By The Crypto.com Capital team—@cryptocom_cap

Time flies when you’re doing deals. That was the case for us at Crypto.com Capital, as the one-year anniversary of the launch of our fund passed almost without us realizing — that’s how busy we were closing deals. (We closed more than 50 in our first year, to give you some idea.)

With the market quieter, now is a good time to look back and reflect on what we’ve learned since the fund was born in March 2021.

Here’s a recap of the key developments:

• We have completed more than 60 deals focused on early stage token and equity investments
• Our scope is global and we have invested in projects across Asia, Europe and the US
• Our investments are chain and sector agnostic
• The companies in our portfolio range from Defi protocols, layer (L1) blockchains, and layer-2 (L2) scaling solutions, to gaming, NFT infrastructure and more
• The fund initially launched with a $200M capital commitment, which we increased to $500M in January 2022 — that’s all our own money at Crypto.com
• We are a principal investment fund managing Crypto.com’s balance sheet capital. Not having LPs affords us flexibility when it comes to deals and maximizes our strategic involvement and value for portfolio companies. Without pressure to return capital to LPs, we can align ourselves with portfolio companies as long-term holders.

Thesis

“We created the Crypto.com Capital fund to define the future of crypto. We seek out the industry’s most promising founders and arm them with money but also our expertise and network in order to help them reach their full potential,” Bobby Bao, Crypto.com co-founder and Managing Director of Capital.com Capital, said of the fund’s mission.

The crypto industry’s future will be defined by world-class founders who build new services and solve complicated problems. Helping them succeed is imperative for the industry and Crypto.com Capital is a partner that’s dedicated to raising the tide for all boats and pushing the web-3 industry forward.

We are a founder-first fund that supports early-stage companies as they build the future of web3. Founders can count on us to provide key value-adds: our institutional network, liquidity, operating expertise, and access to a global user base.

Founder first

With our connection to Crypto.com, we have roots as a startup. Our company grew from nothing in 2016 to become the world’s fastest growing crypto trading platform that also includes a high-profile NFT marketplace, popular crypto card service and more.

Entrepreneurship is still a core part of our DNA and we relish the opportunity to work with ambitious and talented founders to build the next generation of crypto startups. We particularly relish bouncing ideas off and collaborating with founders who want to push the boundaries and redefine what the internet can look like using the power of decentralization and a focus on more user-centric experiences.

Key value-adds

Landing investment from Crypto.com Capital is never simply about money. As a fund, we give our startups a range of “unfair advantages” that beyond simply putting money in the bank. Portfolio companies can lean on our token economics expertise, institutional network, access to liquidity, operating expertise, global user base and general network that comes with being a top web3 firm.

Multi Disciplined team

Our team draws experience from a range of industries, including TradFi, investment banking, cryptocurrency exchanges and journalism. We believe it is important to offer different perspectives and the diverse background of our team gives us a multi-disciplined approach for evaluating investments and providing quality value for our portfolio companies beyond just capital.

Crypto native

As an exchange fund, Crypto.com Capital sits uniquely between retail users and crypto companies. We’re obsessed with investments in companies that are building fundamental products and services which will power a new generation of internet services that focus on decentralization and a superior user experience.

Navigating the bear market

As crypto industry veterans, we know bear markets are a time when critical technology products and services are built — it’s a time when investors have a key part to play. Anyone can invest in crypto startups when the market is booming, but the real test is to find world-class founders and help them bring their visions to life when conditions are more challenging. That’s exactly the reality that the industry finds itself in today.

At Crypto.com Capital, we continue to hunt for companies that fit our thesis for each of our focus verticals:

• Infrastructure: Building critical L1 infrastructure, L2 scaling solutions, or tooling that help blockchains, decentralized apps (dApps), and web3 services scale to reach mainstream users
• DeFi: Building innovative DeFi protocols that remove multiple layers of fees and intermediaries to bring new access to financial products to a larger audience
• Gaming: Expansive metaverses allowing users to build, own and monetize their virtual experiences
• NFTFi: Developing consumer products that enable our industry to reach mainstream adoption, or financialization tools that unlock liquidity for NFTs
• Mass Adoption: Innovative products that have the ability to onboard the next billion users into web3

If you’re a founder who is building these products, we’d love to connect with you. You can visit crypto.com/capital for more details and our submission form, or contact us via email at capital@crypto.com

About Crypto.com

Crypto.com Capital is the $500 million principal investment arm of Crypto.com, a leading global crypto exchange with over 50 million registered users. We are a chain agnostic fund investing across themes including infrastructure, DeFi, gaming, and the metaverse.

