Welcome back to Chain reaction.

Last week we looked at Solana’s smartphone and the post-Apple tech industry. This week we look at a web3 without Big Tech.

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no millionaires allowed

Unlike other moonshot technology categories, it is becoming increasingly clear that there is no massive whitespace for Big Tech in determining the future for crypto.

This week, Meta announced that it will close its Novi crypto payment wallets in September. Available in only a few regions, this pilot was pretty much the last hurray of the company’s broadly ambitious Diem stablecoin plans and leaves the company with no clear path forward for a crypto game beyond its current networks.

This failure was no surprise, Meta has been a punching bag for regulators over the years and that has played out most aggressively in undermining their crypto ambitions – something that eventually led to the sell-off of its Diem assets and the exodus of are top talent. Meta isn’t alone, many of the largest $1T+ market cap companies of technology (or at least the ones that were there a few months ago) haven’t made a blockchain game despite ideal positioning. For some companies this may be ideological, but for others it is clear that the regulatory risks are too great to jeopardize their other revenue streams.

If we compare crypto to another moonshot like AR/VR, it is clear that the government generally has no idea how to regulate internet native social networking companies while they have a pretty good idea of ​​what they are doing when it comes to it. throwing financial instruments and vehicles into proper buckets. Not having this diversified market technical support means the lows could remain quite low for crypto hopes pinned on web3 aspirations. AR/VR has been in a dry spell for years, but Meta is spending the industry going through the drought with no apparent focus on current earnings, this is not an investment GAFAM will soon be dropping into web3.

While most in the crypto industry won’t cry about Meta’s lack of inclusion in crypto’s core toolkit, the reliance on the luck of financial firms bought entirely in crypto alone is why the current flavor of crypto consolidation is so seems chaotic. This is likely to be a very turbulent year or more for the crypto industry and the deep war chests of the top tech companies will not make life any easier for them.

the latest pod

Last week while I was away you heard from our talented colleague Jacquie Melinek† Well, she’s back! Kudos to Jacquie, who came in while Lucas was sick this week to help me unpack some incredibly juicy but complicated topics, including how all roads in the DeFi crisis seem to lead back to the same hedge fund.

With us as a guest of this week was one of the most memorable founders I’ve met – Tux Pacific from crypto custodial startup Entropy. Pacific is a trans, anarchic cryptographer who raised $25 million in seed capital from a16z and other VCs last month. They joined us to talk about what it’s like to raise venture capital as an anti-capitalist and what they think is wrong with the way digital currencies are typically stored.

Subscribe to Chain Reaction at Apple† Spotify or your alternative podcast platform of choice to join us each week.

Follow the money

Where seed money moves in the crypto world:

1. Echo3D Raised $5.5 million for cloud storage and AR/VR streaming in a round led by Qualcomm Ventures.
2. Web3 Scaling Protocol AltLayer closed a $7.2 million starting round with Polychain as the lead investor.
3. Crypto Gaming Company Boiler raised $6.6 million led by Cherry Ventures to build the “Pixar of web3”.
4. Binance Labs Initiated $3 Million Seed Investment Magic Squarea crypto app store.
5. DeFi platform Raise Labs scored $1 million in seed funding led by Dapper Labs.
6. Crypto Tax Platform KoinX brought in $1.5 million from angel investors, including Polygon’s Sandeep Nailwal.
7. Gaming-focused blockchain for layer two Oasys has raised $20 million in funding through a private token sale to investors including Republic Capital and Crypto.com.
8. DimensionXa game-to-earn gaming company, picked up $3 million in a funding round led by Coatue.
9. Klang games captured $41 million led by Animoca Brands and Kingsway Capital for its virtual Seed world.
10. Singaporean Metaverse Startup Enjinstarter Raised $5 million from True Global Ventures.

this week in web3

It’s Anita again, back from a week out of the office, during which I had some time to reflect on the strange cognitive dissonance that seems to be unfolding on web3. Valuations look miserable, cryptocurrency lenders declare bankruptcy almost daily, and the total industry is now worth only a third of what it was at its peak last year. But, as Washington Post columnist Sebastian Mallaby points outthe same financial fate befell many other technologies that continued to change the world after that.

