A look at venture funding, M&A transactions, public market activity, and investor outlook survey results for the digital asset industry.
Digital asset sector witnessed an allocation of $30.95 billion across 2,201 funding deals in 2022.
NFTs/Gaming category raised $8.32 billion, the largest amount raised by any category in a year.
Number of M&A deals dropped from 233 to 186 YoY, where ﬁrms providing trading services were most active.
Historical Background of Venture Funding
Figure 29: Blockchain venture funding vs. market capitalization 2017 - 2022 Source: The Block Research
The digital asset sector remains a wildly volatile landscape. Over the past six years, market capitalization increased more than 20 times and fell by more than 50% from its ATH. Within the same period, the sector raised 6,658 venture funding deals, corresponding to $75.9 billion. 60% of the deals and 78% of the amount raised in the last two years.
Figure 30: Funding deals in blockchain sector 2017 - 2022 Source: The Block Research
Figure 31: Funding raised relative to digital asset market capitalization 2017 - 2022
Source: The Block Research, CoinGecko
The total crypto market cap fell sharply to $1 trillion, but money infused in the industry barely decreased YoY. It can be inferred henceforth that private funding is typically a lagging indicator of the sector's health and interest. Investment trends exhibit a delayed response to the overall macroeconomic volatility and crypto-speciﬁc events. On top of that, many deals are ﬁnalized earlier than when they are announced and made public.
Figure 32: Amount raised by category and year 2017 - 2022 Source: The Block Research
In the last 6 years, projects in the Infrastructure and Crypto Financial Services (CFS) categories attracted the most investments, closely followed by NFTs/Gaming. Companies like Chainalysis, Nansen, and Dune Analytics dominate the Data/Analytics/Information (DAI) category investments, representing 34% of the total investments in that category.
Figure 33: Number of deals by continent 2017 - 2022 Source: The Block Research
Crypto activity is more prominent in North America, Asia, and Europe than the other continents. Throughout this section, these continents are labeled as "Active Continents," as 91% of the total deals recorded and 95% of the total amount raised are attributable to them. Oceania, Africa, and South America are labeled "Developing Continents."
Since inception, North America mirrors its lion's share in global venture investments. The United States consistently contributes to more than 50% of global venture investments since 2017.
Figure 34: Funding raised in different continents by category 2017 - 2022 Source: The Block Research
Figure 35: Funding raised in different continents in 2022 Source: The Block Research
CFS and Infrastructure projects account for more than 50% of the total amount raised in North America. Most early development in the industry during 2017-2018 occurred in North America, and the two categories mentioned above were more prevalent during that period.
In Asia, NFTs/Gaming leads the way by contributing 23% of the total amount raised. The increasing demand for alternative income sources, the borderless nature of blockchain games, the rise of Axie Inﬁnity, and the development of Polygon as a scaling solution, along with Polygon's native NFT infrastructure projects, may have played some part in this growth.
As rationale might dictate, a jurisdiction will primarily attract investments into the CFS, Infrastructure, and Trading/Brokerage projects. However, Developing Continents exhibit a different trend.
The Developing Continents are taking noticeable strides in Trading/Brokerage to increase user adoption. Since 2017, South America and Africa have raised $573 million and $546 million, respectively. In contrast, the distribution of investments in the CFS and Infrastructure categories is more disproportionate and heavily skewed towards Active Continents, making them location-agnostic categories as opposed to Trading/Brokerage.
The occurrence of variations in the investment trends for a category is often an indicator of a change in the category's development status or its perceived notion. The yearly trend of the average deal amount of a particular category can be a helpful metric for analyzing a category's development phase.
Figure 36: Deal size in different continents by category 2017 - 2022 Source: The Block Research
The average deal size of the blockchain sector is $15.2 million. CFS, Infrastructure, and Trading/Brokerage record the average deal size above $15.2 million, courtesy of the growth in Mid and Later Stage deals since 2021.
The average deal size of DAI between 2017 and 2019 was $2.3 million. However, data analytics platforms caught the attention of venture ﬁrms over the last two years, as the average deal amount increased to ~$14 million since 2021. As the number of users increases, so do market surveillance and compliance complexity. Thus, there would be greater demand for efﬁcient data scraping, visualization, analysis, and surveillance, providing new opportunities in the DAI category.
