Coinbase Ventures’ Q2 report indicates that the overall deal activity declined along with the pessimistic sentiment taking reign in the broader market. The bearish market condition, however, did not change the firm’s investment thesis on infrastructural projects that demonstrate real utility as well as the burgeoning Web3 gaming sector.
Deal activity fell in the second quarter
Coinbase Ventures’ trading activity was down 34% quarter-on-quarter from 71 to 47, but remained up 68% year-on-year, according to the second-quarter investment note released Thursday. The investment giant noted that the noticeable slowdown in the broader venture capital market had kicked in since the first quarter, as it saw the first drop in funding since the second quarter of 2019.
Coinbase’s investing arm attributed such a decline to high volatility, causing investors to “rethink or put their rounds on pause” and only bet on companies that could “show the growth needed to justify a new round.”
Despite the lackluster macro environment, Coinbase Ventures continues to invest in projects with real utility, as shown by its focus on Web3/protocol infrastructure and Platform&Developer Tool, accounting for 38% and 21% of its total investment, respectively. .
In addition to Web3 infrastructure, the giant invested heavily in the blockchain gaming sectors as Web2 game developers began to embrace the new category. Regarding the sheer decline of user activity in Axie Infinity due to security concerns, CV believed it would not drive the whole sector down as it raised $2.6B in Q2 despite the unfavorable market conditions.
In terms of layer one investments, Coinbase Ventures demonstrated a distinctive preference for Solana as the number of developers using its coding language, Rust, continued to grow. The growing momentum is reflected in more EVM developers transitioning to Solana. As such, the Ventures asserted:
“All in, we did 10 deals building on Solana in Q2”
Reflection on the massive market sales
Since centralized lenders have made headlines over the past few months for their risky practices bringing down the entire market, the Ventures said they would focus their investments on promising DeFi protocols instead. While many struggling centralized companies face insolvency due to mismanagement, DeFi protocols such as Aave, Compound, and MakerDAO have all performed steadily amid fierce volatility hitting the crypto market.
Compared to the previous bear market, added the Ventures, the space now has profound innovations such as DeFi, NFTs, and more that have real applications beyond Crypto Kitties. For that, it believed the industry could survive through the winter fine despite pronouncements like “crypto dead” going viral like they had in the previous winter.