By Jon Russell, partner, Crypto.com Capital — @jonrussell

Earth-shattering speed of development is what makes web3 the most exciting industry on earth.

Decades of progress happen at incredible pace. Decentralized finance (Defi), for instance, has rapidly grown into a vibrant financial world over the last two years with Ethereum alone holding more than $30 billion in total volume locked (TVL), according to tracking service Defi lama.

Yet, for all the progress and sophistication, there are holes. At a fundamental level, many web3 startup’s finances are run using manual processes, leaving them at risk of mistakes or other points of failure.

That’s to say that many startups pay their contributors, freelancers, service providers and others manually. That means that old combination of spreadsheets and copy-pasting addresses. Oftentimes, too, teams use accounts across different exchanges or wallets to avoid keeping their eggs in one basket but that also presents headaches.

All in all, web3 accounting and treasury management can be exceedingly cumbersome, which is ironic given how tokens can zip across blockchains, bridges and protocols in seconds and with minimal effort thanks to smart contracts.

We’re obsessed with founders who are building core technology and services, particularly in this current bear market, and that’s why we are excited to back Headquarters, a treasury management service headquartered in Singapore that simplifies how web3 companies handle their payment flows.

Headquarters announced today it has closed $5 million in funding which Crypto.com Capital has co-led alongside a number of other noted venture capital firms and a group of well-connected angels.

Headquarters (hq.xyz) on Twitter: "1/ It's been a few weeks since we've gone public with what Headquarters is and who we are. Today, we are glad to announce our $5M pre-seed round and the beta launch of HQ Teams! pic.twitter.com/3o7KpuZGwC / Twitter"

1/ It's been a few weeks since we've gone public with what Headquarters is and who we are. Today, we are glad to announce our $5M pre-seed round and the beta launch of HQ Teams! pic.twitter.com/3o7KpuZGwC

Headquarters CEO Sharon Lourdes Paul was a founding member of StraitsX, where she played a key role scaling the project and making it Singapore’s first compliant SGD stablecoin. Fellow co-founder and CTO Sunny Singh has spent a decade in engineering and technical roles, including time at billion-dollar travel startup Traveloka.

If you’re building a web3 startup, be sure to look at the Headquarters service to make your life easier: hq.xyz

And if you’re building an exciting web3 startup, reach out to us at capital@crypto.com or visit crypto.com/capital for more information.

About Crypto.com

Crypto.com Capital is the $500 million principal investment arm of Crypto.com, a leading global crypto exchange with over 50 million registered users. We are a chain agnostic fund investing across themes including infrastructure, DeFi, gaming, and the metaverse.

Layer 2 are technologies that work on top of existing layer 1 blockchains, which host decentralised apps (dapps).The main purpose of these (layer 2) technologies is to solve the scalability limitations of layer 1 blockchains and allow for more transactions and lower gas fees. Layer 2 solutions work by processing transactions separately from the layer 1 infrastructures they connect to, however, when combined together, they compose the entire network. What’s more, what makes a layer 2 different from other side chains is that it inherits the security from Ethereum mainnet directly, whereas other side chains don’t.

Assisting layer 1 blockchains with handling transactions has been critical to the crypto community for many years. Today, the most popular layer 2 technologies on Ethereum come with two variations: zero-knowledge rollups or optimistic rollups. This post will explore the differences between these two technologies and why they’re considered to be an essential part of the future of web3.

In summary: Optimistic rollups work without the generated validity proofs. That means that all transactions are processed on the blockchain. The optimistic system and the contestation period require a long withdrawal waiting period, which may lead to rejection due to potential inaccurate state and long withdrawal delay.

