This is why investors remain bullish on Web3 technology

Even by the standards of cryptocurrency’s notorious volatility, the past six months have been a tour de force. It is estimated that the total value of all cryptocurrencies has dropped of some $2 trillion from their November 2021 peak, while the price of bitcoin itself has plunged from a high of nearly $70,000 last November to under $20,000 at the time of this writing. Meanwhile, according to a countsince 2011, a staggering 2,400 cryptocurrencies have somehow disappeared or “died”.

Unlike previous market routs, however, the main reason for the current crypto malaise is the broader economic downturn, coupled with soaring inflation – which central banks are fighting by raising interest rates – leading investors to flock to more stable assets. Furthermore, the current crisis has revealed how the crypto market has built a financial infrastructure very similar to that which underpinned traditional banking in 2008, even though part of the reasoning behind decentralized finance (DeFi) was that withdrawal central banks and governments would help prevent systemic meltdowns and contagion.

Yet despite all the turmoil currently engulfing the space, I remain convinced that the technology underlying Web3 – the umbrella term for the new blockchain-based decentralized internet, which includes cryptocurrencies, non-fungible tokens ( NFT) and DeFi – is robust, has an extremely wide range of use cases, and will stand the test of time, creating dozens of billion-dollar-plus businesses.

With approximately 110 pre-seed investments in Web3/crypto and blockchain-related startups, Techstars is one of the most committed and active early-stage investors in the industry. Over the past five years, our accelerators have received over 1,000 applications from Web3-focused founders, with over 300 applications in 2021 alone; 2022 is on a similar trajectory. To date, our Web3 portfolio companies have raised nearly $1 billion in follow-on capital – and that number is just a preview of what’s to come, as we’ve invested in about half of these 110 companies over the past two years or more recently, which means they are still at a very early stage.

Shades of the dotcom bubble

The reason Web3 and blockchain in particular are so promising is that I think we’re currently at an inflection point broadly similar to the turn-of-the-century dotcom bubble, when a frenzy of investment in internet startups, harnessing still-nascent technology, promised to usher in a more egalitarian future in which the balance of power shifted from inherited corporations and the state to individuals. Of course, this dial-up era crumbled and burned when its initial promise failed to live up to the hype. Yet out of the carnage, revolutionary but decidedly useful companies such as Amazon, eBay and Google have emerged, along with, gradually, a viable ecosystem of companies and startups.

The parallels with Web3 are clear. The early years of the crypto Wild West – which proponents promised would bypass traditional gatekeepers and central banks to create a new internet based on blockchain technology – were marked by relentless hype and speculation. furious, Ponzi schemesand even outright fraud. However, once again, following the bursting of the crypto bubble and market volatility, there are clear indications that we are about to enter a new era where there are opportunities for builders to create a human-centric Web3, where businesses solve practical, real-world problems. -global issues for individuals and businesses.

At Techstars, we are currently observing three market trends. Firstly, while the turmoil will undoubtedly see a large number of startups in the space fail, as they run out of track and are unable to recover, the crypto crash also has an upside: frankly, it flushes out moss, clones crypto, Web3 wannabes, and the fanciest end of the NFT digital art market.

Second, no longer driven by FOMO, VCs stopped investing blindly and making multiple bets on companies labeled Web3. While there are still companies with recently closed overflowing funds ready to be deployed, the bar for cutting checks is higher, due diligence takes longer, and extending the runway for existing portfolio companies is often take priority over new projects.

Promisingly, a number of the more traditional VCs are also entering the Web3 fray. For example, fintech VCs we’ve previously engaged with now have associates (and partners) spanning DeFI, market-focused VCs review creator economics proposals in Web3, and sports-focused VCs and entertainment are eyeing blockchain gaming and esports – all indicating a crossover is afoot.

Third, we see that strong and, importantly, accessible proposals continue to be funded, with opportunities opening up for startups that exploit the unique properties of Web3’s underlying technology. One such company is TransCrypts—a blockchain-powered enterprise data verification platform—who graduated from the inauguration Filecoin Techstars Accelerator Class 2022 in Seattle in mid-June. Days later, the team closed a $1.4 million pre-seed round from investors that include Marc Cuban and Protocol laboratories. Today, TransCrypts already has over 100 enterprise users, including a number of household names in technology, retail, and aviation.

Likewise, we are seeing a trend towards use cases targeting developing economies, where cryptocurrencies can serve a more practical purpose. Buchi Okoro, for example, founded Quidaxa cryptocurrency exchange, in 2018 at the age of 25 in Lagos, Nigeria.

Okoro wanted to significantly facilitate the financial connection of young Africans, many 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. “No matter trying to send money from Nigeria to the US, Crypto makes international transactions so much easier.” The company now has more 400,000 customers in 72 countriesand launched its own token, QDX.

New technologies tend to take two or even three waves to mature. The first wave is usually hype-driven, attracts a feeding frenzy, and ends in a climactic crash. In the second wave, as the scum recedes, the really useful apps appear.

Since the crypto crash, some have concluded that Web3 is a depleted force; this is fundamentally misinterpreting the situation. It has become abundantly clear that blockchain technology has myriad applications, from carbon markets to personal identity protection, cross-border payments, and real estate transaction records (to name a few). The first wave of Web3 is over. The second wave is underway. This is where things start to get interesting.

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