Consequently, growing on-chain interaction can also be expected with the rise of L1s competing against Ethereum and Layer-2 (L2) solutions. On-chain compliance regulation and analytics ﬁrms also gained more attention as the last twelve months saw a few of the largest investment rounds in DAI, led by companies like Chainalysis, Nansen, and Dune Analytics.
Figure 37: Growth in creator economy and social networks 2017 - 2022 Source: The Block Research
Per our category segregation, growth in decentralized creator economy would point to growth in subcategories hailing from NFTs/Gaming and Web3 like – "creator economy" and "social networks."
The creator economy will be an exciting theme in the next few years. In the age of Web2, creators are usually at the mercy of traditional media platforms. More often than not, content creators' revenues and royalties are siphoned away from them by centralized multinational social media conglomerates, which could disincentivize many interested individuals from pursuing their passion as a full-time career.
The venture capitalists' investment trends in Figure 37 indicate a rising interest in the creator economy.
DeSo, Nation, Farcaster, Lens Protocol, and Braintrust are decentralized alternatives for the social, professional, and talent acquisition networks, which raised upwards of $100 million each. Royal, All Saints Music Group, One Of, are a few of the active creator economy platforms building music NFTs that raised upwards of $50 million in investments.
Web3 and NFTs possess the capacity to unlock higher revenue potential and greater transparency for artists and creators. If the competitive multi-chain landscape improves user experience, investments into NFTs/Gaming and Web3 projects may see growth in the near future as more mainstream artists and content creators may embark upon their Web3 journey. More information on NFTs can be found in the NFTs section, while Web3 gaming is covered in the Gaming & Metaverse section.
Figure 38: Total amount raised by deal type and the average amount raised per year 2017 - 2022
Source: The Block Research
Early, Mid, and Later Stage deals in the digital asset sector were relatively low until 2020 but were more prominent in 2021 and 2022. A rise in the deal count for these deal types increased the average deal size from $ 6.3 million in 2020 to $18.2 million in 2021 and further to $17.6 million in 2022.
Figure 39: Number of deals raised by maturation phase Source: The Block Research
The dynamics of the Maturation Phase funding rounds changed in the 2021 bull run. The Block recognizes the capital injection rounds of Growth Equity, Series A, Series B, and beyond as Maturation Phase funding rounds. During Q4 2021 alone, these deal types added a staggering $7.5 billion.
Figure 40: Maturation phase funding in 2022 Source: The Block Research
However, funding dried up in the last two quarters of 2022. Q1 2022 witnessed 120 maturation phase deals, whereas Q4 witnessed only 30 as of the end of November. The fall of FTX and other lenders in November 2022 will cause a further downturn in the investment sector. Going into 2023, we expect a noticeable pullback on venture funding in the digital asset space.
The United States is the torchbearer for the crypto industry. According to The Block Research's funding database, projects from the United States raised 2,526 deals. Furthermore, US-based projects received $38.6 billion in the last six years.
Figure 41: Distribution of funding deals by deal types 2017 - 2022 Source: The Block Research
Investment trends across all categories are cyclical. As discussed, funding deals are a lagging indicator of the sector’s health. The 2017-2018 boom was followed by a 202% rise in deal count in 2018, whereas the 2020-2021 bull run was followed by a YoY increase of 150% in 2021 and 15% in 2022. The latter marks the highest deal amount in a calendar year, albeit at a decelerating rate.
Figure 42: Top countries/regions investing in blockchain technology Source: The Block Research
Figure 43: Number of infancy stage deals 2020 - 2022 Source: The Block Research
A growing interest in a particular market category leads to an increase in the number of projects entering that ﬁeld, driving up the number of deals in the infancy stage. The infancy stage is characterized by Pre-Seed, Seed & Pre-Series A, and Strategic deals.
This trend can be observed in DeFi during 2019-2021 and NFTs/Gaming during 2020-2022. DeFi narrative picked up in 2020, and NFTs soared in 2021. The comparison above considers one year before and after the narrative development. The number of infancy-stage deals in DeFi increased 11-fold from 2020 to 2022 as the introduction of liquidity mining by Synthetix, the rise of Uniswap, the staggering growth of Yearn, etc., helped build the DeFi composability narrative.
