Author: RootData Research

The Web3 industry as a whole is showing a strong rebound trend, with Bitcoin reaching its highest annual increase of 160%, leading the global asset classes in investment returns, and Bitcoin spot ETF becoming a new channel for incremental funds.

The total financing amount of the Web3 industry reached 9.043 billion USD in 2023, with different tracks showing varying financing performance. Enterprise-level infrastructure and wallet directions are favored by capital. In the DeFi trend, there is fierce competition in DEX, and derivatives and RWA are receiving attention. The total financing amount in the CeFi track has declined, but opportunities in the Bitcoin ecosystem are attracting capital attention.

Finding the largest consensus on native new assets has become an important rule for the development of the Web3 industry. The number of developers has increased by 66% year-on-year, and the Ethereum ecosystem leads the trend with its overwhelming advantage. The hot sectors are concentrated in DeFi, L1/L2, Game, and other traditional areas, but opportunities in compliance and social directions are becoming an important consensus in the market.

In 2023, over 10 institutions led investments at least 8 times. HashKey Capital jumped to the top of the annual investment frequency list for the first time, with a wide layout in infrastructure and DeFi directions in the Asia-Pacific region. DWF Labs emerged as the dark horse of the year, mainly investing in projects that have already issued coins and are not highly popular in the market.

1. Web3 Industry Overall Trend Characteristics

1.1. Secondary and Macro Analysis: Bitcoin Leads the Global Asset Classes in Growth, Spot ETF Opens a New Dimension of Market Growth

1. Bitcoin: Highlight of the Global Asset Field

In 2023, Bitcoin performed well as an asset category. According to NYDIG statistics, as of October 2023, Bitcoin's 63.3% increase made it the best-performing asset among 40 selected asset categories. This exceeded the 28.2% increase in US growth stocks, as well as other major asset categories such as the US stock market (12.2%), commodities (6%), cash (3.8%), and gold (1.1%). In addition, analysis by Kaiko Research shows that despite macroeconomic tensions and headwinds in the crypto industry, Bitcoin's increase in 2023 still exceeded 160%.

2. Bitcoin Halving: New Market Opportunities in Supply and Demand

The Bitcoin halving event is set to occur in Q2 2024. Historically, after each halving, the price of Bitcoin has significantly increased, but it has also been accompanied by increased volatility. In terms of demand, according to Glassnode data, as of December 22, 2023, the number of non-zero balance Bitcoin addresses has exceeded 50 million. The increase in this data reflects the growth of the user base. These factors collectively impact the market value and trading activity of Bitcoin.

3. Bitcoin Spot ETF: Leading the Growth Trend

The market performance of Bitcoin spot ETFs has been outstanding, with a trading volume exceeding 1.8 billion USD on January 16, three times the total volume of 500 other ETFs on the same day. The trading volume in the first three days was nearly 2 billion USD. This mainly includes funds managed by Grayscale, BlackRock, and Fidelity. The head of forex research at Standard Chartered Bank predicts that the inflow of funds in 2024 may reach 50 to 100 billion USD. This reflects the high interest and growth potential of these ETFs in the market.

4. Monetary Policy Shift: Catalyzing a New Bull Market Wave in Web3

The last bull market was related to loose US monetary policy, and the latest data shows that the Federal Reserve may cut interest rates in 2024. In this context, cryptocurrencies such as Bitcoin, due to their lack of correlation and hedging properties, may become a diversified choice for investors. After the approval of Bitcoin spot ETFs, Bitcoin is transitioning from individual investment to institutional investment, reducing circulation and increasing scarcity. Expectations of a Federal Reserve interest rate cut and inflation measures may prompt more investors to allocate Bitcoin, signaling the start of a new bull market cycle in the Web3 industry.

1.2. Total Financing Amount Reaches 90.43 Billion USD in 2023, First and Second Markets Jointly Promote the Recovery and Growth of the Web3 Industry

Stimulated by the favorable news of the Bitcoin spot ETF, after multiple tests of the 30,000 mark, the BTC price broke through. With prominent bullish sentiment in the market, as of December 31, the total financing amount of the Web3 industry in 2023 reached 91.3 billion USD, with the highest monthly financing amount reaching 13.12 billion USD in November. The financing amount in Q4 exceeded the previous three quarters, which is closely related to the short transmission path of the first and second markets in the Web3 industry, indicating that the first market is gradually entering the track of recovery and growth.

Since the third quarter of 2023, several funds have announced the completion of fundraising. Web3 fund Lightspeed Faction announced the completion of a 285 million USD fundraising (oversubscribed by 14%), Standard Chartered Bank and Japanese financial giant SBI launched a 100 million USD Web3 fund, and CMCC Global, supported by Richard Li, completed a 100 million USD fundraising.

