RootData: Q3 2024 Web3 Industry Investment Research Report

Author: RootData Research

Abstract

• In Q3 2024, the total number of financing events reached 321, a decrease of 25.69% compared to the previous quarter, with a total financing amount of $2.406 billion, down 15.04% quarter-on-quarter. The infrastructure sector continues to lead, with a total financing amount of $745 million, accounting for 30.9%. Bitcoin prices experienced wide fluctuations in Q3, rising 0.8% compared to the beginning of the quarter.
• The number of medium-sized ($5M-$10M) financing projects decreased by 30.4% quarter-on-quarter, while the number of large-scale (over $10M) financing projects decreased by 35.8%. Iris Energy became the largest single financing in Q3 with a financing amount of $413 million. Robot Ventures was the most active institution in Q3 with 22 investments. The most popular project tags for active institutions that invested more than 10 times were in the infrastructure sector (39.2%).
• Tier 1 funds are viewing OTC as an investment theme, with ecosystems like Solana, Bitcoin, Ton, and Base showing significant growth. With the onset of the interest rate cut cycle, lower capital costs will emerge, and Ethereum's leadership in the DeFi sector continues to benefit it.
• Data analysis tools, creator economy, and prediction markets have become emerging popular tags, with the crypto market increasingly favoring products with market fit (PMF). The infrastructure sector remains the primary choice for capital in blockchain, and high concurrency and parallel EVM may become one of the main narratives in the next cycle of public chains.
• Projects like Monad and EigenLayer have unlocked large financing ($50M+) with top institutions/exchanges, mainly involving L1/L2 infrastructure, LRT, and derivative DeFi. However, the lack of liquidity and severe selling pressure during the first half of the year has led projects/investors to adjust strategies, seeking cash flow and high liquidity to adapt to declining yields and stringent valuation analyses.

Q3 financing totaled $2.406 billion, down 15.04% quarter-on-quarter; infrastructure sector financing reached $745 million

In Q3 2024, Bitcoin prices showed wide fluctuations, with a slight increase of 0.8% compared to the beginning of the quarter. Web3 primary market financing activities remained active but showed a declining trend month by month. A total of 321 financing events occurred in the Web3 primary market in Q3 2024, a decrease of 25.69% quarter-on-quarter. The total financing amount in Q3 reached $2.406 billion, down 15.04% quarter-on-quarter.

The average financing amount slightly increased, indicating that institutions are more inclined to concentrate investments in quality projects. The median financing amount decreased slightly from $4.175 million to $4.15 million, suggesting that despite the reduction in funding amounts, institutions are still actively participating in small and medium-sized projects. The more cautious strategy has also led to a decrease in total financing amounts. This may be related to the poor performance of token TGEs in the first half of the year or the mismatch in valuations for early projects and institutional investments in the primary market.

Although Bitcoin prices in 2024 have returned to the highs of the last bull market, the scale of primary market funding has not reached the same level as before. The continued decline in financing scale and quantity in Q3 may be related to the lack of synchronization in altcoin market performance and the poor performance of tokens in the first half of the year, affecting investor confidence.

According to RootData statistics, the top three sectors in terms of financing amounts in Q3 were infrastructure, others, and DeFi. The total financing amount for the infrastructure sector reached $745 million, accounting for 30.9% of the total financing amount.

Notably, the "other" sector had a total financing amount of $453 million, accounting for 18.8% of the total financing. This phenomenon is driven by multiple factors, including the continued popularity of the MeMe sector this quarter, a significant increase in AI and Web3 integration projects, and the ongoing expansion of the DePin and Bitcoin ecosystems. Both investors and the market are searching for new narratives and innovations. The DeFi sector ranked third with a financing amount of $222 million, accounting for 9.2%, with a quarter-on-quarter decrease of 31.9%. In a market with limited funds and attention-driven investments, the lack of narrative and innovation in DeFi projects has led to a significant decline in financing scale.

Q3 saw 43 large-scale financing projects, a year-on-year increase of 13.2%; the total amount of mergers and acquisitions in the top 10 financing reached $681 million

In terms of financing amount ranges, there were 137 early-stage investment projects (under $5M) in Q3, a decrease of 14.4% quarter-on-quarter; 55 mid-stage investment projects ($5M-$10M), down 30.4% quarter-on-quarter; and 43 large-scale investment projects (over $10M), down 35.8% quarter-on-quarter. This trend may reflect that major institutions completed their "ambush" plans in Q2, and the scale of investments in Q3 has gradually slowed down. Additionally, the current difficulties in exiting for investment institutions suggest that Q4 or the short-term market may see considerable upward movement.

