Reflecting on Coinbase Ventures’ record year in 2021

Around the Block from Coinbase Ventures sheds airy connected cardinal trends successful crypto. Written by Connor Dempsey, Ryan Yi & Justin Mart.

2021 was a historical twelvemonth for some crypto markets and task superior funding. Driven successful portion by organization inflows, Bitcoin soared to caller highs to commencement the year, the full marketplace followed suit nearing a grounds $3T marketplace headdress successful November. Meanwhile, $30B successful task funding poured into the space: much than each anterior years of crypto’s past combined.

2021 was besides a grounds twelvemonth for Coinbase Ventures, with conscionable nether 150 deals, averaging a caller woody each 2.5 days. On a cumulative basis, much than 90% of the superior Coinbase Ventures has deployed since inception was deployed successful 2021, reflecting an accelerated gait of enactment successful our 4th twelvemonth of operation.

Coinbase Ventures is among the astir progressive firm task funds successful operation, with the mandate of expanding economical state astir the satellite by supporting the starring entrepreneurs and projects successful the ecosystem. Ultimately, we spot crypto and Web3 arsenic a rising tide that lifts each boats, Coinbase included, and Coinbase Ventures is dedicated to making investments that are important to the space’s wide growth.

In this variation of Around The Block, we’ll adjacent into the aboriginal done the lens of Coinbase Ventures’ 2021 activity. (Learn however Ventures aligns with Coinbase and its customers here).

Coinbase Venture’s portfolio present consists of implicit 250 companies, and broadly breaks down crossed the pursuing verticals.

Let’s interruption down the pie, portion by slice.

Protocols & Web3 infrastructure

2021 saw crypto scope caller heights successful presumption of utility, peculiarly successful the nascent “Web3” space, which we mostly deliberation of arsenic a trustless, permissionless, and decentralized net that leverages blockchain technology: essentially, the plumbing that underpins everything from DeFi, NFTs, metaverses, and DAOs. At the bottommost of the Web3 stack beryllium Layer 1 protocols, led by Ethereum, but 2021 saw Web3 statesman to grow to different Layer 1s similar Solana, Polygon, Avalanche, Terra, Flow, among dozens of others.

To assistance scale existing Layer 1s and alteration higher throughput, we supported Layer 2 solutions including Matter Labs, Optimism, and Arbitrum. As aggregate Layer 1s person proliferated, truthful has the request to safely and easy determination funds crossed blockchains. As such, Ventures’ was progressive successful investing successful projects moving to facilitate this cross-chain movement, including Biconomy, Movr, LayerZero, Chainflip, and more. We besides observed and funded caller protocols moving to bring amended privateness to Web3 done assorted zero-knowledge solutions (Aleo, MobileCoin, and a 3rd TBA).

We were besides progressive crossed the infrastructure furniture of the Web3 stack: primitives that signifier the backbone of idiosyncratic applications. Specifically, technologies that present standards to Web3 for information retention (Arweave), messaging (XMTP), and individuality (Spruce). Given that 2021 was a great twelvemonth for DAOs, we were progressive crossed infrastructure projects focused connected enabling DAO creation/incorporation (Syndicate, Utopia), discovery/participation (Snapshot/Consensys’ Metamask), payroll/operations (Diagonal), and coordination (Orca).

Given investments made implicit the year, successful 2022 we expect to spot Web3 mature crossed aggregate Layer 1 and Layer 2 ecosystems with UX that much intimately resembles Web2 applications. Additionally, we expect to spot the continued flourishing of DAOs successful the twelvemonth ahead, arsenic good arsenic amended privateness features for Web3 applications.

DeFi

While 2021 hinted astatine a aboriginal wherever Web3 enactment takes spot crossed aggregate Layer 1 and Layer 2 platforms, DeFi enactment already began its migration implicit the people of the year. Much of this enactment took spot wrong EVM compatible chains (Avalanche, Polygon, BSC etc.) and Layer 2 environments (Arbitrum, Optimism). Meanwhile, non-EVM chains (Solana, Terra, Cosmos, Polkadot etc.) besides saw awesome growth.

We’re believers successful the multichain future, and though we remained astir progressive wrong Ethereum’s DeFi ecosystem, we besides invested crossed Solana (Orca, Solend), Cosmos (Umee), Algorand (Folks), Polkadot (Acala, Moonbeam), NEAR, Polygon and Bitcoin. The multichain future of France appears bright, with conscionable astir each fiscal primitive 1 could ideate successful development.

While DeFi made large strides successful 2021, exploits of these nascent fiscal protocols hampered the ecosystem, amounting to implicit $10B. Better idiosyncratic extortion remains paramount, which is wherefore Coinbase Ventures supported DeFi security fiscal protocols including Neptune Mutual, Risk Harbor, Cozy Finance, and Nayms.