1.3. The First and a Half Market is Becoming a New Choice for Investment or Exit, with Fireblocks Experiencing the Most Withdrawal in Off-market Valuation, and EigenLayer Experiencing the Highest Increase in Off-market Valuation

As Web3 accelerates towards compliance, the highly linked first and second markets are easily causing FOMO sentiment among investors, with project valuations soaring. More and more investors are viewing the first and a half market as an important investment and exit path.

Among the 45 projects listed on the first and a half market by RootData, Fireblocks experienced the most withdrawal in off-market trading valuation, with a decrease of approximately 4 billion USD from the financing valuation. Copper and Dune Analytics both experienced a withdrawal of approximately several billion USD in off-market valuation. EigenLayer, on the other hand, performed strongly, with an off-market trading valuation of 25 billion USD, which is 5 times the latest round of financing valuation of 5 billion USD. The off-market valuations of projects such as Aleo and LayerZero are relatively stable.

1.4. In 2023, Infrastructure and CeFi Dominated the Development of the Web3 Industry, Adding 6 New Unicorns

According to RootData's data, in the past three years, infrastructure, CeFi, gaming, NFT, and DeFi have been the tracks with the highest inflow of funds. The average financing amount in 2023 was approximately 9.9 million USD, about half of the 18.8 million USD in 2022. Despite experiencing a bear market for two years, infrastructure has always been a high-heat track.

As of December 31, 2023, a total of 91 unicorn projects have emerged in the Web3 industry, with 32 in CeFi, 29 in infrastructure, and 8 in NFT. However, due to the market downturn in the past two years and the slowdown in primary market investments, the number of Web3 unicorn projects that emerged in 2023 (Andalusia Labs, Scroll, Flashbots, BitGo, Wormhole, Ramp) is only one-fifth of that in 2022.

1.5. Web3 Industry Trending Towards Maturity: 50% Decrease in the Number of Failed Projects in 2023

According to RootData, about 120 projects declared bankruptcy or ceased operations in 2023, with a total financing amount of 940 million USD. Compared to 239 projects that failed in 2022 with a total financing of 4.033 billion USD, there has been a significant decrease, reflecting the industry's gradual maturity and stability. These failed projects are distributed across various tracks, with the most in the DeFi track (40), followed by CeFi (18) and infrastructure (16).

The top three projects that closed down before financing were Prime Trust (total financing of 163 million USD), Voice (total financing of 150 million USD), and Rally (total financing of 72 million USD). Insufficient funds were the main and most direct reason for project shutdown, while other reasons included lack of market fit for the product, stricter regulatory policies, and hacker attacks.

2. Characteristics and Sector Trends Analysis of Web3 Assets Development

2.1. Four Waves of Innovation in the Web3 Industry: Seeking the Largest Consensus of Native New Assets

The essence of the four waves of innovation in the Web3 industry is to seek the largest consensus of native new assets. New assets drive capital inflows, so it becomes important to find the path and scenarios for the birth of new assets in the Web3 industry, especially native assets, because they have less resistance and greater narrative space compared to non-native assets.

2.2. 66% Increase in Web3 Developers, Overwhelming Advantage of the Ethereum Ecosystem

The Ethereum ecosystem has the greatest advantage: whether it's a single chain or multi-chain, the Ethereum ecosystem has an overwhelming advantage, with other ecosystems mainly receiving the overflow value from Ethereum.

Solana emerged as the most prominent public chain in 2023: the SOL token saw an increase of nearly 1000%, and the Solana Foundation announced that the monthly active developers remained above 2500, with star projects taking turns to enter the ecosystem, forming a unique ecological advantage.

The overall number of developers has increased compared to the previous cycle: compared to the previous bear market, the number of developers has increased by 66%.

Changes in developer types: mature developer builders remain strong in the Web3 industry, while speculative developers are leaving in large numbers. Looking at the data for the entire year of 2023, the biggest change in this bear market is the decrease in novice developers (a decrease of 58%), while the number of experienced developers is growing, with developers with over 1 year of experience accounting for 75% of code submissions.

2.3. Rotation of Hot Sectors in Web3: L1/L2, DeFi, Game Still the Most Focused Tracks, Layer3, Restaking, and Other Sectors Gaining Market Attention

Based on RootData's millions of tag clicks, DeFi, L1/L2, and Games are the most popular tags. Staking service leader Lido and RWA concept pioneer MakerDAO are leading the revival of the DeFi track.

Sectors such as Layer3, Intent, and Restaking are gaining market attention. EigenLayer is introducing Ethereum-level trust into middleware and has created a completely new restaking ecosystem.

