What 300k+ data points reveal about the state of Web3

Long-time readers of this newsletter may remember the State of Blockchain Funding articles I used to write in 2019—a mix of Tableau outputs combined with some basic analysis and commentary on what I thought founders should know. Today is a special day because it takes that work to an entirely new level.

Over the past few months, Shlok has diligently evolved our VC tracker from last year into funding.decentralised.co. It is an open-access repository of funding rounds with crypto-native categorisation to identify emerging startups and investors. You can also shortlist preferred companies and investors.

Our goal is to make it the single best resource for tracking public and private market capital flow within the industry. Feedback, social mentions & repeated usage of the product is highly appreciated.

In today’s article, we look at the state of venture in the industry and what could be expected in the months to come. All the data comes from our Funding Tracker.

Let’s dig in…

A rational market participant might expect capital to ebb and flow. That, like many other things in nature, there are cycles to it. Yet, venture capital in crypto seems more like a one-directional waterfall—an ongoing experiment in gravity. We might be witnessing the last stages of a frenzy that began in 2017 with smart contracts and ICOs, accelerated during the low-interest-rate era of Covid, and is now correcting to more stable levels.

At its peak in 2022, venture funding to crypto hit $23 billion. In 2024, that figure dropped to $6 billion. Three factors explain that drop.

1. The boom of 2022 led to excessive venture allocations to products at extremely high valuations in seasonal markets. DeFi and NFT, for instance, failed to deliver returns. OpenSea’s $13 billion valuation was the peak.
2. These funds struggled to raise capital in 2023/2024. The products that did list on exchanges struggled to capture the valuation premium seen in 2017/2022. The lack of mark-ups made it difficult to raise fresh funds—especially as many investors underperformed Bitcoin.
3. As AI emerged as the next big frontier, large capital allocators shifted focus. Crypto lost the speculative momentum and premium it once held as the most promising frontier technology.

Another deeper crisis becomes evident when you study what portion of startups grow large enough to warrant a Series C or D. One argument that could be made is that many of the large exits in crypto come from tokens listing. But when most token listings trend negative, investor exits become difficult. This contrast becomes apparent when you consider the number of companies at seed stages that go on to do a Series A, B, or C.

Of the 7650 companies with seed funding since 2017, only 1317 advanced to Series A—a 17% graduation rate. Just 344 reached Series B, and an abysmal ±1% made it to Series C. The odds of a Series D are 1 in 200, on par with graduation rates across sectors reported by Crunchbase. One caveat: in crypto, many growth-stage firms bypass traditional follow-on rounds by tokenising. But this data points to two different problems.

1. In the absence of a healthy token liquidity market, venture in crypto will freeze. That gap will be taken up by liquid market participants like SplitCapital and DeFiance Capital.
2. In the absence of a healthy number of businesses evolving to late stages and listing, risk appetites will decline.

Across stages, the data seems to be echoing the same story. While the amount of capital going into seed and Series A firms has largely stabilised, we see a lack of active deployment into later stages like Series B and C. Does this mean it is a good time for seed stages? Not quite. The devil is again in the details.

The data below tracks the median amount pre-seed and seed-stage firms raise each quarter. As you can see, over time, there has been a steady rise. There are two points worth observing here:

1. The substantial growth in median amounts raised in pre-seed stages since early 2024.
2. The changing nature of seed-stage raises over the years.

We are seeing firms raise larger pre-seed and seed-stage rounds as the appetite for early-stage capital declines. What were once “friends and family” rounds are now filled by early-stage funds deploying capital earlier. This pressure extends to seed-stage companies as well. Since 2022, seed rounds have grown to cover rising labour costs and longer time to reach PMF in crypto. One counteracting force is the decreasing cost of product development.

This expansion in amounts raised translates to higher valuations (or dilution) during the early stages of a company, which in turn would mean the company needs to be valued even higher to provide a return in the future. You see a drastic uptick in the months following Trump’s election in these figures too. My understanding is that Donald Trump coming into office changed the environment for GPs (General Partners) at funds trying to raise money. Increased interest from funds of funds and more traditional allocators translated to a risk-on environment for early-stage firms.

