 identities via App
Jul 28 - BNY & Goldman settle first HQLAx agency securities lending txs
Jul 21 - Q2 2022 Venture Capital Report
šø 2022 Private Equity and Venture Capital blockchain-related investments
by the Blockchain From First Principleās Research Team
The second part of 2022 has been quite a difficult one for the crypto community. In general, the crypto industry has undergone major ups and downs in 2022 with tough market conditions, a lot of collapsed projects and bankrupt companies, a global financial crisis, and a war in the middle of Europe.Ā
Starting the year with FED and ECB raising interest rates, which led to a massive sell-off in stocks and crypto markets. What followed was the Luna Crash, which led to the bankruptcy of 3 Arrows Capital and Celsius. The Ethereum merger in late Q3 boosted markets and overall public confidence in crypto and related projects. Lately, in Q4 huge collapse with FTX filing for bankruptcy.Ā
However, despite all these events, 2022 witnessed an overall growth in PE/VC funding:Ā
1. Thus far, blockchain businesses have raised around $40B from almost 1500 deals in 2022. This is almost 9X of 2020ās average of $4.8 billion raised across Web3 and crypto-related start-ups. A quick reminder that 2020 was the peak of the corona crisis. The share of Blockchain investments in global VC investment rose to a record high of 6.59%.
2. There were 30 new blockchain unicorns born in 2022, which is 10 less than compared to 2021 though. The US leads with almost 50% of blockchain deal share. However, the European blockchain venture funding also looks very strong, with over $1 billion invested in 79 deals in Q3 2022 only, particularly-stagey stage companies. Mega deal (round size >100M) accounts for 58% of total funds raised
3. Early-stage deals continue to make up 4 in 5 blockchain venture funding deals, indicating a fast-growing, ambitious industry that funders are welcoming with open arms. It is becoming apparent that there is confidence in the longevity of cryptocurrency and blockchain technology for business use cases
4. Median check sizes for seed and early-stage crypto companies in 2022 so far are up to $5.0 million and $20.0 million, respectively, from $3.0 and $11.7 million for all of 2021. Late-stage check sizes in 2022 have remained flat at $30.0, the same as in 2021. Valuations mirrored closely to median check sizes, with seed-stage pre-money valuations up 72.8% (compared to the full year 2021) to $20.7 million, early-stage up 42.9% to $97.0 million, and late-stage up 19.0% to $280.0 million.
But which projects are funded? Where did most of the money go?
Letās have a look at companies that raised major funding:
1. Blockchain Venture funding is in full swing. Every category of blockchain has witnessed increased funding relative to 2021, and Infrastructure and development saw huge increases of 55% and 39% in deal count and funding respectively. The below graphs depict the category-wise fundraising and major fundraising companies in 2022. 33 of the 100 major deals are for infrastructure projects, with Luna Foundation raising $1B from Jump Capital and Three Arrows Capital, Polygon raising $450M from Sequoia Capital, Mark Cuban, and SoftBank.
2. Epic Games raised $2B of Funding from Sony and Kirbi for the development of Metaverse, this happened in midst of Q4 during the FTX announcement. Yuga labs, NFT company raises $450 in Q1Ā from a16ZĀ crypto.Ā
3. Aptos labs in total through a funding round
4. Mysten Labs, which focuses on developing Web3 infrastructure, raises $300 with the help of a16z, Binance labs, and Coinbase ventures
5. KuCoin exchange raises $150m from jump crypto to focus onĀ DeFi
And who funded it?
Blockchain and crypto brought new VC/PEs to the market, with investors ranging from top fund houses to High net-worth individuals (HNI). based on our analysis of the last quarterās funding, we listed a few major VC firms that actively invested in crypto and Web3 infrastructure startups recently during the hardest market conditions.Ā
In short, the second half of 2022 is proving to tell a drastically different story for crypto and blockchain than their epics of 2021, marked by enormous valuations and deal sizes. Too much leverage and too little liquidity has created a perfect storm for the current environment ripe with layoffs, hiring freezes and overall uncertainty for the space. But unsurprisingly, crypto enthusiast founders and investors remain, with many willing to play the long game for their beloved ideologies and technologies.