Figure 44: Quarterly number of deals raised by DeFi and NFT/Gaming verticals 2017 - 2022
Source: The Block Research
The rise of Axie Inﬁnity, Facebook joining the metaverse bandwagon, and the cheaper L1 alternatives for high-volume in-game transactions led to a boom in new NFTs/Gaming projects during 2021-2022. During 2020-2022, yearly deals in the infancy stage for NFTs/Gaming rose from 45 to 612.
In the last six quarters, the exponential growth of deal count for DeFi was replaced by NFTs/Gaming.
Figure 45: Share of deal count by deal types Source: The Block Research
42% of the total deals in the sector recorded since 2017 are at the Seed level. 1,093 deals occurred in the Pre-Seed rounds. Early Stage deals rose in the last two years, as 69% of Early Stage deals occurred since 2021.
State of Venture Funding in 2022
Figure 46: Number of transactions and amount raised by investment activities in 2022
Source: The Block Research
Although the market capitalization of the digital asset sector plummeted, venture funding deals increased YoY by 17%, whereas the amount raised increased by 7%.
Figure 47: Venturing funding by category in 2022 Source: The Block Research
The NFTs/Gaming category raised the highest number of deals at 786, while DAI raised the lowest at 82 this year. One reason DAI reﬂects such a low deal count is that some data analytics ﬁrms focus on infrastructure development or developer toolings, which is included in the Infrastructure category and not in DAI.
Although Infrastructure and NFTs/Gaming raised similar amounts at $8.2 billion and $8.3 billion each, the latter accounted for more deals at 786 than the former at 334.
Figure 48: Amount Raised by deal types and stages in 2022 Source: The Block Research
NFTs/Gaming raised more in Seed rounds, whereas Infrastructure raised more in mid and later-stage rounds. Of the $1.3 billion raised via token sales in the Infrastructure category, $1 billion came from Luna Foundation Guard (LFG)'s raise from Jump Crypto and 3AC.
The average deal size for Infrastructure and NFTs/Gaming is $30.5 million and $12.7 million, respectively.
We will dive deeper into every category to inspect the available dataset through a category-speciﬁc lens.
Crypto Financial Services
Figure 49: CFS funding activity by subcategory in 2022 Source: The Block Research
CFS projects raised $4.4 billion across 258 deals. Institutional Asset Management and Payment/Payment Services subcategories contributed to ~60% of the amount raised. Fireblocks, a digital asset custodian, raised $550 million in a series E round. On the other hand, Circle, a payment services company that developed USDC raised $400 million in a growth equity round at a valuation of $9 billion.
Figure 50: CFS total amount raised by deal stage in 2022 Source: The Block Research
We can infer that CFS as a category matured over the years, as 74% of the total investment in 2022 belongs to the Early, Mid, and Later Stage deals and Growth Equity.
Figure 51: Number of later-stage deals by category in 2022 Source: The Block Research
Of the 31 Later Stage deals, 7 deals belong to the CFS category.
Infrastructure raised $8.2 billion in 2022. The category consistently increases the funds raised YoY, suggesting it is the least affected by bear markets. Although the rise and fall in engagement in the industry at times may be narrative-driven, be it the NFT mania of 2021 or the recent market crash of 2022, the need for infrastructure development to increase user adoption and improve user experience, security, and scalability is constant. Despite potentially lower venture funding in the coming quarters, we expect infrastructure investments to weather the storm.
Figure 52: Infrastructure funding activity by subcategory in 2022 Source: The Block Research
Within Infrastructure subcategories, L1s and Mining/Staking Infrastructure projects consistently attracted investments. Whereas R&D investments are on the rise starting in 2021.
Rise of Scaling Solutions for Ethereum and other Layer-1s
Since its inception, Ethereum spearheaded the DeFi sector. As user adoption for Ethereum increased exponentially in 2020-2021, transaction costs skyrocketed. Ethereum's design limits the number of transactions it can process, averaging at 13 transactions per second (TPS), but the transactions submitted on the blockchain were oftentimes much higher. The average transaction cost for May 2021 was as high as $70. This rendered retail market participants unﬁt to interact with Ethereum and gave rise to other L1 blockchains and L2 scaling solutions. Scaling solutions offer increased transaction speed and higher transaction throughput without sacriﬁcing the decentralization or security of the Ethereum base layer. The exorbitant gas price of Ethereum led to a supply-demand gap that made retail investors exercise other alternative blockchains. Until early 2020, 94% of the total value locked (TVL) was concentrated on Ethereum. As of this writing, the TVL is more distributed as 58% of the TVL belongs to the Ethereum blockchain, and the rest is divided amongst BNB Chain, Tron, Polygon, etc.