The highest financing project in Q3 2024 was Bitcoin mining company Iris Energy, with a financing amount of $413 million. Following closely was Bitcoin mining company Stronghold, which obtained $175 million through mergers and acquisitions. The third was the modular blockchain network Celestia, which completed $100 million in OTC financing at a valuation of $3.5 billion. Notably, among the top 10 financing projects, three were of the merger and acquisition type, with a total amount of $681 million, accounting for 57.5% of the top 10 total.

12 investment institutions made more than 10 investments in Q3, with Robot Ventures being the most active institution with 22 investments

According to RootData, 12 investment institutions that made more than 10 investments in Q3 2024 participated in a total of 160 investments. Robot Ventures topped the list with 22 investments, with the hottest project tags being infrastructure and DeFi. Following closely were Binance Labs and OKX Ventures, each participating in 16 investments. These two leading exchanges were particularly active in GamFi-related projects, with 5 and 6 investments, respectively.

Overall, infrastructure remains the most popular sector, with these 12 institutions investing a total of 65 times in this project tag, and 56 projects related to the DeFi tag. Additionally, DAO, NFT, and tools & information projects continue to remain lukewarm.

Tier 1 funds are viewing OTC as an investment theme, with ecosystems like Solana, Bitcoin, Ton, and Base showing significant growth

In Q3, large investments occurred in the OTC market, with leading projects like SOL, Near, and Aptos issuing OTC financing, indicating that more and more Tier 1 funds are viewing OTC as an investment theme to hedge against the current difficulties of new projects, liquidity tightening, and questioned FDV risks.

Unlike the market's skepticism towards the Ethereum ecosystem, the Ethereum ecosystem remains the most recognized infra by investors and developers, completing a total of 67 financings in Q3, with a total financing amount of $481 million. With the onset of the interest rate cut cycle, lower capital costs may drive on-chain prosperity, aiding the recovery and innovation of the DeFi sector, while Ethereum's leadership in this sector will continue to benefit it.

According to incomplete records, ecosystems like Solana, Bitcoin, Ton, and Base are showing significant growth, with Ethereum's total number of applications exceeding 2,500, still ranking first among public chains. The crypto market is attempting to solve the "high FDV low circulation" problem through the Meme economy, with Solana shining through Pump.fun, which achieved $100 million in revenue in just 217 days. Binance has continuously listed five projects from the Ton ecosystem, including Catizen, Hamster Kombat, and Dogs, leading to a surge of investors entering the Ton ecosystem. The Bitcoin ecosystem may become the next user growth platform, with rapid infrastructure development (e.g., Babylon, Fractal) in addition to inscriptions and runes.

Data analysis tools, creator economy, and prediction markets have become emerging popular tags. High concurrency may become one of the main narratives in the next cycle of public chains

Based on RootData's popular tags (with over 1,000 clicks), it can be observed that data analysis tools, creator economy, and prediction markets have seen a rapid increase in clicks, which may be attributed to the market influence of star projects and indicates that the crypto market is increasingly favoring products with market fit (PMF).

• Data analysis tools: RootData, SoSo Value, DeFiLlama…
• Creator economy: Story Protocol, Tari, Follow…
• Prediction markets: Polymarket, Limitless, JogoJogo…

The infrastructure sector remains the primary choice for capital in blockchain, with its compliance and development prospects far superior to other types of blockchain projects. High concurrency and parallel EVM may become the next major narrative for public chains, with projects like Monad and MageETH expected to help achieve exponential increases in blockchain TPS. Traditional giants are still intensifying their layout in the Web3 industry, such as Sony launching the L2 network Soneium.

Q4 popular TGE projects reveal that projects like Monad with tens of millions or hundreds of millions in financing can yield returns of several times to hundreds of times due to different investment timing

Overview of popular TGE financing in Q4:

• Projects with financing amounts exceeding $100 million include Monad, Farcaster, EigenLayer, Magic Eden, and Berachain;
• Projects with financing amounts between $50 million and $100 million include Babylon, Scroll, Morpho, and Eclipse;
• Projects with financing amounts between $10 million and $50 million include Movement, Puffer, Walletconnect, and Sophon;
• Projects with financing amounts less than $10 million include Roam, Symbiotic, deBridge, and Grass.