Sequoia Capital has made 1,761 investments. Their most recent investment was on Dec 15, 2022, when CtrlStack raised $5.2M. Sequoia Capital has made 202 diversity investments. Their most recent diversity investment was on Nov 14, 2022, when Maven Clinic raised $90M.
Andreessen Horowitz is a venture capital investment firm that invests across all stages and a variety of sectors, such as fintech, blockchain, SaaS, cybersecurity and more. Andreessen Horowitz has made 1,324 investments. Their most recent investment was on Dec 15, 2022, when Aztec raised Ā£82M. Andreessen Horowitz has made 204 diversity investments. Their most recent diversity investment was on Nov 29, 2022, when Roboto Games raised $15M
Coinbase Ventures is a VC firm founded in 2018 by the coin base cryptocurrency exchange. It specializes in early-stage VC deals and operates almost exclusively in the blockchain and cryptocurrency space Coinbase Ventures has made 303 investments. Their most recent investment was on Dec 14, 2022, when Nametag raised $2M. Coinbase Ventures has made 15 diversity investments. Their most recent diversity investment was on Oct 1, 2022, when Data Mynt raised Coinbase Ventures has had 8 exits.
Binance Labs is an accelerator that identifies, invests, and empowers blockchain and cryptocurrency entrepreneurs and communities, providing funding to projects that help grow the wider blockchain ecosystem. Binance Labs has made 81 investments. Their most recent investment was on Dec 12, 2022, when Ambit Finance raised $4.5M. Binance Labs has invested in Solv on Dec 12, 2022
Jump Crypto has made 54 investments. Their most recent investment was on Dec 12, 2022, when Outdefine raised $2.5M. Jump Crypto has invested in Space Runners on Dec 12, 2022.
Digital Currency Group headquartered in New York, a VC firm that primarily invests in cryptocurrency, fintech and blockchain companies. The firm has $72 million in dry powder and is interested in making seed-stage, early-stage VC, and later-stage VC investments. Their recent investments include crypto wallet Ballet and blockchain software company Streami with a total of 223 deals participated
Conclusion
2022 will go down as one of the most dramatic years in crypto history with record attacks on protocols, FTX bankruptcy, and its consequences in the midst of market turmoil. All this might have shaken the confidence of investors. The latest report by CB Insights noted that venture funding for the blockchain industry dropped to $4.6 billion during the third quarter of 2022 ā marking the second quarter-over-quarter decline this year.
However, despite this noise around the FTX collapse and market turmoil, CoinShares analysts reported that "digital asset investment products saw the largest inflows for 14 weeks totalling $42Mā in the month of November. This reflects the strong confidence among them.
Given the challenging backdrop, 2023 will be starting on its back foot trying to out from 2022. Investors may be cautious while funding the projects. We believe infrastructure may see funding for the next few months. This may continue untill Q2 2023.
āļø Articles and analysis from our readersĀ
Article 1 - Leveraging blockchain technologies to serve those left behind by the mainstream systems.
by Justin Kirk, founder of Int3face, from Cambridge University writes about the importance of finding new pathways through blockchain technological innovation to help those who have not benefitted from theĀ conventional systems of finance, governance and business.
Under-resourced communities are often excluded from the global economy due to a variety of structural and systemic barriers. These communities may lack access to financial institutions, education, and other resources that are necessary to participate in the global economy.
However, Blockchain technology has the potential to greatly benefit under-resourced communities by providing a decentralized and secure platform for conducting transactions and exchanging information.
One way in which blockchain can help under-resourced communities is through the use of cryptocurrency. In under-resourced communities, where access to traditional financial institutions may be limited, cryptocurrency can provide an alternative way to store and transfer value.
For example, in a community without a bank, individuals may rely on cash or informal financial networks to store and transfer value. These systems can be vulnerable to theft or fraud, and may not offer the same level of security and transparency as a decentralized cryptocurrency network. By using cryptocurrency, individuals in under-resourced communities can securely store and transfer value without the need for a traditional financial institution.