Obviously, the jury is still out on what exactly this downturn means for crypto, but one thing is clear to me when I look back at the recent meteoric rise and fall of this industry. We haven’t actually seen this before, as so many investors and ecosystem participants would have you believe. Two major things have changed from previous crypto declines, and both stem from crypto moving from a niche hobby for eccentrics to a mainstream, regular table topic.

First of all, crypto companies are now much more interconnected than ever before, akin to traditional financing in 2008. Sam Bankman-Fried is the new Jamie Dimon, helping other companies out left and right. Crypto lender Celsius that stopped withdrawals last month may have been the Lehman Brothers moment in the industry. I can’t say I’m totally surprised that the crypto markets are a little sober, but there are a shocking number of parallels between tradfi’s best-known crisis and crypto’s current disasters. Even if the underlying technology is there to stay, it’s still a defining disaster for the industry — let’s not forget that mortgage-backed securities and CLOs still exist, despite the 2008 carnage.

The second major difference I see between this crypto drop and previous cases like this is that crypto just isn’t that quirky anymore. His foray into the mainstream has spawned a good dose of groupthink, as evidenced by the hackneyed, jargon-like phrases we hear over and over again.

They say we’ve “seen this before,” the crash is a “black swan event,” but don’t worry, “it’s still early.” Crypto will eventually achieve “mass adoption” and “boarding the next billion users” as long as the founders stick with it, because “the best time to build is during a recession.”

I’m not saying I’m a crypto OG. I actually only started following it very closely during those gloomy lockdown days, when a lot of people were doing the same thing. But I often remember that I was much younger and listened with curiosity and wonder to a relative of mine who hates authority and has an affinity for mathematics and explains to me why blockchain could change the world. I get a little nostalgic about it when crypto was a space full of contraries, outcasts and truly independent thinkers. To me, that’s the most interesting thing about this space, so I say let’s keep crypto weird.

TC+ analysis

Here are some crypto analyzes from this week that you can read on our subscription service TC+ (written by Jacquelyn Melinek of TC):

Crypto losses hit $670 million in the second quarter, up 52% ​​from a year ago
The second quarter of 2022 was one for the books amid a tumultuous period of what I like to call market madness, and the evidence is mounting for crypto markets. Q2 was fraught with massive crypto “losses” in the web3 ecosystem, about 97% of which resulted from hacks, according to a new report.

Crypto Trading Volume Drops in India as Additional Taxes Hit Investors
The Indian government has introduced a 1% tax withheld at source (TDS) on every cryptocurrency transaction over 10,000 Indian rupees, or about $127, on July 1. The law has only been in effect for a few days, but there is already a chilling effect on Indian digital asset marketplaces. The increasing tax could also serve as a further roadblock for citizens looking to trade crypto as the potential for financial gains diminishes.

FTX Policy Director Says His ‘Priorities Have Not Changed’ Amid Market Craze
As crypto markets continue to fall, the world’s second largest crypto exchange, FTX, remains undeterred. “Our priorities have not changed,” Mark Wetjen, chief of policy and regulatory strategy at FTX, told australiabusinessblog.com. “Markets will do what they do, but the reality is that the digital asset market and digital asset ecosystem, we believe, is here to stay.”

The SEC again rejected bitcoin spot ETFs. What now?
The US Securities and Exchange Commission has rejected applications from Bitwise Asset Management and Grayscale Investments for bitcoin spot ETFs. Shortly after, Grayscale — one of the largest digital asset managers, with approximately $20 billion in assets under management — filed a lawsuit against the SEC. But not everyone is convinced that the lawsuit will be in their favor…

Valkyrie CEO Says US SEC Suing Spot Bitcoin ETF ‘Probably Won’t Succeed’
“The SEC rejecting both Bitwise and Grayscale’s GBTC spot bitcoin ETF applications is not at all surprising, as it follows the same precedent that other asset managers have endured,” said Leah Wald, CEO of Valkyrie Investments, in a Twitter thread. “Suing the SEC is unlikely to succeed.” The SEC made it clear in its response that it considers the underlying holdings of futures versus spot to be fundamentally different, particularly because the former trades on a regulated market while the latter is traded on unregulated markets, said Ryan Shea, crypto economist. at Trakx. australiabusinessblog.com.

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Nice weekend!

Lucas & Anita