Binance listed a total of 26 new tokens in 2023, covering over 20 popular tags such as infrastructure, Layer1, and Meme. The tags with the largest decrease in search popularity are NFTFi, DAG, and DOV.

2.4. Most Web3 Practitioners Produced by Stanford, Highest Financing Amount for Google-related Projects

In terms of education and work experience, the United States, China, and Singapore are the main countries where Web3 projects are born, and mainstream Web3 practitioners generally have dual capabilities and resources in finance and technology.

The Web3 entrepreneurial teams from Harvard and Google-related projects have the highest total financing amounts, while the Web3 entrepreneurial teams from Peking University rank fifteenth in total financing amount, and those from Binance rank tenth. Among Chinese practitioners, the teams related to Binance and HTX have the highest numbers. In addition, the number of entrepreneurial teams related to OKX and Bitmain is continuously increasing. Non-native practitioners among Chinese are mainly from Alibaba, Tencent, and other companies.

Hashkey Capital Emerges as the Institution with the Most Investment Deals of the Year

HashKey Capital has risen to the top of the list for the first time in terms of the number of investment deals in 2023, with a wide-ranging layout in infrastructure, DeFi, and a special focus on projects in the Asia-Pacific region. In January 2023, it announced the completion of a $500 million fundraising for its third fund, providing strong support for its high-frequency investments. Typical investment cases include MyShell, DappOS, Supra, SynFutures, and PolyHedra.

DWF Labs Emerges as the Dark Horse of the Year

DWF Labs mainly invests in projects that have already issued tokens and are not highly popular in the market, and its style has sparked much controversy. Typical investment cases include EOS, Conflux, Mask Network, Synthetix, and Fetch.ai.

a16z Crypto Prefers Lead Investments and Large Investments

a16z Crypto has a preference for lead investments and large investments, maintaining an active investment stance in infrastructure, gaming, entertainment, and other fields. Typical investment cases include Gensyn, Mythical Games, Proof of Play, Story Protocol, and CCP Games.

In 2023, Over 10 Institutions Led Investments at Least 8 Times

In terms of the number of lead investments, in 2023, Andreessen Horowitz, Polychain, Bitkraft Ventures, Dragonfly, 1kx, Hack VC, Shima Capital, Jump Crypto, and ABCDE Capital were among the top ten, leading investments at least 8 times.

3.2. Analysis of the Rise and Fall of the Number of Investment Deals in 2023: Animoca Brands Experienced the Largest Contraction, with 85 Institutions Investing Over 10 Times Throughout the Year

In terms of the number of investments, a total of 85 investors made over 10 deals, with 9 investors making over 30 deals, a significant decrease from the average in 2022. This reflects that the vast majority of investment institutions have been significantly reducing their investment frequency due to difficulties in fundraising and lack of confidence.

Investment institutions such as Animoca Brands, GSR, Coinbase Venture, Shima Capital, Spartan Group, a16z, Paradigm, Circle Ventures, and Mirana Ventures all saw a significant decrease in the number of investments in 2023, with a decrease of over 40%.

Blockchain investment institutions faced fundraising difficulties, with only Blockchain Capital, HashKey Capital, CMCC Global, Bitkraft Ventures, and No Limit Holdings announcing fundraising amounts exceeding $50 million.

At the same time, a small number of investment institutions are increasing their investment frequency, injecting momentum into the bleak market. According to statistics, investment institutions such as ABCDE Capital, Superscrypt, Foresight Ventures, OKX Ventures, Sora Ventures, and No Limit Holdings all saw a significant increase in the number of investments in 2023, with an increase of over 50%.

In the end-of-year Bitcoin ecosystem boom, institutions such as ABCDE Capital, Sora Ventures, and Waterdrip Capital remained active and became major investors in Bitcoin ecosystem projects.

3.3. Infrastructure Track: Cross-Chain Direction Sees the Largest Financing Deal of the Year, Enterprise-level Infrastructure and Wallets Attract Capital

Cross-Chain Track Sees the Largest Financing Deal of the Year

In November 2023, Wormhole announced the completion of a $225 million financing, making it the highest-funded project of the year, and cross-chain is also one of the hottest industry trends in 2023. With the widespread emergence of Layer1, Layer2, and even Layer3, the demand for cross-chain transfer of assets and data is rapidly growing. Wormhole and LayerZero have broken down barriers between various blockchains through cross-chain communication.

Wallets Receive Capital Backing as Traffic Entry Points

As the entry points for user traffic, wallets continue to attract capital. Cryptocurrency hardware wallet Ledger and social login wallet Magic both received substantial funding, reflecting the demand for security and convenience in wallets. Their development and evolution are crucial for blockchain to support the next billion users.

