Down bad – TechCrunch

Welcome backChain Reaction.

Last week we discussed layoffs, and the Winklevoss gods. This week, we’re looking at a new layer of crypto doom and gloom.

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crash redux

We’ve talked crypto crashes a couple times already in the short life of this newsletter but the sell off this week has spooked crypto insiders in a very different way. Things are moving so fast right now that even experienced crypto investors are feeling uneasy about it.

While crypto winters have come before, they’ve never aligned with warning signs of a broader prolonged recession. Things have already plunged so quickly at the signal of a recession that insiders fear a lengthy bear market could hit crypto far more brutally than expected — tearing tokens to lows far below the highs of the 2017 bull run.

This is not only bad news for tokens, but it also means more harsh realities for the entire ecosystem.

We saw the interconnectedness between major institutions as crypto lending protocol Celsius crashed and brought down Ethereum prices. Investors feared a price crash caused by allegedly over-leveraged players such as 3 Arrows Capital. Despite the decentralization philosophy of crypto, the potential to cascading errors seems just as real for crypto markets as it is for traditional finance markets.

If things fail more frequently than they used to, the question remains how quickly young crypto communities and startups can adapt to changing fortunes. While few companies are able to deal with the stress of crypto and public markets, Coinbase laid off more than 1,100 workers this week. However, many startups raised mega-rounds for 2021 to theoretically secure their future. Many protocols and DAOs have seen their budgets for community projects and stretch projects cut, threatening their survival.

Where will consumer demand go if there is no promise of riches and less interest in blockchain-based exclusivity? When governance communities are filled with millionaires and their profits disappear, will they become more self-motivated? How bad will it get?

The latest pod

Please dial 911. Crypto lending protocol Celsius isn’t fire burning, but it did All customer withdrawals were frozen this weekend, citing concerns about its own liquidity amid “extreme market conditions.” Since then, the firm, which claimed to have 1.7 million users before the pause, has seen its own token plummet (and then recover, and plummet again), and sent the already-struggling crypto markets into a tailspin. We talked through what went wrong on the Celsius network and how it’s surprisingly intertwined with the rest of crypto.

Regulators are taking advantage of the downturn to crack down on certain firms within the space, even though web3 is already looking shady. Investors are upset about losing their money and BlockFi is being criticized. Some of the biggest names within crypto, including BlockFi and Binance.US, are facing lawsuits or being fined for their practices. 

The tech billionaire brothers are still okay, however, for good or for ill. Block’s Jack Dorsey announced this week that he’s ready to cancel web3 and move on to his vision of the internet, which he’s calling “web5.” Elon Musk weighed in with a particularly creative proposal too, 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 beef – respectfully – with web3 stans all over Twitter. Levie explained to us how he manages to walk the fine line of being a crypto critic without landing in the bulls’ bad books. 

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Follow the money

Where is the crypto-world’s startup money moving?

1. Platform for fintech in Indonesia FlipTencent led the $55 million Series B extension. Block (formerly Square), and Insight Partners were also involved.
2. Startup of NFT infrastructure NFTPortAtomico led the $26 million Series A round.
3. ScienceMagic.StudiosThe pre-seed investment by investors such as Liberty City Ventures, Digital Currency Group, and Coinbase Ventures totalled $10.3 Million for a digital asset-focused studio called.
4. Paradigm led a Series A round to raise $46 million for Words With Friends’ web3 gaming startup. The WildCard Alliance.
5. MoleculeNorthpond Ventures secured $13 million seed funding for a platform that allows DAOs to back medical research projects.
6. Metaverse is a play-and-earn firm Atmos LabsSfermion led the seed round and brought in $11,000,000
7. Creator-focused web3 sitebuilder TellieTen million dollars in Series A funding was received from investors such as Malibu Point Capital (Gala Digital), Dapper Labs (Dapper Labs).
8. Crypto payment platform NumeSequoia India led the pre-seed round and raised $2 million.
9. Fintech in Holland Bits of Stock, which offers crypto rewards, raised €4.2 million in its seed round from Keen Venture Partners, Yellow Accelerator and others.
10. Startup of a decentralized trading infrastructure Orderly Network raised $20 million in Series A funding from investors including ​​Three Arrows Capital, Pantera Capital and Dragonfly Capital.