In contrast, zero-knowledge rollups have the advantage of a much shorter waiting period but on the flip side they consume greater computational power. In addition, zero-knowledge rollups can’t directly execute smart contracts on the underlying blockchain while some rollups still don’t offer Ethereum Virtual Machine (EVM) support which limits their potential application with dapps.

EVM compatibility is a big issue for ZK-rollups, while for optimistic rollups, the centralization of sequencers, and the development of fraud proof are some of the biggest challenges

But there’s much more to come. The development of the ZK rollups and optimistic rollups continues at a rapid pace. During the past two years we have seen an unprecedented growth in contribution, for example Polygon’s recently announced zkEVM, ZKSync and Optimism, and that has enabled transactions at high speed and low cost on blockchains.

Generally, the blockchain space is still in an early stage compared to the core technologies that power web2 services. We expect that Ethereum layer 2 solutions will optimize the cost, performance, throughput and capital efficiency of dapps . Solving these issues will go a long way to enabling the mainstream adoptions of decentralized blockchains and many of the new, user-centric models that web3 promises to bring to market.

Ultimately, layer 2s are highly meaningful for the future of web3. They’re potentially a scalable, low cost and high secure infrastructure that can be the foundation for running the web3 economy.

Scaling has two layers of meanings, first it can scale more transactions, increase the throughput, secondly, it can scale more functions to be developed on the chain, L2 provides the possibilities for more functions, smart contract templates to run on the chain, instead of off-chain. Web3 must aspire to being an economy, not just a bunch of isolated dapps. The web3 economy should empower individuals to live, learn, earn and be social in an entirely new way on the internet.

By Ben Wee, VP, Crypto.com Capital (@benhwx), and Ashley Ouyang, Principal, Crypto.com Capital (@Aisashley)

Despite the backdrop of a challenging period for the industry, web3 builders and investors alike are alive and kicking as we observed at the recent EthCC event in Paris. Here are our notes and takeaways from this tier-one event.

Ethereum sets the standard

EthCC and Ethereum events in general continue to carry the flag for web3 conferences both in terms of the quality of founders and companies on show, with the Crypto.com Capital team observing significantly more leads to follow up with post-conference.

EthCC featured a keynote from Ethereum Foundation’s Vitalik Buterin who used his time to outline plans for the much-anticipated Ethereum merge, an event that is critical for the protocol to transition into a proof-of-stake network. Outside of the core Ethereum organization, major L2s including Starknet, Arbitrum and Polygon held events and announced significant news.

Starknet’s one-day conference (Starknet CC) followed the conclusion of EthCC and was a major draw for Starknet firms such as AnySwap, JediSwap, ZkLend, Pontis, Braavos and ZKX all in attendance. The significant excitement around the Starknet ecosystem bodes well for the $STARK token launch in September.

New technologies make waves

We witnessed continued interest in emerging Move-based blockchains including Aptos and Sui from Mysten Labs. Discussions of these two companies — which emerged from Facebook’s now-shuttered Diem blockchain project — center around the potential to ship faster and more securely using Move, a Rust-based language that was specifically developed for Diem. Developers we spoke to suggest it takes a week to learn Move if you are familiar with Rust. This trend is just starting.

Similar excitement is buzzing around L2s like Starknet and Polygon. Near-term catalysts for Starknet include the launch of $STARK tokens in September, which is expected to further boost usage of Starknet. For Polygon’s newly-announced ZkEVM, we see interest given that prior zero-knowledge solutions like Starknet and ZkSync have not been EVM-compatible. This new development will allow builders with Solidity knowledge to easily take to Polygon’s ZkEVM—ZkEVM is scheduled to fully launch in 1–2 years.

A new normal for funding

The narrative around venture capital in the current market is to focus on fundamentals such as DeFi and infrastructure-themed projects. Gamefi products are, broadly, less of a focus although there’s emphasis on gaming infrastructure projects such as gaming SDKs, and in-game physics engines.

The fundraising market has, as publicized, seen valuation expectations fall in line with dipping token prices. Successful founders will look at long-term plans and visions, rather than optimizing for shorter-term targets like valuation. In other words, raise what you need and plan for success — that was the message from both founders and investors at EthCC.