Representative institutional investors include CEXs like Coinbase, OKX, Binance, and leading institutions like Polychain, Hack VC, IOSG, Robot Ventures, Paradigm, Variant, a16z, and Delphi Digital.

The main focus of Q4 popular TGE is on L1/L2 infrastructure, LRT, and derivative DeFi, followed by Solana ecosystem, RWA, and DePIN applications

Overview of popular TGE financing in Q4: Monad received the highest financing and support from 8 leading institutions, expected to launch on Coinbase, Binance, and OKX, with estimated selling pressure being low (32 to 2 times). Eigen received the third-highest financing and support from 6 leading institutions, with a post-TGE multiplier of 43 to 3. Unlike the high multiplier trend of tokens launched this year, the selling pressure is generally low, and the valuation and first-round unlock costs are difficult to recover. Projects supported by 4 to 5 leading institutions include Farcaster, Berachain, Scroll, Babylon, Morpho, and Movement, with Scroll, Babylon, and Movement expected to have high multipliers, all backed by CEXs, likely achieving good exit liquidity under favorable market conditions.

Overall, L1/L2 infrastructure remains favored by the market and institutions in Q4 popular TGE projects, achieving high financing amounts and return multipliers. Additionally, LRT and derivative DeFi are driven by research on ETH AVS and interest rates during the bear market, with return rates and market heat extending from Q1 to Q4. The rapid rebound of Solana ecosystem applications after the collapse of FTX in 2021 continues to receive support from institutions and the market. RWA and DePIN are driven by market warming and traffic in Q1, with institutions expected to unlock related tokens in Q4 and achieve considerable return rates. Morpho has gained support from over 5 leading institutions in yield-enhancing lending, making it worth watching.

The lack of TGE liquidity in H1 2024 calls for attention to projects with insufficient CEX co-investment to address exit channels and liquidity risks for leading projects

New narratives & exit liquidity: Cross-analysis of popular TGE projects shows that the exit channels for projects with financing amounts exceeding $10 million are basically covered by Coinbase, OKX, and Binance. Polychain, Coinbase, Hack VC, OKX, IOSG, Robot, and Paradigm welcomed a large number of TGE projects in Q4. The main issue facing TGE in the first half of 2024 is the lack of sufficient and effective exit liquidity, so investors should focus on projects with low co-investment from CEXs but large financing amounts, such as DePIN, Solana ecosystem projects, and LRT projects. In a poorly performing market, such projects are expected to face similar selling pressure as in the first half of the year; conversely, in a market with ample liquidity, these unlocking projects will inject liquidity into the SOL and ETH ecosystems.

Overall, Q3 financing data has declined, but institutions remain actively investing. For projects approaching TGE, most of the last round of institutional investors in infrastructure may find it difficult to recover costs during the first round of unlocks due to the poor performance of altcoins, which will affect whether such liquidity flows into the secondary market based on market conditions. In contrast, the Solana ecosystem, LRT, and DePIN still have residual heat in H1. If the last round of institutional investors can achieve liquidity unlock on Binance, Coinbase, and OKX, they are likely to recover costs during the first round of unlocks and may inject liquidity into quality assets and the primary market.

Institutions should closely monitor the performance of altcoins to adjust their segmented or boutique investment strategies. Project financing should accelerate the pace to actively lower valuations or enhance core competitiveness (including cash flow or leading effects). Retail investors should closely watch projects with high base multipliers and be aware of the risks of unlocking price fluctuations. The industry should consider the impact of the upcoming elections, interest rate policies, financial year-end reports before and after Christmas, and liquidity withdrawal during the Q2 tax season of the following year on the short-term price fluctuations of risk assets.

Media Partners

About RootData

RootData is a data platform for discovering and tracking Web3 assets, pioneering the encapsulation of on-chain and off-chain data for Web3 assets, with higher data structuring and readability, dedicated to becoming a productivity-level tool for Web3 enthusiasts and investors.

Website: www.rootdata.com
X: @RootDataLabs
TG: t.me/Rootdatalabs

Disclaimer

This report is produced by RootData Research, and the information or opinions expressed in this report do not constitute investment strategies or advice for any person. The materials, opinions, and speculations contained in this report reflect the judgment of RootData Research as of the date of publication, and past performance should not be used as a basis for future performance. At different times, RootData Research may issue reports that are inconsistent with the materials, opinions, and speculations contained in this report. RootData Research does not guarantee that the information contained in this report remains up to date, and reliance on the information in this material is at the reader's discretion; this material is for reference only.