Maybe the second half of 2023 will have greater capital flowing into crypto, but maybe not

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Welcome back to Chain Reaction.

Looking at the first half of 2023, funding for crypto startups continued to grow more scarce. In Q2, venture capital flowing into the industry dropped for the fifth consecutive quarter since Q1 2022 to $2.34 billion globally as investors withheld their checkbooks, fearing risks from a severe regulatory stance and an uncertain economy.

The second quarter’s $2.34 billion tally was raised across 382 deals, according to PitchBook data, but it’s a stark decline from the $12.14 billion peak the industry hit in the first quarter of 2022. The biggest raises during Q2 2023 were LayerZero’s $120 million Series B round and Worldcoin’s $115 million Series C round.

“It’s a numbers game,” said Lydia Chiu, VP of business development at Ava Labs. In general, investors are seeing lower valuations, so they’re writing “smaller checks,” she told TechCrunch+.

Regardless, it appears the old venture adage “Great companies can always raise” seems to apply to crypto, too, regardless of how the U.S. regulatory system feels about the sector. A lot of projects that have “superstar teams and amazing use cases will always be competitive,” Chiu said. “Deals that everyone wants will continue to be wanted.”

“It’s been a long time of this bear market, and psychologically, it’s not easy,” said Lasse Clausen, founding partner at early-stage crypto investing firm 1kx. “We’re left with entrepreneurs who want to build whether they raise money or not. There’s not a lot of people like that, going against the odds and taking risks.”

But in the long term, Clausen believes the sheer determination of those few founders will pay off.

The latest pod

For last week’s episode, Jacquelyn interviewed Jack Lu, co-founder and CEO of NFT marketplace Magic Eden. This is his second time on Chain Reaction, but the market has evolved a lot since the last time he came on in August 2022, so we’re excited to have him back!

Before co-founding Magic Eden in 2021, Lu worked as a product manager at Google and a consultant for Boston Consulting Group.

Magic Eden originally began as a Solana-based NFT trading platform, but has expanded its support to other blockchain networks like Polygon, Ethereum and Bitcoin. Today, it has grown into one of the largest NFT marketplaces with more than 8,000 collections, about $3 billion in NFT transactions and 22 million unique monthly visitors. In June 2022, Magic Eden raised $130 million in a Series B round that granted it unicorn status.

We discussed why Magic Eden expanded its support to other blockchains, adding BRC-20 token support to its secondary platform and how the company plans on staying competitive in the constantly changing market.

We also talked about:

• NFT market volatility
• Royalty fees
• Web3 gaming expansion
• Advice for NFT community

Subscribe to Chain Reaction on Apple Podcasts, Spotify or your favorite pod platform to keep up with the latest episodes, and please leave us a review if you like what you hear!

Follow the money

1. CryptoQuant raised $6.5 million in a Series A round
2. Privacy-focused platform Ola raised $3 million in a seed round
3. Mind Network raised $2.5 million to help secure data, smart contracts and AI for web3
4. DeFi protocol AlloyX raised $2 million in a pre-seed round
5. Outdid raised $2.5 million in a seed round to improve privacy verification

This list was compiled with information from Messari as well as TechCrunch’s own reporting.

Follow me on Twitter @Jacqmelinek for breaking crypto news, memes and more.