Original title: "Reflecting on Coinbase Ventures Record Year In 2021"
Compilation of the original text: Gu Yu, Chain Catcher
Compilation of the original text: Gu Yu, Chain Catcher
2021 is a historic year for both the crypto market and venture capital. Driven by institutional inflows, bitcoin soared to new highs at the start of the year, and the market as a whole approached a record $3 trillion market capitalization in November. At the same time, $30 billion in venture capital funding poured into the space: more than all previous years in cryptocurrency history combined.
2021 is also a record year for Coinbase Ventures, with a total number of deals approaching 150 and an average of one new deal every 2.5 days. Since deployment began in 2021, over 90% of the capital Coinbase Ventures has deployed, reflecting the accelerated pace of activity in our fourth year of operation.
Coinbase Ventures is one of the industry's most active corporate venture funds, with a mission to advance global economic freedom by backing leading entrepreneurs and projects in the ecosystem. Ultimately, we see cryptocurrency and Web3 as an uptrend that lifts all boats, including Coinbase Ventures, which is committed to making investments that are critical to the overall growth of the space.
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Coinbase Venture's portfolio now consists of over 250 companies and is broadly grouped into the following verticals.
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Protocols and Web3 Infrastructure
In 2021, cryptocurrencies will reach new heights of utility, especially in the nascent "Web3" space, which we often think of as a trustless, permissionless, and decentralized internet leveraging blockchain technology: Essentially, this is the pipeline that underpins everything from DeFi, NFTs, Metaveres, and DAOs. The bottom of the Web3 stack is the Layer 1 protocol led by Ethereum, but in 2021, Web3 starts to expand to other Layer 1 blockchains such as Solana, Polygon, Avalanche, Terra, Flow, etc.
To help scale existing layer 1s and achieve higher throughput, we support layer 2 solutions including Matter Labs, Optimism, and Arbitrum. As layer 1 blockchains proliferate, so does the need to safely and easily move funds across blockchains. As such, Ventures is actively investing in projects that facilitate this cross-chain movement, including Biconomy, Movr, LayerZero, Chainflip, and more. We also observe and fund new protocols that bring better privacy to Web3 through various zero-knowledge solutions (Aleo, MobileCoin, and another pending project).
we are still active inWeb3 stackThe infrastructure layer: the primitives that form the backbone of the user application. Specifically, technologies that introduce data storage (Arweave), messaging (XMTP), and identity standards (Spruce) for Web3. Given that 2021 will be a good year for DAOs, we are actively involved in infrastructure projects with a focus on supporting DAO creation/mergers (Syndicate, Utopia), discovery/engagement (Snapshot/Consensys' Metamask), payroll/operations (Diagonal ) and coordination (Orca).
decentralized finance
decentralized finance
While 2021 hints at a future where Web3 activity takes place across multiple layer 1 and layer 2 platforms, DeFi activity has already begun to migrate during the year. Much of this activity takes place in EVM-compatible chains (Avalanche, Polygon, BSC, etc.) and layer-2 environments (Arbitrum, Optimism). At the same time, non-EVM chains (Solana, Terra, Cosmos, Polkadot, etc.) have also seen impressive growth.
We believe in a multi-chain future, and while we remain most active in the DeFi ecosystem on Ethereum, we have also invested in Solana (Orca, Solend), Cosmos (Umee), Algorand (Folks), Polkadot (Acala, Moonbeam), NEAR, Polygon, and Bitcoin. The multi-chain future of finance seems bright, with nearly every financial primitive product imaginable in development.
While DeFi has made strides in 2021, the utilization of these nascent financial protocols has held back the ecosystem, totaling over $10 billion. Better user protection remains critical, which is why Coinbase Ventures is backing DeFi insurance finance protocols, including Neptune Mutual, Risk Harbor, Cozy Finance, and Nayms.
NFT/Metaverse
NFT/Metaverse
2021 is also the year of the rapid rise of NFT and renewed interest in the "Metaverse". Projects like CryptoPunks and Bored Ape Yacht Club are boosting NFT sales from $200 million in 2020 to a staggering $25 billion in 2021. Meanwhile, NFT-based game Axie Infinity put P2E gaming on the map as Filipinos were able to turn gaming into a full-time job. Elsewhere, Facebook's rebranding to "Meta" sparked excitement around the Metaverse.
To a large extent, NFT is in the "V0" stage in 2021, with most activity focused on simple buying and selling on marketplaces such as OpenSea and Rarible. In 2021, NFTs will also appear in the L1/L2 ecosystem, such as Flow (MomentRanks, Eternal GG) and Solana (Magic Eden, Solanalysis).
Coinbase ventures is now investing heavily in the NFT "utility" phase - a phase in which NFT assets expand into new types of media such as audio (Royal, Mint Songs, Sturdy), avatars (Genies, OFF), AR (Anima, Jambo), and Gaming/GameFi (Ancient8, GuildFi). This will allow layering fun social features on top of NFT's programmatic recognition (Gallery).
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Platform and Developer Tools
Without developers, there would be no encryption or Web3 applications for anyone to use. As such, supporting the tools developers need to enable encryption and Web3 to thrive is a critical part of advancing the ecosystem.
For a year, we've tracked the "developer journey" starting with staging (Tenderly), collaboration (Radicle), querying (Covalent), auditing (Certik, OpenZeppelin, Certora), and real-time simulation/monitoring (Chaos Labs, Gauntlet). We've also invested in developer toolkits like API providers (Alchemy, Consensys' Infura).
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CeFi
Most of the value that goes into cryptocurrencies is initially realized through centralized platforms, and as such, centralized finance (CeFi) remains an active category. We believe that cryptocurrencies are inherently global and require localized platforms as on-ramps across different regulatory, banking and infrastructure regimes. That's why in 2021 we are an active investor in crypto financial service providers across Latin America, Pan Africa, MENA, South Asia, Europe and North America.
The year also saw a shift towards traditional vehicles for cryptocurrency exposure (IRAs, IAs, ETFs, trusts, etc.), interrupted by the approval of a US BTC futures ETF. Coinbase Ventures actively invests in asset managers and brokers including AltoIRA, Onramp, Valkyrie, ForUsAll, Ledn andOne River Digital . We are also an investor in various CeFi projects and subsequently invested in TaxBit and CoinTracker, which automate crypto tax reporting across platforms. Additionally, we support projects that help startups integrate crypto with traditional fintech products, including Paxos, Tribal Credit, and Meow.
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2022 and beyond
Macro uncertainty has caused prices to drop sharply in the new year, but one thing is for sure: this is not the crypto ecosystem of 2018. Between the best-performing asset class of the past decade becoming more accessible to global investors, the Web3 stack, and the explosion of exciting new use cases across DeFi, NFTs, DAOs, games, and the Metaverse, the industry seems to be is reaching escape velocity.
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