In 2022, the astute declaration wars volition rage connected arsenic Layer 1s and Layer 2s combat for idiosyncratic and developer mindshare. Hacking risks volition persist but we’ll spot accrued maturity successful DeFi security solutions. Lastly, it’s shaping up to beryllium the twelvemonth we spot institutions participate the fray via “permissioned DeFi”, implicit with KYC’d idiosyncratic pools and on-chain attestations.

NFT / Metaverse

2021 was besides a twelvemonth that saw the accelerated emergence of NFTs and renewed involvement successful “the metaverse.” Projects similar CryptoPunks and Bored Ape Yacht Club took NFT income from $200M successful 2020 to a staggering $25B successful 2021. Meanwhile, NFT based crippled Axie Infinity put play-to-earn gaming connected the representation arsenic radical successful the Philippines were capable to crook the crippled into a afloat clip job. And elsewhere, Facebook’s rebrand to “Meta” catalyzed excitement astir the metaverse.

In ample part, NFTs spent 2021 successful their “V0” phase, with astir enactment centered astir elemental buying and selling connected marketplaces similar OpenSea and Rarible. 2021 besides saw NFTs look crossed L1/L2 ecosystems specified arsenic Flow (MomentRanks, Eternal GG) and Solana (Magic Eden, Solanalysis).

Ventures has present invested heavy successful the NFT “utility” signifier — 1 successful which NFT assets grow to caller types of mediums specified arsenic audio (Royal, Mint Songs, Sturdy), avatars (Genies, OFF), AR (Anima, Jambo), and gaming/GameFi (Ancient8, GuildFi). This volition let absorbing societal features to beryllium layered connected apical of the programmatic designation of NFTs (Gallery).

These NFT and gaming investments tin broadly beryllium bucketed with the metaverse, arsenic they inch america person to a imaginable aboriginal wherever we person a bid of decentralized, interconnected virtual worlds with afloat functioning economies. In 2022, look for a big of caller gaming titles and applications, including those launched by accepted gaming studios. Also expect metaverse applications to grow from some decentralized initiatives similar Decentraland and the Sandbox and incumbent Web2 companies similar Microsoft/Activision and Meta.

Platform & Developer Tools

Without developers, determination would beryllium nary crypto oregon Web3 applications for anyone to use. As such, enactment for the tooling that developers request to marque crypto and Web3 thrive is simply a captious portion of advancing the ecosystem.

Over the year, we followed the “developer journey” from staging (Tenderly), collaboration (Radicle), query (Covalent), audit (Certik, OpenZeppelin, Certora) and real-time simulation/monitoring (Chaos Labs, Gauntlet). We besides invested successful developer toolkits similar API providers (Alchemy, Consensys’ Infura).

We expect the industry’s corporate concern made successful dev tooling to wage dividends successful the years to come. With each of the developers pouring into Web3 from Web2, they’re sorely needed.

CeFi

Much of the worth that finds its mode into crypto initially does truthful done centralized platforms, and arsenic such, centralized concern (CeFi) remains an progressive category. We judge that crypto is inherently planetary and determination is simply a request for localized platforms that service arsenic onramps crossed chiseled regulatory, banking, and infrastructure regimes. This is wherefore successful 2021, we were progressive investors successful crypto fiscal work providers everyplace from LatAm, Pan-Africa, MENA, South Asia, Europe, and North America.

The twelvemonth besides saw a determination towards accepted vehicles for crypto vulnerability — IRAs, IAs, ETFs, Trusts, etc. — punctuated by the support of the BTC Futures ETF successful the US. Coinbase Ventures actively invested successful plus managers and brokers including AltoIRA, Onramp, Valkyrie, ForUsAll, Ledn, and One River Digital. We were besides investors successful assorted CeFi “picks and shovels”, with follow-on investments successful TaxBit and CoinTracker, which automate crypto taxation reporting crossed platforms. In addition, we supported projects helping startups integrate crypto with accepted fintech offerings, including Paxos, Tribal Credit, and Meow.

2021 acceptable the signifier for much regulated and compliant ways for organization and idiosyncratic capitalist superior to summation crypto vulnerability done centralized exchanges and accepted concern vehicles and fintech platforms successful some the US and abroad. We expect this to beryllium an ongoing taxable successful 2022.

2022 & beyond

Macro uncertainty has prices falling sharply into the caller year, but 1 happening is certain: this is not the crypto ecosystem of 2018. Between the champion performing plus people of the past decennary being overmuch much accessible to investors astir the world, the maturation of the Web3 stack, and an detonation of breathtaking caller usage cases crossed DeFi, NFTs, DAOs, gaming, and the metaverse, this manufacture appears to beryllium hitting flight velocity.

Just arsenic the roar of 2017 fueled investments that laid the groundwork for the applications that are thriving today, what bash you deliberation the grounds $30B funneled into crypto and Web3 successful 2021 volition yield? The marketplace appears uncertain successful the adjacent term, but the aboriginal appears brighter past it’s ever been.

This website does not disclose worldly nonpublic accusation pertaining to Coinbase oregon Coinbase Venture’s portfolio companies.

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