Finally: Community is events and events are community

We also hosted an event on the sidelines of EthCC, alongside Cronos Chain, Woo Network, Dora Hacks, IOSG, Klaytn, and IoTeX. The night was filled with insightful talks, great networking, and plenty of refreshment in Paris.

We’re grateful to our co-hosts and attendees for making the event a memorable one and we look forward to hosting again.

By Sharon Liang, principal, Crypto.com Capital — @aeonwei

This last week has been hugely challenging for the crypto industry, particularly recent days, but looking beyond market prices, we continue to see immense promise for the future. That was clear from attending Coindesk’s Consensus event in Austin, Texas, June 9–11.

Mixed market sentiments but still on the bright side

Market prices and the overall value of crypto has declined in the day since the event which has led to belt tightening while the waters are choppy, but there was a clear belief and spirit of optimism from startup and founders in Austin.

Yes, adjustment is required in a bearish period as plans become long-term but teams are making changes accordingly and not packing their bags. The hottest themes we observed included infrastructure and tooling, the types of picks and shovels businesses that are key to scaling and reasonable downturn resistant. Notably, omni-chain is now mandatory for any crypto company while it is widely-acknowledged that there’s work still to be done on product UI and UX to foster mainstream option of crypto services..

New money continues to arrive

Existing web3 players continue to raise new funds but, perhaps more importantly, there continues to be a stream of traditional financial institutions conducting deep research into the feasibility of token funds and jumping into the fray.

Within the industry, market markets and other players that don’t currently have funds are moving along the ladder to start ventures, smaller VCs are partnering together. The sense from the show is that this industry is here to stay, and now is a good time to reset, rethink and revisit the industry with a brand new pair of eyes.

New founders alliances

There’s a changing entrepreneur composition with more “web 2.5” startups — a crude phrase that often denotes a company with traction and product market fit that’s adopting crypto features or moving into the space fully — emerging.

That’s bringing an increase in web3 equity deals, and an exciting blend of younger-generation founders with brilliant product ideas working closely with veterans from web2, bringing a new balance of team composition and strengths. We see these alliances as the type with great potential to expand the existing base of crypto users and increase mass adoption.

Evolving investment theses in the bear market

The changing markets will increase the types of investments and deals that the crypto market sees. From conversations at Consensus, and other interactions, we see an increase in OTC deals and secondary selldowns emerging as quality companies and ecosystems with promise find new ways to work with the investment community, which is still growing in numbers as stated earlier.

There’s likely an increase in M&A as founders make tough decisions on their business in bearish times, many will decide alliances and M&A trade-off are the best route to continuing their journey in hard times. There will, and already are, opportunities around distressed assets and those caught up in market turbulence.

Crypto.com Capital on Twitter: "We closed out #consensus2022 swinging with @orderlynetwork at @topgolfaustinGreat to hang out with co-hosts @finance_ref @MetaWebVC @proximitylab and our guests who turned up and let rip⛳🏌️🔥 pic.twitter.com/LGpsdhbJGC / Twitter"

We closed out #consensus2022 swinging with @orderlynetwork at @topgolfaustinGreat to hang out with co-hosts @finance_ref @MetaWebVC @proximitylab and our guests who turned up and let rip⛳🏌️🔥 pic.twitter.com/LGpsdhbJGC

Regulators are gearing up

Finally, it was impossible to ignore the dialogue around increased regulation. The camp is split, or it was around the Consensus show, between those waiting to see whether regulations will initially be strict before later loosening their controls; the opposite view was that regulations will continue to be light touch.

–

Crypto.com Capital, the venture arm of Crypto.com invests in crypto startups at Seed and Series A stages. With $500 million earmarked for investment, Crypto.com Capital is committed to accelerating the growth of promising web3 startups. In our first year of operation, we’ve completed more than 70 deals across the world with companies across areas including Defi, NFTs, web3 tooling, scaling, gamefi and more.

If you’re a web3 founder, you can contact Sharon via sharon.liang@crypto.com or visit Crypto.com/capital for further information.