It’s Builders’ Season 🛠️

Hey everyone! It’s the start of a new year, which means new year’s resolutions. One of the most popular new year's resolutions is being healthier, so we know many of you are thinking of “going to the gym” and “exercising more” (we see you 💪!!). And now’s the best time to do it, because like the saying goes, “summer bodies are made in the winter.”

Well, believe it or not, there’s a similar mindset in Web3. While we’re in a “cryptowinter” right now, the true crypto believers know that it’s a different season: Builders’ Season - the perfect time to put our heads down and create the future’s most influential Web3 projects. And even though Web3 headlines haven’t been that hot as of late, many areas of the industry are actually seeing more funding than you’d expect. Today we’ll break down where that money is going to find out who’s building in Web3!

They raised how much?? In a bear market??

Believe it or not, Web3 startups actually raised a lot of money from venture capital (VC) investors during a bear market. According to Metaverse Post’s year-end report, Web3 companies raised $7.1 billion in 2022, $4.8 billion more than in 2021! The categories that saw the most funding were gaming, the metaverse, and social networks - so we’re going to look under the hood of each and try to get an idea of what the VCs were seeing. 

Gaming in Web3 🤝 Investors deploying funds in a bear market

Based on the report mentioned, Web3 gaming companies received the most funding in 2022 at $4.5 billion. We touched upon gaming a little bit in our newsletter on Tokenomics back in September, but to bring everyone back up to speed the main idea behind Web3 gaming is to put more power in the hands of the gamers through ownership of in-game assets (like NFTs) and having a say in the rules and governance of the game (like DAOs). 

If the last time you played a game was when you blew on the cartridge of your Nintendo 64, you’re probably wondering why investors are doubling down so much on gaming. There’s a few reasons why gaming is such an interesting space:

• Asset ownership: did you know that in 2020, gamers spent $54 billion on in-game assets? We’re talking in-game skins/outfits, weapons, lives… stuff that has no physical value in the real world and that they didn’t own. When you add the blockchain layer on top, gamers aren’t just buying in-game assets but digital assets they own that can be traded on secondary markets or even used in a different game

• Player governance: web3 games often have two types of token - one that can be used to buy digital assets in the game and another that actually lets players have a say in the future of the game. Imagine being able to vote on game updates, rules, regulations, and more!

• Play to Earn Gaming: like the name implies, players can earn small amounts of cryptocurrency simply by completing activities in the game like contests, tasks, battles, etc. This got so lucrative with Axie Infinity in the Philippines that people were actually quitting their day jobs because they were earning more by playing the game!

Metaverse companies got some love too, even with a decrease in overall funding.

Still a little confused on what the metaverse even is? Check out our earlier posts: “What is the Metaverse? [part 1]” and Pros and Cons of the Metaverse. The TLDR is that the metaverse is a digital environment that leverages augmented reality (AR) and virtual reality (VR) to bridge the physical and virtual worlds.

Behind gaming, metaverse companies received $1.82 billion in funding. This accounts for over 25% of the total investment in web3 companies. Sounds great, right? Well… not completely. A study conducted by Crunchbase found that funding to companies in the VR, AR, and virtual worlds space has been on the decline quarter over quarter since investments in these companies peaked towards the end of 2021. 

This can be partially attributed to the fact that, quite frankly, most people aren’t ready to adopt the idea of a metaverse. The state of the overall economy also impacts these numbers because overall venture funding has slowed globally, so they shouldn’t be viewed in a vacuum. 

Even through the slowdown in funding, Crunchbase shares that “At least seven metaverse- and augmented reality-related rounds of $100 million and up have closed so far this year.” Some of the largest investments include:

• LootMogul with a $200 million invested by GEM. They’re developing a metaverse and Web3 platform for pro athletes and fans.

• Mindmaze with $105 million in financing to build a a digital therapeutics platform that employs VR in some technology.

• Genies with a $150 million Series C round led by Silver Lake to build a developer of tools for building avatars and the accessories and environments to go with them. They’re officially unicorn status! 

In the wake of Elon Musk’s antics, decentralized Social Networks got some attention from investors too!

Decentralized social networks operate on distributed independently run servers, instead of being run by a huge corporation like Twitter. These are growing in popularity because they allow users to have more control over their own data and also aren’t beholden to a lot of the censorship that current centralized platforms enforce. Obviously there are pros and cons to this, but investors and web3 enthusiasts seem to be cautiously optimistic. That’s evidenced by social network companies receiving the third most investment dollars with $259.1 million which is about 3.6% of the total amount invested in Web3.

What does this mean for you?

Going back to our readers on a health kick this year, you’re probably also looking into getting a gym membership, finding a fitness plan or trainer, or maybe even buying a couple cute workout fits! This is all exciting and promising, but we won’t know the results until the work is put in. The same can be said for this influx of funding in gaming, the metaverse, and social networks. While VC funding may not be a predictor of success (sad fact - almost all VC investments fail!), it does give us a general idea of areas to pay attention to. With capital behind them and media headlines steering away from Web3 as of late, now is the perfect time for companies across these sub-industries to double down on their projects and grow so that when the winter comes to an end (because it will), they’ll be ready!