Another way in which blockchain could benefit under-resourced communities is through the use of smart contracts. Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. They are stored and replicated on the blockchain, which makes them transparent, immutable, and secure. Smart contracts could be used to facilitate transactions, such as land or property purchases, without the need for intermediaries, which can be expensive and may not be accessible to everyone. This could help to reduce barriers to economic participation and improve access to opportunities in under-resourced communities.
Another potential application of blockchain involves identity verification. In many under-resourced communities, individuals may not have access to formal identification documents, which can make it difficult for them to access basic services such as healthcare, education, and financial services. Blockchain-based identity verification systems could help to solve this problem by providing a secure and decentralized way to verify identities. This could enable individuals in under-resourced communities to access services and opportunities that were previously out of reach.
There are, however, several risks associated with external intervention in under-resourced communities. One risk is the potential for cultural insensitivity and disrespect. Western interventions may not always take into account the unique cultural and social norms of the communities they are attempting to help, which can lead to misunderstandings and conflicts. This can undermine the effectiveness of the intervention and may even cause harm to the community.
There are a number of projects and initiatives that are using blockchain technology to address specific challenges faced by under-resourced communities. For example, Int3face is using blockchain to provide financial inclusion via mobile access to blockchain Similarly, the World Food Programme is using blockchain to track the distribution of food aid, ensuring that it reaches the intended recipients and reducing the risk of fraud.
About Int3face: Int3face is the result of a Cambridge University research group whose core objective is to facilitate the mass adoption of blockchain technology. They have built an industry-leading cross-chain DEX aggregator with speeds and safety eclipsing any known competition. Int3face is leveraging the unique modular design by drawing upon centralized and decentralized protocols to expand liquidity and services.
The mission of Int3face is to create equitable opportunities for wealth accumulation and access to the next generation of technology. Their first product to achieve this is a payments gateway for the unbanked. By creating access to novel technologies and stable currencies in a safe and accessible manner, Int3face will widen the opportunities currently accessible to the most privileged societies.
Article 2 - Building an inclusive sharing economy through utilizing smart contracts as new governance tools.
Filip Novakovic highlights the important blockchain research conducted by Stefania Fiorentino at the University of Cambridge, Department of Land Economy.
With the rapid proliferation of sharing economy platforms, such as ridesharing services (Uber), temporarily rented rooms (AirBnB), peer-to-peer lending, and coworking spaces (WeWork), many concerns have arisen about the exploitation of local resources, ethical and intellectual properties.
To address these challenges, Blockchain technologies come into play as new governance tools to improve traceability, transparency, and decentralization of transactions in the sharing economy as proposed by Fiorentino and Bartolucci (2021).
With the ability to galvanize social impact, blockchain can serve as a medium through which people will be set free from the centralized platforms taking ever larger shares of revenue and bringing ever fewer benefits to the creators and consumers.
The issues present in the sharing economy:
The essence of the sharing economy was born in a form of a decentralized marketplace where single users can contribute by offering a service. However, with the expansion of BigTech companies (including Airbnb or Uber) and their vertical and horizontal integration efforts, what used to be platforms for communication and exchange, became platforms grabbing ever more control away from the service provider. These platforms, therefore, centralizes the system justifying this through their role of acting as a trusted party.
This has indeed brought many safeguards to the consumer which were not present in the previous iterations of the sharing economy. However, in recent years the emphasis has been on ever greater profit extraction, adversely affecting both the consumers and sharing economy contributors, thereby exacerbating social inequalities and highlighting the need for more stringent regulatory measures. Regulating the space presents incentives for the consumers and also the government itself as BigTech companies control advertisements for the services and collect users' fees, whose profits are usually not paid in taxes to local authorities.
Addressing these issues through blockchain technologies:
Although research proposing applications of blockchain technology to planning and real estate problems is still in its infancy, Fiorentino and Bartolucci (2021) have advocated for the application of Blockchain Management Systems (BMSs) for planning purposes. This is because BMSs allow for a reconciliation of the new possibilities offered by platform-based services with a more efficient use of local resources.
For local authorities, the adoption of BMS would imply the integration of new professional figures: planning officers with knowledge. Introducing a platform-based approach and the automation of processes via smart contracts encourage cooperation between individuals and authorities, simplifying processes, reducing costs, and increasing monitoring capabilities of urban processes.
