As Crypto Winter drags on and macro conditions remain volatile, global funding for Web3 and blockchain companies fell 50% from the previous quarter, according to data from Crunchbase.
After VC firms poured money into crypto startups during the boom of 2021—peaking at $9.8 billion in the fourth quarter—funding dropped alongside the prices of prominent cryptocurrencies such as Bitcoin and Ether. The latest decrease, from $6.6 billion in the second quarter to $3.3 billion in the third, is the largest quarterly decline in VC funding over the past two years.
Even with markets slumping—total global VC funding fell from $121.8 billion in the second quarter to $80.1 billion, or about 34%—crypto startups are feeling the heat more acutely. Confidence in the industry appears to have wavered after the collapse of high-profile projects such as the TerraUSD algorithmic stablecoin and crypto lender Celsius.
“Web3 has been hit a little harder, just because people become more risk averse in these times of uncertainty,” said Chris Metinko, an enterprise tech reporter at Crunchbase.
But a few major crypto-focused VC firms appear undeterred. Haun Ventures, founded by former federal prosecutor Katie Haun, launched in March with $1.5 billion. Sam Rosenblum, a partner at Haun Ventures, said that the firm’s funding deployment has not changed, with one exception. While many Web3 investors looked to consumer-facing companies during the bull market, Haun Ventures is now focusing more on infrastructure-focused startups.
“We have allocated more bandwidth to earlier-stage stuff and less to later stuff, and that will continue to be a dynamic, based on what’s going on in the market,” he told Fortune.
In August, Haun Ventures backed a $24 million Series A round for Thirdweb, a technology platform that helps companies build Web3 infrastructure.
Over the past month, several of the biggest funding deals in the crypto space have been for infrastructure and security companies. This includes crypto fraud prevention service Sardine, which raised $51 million, and interchain security company Hyperlane, which raised $18.5 million.
Another dynamic has been the speed at which deals are done. Before the downturn, VCs were racing to participate in rounds.
“Now it doesn’t feel like we have to compete on that vector as much,” Rosenblum said. “Big deals are still getting done…but at a more reasonable, rational pace.”
According to Crunchbase, the largest third-quarter crypto raise was by Mysten Labs, which closed a $300 million Series B in September to build a proof-of-stake, Layer-1 blockchain to challenge Ethereum and Solana.
As the recent global adoption index from the crypto intelligence firm Chainalysis demonstrated, emerging markets are driving growth. Kate Kiewel, a Mexico City–based early-stage emerging-markets investor at Rali Cap and the founder of Khora, said emerging markets are better poised to weather macroeconomic slowdowns.
Singapore, a growing hub for crypto startups despite regulatory uncertainty, saw two major Web3 funding rounds this quarter: the bug-bounty platform Immunefi, which raised $24 million in September, and the predictive crypto risk and intelligence platform Merkle Science, which extended its Series A round to $24 million in August.
“Many founders are accustomed to idiosyncratic risk and political, economic, and social instability,” Kiewel told Fortune. “A unique opportunity emerges for the impact and potential of Web3 in economies that are struggling with deteriorating monetary systems, major political shifts, and economic opportunity.”
She said that after the boom of 2021 and the bust of 2022, 2023 likely will be a critical year for startups.
“Building a company is a marathon, not a sprint,” Kiewel said.
Even as the prices for the most prominent cryptocurrencies continue to fluctuate, Rosenblum said that short-term volatility will not impact the strategy of most VCs, which are diversifying in the crypto space.
“We view it as the natural cycle of crypto,” he told Fortune. “I would stake quite a bit on the fact that things like Ether and Bitcoin will survive the volatility in the [Crypto] Winter just fine, as they always have.”