Welcome back Chain reaction.
Last week, we talked about layoffs and the Winklevoss rock gods. This week, we’re looking at a new layer of crypto doom and gloom.
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redux problem
We talked about the crypto crash a few times during the short duration of this newsletter but this week’s sell-off has spooked crypto insiders in a very different way. Things are happening so fast right now that even seasoned crypto investors can’t seem to get it right.
While crypto winters have come before, they have never matched the warning signs of a prolonged, widespread recession. Things have plummeted so quickly in the face of the recession signal that insiders fear that a protracted bear market could hit the crypto with much more brutality than expected – ripping down much lower than the high of the 2017 bull run.
This means hard things for the token, but also more devastating realities for the entire ecosystem.
This week we saw major institutional alignment as crypto lending protocol Celsius stumbles and crashes Ethereum’s price as investors fear a price crash caused by supposed players. overused like 3 Arrows Capital. Despite the decentralized nature of cryptocurrencies, 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 the crypto community can adjust to changing fortunes. Few companies have faced the stress of both crypto and mass markets like Coinbase, which laid off more than 1,100 employees this week, but plenty of startups have grown massively. in 2021 to theoretically future-proof their company. As for DAOs and protocols with coffers in ETH, many have seen their budgets for community efforts and stretch projects dwindle, threatening their very existence.
Without the promise of wealth or easing interest in blockchain-based exclusivity, where will consumer demand go? Will governance communities grow more automatically and more concerned with short-term goals as their teams have gone from being filled with millionaires to watching their profits go up in smoke? How much worse would things get?
newest group
Someone called 911. Celsius Cryptocurrency Lending Protocol Wasn’t a Burning Flame, But It Was freeze all customer withdrawals last weekend, citing concerns about its own liquidity amid “extreme market conditions.” Since then, the company, which claims to have 1.7 million users prior to the pause, has seen its own token plummet (then recover and plummet again) and send the crypto market into disarray. who were already in trouble fell into a difficult situation. We talked about what happened on the C network and how it came together surprisingly well with the rest of crypto.
Regulators are embracing this moment in a downturn, while web3 is looking rather shady and investors are annoyed at losing money, to crack down on some companies in the space. From BlockFi to Binance.US, some of the biggest names in the crypto space are facing lawsuits and/or fines for their activities.
Still, tech billionaires are fine, for better or worse. Block’s Jack Dorsey announced this week that he’s ready to ditch web3 and move on to his vision of the internet, which he calls “web5.” Elon Musk also weighed in with a particularly creative proposition, 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 empower – respectfully – with web3 stans all over Twitter. Levie explained to us how he can stay on track to become a crypto critic without getting caught up in the bulls’ lousy books.
Subscribe to Chain Reaction on Apple, Spotify or alternative podcast platform of your choice to keep us updated on a weekly basis.
according to 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 current-backed Insight Partners.
- Launching the NFT Infrastructure NFTPort raised $26 million in a Series A round led by Atomico.
- ScienceMagic.Studiosa branding studio focused on digital assets, has raised $10.3 million in pre-investment funds from investors including Liberty City Ventures, Digital Currency Group, and Coinbase Ventures.
- A co-founder of Words With Friends has raised $46 million in a Series A round led by Paradigm for their web3 game startup, WildCard Alliance.
- MoleculeA platform where DAOs can support medical research projects, has secured $13 million in seed funding led by Northpond Ventures.
- Diverse company to play and earn Atmos Labs brought in $11 million in a seed round led by Sfermion.
- Website Builder 3 with a focus on creators Tellie raised US$10 million in Series A funding from investors including Malibu Point Capital, Galaxy Digital and Dapper Labs.
- Cryptocurrency payment platform Nume raised $2 million in a pre-seed round led by Sequoia India.
- Dutch Fintech Bits of Stockoffers crypto rewards, has raised €4.2 million in a seed round from Keen Venture Partners, Yellow Accelerator and others.
- Launching Decentralized Transaction Infrastructure The network is orderly has raised $20 million in Series A funding from investors including Three Arrows Capital, Pantera Capital and Dragonfly Capital.
of the week on web3
The crypto market went down pretty badly last week (although admittedly it has only been going downhill since then). But the temperature was already rising in Austin, Texas, when 20,000 people in the crypto community got together to discuss how navigating their industry looked as if it were going to catch on fire. Anita had the opportunity to attend the conference, so she returns with some thoughts from the field:
I have a lot of friends and acquaintances who aren’t nearly as crypto-savvy as I am, and one question I’ve heard over and over again over the past few weeks is whether this downturn in the digital asset market Is it the death knell for web3. In another world, now that the music has stopped, is the party really over?
I shared my two cents/two Satoshis on the matter on Los Angeles public radio this week (check it out), but I wanted to use this space to highlight some of my thoughts after hearing from industry insiders at Consensus. In short, I don’t think this is the end of crypto, but it’s certainly going to be a tough time for the space.
In a discussion on how to invest in web3 in a volatile market, Arca Chief Investment Officer Jeff Dorman made an interesting point about what sets web3 apart from most other sectors. other sectors, at least as they are 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 kinds of assets,” said Dorman. In tradefi, investors can specialize based on products (e.g. debt, equity, derivatives) or sectors (e.g. industrial, retail, real estate ). But in web3, those categories are still not well defined, as blockchain technology has been used in a variety of ways, from storing files, selling digital works, to peer-to-peer remittance tracking.
That is part of the reason why I think we cannot group “cryptocurrency” or “web3” or “blockchain technology” in the same group – even those three terms have slightly different meanings. Maybe that’s also why the vibe at Consensus feels confusingly positive despite the market turbulence. Every project is very different and every builder has a belief in why their own use case for blockchain makes sense and unlike all other projects that are losing value or having looks like a scam. At a time of so much uncertainty, the most important thing reporters and analysts can do is look at the industry with nuance and assess each project case. It’s going to be a wild ride, but I believe at least some parts of web3 are here to stay, and I see my job as more than shedding light on what uses of this technology work and what doesn’t. but also try and understand why.
TC + analysis
Here are some of this week’s crypto analysis that you can read on our TC+ subscription service (written by TC’s Jacquelyn Melinek):
As degrees Celsius accelerate the crypto sell-off, who pays the price?
This week, the global crypto market cap fell below $1 trillion for the first time since January 2021 after one of the largest centralized crypto lenders, Celsius, landed hot water after suspending all withdrawals, swaps and transfers for users. The driver behind its freeze is still not entirely clear, but it does lead to another bank-run scenario similar to what we saw last month with the UST and LUNA situation – and it caused another drop in the crypto market.
Hedge funds plan to buy more crypto amid bear market and potential regulatory clarity
According to PwC’s Global Crypto Hedge Funds report, what seems like a rare field is now gaining popularity as the number of specialized crypto hedge funds has grown to over 300 globally. . These funds are “looking for alpha” to push the bar and are ready to try something new and different, John Garvey, principal of global financial services leadership at PwC, told TechCrunch. Despite market volatility, two-thirds of hedge funds surveyed are currently investing in plans to deploy more capital into the market by the end of 2022, it said.
As DAOs continue to bloom, here’s how to keep your DAOs from wilting
The past year has been one of huge growth for DAOs (decentralized autonomous organizations) but not everyone in the space believes they are being conceived the right way or in a way that ensures guarantee success. But what happens when the hype fades? People stop voting, coffers can wither and be abandoned, dead communities turn into “DAO graveyards.” To prevent that from happening, some argue that it is necessary to restructure the way DAOs are formed.
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Lucas and Anita