Using BMS to disrupt the sharing economy could solve ethical and managerial issues, starting from making transactions traceable and transparent, therefore eliminating any sort of misinformation or fraud risks. In addition, BMS-based platforms could be used to maximize revenues for both private stakeholders and local public authorities. This result can be achieved by eliminating intermediaries and creating a more efficient and users' self-regulated network of facilities.
As Fiorentino and Bartolucci (2021) envision, the use of BMSs could represent a valuable opportunity for the public sector to rethink and innovate traditional governance tools, allowing for a more transparent, simplified, and less costly data management system, while taking smart cities to the next level of technological sophistication.
Read the full paper here.
Article 3 - Harnessing the potential of Web3 in 2023 and beyond!
by Thanos Tsagkadouras, a Research and Insights Analyst on Web3 who is building SweetBlocks, writes about the future of the Web3 industry and the ways we harness the potential of the technology to create social impact and improve
In 2022 we have seen major developments in the Web3 industry and the blockchain field together, with more nuanced technologies filling in the gaps from previous years.
New Layer-1 and Layer-2 chains provided the stepping stone for a future where the blockchain trilemma will stop being a cumbersome issue to solve. Decentralization, security, and scalability are constantly being optimized by projects and true builders who are faithful followers of the Web3 ethos and its core values.
The unfortunate events of the last couple of months, with FTXās collapse being at the forefront of the news, should be taken as an example of what needs to be avoided, what needs to be improved, and why risk assessment is an essential skill for everyone in the Web3 space.
Alas!
FTX, 3AC, and Celsius are not even Web3.
They are only associated with it based on their business model relying on cryptocurrencies. And their downfall only precipitates the notion of how important it is to continue evolving the current tech-stack and materializing even more decentralized use cases for Web3.
I, lately, understood how crucial it is to stop listening to the background ānoiseā incurred by the constant influx of negative news. What truly matters is finding solutions and bringing products to the market that people want to use, interact, transact, have ownership and come back for more again and again.
Then, Web3 can end up becoming a big thing with a lot of users and new, valuable business models that can change the trajectory of what use cases we already know.
Here are some use cases that personally excite me:
NFTs: Apart from jpegs that are being frowned upon (we exclude the subjectivity of art here as a factor), NFTs have a huge potential to revolutionize software development agencies, data provenance and allow for a more secure way to trade digital assets.
Decentralized Exchanges: DEXs will continue giving retail investors the opportunity to have self-custody over their own digital assets, and trading opportunities with incredible market depth.
DeFi Protocols: Decentralised Finance projects can branch out to gaming, borrowing, lending, and prediction markets.
Tokenisation of Real-World Assets (RWAs): There has been a lot of discussion around the tokenization of RWAs. The tokenization of assets like gold, silver, and credit notes, can increase liquidity throughout the day, promote faster settlement, lower transaction costs and optimize risk management.
Data ownership: In Web3, when we talk about the ownership we mean that everyone that participates in enhancing a blockchain network, whether it is developers, operators, stakers, or users, can own a small (or big) piece of every dapp or interface they use. Ownership can also be proven on the blockchain, where digital assets are recorded.
Stablecoins: USDC, USDT, DAI, and other fully/overcollateralized stablecoins allow for faster worldwide payments 24/7, trading with less risk and volatility. A future where stablecoins are not directly pegged 1:1 to USD and are minted or burnt according to true supply and demand dynamics, through Automated Market Makers, will be a groundbreaking day.
Community-Building: The way that Web3 can bring communities is unparalleled. Numerous projects have managed to bring together a large number of users who are not only customers but they are a strong community that gives feedback, reiterates with the core team, and becomes part of the final product(s).
As long as Web3ās values will stay first on the list and will not get diluted, there is a startling whirlwind of opportunity with many upsides and fewer downsides.
Genuine products will thrive, genuine builders will continue building āmagic stuffā and more genuine people will see the value that is being brought in by this technological revolution.