Figure 53: Infrastructure amount raised by subcategory 2020 - 2022 Source: The Block Research
Subcategories like L1s, R&D, and Bridge/Interoperability, which work towards developing a more frictionless end-user experience, garnering more interest YoY since 2020.
Capital injections in R&D steadily increased over the last three years. The amount raised by projects under the R&D subcategory grew from $50 million to $1.7 billion in the respective years of 2020 and 2022. Consensys, an R&D company that offers services ranging from consulting to developing turn-key blockchain-based projects, raised $715 million since 2021.
Polygon Technology, OP Labs PBC, Offchain Labs, and StarkWare are some notable R&D companies building scaling solutions that raised ~$1 billion dollars collectively. All these raises sprung up in the last two years to attract users and developers since the Ethereum base layer was unﬁt for daily transactions.
Figure 54: Number of mid-stage deals by category in 2022 Source: The Block Research
23% of total Mid-stage deals in 2022 belonged to the Infrastructure category.
Figure 55: NFTs/Gaming funding activities by subcategory Source: The Block Research
NFTs/Gaming category raised $8.3 billion in 2022, which is a record amount raised by a category in a calendar year. Virtual reality (VR)/Metaverse and blockchain gaming are the preferred themes for investors, as around half of the investments correspond to Game Studio, Gaming, and VR/Metaverse subcategories.
Figure 56: Growth in the amount raised in NFTs/Gaming category by active continent 2021 - 2022
Source: The Block Research
Asia witnessed a massive boom in NFTs/Gaming since 2021, as the number of new projects founded in 2021 increased by 400% YoY. The total amount raised YoY for the same year grew by an astonishing 9,242%, followed by a 78% growth in 2022. The rise of Axie Inﬁnity, a play-to-earn (P2E) blockchain game, kickstarted the NFT Mania in Asia and the rest of the world as the AXS token price rose from $0.25 to $165 at the 2021 peak.
Figure 57: Amount raised pre- and post-NFT mania (Q3 2021) by category Source: The Block Research
NFTs/Gaming attracted funds at an unprecedented rate since NFT mania began in Q3 2021. The category witnessed a 562% growth in the recent ﬁve quarters over the previous 16 quarters.
The NFTs/Gaming category raised the highest number of Pre-Seed, Seed & Pre-Series A, and Early Stage deals in 2022.
Figure 58: Number of deals by category and deal type in 2022 Source: The Block Research
Although Infrastructure and NFTs/Gaming investments raised 45% more YoY, Trading/Brokerage and CFS investments dropped by 40%. The drop in the funding for the latter two categories can be attributed to the maturation phase of each investment vertical. For instance, CFS and Trading/Brokerage raised over $12 billion in funding in 2021 and thus achieved maturity within the scale of its operating market. Meanwhile, NFTs/Gaming was still in its nascent stage in 2021 and was able to attract more funding in 2022, unencumbered by the market downturn. Nonetheless, funding data is likely to be a lagging indicator and would only reﬂect the winter market in the subsequent years.
Figure 59: Trading/Brokerage funding activities by subcategory in 2022 Source: The Block Research
Before FTX went bust, the Sam Bankman-Fried-led organization raised $800 million this year. FTX, a trading service platform more focused on derivatives products, had beneﬁted the most from investors' insatiable appetites before they became insolvent. FTX acquired a total of $1.8 billion of investments since its inception. FTX had expanded its global presence over the last three years. As of Q1 2022, the company was valued at $32 billion. FTX and Alameda Research shutting down is arguably the black swan event that caused further negative consequences for the industry.
On the other hand, Binance.US, the American counterpart of Binance, raised $200 million in a seed round. In Asia, exchanges like Coinswitch Kuber and CoinDCX from India, Pintu from Indonesia, and Matrixport, a Singapore-based brokerage ﬁrm, raised Mid or Later stage deals. These exchanges developed consumer-centric products and services, creating a conducive environment for retail and institutional traders. Asian markets accounted for 43% of global cryptocurrency activity between June 2020 and June 2021.
