Q2 2022 Cryptocurrency Market Investment and Financing Report: GameFi Becomes an Investment Keyword

The cryptocurrency market experienced significant volatility in the second quarter.

On the macro level, the Federal Reserve has confirmed a 75 basis point rate hike to 1.75%, the largest single increase since 1994, nearly thirty years ago. Under the backdrop of rate hikes, investors' trading sentiment has been dampened, likely leading to the sell-off of risk assets before an economic slowdown, which has also brought a bearish sentiment to the crypto market.

From the perspective of the crypto market itself, the Luna collapse and UST de-pegging in May not only pushed the narrative of algorithmic stablecoins into a dead end but also triggered a series of chain reactions. Amid the sharp decline in token prices, a large amount of collateral held by institutions faced liquidation, the lending market shrank dramatically, and organizations like Three Arrows Capital, Celsius, Jump, Hashed, Delphi suffered heavy losses. Some CeFi platforms also faced redemption pressures from users.

Numerically, the total value locked (TVL) in DeFi plummeted from over $240 billion to the current $72 billion, a 70% decrease. The NFT market also underperformed, with market cap dropping from $35 billion at the start of the year to $22.3 billion, a 36% decline. In GameFi, Axie Infinity, once the leading P2E blockchain game, saw its game token AXS fall by 92% from its peak.

It can be said that in Q2 2022, the crypto market was in chaos.

Despite the new lows in the secondary market, investment trends and themes in the primary market are taking shape. Established institutions and new investors are rushing in, seeking the best opportunities across various verticals. The primary market often precedes the secondary market in identifying hot sectors, also indicating an "information lag" before the secondary market's investment direction. Therefore, understanding primary market financing activities is akin to laying out an early blueprint for future secondary market investments.

Looking back at primary market investment activities in Q2, Odaily Planet Daily found:

There were 511 financing deals in Q2, with 28 transactions exceeding $10 million;

Crypto financial service providers are closely linked to traditional finance and continue to innovate in custody, settlement, and payments, attracting more capital;

In terms of number and amount of financing, GameFi is the preferred theme for major investment institutions;

A total of 11 institutions participated in more than 10 investments in the quarter;

Animoca Brands participated in 41 deals, making it the most active investor;

Traditional institutions and enterprises are more inclined to deploy Web3 in areas like transaction payments, metaverse, and DAOs.

Note: Odaily Planet Daily classifies all projects disclosed in Q2 based on business type, target audience, and business model into five major tracks: Infrastructure, Applications, Technology Service Providers, Financial Service Providers, and Other Service Providers. Each track is further divided into sub-sectors including GameFi, DeFi, NFT, Payments, Wallets, DAOs, Layer1, Cross-chain, and others.

Q2 saw 511 financing deals with a total disclosed amount of $12.713 billion

According to Odaily Planet Daily's incomplete statistics, from April to June 2022, there were 511 crypto investment and financing events worldwide (excluding fundraisings and mergers), with a disclosed total amount of $12.71 billion, concentrated in infrastructure, technology service providers, financial service providers, applications, and other service sectors. Among these, the technology service provider sector received the most funding, totaling $3.583 billion.

Among all financing events, 28 deals exceeded $10 million in size. Infrastructure sector had 3 deals, technology service providers 5 deals, financial service providers 12 deals, other service providers 3 deals, and applications 5 deals.

According to the Q1 2022 blockchain report released by CB Insights, the blockchain industry raised $9.2 billion in the first quarter, with 461 blockchain investment and financing transactions, including 28 deals over $10 million.

In comparison, activity in the primary market in Q2 showed some increase. The financial services sector, closely linked to traditional finance and capable of continuous innovation in custody, settlement, and payments, supports growth in the financial industry and thus attracted more attention.

Market impact led to sharp decline in financing activity in May and June

In May and June, the crypto market was heavily impacted by Luna's collapse and news of major institutions facing insolvency, leading to persistent low market sentiment and severe on-platform capital losses. This is reflected in the Q2 financing data, which shows a rapid decline in both the number and amount of deals, indicating low investment activity. In April, there were 184 deals totaling about $7 billion; in May, 165 deals totaling about $3.54 billion; and in June, 162 deals totaling about $2.12 billion.