Enterprise-level Infrastructure Becomes a Key Focus

Enterprise-level infrastructure has become a key focus. Digital asset custody and issuance infrastructure Auradine, and blockchain development platform QuickNode are mainly targeting enterprise clients, helping businesses solve issues related to asset issuance and application development, thereby delivering a continuous stream of high-quality assets and projects to the market.

3.4. DeFi Track: Intensifying Competition in DEX, Derivatives and RWA Become Industry Focus

Derivatives Protocols Become the Focus of Capital Attention

Derivatives protocols are the focus of the DeFi field, focusing on perpetual contracts, synthetic assets, structured products, etc. Protocols such as SynFutures, Thetanuts Finance, and Synthetix received capital backing, with their core highlights being more transparent, permissionless operation mechanisms, and more user-friendly products.

Intensifying Competition in DEX in Compliance, Order Book, and Cross-Chain Directions

Decentralized exchange (DEX) track also has several highlights, including Mauve, which focuses on compliance, tanX, which focuses on order book trading, and iZUMi Finance, which focuses on multi-chain functionality. They are competing with market leaders such as Uniswap for market share and are highly anticipated by investment institutions.

High Expectations for RWA in the Market

Real-world asset (RWA) is becoming the most anticipated direction in the DeFi market. Real estate, government bonds, bills, and other assets with stable yields make RWAs capable of providing sustainable and diverse real yields for the crypto market. Superstate, founded by the founder of Compound, is one of the newest forces in the RWA track. The project is dedicated to purchasing short-term US government bonds and tokenizing them on-chain for direct on-chain trading.

3.5. CeFi Track: Highest Decrease in Total Financing Among Major Tracks, Bitcoin Ecosystem Opportunities Attract Capital

Highest Decrease in Total Financing Among Major Tracks

In 2023, the total financing amount in the CeFi track was $1.18 billion, a decrease of 75%, making it the track with the highest decrease among the major tracks. This was mainly influenced by the series of malicious collapses in the CeFi sector that began in 2022.

Capital Betting on Bitcoin-related Financial Services

Bitcoin-related financial services received the most capital attention, with Swan, Unchained, and River Financial providing solutions for the Bitcoin ecosystem, offering savings, lending, brokerage, and other services. As the most valuable cryptocurrency, Bitcoin holds significant untapped value for its holders.

Exchange Track Experiences a Turnaround

After the FTX incident, the vacant market space in the exchange track continues to attract significant capital attention. Exchanges such as Blockchain.com and One Trading, leveraging vertical business, regional, or licensing advantages, have received substantial financing.

3.6. GameFi Track: Total Financing Amount Drops by Over 57%, 3A Games Still Favored by Investment Institutions

GameFi Track Sees a Decrease of Over 57% in Total Financing Amount

Affected by the secondary market situation, the total financing amount in the GameFi track has significantly decreased by over 57%. Large-scale financing was mainly initiated by institutions such as a16z Crypto, Griffin Gaming Partners, and Bitkraft Ventures.

Emphasis on Playability Becomes the Mainstream Trend

3A games, especially, are favored by investment institutions, and traditional games in the Web3 space such as football, shooting, and adventure games are also highly regarded. Emphasis on playability has become the trend in GameFi. In addition, full-chain games are being highly anticipated by both capital and the market.

IV. 2023 ROOTDATA LIST

Web3 is becoming an important transformative force that cannot be ignored by global society. In order to present these significant Web3 forces more clearly, RootData, relying on its leading and rich data advantages and over tens of millions of user visits and queries, adhering to the principles of professionalism, objectivity, rigor, and fairness, is committed to creating a data-driven and industry-credible list—ROOTDATA LIST, presenting more industry representatives in the Web3 field and promoting high-quality industry development.

The 2023 ROOTDATA LIST includes "TOP 50 Projects in the WEB3 Industry," "TOP 100 Investment Institutions in the WEB3 Industry," "TOP 20 Projects in the CeFi Track," "TOP 20 Projects in the DeFi Track," "TOP 20 Projects in the LAYER1 Track," "TOP 20 Projects in the LAYER2 Track," "TOP 20 Projects in the GameFi Track," and "TOP 20 Projects in the SocialFi Track."

Selection Criteria Explanation:

• Institution Selection: Core measurement indicators include the number of investments, lead investments, investment project quality, media attention, and RootData popularity.
• Project Selection: Core measurement indicators include market value/valuation, media attention, total lock-up value, financing amount, RootData popularity, investment institution quality, narrative, and track positioning.

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