Crypto bros are in a tricky spot. After years of evangelising the benefits of a decentralised economy free of traditional finance and interference of regulators, they ended up crashing straight into those institutions in 2022. The collision has been catastrophic for the nascent industry.
It’s telling that several of the 10 biggest confirmed crypto deals in 2022 were done by companies that ended the year with huge problems. That is, if they hadn’t collapsed all together.
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Take FTX, for instance. At the start of 2022, it was seen as the golden boy of the industry. The trading platform cemented that perception by securing one of the industry’s biggest funding rounds last year. However, the exchange collapsed 11 months later in a flurry of fraud and financial mismanagement allegations.
Market watchers have seen scandals like that throughout the year. They are concerned and wonder just how trustworthy the buoyancy of crypto deals in 2022 and earlier really were. Did those massive cash injections really reflect reality? What’s next for the industry?
For the people behind some of the firms that have imploded, the answer is seemingly “all the way to the top.” Take disgraced Three Arrows Capital, for instance. The founders behind the caved-in crypto hedge fund are reportedly attempting to raise money for a new venture together with the founders of the CoinFlex exchange.
The crypto community has poured scorn over the prospect of another project from the tarnished team.
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By GlobalDataFor instance, the CEO of crypto market maker Wintermute made it clear in a series of tweets that if anyone plans to collaborate with the new project, then they should expect it to be much harder to work with Wintermute.
The Three Arrow Capital’s founders’ bullishness doesn’t negate from the fact that the market chaos of 2022 certainly put a damper on deal activity in the crypto space. Investment into everything from crypto exchanges, non-fungible tokens (NFT), decentralised autonomous organisations and blockchain businesses crashed last year.
In 2021, the industry secured $52.1bn in venture financing, according to data from research firm GlobalData. In 2022, that figure fell to $24.3bn.
That being said, several companies did raise hundreds of millions in cash injections. However, a closer look at where several of the crypto companies that raised 10 of the biggest deals are now paints a sobering picture.
Fireblocks secured $550m in Series E raise
Fireblocks kicked off 2022 by announcing a $550m Series E funding round. The round brought the startup's valuation $8bn.
The company builds tools for the secure storage and transfer of bitcoin and other digital assets. Fireblocks counts Bank of New York Mellon, share trading platform Robinhood and neobank Revolut among its customers.
D1 Capital Partners and Spark Capital co-led the raise. Ten new investors also joined the round. Those included General Atlantic, Index Ventures, Mammoth, CapitalG, Altimeter, Iconiq Strategic Partners, Canapi Ventures, and ParaFi Capital.
Fireblocks followed up the round by achieving a Cryptocurrency Security Standard in December, apparently becoming the first crypto firm to get one since it was introduced in 2014.
Yuga Labs bagged $450m
If you've read about NFTs, then you've read about Yuga Labs. The startup is the creator of the Bored Apes Yacht Club, the NFT collection of cartoon monkeys that grew popular among A-listers during the pandemic. Several of the celebrities happily took to late night talkshows to drum up support for the NFTs.
It was on the back of that massive tailwind that Yuga Labs entered into 2022 and managed to close one of the biggest funding deals in the crypto space in the year to boot.
In March last year, Yuga Labs announced it had completed a $450m Seed funding round. a16z crypto led the round. A number of "top tier game studios" like Animoca Brands and its subsidiary The Sandbox also participated in the raise. Other strategic partners included LionTree, Sound Ventures, Thrive Capital and crypto payments infrastructure provider MoonPay also contributed.
One name among the investors jumped out: FTX, the disgraced cryptocurrency exchange that had a little over six months left before it collapsed.
Of course, Nicole Muniz has no idea that one of its big backers would fold in a blaze of gory fraud allegations. Understandably, the Yuga Labs CEO was rather bullish when he commented at the time.
“Already, a new economy is possible with the IP of Apes, Punks, and Meebits, owned by the community,” Muniz said of the raise. “The possibilities for blockchain’s impact on culture are endless, and so we are building a beautiful, interoperable world for people to explore and play in. There’s a lot to come.”
Over the next few months, Yuga Labs would have reason to worry. Not only did the market turmoil reduce people's interest in investing in NFTs in 2022, but the people who had promoted the australopithecine JPEGs soon found themselves in the crosshairs of upset investors.
Several of the celebrities who had promoted the Bored Apes Yacht Club – such as Justin Bieber, Paris Hilton, Madonna, Jimmy Fallon and Kevin Hart – have been named in a class action lawsuit tougher with Yuga Labs. The plaintiffs accuse the defendants of having unrealistically hyped up the digital assets.
Basically, the accusation is that Yuga Labs and a number of A-listers used their status to break competition laws by not disclosing what they themselves had to gain from promoting the brand.
The suit was filed alongside a wealth of evidence outlining how Yuga Labs used MoonPay as an intermediary to compensate the people promoting the NFT collection, The Verge reported.
Still, Yuga Labs is not out for the count just yet. In January 2023, the company announced an extension of its ecosystem that started with a free mont and a skill-based game called Dookey Dash.