GameFi and NFTs are more favored by capital

Looking at the distribution of financing by sub-sector, GameFi-related applications, infrastructure, and technical solutions attracted many large institutions and were the most favored by capital, accounting for 82 deals, or 16% of total financing, ranking first. There were 9 deals specifically investing in GameFi technology services.

Despite the short-lived boom and the emergence of many Ponzi projects, which give an illusion of a "flash in the pan," the focus on investing in GameFi applications and infrastructure indicates that capital still holds high expectations for GameFi.

NFTs also attracted significant capital, with 67 deals, ranking second. As the NFT market expands, its ecosystem continues to improve. When combined with IP incubation and copyright commercialization, NFTs have become an important tool for brand marketing and external promotion for institutions. Since the explosion of digital collectibles, consumer acceptance of this new form of collecting has increased, and NFTs are entering a period of accelerated development.

Other sub-sectors also saw active financing, with 60 deals, ranking third. These include incubation, consulting, marketing, technology development platforms, on-chain monitoring, carbon credits, and points rewards. This reflects a positive trend: investment institutions are actively exploring new directions, expanding Web3 use cases, and increasing engagement opportunities with end users.

In terms of financing amounts by sub-sector, GameFi leads significantly, with $2.996 billion, accounting for 23.5% of total industry funding. The transaction and payments sectors also performed well, with $1.6 billion and $1.353 billion respectively, ranking third and fourth. Meanwhile, on-chain storage, data, and blockchain infrastructure technologies received less attention.

Additionally, before Ethereum's upgrade, Layer 2 solutions were considered the main way to achieve faster transaction speeds and higher throughput without sacrificing decentralization and security. Layer 2 has long been highly anticipated. However, data shows that Layer 2 projects had a poor financing performance this quarter, with only 5 projects receiving investments totaling $190 million.

Compared to last year, when many institutions launched dedicated funds to invest in and incubate DeFi projects, the experience of security vulnerabilities, token supply mechanisms, and liquidations during market downturns has made investors more cautious and rational about DeFi investments.

The largest single investment was $2 billion (Epic Games)

As large amounts of capital flooded into the market, valuations of leading projects kept rising, repeatedly breaking industry records for single deals. Based on specific sectors, the largest single investments in each vertical are as follows:

In infrastructure, Crusoe Energy, a startup focused on Bitcoin mining, completed a $350 million funding round led by G2 Venture Partners.

In GameFi, Epic Games, a game developer, raised $2 billion at a valuation of $31.5 billion to build the metaverse. This is currently the largest single financing deal in the crypto market. (Odaily Planet Daily note: Strictly speaking, Epic Games still belongs to the traditional game technology sector; it is unclear whether blockchain, cryptocurrencies (including NFTs), will play a role in their plans.)

In the financial services sector, USDC issuer Circle completed a $400 million funding round, continuing efforts to promote global economic transformation.

In other service sectors, football media startup OneFootball secured a $300 million Series D funding, and established a new joint venture, OneFootball Labs, with Animoca Brands and Liberty City Ventures, to explore sports + NFT development.

In the application sector, three projects—NFT project Genies, metaverse project Improbable, and on-chain job platform Naetion—each received the largest funding amount of $150 million.

11 institutions have made more than 10 investments

With the increase in deal volume, the landscape of investment institutions is also changing. In Q2, 11 institutions made more than 10 investments, with Animoca Brands leading at 41 deals. Other active investors include Polygon (22 deals), Coinbase Ventures (22 deals), a16z (21 deals), Shima Capital (20 deals), Dragonfly Capital (18 deals), Hashed (16 deals), Tiger Global (13 deals), LD Capital (13 deals), FTX Ventures (11 deals), and Pantera Capital (11 deals).

It is noteworthy that Polygon, as a rising competitive ecosystem, has accelerated its investment in primary projects and is relatively optimistic about the payments, GameFi, and DAO sectors.

Additionally, many traditional institutions and enterprises participated in crypto market financing in Q2, including Tencent, SoftBank, Fidelity International, BlackRock, Goldman Sachs, and Sequoia Capital. Their investments mainly focus on transaction payments, metaverse, and DAOs, with a stronger emphasis on compliance.