The Web3 category saw a change in fortune in the last couple of years. It saw a 230% rise in 2018 during the ICO boom, only to plunge the following year by 59% in terms of the amount raised.
Figure 60: Web3 funding activity 2017 - 2022 Source: The Block Research
In the last three years, the dollars raised and deal count increased steadily every year.
Web3 will ﬂourish in a developed infrastructure that allows a multi-chain presence of a protocol, interoperability of tokens across various blockchains, and cross-chain bridging of assets. Such infrastructure was relatively underdeveloped in 2018 and 2019. They are decentralized network and tool providers that help to connect decentralized application (dapp) builders with multiple blockchain ecosystems, applications, and users for frictionless cross-chain communication.
Figure 61: Web3 funding activity by subcategory in 2022 Source: The Block Research
In 2022, Web3 projects raised $1.9 billion across 255 deals. Helium, a peer-to-peer wireless infrastructure that provides connectivity for the Internet of Things (IoT) devices powered by the Helium blockchain, raised $200 million this year and $326 million in total over the years from a16z, Tiger Global, Multicoin Capital, etc.
Figure 62: DAI funding activity by subcategory in 2022 Source: The Block Research
Companies that classify under the Chain Analytics and Market Data/Analytics subcategories raised $406 million and $391 million, respectively. 37% of the money raised by DAI projects is through Mid Stage deals. 8 Mid-stage deals correspond to $370 million. Market Data/Analytics companies, Dune and Kaiko, each raised a Series B funding round in 2022.
Chainalysis, a blockchain analytics & surveillance company that helps government and private agencies analyze cryptocurrencies for compliance, education, and investigation, dominates the funding landscape for the category. It raised $170 million in 2022 in a Later Stage deal. Chainalysis raised $535 million to date, corresponding to 27% of the total amount raised by this category.
Future is Multi-chain
Figure 63: Number of deals by blockchain 2017 - 2022 Source: The Block Research
Since 2017, 1,755 projects have raised a total of $18 billion in funding. Since the monumental DeFi summer in 2020, the decentralized ﬁnancial applications gained some user conﬁdence, further percolating into blockchain gaming and NFT projects. The rise in Ethereum gas fees caused more and more applications to consider other L1s as their base layer, such as Solana, BNB Chain, Polygon, etc.
Figure 64: Share of deals by blockchain 2017 - 2022 Source: The Block Research
However, the future seems to be multi-chain with improving infrastructure for asset interoperability.
In the last two years, multi-chain projects raised the highest number of deals dethroning Ethereum.
Figure 65: Amount raised by Ethereum- and multi-chain-based projects 2017 - 2022
Source: The Block Research
Since 2021, multi-chain projects also lead the way regarding the total amount raised. 92% of the total multi-chain investment occurred since 2021. In 2022, Polygon, Solana, Flow, and ImmutableX gained momentum since the 2020 bull run.
Overview of the Largest Raises
This section contains an analysis of the funding raises above $400 million in the blockchain sector.
6 out of 23 largest deals in the digital asset sector occurred at the Mid-Stage level. 19 deals occurred in 2021 and 2022.
Figure 66: Largest crypto raises in a single round Source: The Block Research
Figure 67: Largest crypto raises by category Source: The Block Research
Notably, DAI and Web3 categories had no single deal worth above $400 million.
Figure 68: Details of largest crypto raises Source: The Block Research
Assessment of Crypto Unicorns
Since 2018, The Block Research observes and analyzes the digital assets sector. Although the industry is often referred to as nascent, the development and progression of later-stage companies over the past couple of years show signs of maturation. To track this progression, The Block Research created "The Block Unicorn Index." Qualiﬁcation for the Index was determined through the public valuations of private rounds, estimated revenue based on comparable exchange volumes, and industry sources. Token-based projects were considered for unicorn status if they had conducted a private funding round that equated to a valuation of more than $1 billion. It is crucial to note that the companies considered unicorns under the block index "were" unicorns at some point in time. Companies and projects included may or may not retain their unicorn status, due to reasons such as going public (e.g., Coinbase), completing a down round with a lower valuation, bankruptcy, repricing of private equity, etc. For this analysis, we consider a project to be a unicorn based on public valuations of a private round.