The web3 Week in Review

Crypto markets were down pretty bad last week (though admittedly, it’s only been downhill since then). However, temperatures rose in Austin, Texas as 20,000 crypto community members met to discuss how to navigate an industry that looks like it could go up in flames. Anita had the chance to attend the conference, so she’s back with some thoughts from the field: 

I have a lot of friends and acquaintances who aren’t nearly as deep in crypto as I am, and one question I’ve heard over and over again these past few weeks is whether this downturn in the digital asset markets is the death knell for web3. In other words, is the party over now that the music has stopped?

Los Angeles public broadcaster Los Angeles radio station (LAPR) asked me to share my thoughts/two Satoshis.check it out), but I want to use this space to highlight some thoughts I have after hearing from folks in the industry at Consensus. In short, I don’t think this is the end of crypto by any means, but it’s certainly going to be a tough time for the space. 

On a panel about how to invest in web3 in a turbulent market, Arca’s Chief Investment Officer Jeff Dorman made an interesting point about what makes web3 so different from most other sectors, at least as they’re defined by the financial markets. 

“I don’t even think digital assets [are]an asset class. I think it’s a technology that is now wrapping all asset classes,” Dorman said. In tradfi, investors have the option to specialize on products (e.g. debt, equity, derivatives) or sectors (e.g., industrials, retail, real estate). But in web3, those categories haven’t been clearly defined, because blockchain technology has been used in so many different ways, from file storage, to selling digital art, to tracking peer-to-peer money transfers.  

That’s part of why I think we can’t group “crypto” or “web3” or “blockchain technology” in the same bucket – even those three terms all have slightly different meanings. Perhaps that’s also why the vibe at Consensus felt puzzlingly positive despite the market turmoil. Each project is so different, and each builder has conviction in why their own use case for the blockchain makes sense and isn’t like all those other projects that are losing value or seem like scams. In these times of uncertainty, analysts and reporters can only look at the industry with nuance. They must evaluate each project individually. It’s going to be a wild ride, but I believe at least some parts of web3 are here to stay, and I see it as my job not only to shed light on what applications of this technology are working and not working but also to try and make sense of why.

Analyse of TC+

Here’s some of this week’s crypto analysis you can read on our subscription service TC+ (written by TC’s Jacquelyn Melinek): 

Who is paying the price for Celsius’s acceleration of the crypto sell-off?
After Celsius, the largest central crypto lender, put itself in serious trouble and halted all withdrawals, swaps, and transfers for users, the global crypto market capization fell below $1 trillion. The driver behind its freeze isn’t completely clear, yet, but it resulted in another bank-run scenario similar to what we saw last month with the UST and LUNA situation – and it’s causing another drop in the crypto market. 

Hedge funds will buy more crypto in a down market and with regulatory clarity
What seemed like a rare sector is now gaining popularity as the number of specialized crypto hedge funds has grown to over 300 globally, according to PwC’s Global Crypto Hedge Fund report. These funds are on “the search for alpha” to beat the benchmarks and are willing to try something new and different, John Garvey, global financial services leader principal at PwC, saidTechCrunch. Markets are volatile, but two-thirds all hedge funds surveyed plan to increase capital in the space by 2022. said.

As DAOs continue to blossom, here’s how to keep yours from wilting
This past year has been one big growth spurt for DAOs (decentralized autonomous organizations) but not everyone in the space is convinced that they’re being formed properly or in a way that ensures success. But what happens if the hype dies? People stop voting, treasuries can wither and abandoned, dead communities turn into “DAO graveyards.” To prevent that from happening, some say there needs to be a restructuring of the way DAOs are formed.

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Anita and Lucas