Any Bored Yacht Club holder owning a so-called Sewer Pass token will be able to play the game between January 18 and February 15. The people who get a high score will be able to transform their Sewer Passes "into a mysterious power source", CoinDesk reported.
The game has been linked with Yuga Labs' ambition to create a metaverse of its own called The Otherside.
ConsenSys secured $450m in March 2022
Web3 company ConsenSys started 2022 on a high note by announcing the close of a $450m financing round. The Series D raise pushed its valuation past the $7bn mark.
ParaFi Capital led the raise after participating in ConsenSys’ Series C round in November 2021. New investors like Temasek, SoftBank Vision Fund 2, Microsoft, Anthos Capital, Sound Ventures, and C Ventures also participated in the round.
A string of Series C investors returned for the Series D. Those included Third Point, Marshall Wace, TRUE Capital Management and UTA VC.
“I think of ConsenSys as a broad and deep capabilities machine for the decentralised protocols ecosystem, able to rapidly capitalise at scale on fundamental new constructs that emerge, such as developer tooling, tokenisation, token launches, wallets, security audits, DeFi (1.0, 2.0 and beyond), NFTs, bridges, Layer-2 scaling, DAOs, and more," Joseph Lubin, founder and CEO of ConsenSys said at the time.
Those lofty aspirations seemed to have resonated with the investors that backed the raise. However, the deal and the backing didn't protect ConsenSys from the crypto chaos of 2022.
In January 2023, ConsenSys was said to be one of the many tech companies forced to trim their company headcount. The developer of the crypto wallet MetaMask is said to be planning to axe 100 or more jobs, according to a person familiar with the matter told CoinDesk. The company currently has about 900 employees.
Polygon raised $450m by selling its native token
Polygon Technology markets itself as a Web3 and metaverse company. It has developed a platform that enables blockchain networks to scale and connect. It most recently made the news as the platform that ex-US president Donald Trump used for launching his NFT collection.
Like many other crypto companies that raised rounds in 2022, Polygon kicked off last year by securing a deal. It secured $450m through a private sale of its native MATIC token in a funding round.
Sequoia Capital India led the cash injection. SoftBank Vision Fund 2, Galaxy Digital, Galaxy Interactive, Tiger Global, Republic Capital and prominent investors like Alan Howard (co-founder, Brevan Howard) and Kevin O’Leary (Mr. Wonderful from ABC's Shark Tank).
Other backers included Transcend Fund, Makers Fund, Animoca Brands, Accel and global video game industry investor Scopely. However, the name that stood out was Alameda Research, FTX founder Sam Bankman-Fried's trading firm. It was later revealed that Alameda Research had injected about $50m into Polygon.
FTX secured $400m months before its collapse
Let's talk about the elephant in the room. FTX. By now, the facts of the scandal that hurled the decentralised finance industry into an even worse crisis than it had already found itself in are pretty clear.
The founding rounds the world's former second-largest cryptocurrency exchange are, however, a good place to start. They provide a suitable backdrop to explain just how bad the collapse of FTX was.
So, let's rewind the tape to January 2022. At that stage, the cryptocurrency industry may have noticed a few black clouds on the horizon. Digital assets had lost some of their market share from their November 2021 peak. While the Federal Reserve had hinted that rising interest rates were coming and thus kicked off whispers of an oncoming crypto winter, lots of companies were still flying high.
FTX was one of them. The crypto trading platform had entered 2022 on a high note. The firm had raised $900m in a series B funding round in July 2021. Then, in January 2022, FTX bagged another $400m.
The deal wasn't just one of the biggest deals raised across the crypto industry in 2022, but it also cemented FTX's position as a leader in the sector. The raise pushed the company's valuation past the $32bn mark. To put that in perspective, FTX was, at the time, worth more than UK bank NatWest.
The round was backed by Temasek, Paradigm, Ontario Teachers' Pension Plan Board, NEA, IVP, SoftBank Vision Fund 2, Lightspeed Venture Partners, Steadview Capital, Tiger Global, and Insight Partners, among others.
CEO and founder Sam Bankman-Fried, or SBF, said the Series C raise would enable FTX to "expand our global reach", make more acquisitions and "look to continue interacting with regulators".
By the end of the year, SBF would certainly be able to meet that final goal, albeit not in the way he probably wanted to. In November, FTX collapsed following a series of events that had laid bare just how flimsy its finances were. SBF was ousted as CEO.
By then, regulators, market watchdogs and prosecutors had started to look into just how poorly mismanaged the company was and if its leadership had misappropriated user funds. In December, SBF was arrested and is now facing a number of fraud and money laundering charges. He has pleaded not guilty.
The collapse of FTX has put the exchange's investors in an awkward spot. The US Securities and Exchange Commission (SEC) is reportedly investigating whether or not FTX's backers did their due diligence and thus fulfilled their fiduciary duty to their own investors. The reports haven't named which investors may have some uncomfortable questions to answer in the near future.
The fallout of the FTX drama has also rocked the halls of Capitol Hill. SBF had poured millions of dollars into the pockets of politicians, helping them fund their campaigns. Consequently, he'd become the go-to guy for when the lawmakers needed insights into how to regulate the market. Those close connections are not looking so good right now. Market watchers have predicted that the crypto regulations those law makers were working on will be woefully slowed down by the firm's self-immolation.