Of our list of 116 companies, at least 7 publically lost unicorn status, with the bulk of them being related to the FTX and Alameda Research fallout. This includes FTX, FTX US, and Liquid Global, the Japanese-based crypto exchange that was acquired by FTX in April 2022.
Other ﬁrms that lost unicorn status include crypto lenders BlockFi and Celsius Network, both of which ﬁled for bankruptcy, and the crypto derivatives exchange Deribit, which raised a down round from existing investors at a $400 million valuation. The one exception from the list includes the crypto exchange Coinbase, which only lost unicorn status due to the technicality that it is no longer privately owned.
Figure 69: Number of crypto unicorns by qualiﬁcation year Source: The Block Research
Of the 116 crypto unicorns, 87 achieved the status in the last two years, suggesting maturation in the industry. The exact year of qualiﬁcation of 12 companies, including Binance, Huobi, etc., is unavailable and is therefore assessed based on their revenues, exchange volumes, etc.
Figure 70: Number of crypto unicorns by continent Source: The Block Research
North America is the frontrunner in the race to originate unicorns, and 59 of the tally is contributed by the United States.
Figure 71: Number of crypto unicorns by category Source: The Block Research
Infrastructure is the category with the highest number of projects with unicorn status. Mining/Staking Infrastructure and L1 correspond to 19 of the 33 Infrastructure unicorns. The Trading/Brokerage category reﬂects 29 unicorns.
Figure 72: Number of crypto unicorns by valuation Source: The Block Research
FTX's valuation of $32 billion before it ﬁled for bankruptcy was the highest valuation at which a crypto company raised a private investment round. It can be speculated that Binance, the largest crypto exchange, may also post a similar valuation.
32 companies raised money at a valuation upwards of $1 billion but did not specify the exact number.
Aside from determining which companies in the crypto market reached unicorn status, The Block Research examined all of the funding rounds completed by these ﬁrms to track which investors had invested in the most unicorn teams at the seed to early-stage level.
Any investment by an investor that was made after a Series A deal or in a deal where the valuation was already at $1 billion or more was not included in this analysis. By looking particularly at the seed to early-stage level, one can better decipher which investors could identify unicorns early as opposed to investors who had only participated in a funding round of a unicorn after it had already reached a degree of success.
Investors within the top ten of the most unicorn investments at the seed to early stage level include Coinbase Ventures, Digital Currency Group, a16z Crypto, Dragonﬂy Capital, Galaxy Digital, Polychain Capital, Pantera Capital, Paradigm, Blockchain Capital, CoinFund, Multicoin Capital, and Binance Labs. The tenth spot was tied three ways between CoinFund, Multicoin, and Binance Labs, with 7 investments each.
Figure 73: Number of investments turned Unicorns by investor Source: The Block Research
Coinbase Ventures, the venture arm of the publicly traded cryptocurrency exchange Coinbase, historically made the most investments in the crypto sector (356) and also invested in the most unicorns (24) at the seed to early-stage level. Of its 356 investments, roughly 7% turned into a company valued at $1 billion or more.
Digital Currency Group (DCG), founded by Barry Silbert in 2015, made at least 256 investments in numerous verticals that stretch the digital asset space and invested in at least 15 companies at the seed to early-stage level that turned into unicorns.
a16z, which launched its own crypto-speciﬁc fund with a16z Crypto, tops off the top three with the third most unicorn investments, where it made 14 investments at the seed to the early-stage level.
An intriguing observation amongst investors with unicorn investments was when these ﬁrms were established. There was an even split between the two time periods. Half of the investors began investing in the crypto space between 2013-2016 (i.e., before the 2017 bull run), whereas another half were established in 2018, except for Multicoin Capital which was founded in May 2017.
Other Notable Unicorn Trends
Some ﬁrms that just missed the list of most unicorn investments at an early-stage level or lower included ConsenSys Ventures (6), Liberty City Ventures (5), Alameda Research (5), Lightspeed Venture Partners (5), SV Angel (5), Initialized Capital (5), CMT Digital (5), Libertus Capital (5), Fenbushi Capital (5), Electric Capital (5), and Hashed (5).
An interesting observation amongst Alameda Research and Animoca Brands is that they had a noticeably low percentage of investments that resulted in a unicorn startup. Animoca Brands completed the second most investments in the crypto sector since 2017, with 238; however, only four led to a unicorn company. Alameda Research, which eventually transitioned into FTX Ventures before eventually declaring bankruptcy, also turned 2% of its investment into a crypto-related unicorn.
