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 Dropped in Q2
Coinbase Ventures’s deal activity was down 34% QoQ from 71 to 47 but remained up 68% YoY, according to the Q2 investment memo published on Thursday. The investment giant noted that the noticeable slowdown in the broader venture market had kicked in since Q1, as it witnessed the first drop in funding since Q2 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 gloomy macro environment, Coinbase Ventures continue to invest in projects with real utility, as shown in 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 rise. The growing momentum is reflected in more EVM devs transitioning to Solana. As such, the Ventures claimed:
“All in, we did 10 deals building on Solana in Q2”
Reflection Upon Market Selloffs
Given that centralized lenders have made headlines in the past months for their risky practices bringing down the whole market, the Ventures said it would focus its investments on promising DeFi protocols instead. While many troubled centralized firms are facing insolvency due to mismanagement, DeFi protocols such as Aave, Compound, and MakerDAO have all performed steadily amid violent 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.