Market watchdogs have used the wreckage as an opportunity to strengthen the policing of the crypto industry. For SEC chair Gary Gensler the collapse of FTX gave him a chance to double down on his crusade to bring cryptocurrencies under the purview of the regulator.
"Until crypto platforms comply with time-tested securities laws, risks to investors will persist," he said in December. "It remains a priority of the SEC to use all of our available tools to bring the industry into compliance."
The collapse of FTX has also sparked a number of legal battles about who actually owns the business' assets, including its Bahamas properties and its $450m in Robinhood shares.
While the crypto community has distanced itself from the fallen fintech firm, its disintegration has highlighted just how intertwined the industry is
Let's take Genesis as an example. The crypto lender had loaned $175m to FTX before the company's demise. Once the exchange went up in flames, that dosh was gone.
That may have been manageable if Genesis hadn't already found itself at the wrong side of another collapse crypto company earlier in 2022. In July, Three Arrows Capital collapsed, taking with it $1.2bn of the $2.36bn it had borrowed from Genesis.
Consequently, Genesis froze withdrawals, which put its clients in a really bad position. Customers who used crypto exchange Gemini's yield farming service, which sits on top of Genesis' platform, now found themselves unable to access their assets. This caused a very public and messy confrontation between the two tech giants, which culminated in Genesis filling for bankruptcy in mid-January this years.
And, of course, FTX and its sister companies had invested in several other crypto businesses, as we've already seen in this list. So things are not looking great. And that's despite it raising one of the biggest crypto deals of 2022.
Near Protocol secured $350m
In April 2022, Near Protocol bagged $350m in a new founding round led by Tiger Global. Other investors included Republic Capital, Hashed, Dragonfly Capital and – yup, here we go again – FTX Ventures.
The round marked the blockchain developer's second nine-figure round of the year, having raised $150m in January.
Near Protocol said it would use the cash injection to "accelerate the decentralisation of the Near ecosystem."
OpenSea netted $300m in Series C round
NFT marketplace OpenSea made a splash at the beginning of 2022 by netting a $300m Series C round. The raise saw its valuation swim past the $13.3bn mark. Paradigm and Coatue co-led the round.
OpenSea CEO and co-founder Devin Finzer said the company would use the new cash injection to accelerate product development, improve customer support and safety, and "meaningfully invest in the wider NFT and Web3 community, and grow our team."
Fast-forward to July. Finzer had dramatically changed his tune by then. In a tweet, he announced that the leadership had "made an incredibly sad and difficult decision" sack roughly 20% of its team.
He blamed the layoffs on the "unprecedented combination of crypto winter and broad macroeconomic instability," saying that the cuts were needed to "prepeare the company for the possibility of a prolonged downturn."
Similar statements have been made all over the tech industry, not just the crypto space, when businesses have announced mass-layoffs in 2022 and 2023.
Amber Global bagged $300m to make users whole after FTX crash
Amber Global secured $300m in December 2022. However, it was clear that it basically did so to pay back users after the business' finances was affected by the FTX collapse.
In a Twitter thread, Amber Global said 10% of its total trading capital had been with the exchange when it crashed.
Amber had been valued at $3bn in its $200m Series B extension round in February, TechCrunch reported. Bloomberg reported at the time that the firm’s valuation has slid under $3bn, despite the Series C cash injection.
The deal followed on the heels of a Bloomberg report claiming that the crypto trader has ditched a Chelsea FC sponsorship deal and is axing 40% of its staff amid market turmoil.
Blockdaemon netted $207m in April
Blockchain infrastructure startup Blockdaemon secured $207m in April 2022, putting its valuation at $3.25bn. The round followed from its $155m Series B funding round from September 2021.
Sapphire Ventures and Tiger Global co-led the Series C round. Existing investors Softbank Vision Fund 2, Boldstart Ventures, StepStone Group, Matrix Capital Management, Lerer Hippeau and Kenetic also participated.
Blockdaemon said it would continue to keep building towards the "decentralised future" and add more acquisitions to its portfolio. It had previously bought staking and governance platform Lunie and blockchain solutions provider Anyblock Analytics.
It followed up on that pledge in July, 2022, by buying Danish digital asset security company Sepior.
Alchemy raised $200m at $10.2bn valuation
Web3 developer Alchemy joined the coveted decacorn club in February 2022 on the back of a $200m funding round. The raise put its valuation at $10.2bn.
Lightspeed and Silverlake co-led the investment. Previous investors a16z, Coatue, addition, Pantera and DFJ also participated in the raise.
“You need three core elements to build a successful business – a high-performance team, a quality product, and a laser focus on customer needs,” Ravi Mhatre, partner at Lightspeed, said at the time. “Alchemy is at the top of all three categories, and that’s why they’re one of the fastest growing companies in history.”
In August, Alchemy followed up the raise by acquiring etherum education platform ChainShot.
GlobalData is the parent company of Verdict and its sister publications.