What does any of this mean for founders? There is more capital than ever in Web3 early-stage financing but it pursues fewer founders in larger volumes and requires firms to grow faster than in earlier cycles.

Since conventional sources of liquidity (like a token release) are now drying up, founders spend more time signalling their credibility and the possibilities a business can enable. The days of “50% discount, new round in 2 weeks at high valuation” are behind us. Funds do not get the benefit of the mark-up. Founders do not get an easy raise. And employees do not get the appreciation in their vesting tokens.

One place to vet this thesis is through the lens of capital momentum. In the chart below, I measure the average number of days a start-up raising a Series A has spent since the time of their Seed-stage announcement. The lower the number, the higher the velocity of capital. That is, investors are deploying more money into new seed-stage firms at a higher valuation without waiting for the firm to reach maturity.

In the chart below, you can see how public market liquidity affects the private market. One way to see it is through the lens of “safety.” Series A deployments happen at scale whenever there is a pullback in public markets. In the chart below, you can see a drastic drop in Q1 2018. That drop repeats itself again in 2020 Q1—around the time the Covid crash occurred. Investors who have capital to deploy are incentivised to build positions in private companies when liquid deployment does not sound great.

But why do we see the opposite in Q4 2022, around the time the FTX crash happened? My interpretation is that it is symbolic of the exact point in time when interest in crypto venture as an asset class became eviscerated.

Multiple large funds lost huge pools of money in FTX’s $32 billion round in the months prior. And that, in turn, translates to declining interest in the industry. In the quarters that followed, capital aggregated around a few large firms that have become kingmakers. Most capital from LPs has since gone into the same few firms, who, in turn, deploy into late-stage protocols, as that is where the most amount of money can be deployed.

In venture, capital scales faster than labour. You can deploy a billion dollars, but you cannot hire a hundred people in proportion. So if you started with a team of ten, you are incentivised to invest larger cheques, assuming you do not hire more. This is why we have since seen a slew of large, late-stage protocol raises that are often focused on a token being released.

Where does all of this go?

I have been writing versions of these numbers for six years. And every time I’ve written them, I’ve had the same conclusion: raising venture will be harder. My 24-year-old self probably did not realise this is how a sector evolves. That mania initially attracts talent and easy capital, but market efficiency dictates that things get harder over time. It used to be enough to be “on a blockchain” in 2018. In 2025, we have begun asking questions about profitability and product-market fit.

The lack of easy token liquidity would soon mean venture investors will have to re-rate how they think of both liquidity and deployment. Gone are the days when an investor could expect to see liquidity on their bets in 18-24 months. Employees now have to work harder for the same amount of tokens, which often trade at lower valuations. This does not mean there are no profitable companies. It simply means that, much like with traditional economies, a handful will emerge that attract the vast majority of economic output within the sector.

Does that mean venture as an asset class is dead? A slightly cynical side of me would have loved to say yes. But the truth is, for all the memes about analysts being pesky and “value add” not existing, there has never been a more pressing time for risk-on capital to be active within Web3. The infrastructure layer is now mature enough to handle large-scale consumer applications. The founders have spent long enough learning about the things that can go right or wrong. The reach of the internet is expanding, while the global cost of bandwidth is declining. All of this while AI expands the nature of applications that can be built. Exciting times.

If VCs are to be able to make venture great again—that is, see founders for who they are instead of the tokens they can release—we could be moving forward as an industry. As I often say, hope is not a strategy. But profit motives surely are. And if token markets signal anything, it is that rushing to issue a token and hoping people buy it on an exchange no longer works.

Under such constraints, capital allocators are incentivised to take longer with founders who can take on a larger share of an evolving market. This transition—from a VC asking “when token” in 2018 to wondering what is the absolute extreme that a market can evolve into—is the humbling education that most capital allocators in Web3 have been through.

The question really is: how many founders and investors will stick around to find the answers to that question?

Seeking answers,

Joel & Shlok

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