Welcome back to Chain reaction.
Last week we talked about layoffs and rock gods Winklevoss. This week we are looking at a new layer of crypto disaster.
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We’ve talked about crypto crashes a few times before in the short lifespan of this newsletter, but this week’s selloff scared crypto insiders in a very different way. Things are happening so quickly right now that even seasoned crypto investors seem to feel uneasy about it.
Although crypto winters have arrived before, they have never aligned with the harbingers of a broader prolonged recession. Things have already plunged so quickly on the signal of a recession that insiders fear a long bear market could hit the crypto much harder than expected – tearing the tokens to levels well below the highs of the 2017 bull run.
This means hard things for the tokens, but also more brutal realities for the whole ecosystem.
This week we saw the interconnectedness of major institutions as crypto lending protocol Celsius stuttered and drove down Ethereum prices with it as investors feared a price crash caused by seemingly over-leveraged players like 3 Arrows Capital . Despite crypto’s decentralization philosophy, the potential for cascading failures seems just as possible for the crypto world as it is for traditional financial markets.
If things fail harder and faster than before, the question is how quickly young startups and crypto communities can adapt to changing fortunes. Few companies have to deal with the stress of crypto markets and public markets like Coinbase which laid off more than 1,100 people this week, but many startups have staged mega-towers in 2021 to theoretically future-proof their businesses. For DAOs and protocols with treasuries sitting at ETH, many have seen their budgets for community efforts and extended projects decimated, threatening their survival.
With no promise of wealth or reduced interest in blockchain-based exclusivity, where will consumer demand go? Will governance communities become more motivated and more concerned with short-term goals as their groups go from being filled with millionaires to seeing their profits vanish into thin air? How much worse are things going to get?
the last module
Someone Call 911. Celsius Crypto Lending Protocol Doesn’t Burn, But It Did freeze all customer withdrawals last weekend, citing concerns about its own liquidity in “extreme market conditions.” Since then, the company, which claimed to have 1.7 million users before the break, has seen its own token plummet (then recover, and then plummet again), and send the already struggling crypto markets into a tailspin. a free fall. We explained what was wrong with the Celsius network and how it surprisingly relates to the rest of crypto.
Regulators are seizing this moment of the recession, when web3 already looks pretty dodgy and investors are pissed off about losing money, to crack down on some companies in the space. From BlockFi to Binance.US, some of the biggest names in crypto are facing lawsuits and/or fines for their practices.
The billionaire tech brothers are still doing well, for better or for worse. Block’s Jack Dorsey announced this week that he was ready to cancel Web3 and move on to his vision for the internet, which he calls “Web5”. Elon Musk also weighed in with a particularly creative proposal, which we discussed in this week’s episode.
Our guest, Aaron Levie, built a successful SaaS business in Box, and now he’s on a mission to step up — respectfully — with web3 stans all over Twitter. Levie told us how he manages to cross the line of being a crypto critic without landing in the bad bulls books.
follow the money
Where startup money is moving in the crypto world:
- Indonesian fintech platform Flip raised a $55 million Series B extension led by Tencent with participation from Block (formerly known as Square) and existing backer Insight Partners.
- Starting the NFT infrastructure PortNFT raised a $26 million Series A round led by Atomico.
- ScienceMagic.Studiosa branded studio focused on digital assets, secured $10.3 million in pre-seed investments from investors including Liberty City Ventures, Digital Currency Group and Coinbase Ventures.
- A Words With Friends co-founder raised $46 million in a Paradigm-led Series A for their gaming startup Web3, The WildCard Alliance.
- Moleculea platform where DAOs can support medical research projects, secured $13 million in seed funding led by Northpond Ventures.
- Metaverse gaming and earning business Atmos Laboratories grossed $11 million in a seed round led by Sfermion.
- Creator-focused website3 builder Tellie secured $10 million in Series A funding from investors including Malibu Point Capital, Galaxy Digital and Dapper Labs.