While things seem awful in the midst of a bear market, and Web3 feels more difficult to defend than it did a few months ago, the payoff if the space realizes its full potential is truly significant, actually beyond our current understanding, and makes it for a fight worth fighting for with all our powers.
Article 4 - Binance global headquarters in the Gulf? Why Dubai is the MENAās Silicon Valley.
by Jawaher Alshamsi, a Computer Science student and climate change action advocate from the United Arab Emirates, writes about Dubaiās crypto prospects, and explores why the city is poised to become the leading hub for all things Crypto, Web3, and Blockchain globally.
āEntrepreneurship Is The DNA Of This Cityā - GaryVee on Dubai
Known as the city of the future, and a hub for tech investors, as regional economic competition flames up, what makes Dubai at the forefront of crypto?Ā
Binanceās grant to a license that conducts operations in Dubai, working with DWTC (Dubai World Trade Center) to set up an international virtual asset ecosystem gives off clues of what is yet to come. Local authorities in Dubai granted a provisional license to CryptoCom, and approval for a regional headquarters for FTX, before being revoked given recent events, making the country an attractive hub to crypto enthusiasts.
Binance, since its foundation in China, has been led with the doctrine of geographic flexibility with a history of relocatingĀ from China to Japan and Taiwan then to Malta. Changpeng Zhao - Binance CEO, even bought a house in Dubai and characterized it as being āpro-crypto.āĀ
So, could Dubai be the global headquarters for the worldās leading blockchain ecosystem company?Ā
To answer this, letās take a snapshot of the activity in the Gulf:
Dubai Multi Commodities Centre setting anĀ ambitious target of bringing in more than 1,000 crypto companies by 2023. Inflaming the industry with unprecedented opportunities. DubaiCoin (DBIX) ā a public blockchain-based cryptocurrency. Mineable native cryptocurrency. DBIX is used for purchasing goods and services both online and offline. The price of DubaiCoin is managed by the city of Dubai.
Officials at Abu Dhabi Global Market (ADGM), made a captivating case with their rollout of a virtual asset framework and recent incentives to attract financial technology firms. ADGM declared itās open to āall local and global entitiesā seeking to access opportunities in the region and its ācomprehensiveā virtual asset regulatory framework is built for exchanges, custodians, intermediaries, and related services.
Dubai issued its first crypto law, enforced in effect on March 11, 2022 ā VAL (Virtual Assets Regulation Law). It came with two main goals, namely to protect investors and regulate cryptocurrencies in Dubai.
An independent regulatory body was also set up ā VARA (Virtual Assets Regulatory Authority) ā to govern the crypto sector in the region. VARA is the first asset regulator to establish an official presence in the metaverse, itsĀ MetaHQ hub is in The Sandbox. VARAās roles include regulating the sale of the virtual asset and virtual tokens, regulating and authorizing virtual asset providers, and ensuring that the data of investors remains secure.
Given that Dubai does not impose any capital gains or personal income taxes, investors can make a lot of money, unlike other jurisdictions that allow crypto trading. Would that sound appealing to investors burdened with all the taxes imposed on them?Ā
Virtual Assets Regulatory Authority (VARA) passed its first law dealing with such assets. The city has already granted licenses to many large crypto exchanges like Binance and the European subsidiary of FTX, before its downfall. In comparison to other restrictive regulations by other governments, blockchain companies are immensely incentivized to set up shops in crypto-friendly locations like Dubai. ByPit announcement of opening its global headquarters in Dubai is a major testament.
With all the progressive international agenda and the incentives, Dubai is truly poised to become the leading hub for all things Crypto, Web3, and Blockchain not only in the Middle East but globally. It will be truly exciting to witness how this ambitious city will pave the way for a futuristic era and be one of the crypto powerhouses of the world.
š Holiday bonus
Many popular reading lists exist for those curious to learn more about the blockchain ecosystem. We recommend this one including topics from bitcoin, blockchain basics, POS, NFTs, and DeFi.Ā
The opinions are our own. The content of this newsletter is not intended to serve as financial advice and is for general informational and educational purposes only. We do not warrant, endorse, or assume responsibility for the accuracy of any information offered by the third-party websites linked above.
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