- Crypto payment platform Number raised $2 million in a pre-seed round led by Sequoia India.
- Dutch fintech Stock Pieceswhich offers crypto rewards, raised €4.2 million in its funding round from Keen Venture Partners, Yellow Accelerator and others.
- Starting a Decentralized Trading Infrastructure Ordered network raised $20 million in Series A funding from investors including Three Arrows Capital, Pantera Capital and Dragonfly Capital.
the week in web3
Crypto markets were down last week (although admittedly it has only been down since then). But temperatures rose in Austin, Texas, as 20,000 people from the crypto community gathered to discuss how to navigate their industry, looking like it could be on fire. Anita was lucky enough to attend the conference, so she’s back with some thoughts from the field:
I have lots of friends and acquaintances who aren’t as deep into crypto as I am, and one question I’ve heard over and over again in recent weeks is whether this downturn in digital asset markets is the death knell. from web3. In other worlds, now that the music has stopped, is the party really over?
I shared my two hundred/two Satoshis about it on Los Angeles Public Radio this week (check it out), but I want to use this space to highlight some thoughts I have after hearing from industry folks at Consensus. In short, I don’t think this is the end of crypto, but it will definitely be a tough time for the space.
During a panel on how to invest in web3 in a turbulent market, Arca Chief Investment Officer Jeff Dorman made an interesting point about what makes web3 so different from most other industries, at least as defined by financial markets.
“I don’t even think digital assets [are] an asset class. I think it’s a technology that now wraps all asset classes,” Dorman said. In trading, investors can specialize by product (eg debt, equity, derivatives) or sector (eg industrials, retail, real estate). But in web3, these categories haven’t been clearly defined, because blockchain technology has been used in so many different ways, from storing files to selling digital art, to tracking money transfers. between peers.
This is partly why I think we can’t lump “crypto”, “web3” or “blockchain technology” into the same bucket – even these three terms all have slightly different meanings. This may also be why the mood at Consensus was surprisingly positive despite market turbulence. Every project is so different, and every builder believes that their own blockchain use case makes sense and isn’t like all those other projects that lose value or look like scams. In a time of so much uncertainty, the most important thing journalists and analysts can do is look at this industry with nuance and assess each project on a case-by-case basis. It’s going to be a wild ride, but I believe that at least parts of web3 are here to stay, and I consider it my job not just to shed light on what applications of this technology work and don’t , but also to try and understand why.
Here are some of the crypto analyzes from this week that you can read on our TC+ subscription service (written by TC’s Jacquelyn Melinek):
As Celsius Accelerates Crypto Selling, Who Pays the Price?
This week, the global crypto market capitalization fell below $1 trillion for the first time since January 2021 after one of the largest centralized crypto lenders, Celsius, landed in hot water after suspended all withdrawals, exchanges and transfers for users. The driver of his freeze is not yet entirely clear, but it has resulted in another bank management scenario similar to what we saw last month with the UST and LUNA situation – and it is causing the market to drop further. of cryptography.
Hedge funds plan to buy more crypto amid bear market and potential regulatory clarity
What seemed like a rare sector is now gaining popularity as the number of specialized crypto hedge funds has grown to more than 300 worldwide, according to PwC’s Global Crypto Hedge Fund report. These funds are “looking for alpha” to beat benchmarks and are ready to try something new and different, John Garvey, global director of financial services at PwC, told TechCrunch. Even though markets are highly volatile, two-thirds of all hedge funds surveyed that are currently investing in the space plan to deploy more capital to the market by the end of 2022, he said.
As the DAOs continue to bloom, here’s how to keep yours from withering
The past year has been a big growth spurt for DAOs (Decentralized Autonomous Organizations), but not everyone in the space is convinced that they’re trained properly or in a way that ensures success. But what happens when the hype wears off? People stop voting, treasuries can wither and be abandoned, dead communities turn into “DAO graveyards”. To prevent this from happening, some say there needs to be a restructuring of how DAOs are trained.
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Lucas and Anita