On the contrary, Winklevoss Capital had a noticeably high percentage of its total investments turned into unicorns. Of the ﬁrm's 24 investments, 6 or 25% had made it to unicorn status.
For reference, among the investors within the top ten of the most unicorn investments at the seed to early stage, the average rate of their investment turning into a unicorn was ~8%.
Most Active Investors
Among the most active investors (MAIs) in 2022, ten of them stood out the most. Coinbase Ventures, Animoca Brands, Alameda Research & FTX Ventures (note: combined because they were closely related), Shima Capital, Jump Capital, Polygon Studios, Solana Ventures, GSR Capital, Spartan Group, Dragonﬂy Capital, collectively participated in 975 deals in 2022.
Investors' appetite lessened as the broader crypto market experienced a downturn, exacerbated by the bankruptcies that also sent shockwaves across the venture capital markets.
Figure 74: Number of deals made by MAIs in 2022 by quarter Source: The Block Research
MAIs were more active in the ﬁrst half of the year, while Q3 and Q4 saw funds tighten their belts across the board. Notable is the disparity between Coinbase Ventures and Animoca Brands decreases, because Coinbase Ventures is still steadily deploying capital albeit at a slower pace, whereas Animoca Brands slowed down signiﬁcantly. Robby Yung, the CEO of Animoca Brands, commented that the quality of teams that approach them is still relatively high, but the slowdown reﬂects "what kind of teams have the ability to build and raise in a more challenging market."
Figure 75: Number of deals made by MAIs in 2022 by category Source: The Block Research
The NFTs/Gaming category was the leading theme in the 2022 venture capital market. Animoca Brands, Shima Capital, and Polygon Studios saw a big majority of their investments going to projects in the realm of crypto gaming and NFTs. On the other hand, Coinbase Ventures, Alameda Research & FTX Ventures, and Dragonﬂy Capital applied a more diversiﬁed approach to investing by allocating funds to more projects in Web3, Infrastructure, and CFS categories.
Figure 76: Share of deals made by MAIs in 2022 by blockchain Source: The Block Research
Investments by blockchain depicted in Figure 76 only consider on-chain investments and exclude investments from unveriﬁable protocols. Multi-chain protocols seem to be a primary focus for MAIs, and projects hosted on Ethereum or Solana blockchains were the second and third most popular, respectively. It is important to note that a vast majority of multi-chain projects include Ethereum and a combination of other blockchains. Some of the outliers from this trend include native ecosystem funds such as Solana Ventures or Polygon Studios that organically try to foster growth within their ecosystem.
Figure 77: Number of deals made by MAIs in 2022 by headquarter continent Source: The Block Research
Projects headquartered in North America and Asia are the most common locations that active crypto ﬁrms allocate their funds to, more speciﬁcally, the United States and Singapore being the major crypto hubs. It is natural to suspect that North American ﬁrms would allocate relatively more capital to projects headquartered in their local jurisdictions, and Asian funds such as Animoca Brands would do the same. The MAIs participated in very few deals for companies headquartered in Africa, South America, and Oceania. Deals with unveriﬁable headquarter location were omitted from this analysis.
Mergers & Acquisitions
Figure 78: M&A deals in crypto 2013 - 2022 Source: The Block Research
Since 2013, the merger and acquisition (M&A) sector witnessed signiﬁcant growth, with 88% of the deals occurring in the last ﬁve years. Meanwhile, 2021 saw the maximum consolidation across categories in the digital asset sector, showcasing a record 233 transactions. NFTs/Gaming witnessed record consolidation in 2022 with 39 deals, 23 more than in 2021.
More mature categories like CFS, Infrastructure, and Trading/Brokerage observed higher consolidation than the rest of the categories. These three categories accounted for 61% of the total M&A deals. In 2022, 86% of the documented amount transacted was attributed to the categories mentioned above. Infrastructure consolidations dropped from 69 to 23 YoY in 2022.
Figure 79: M&A deals by category Source: The Block Research
Figure 80: M&A transaction amount 2013 - 2022 Source: The Block Research
75% of the total amount transacted in M&A corresponds to the last two years, where most purchasing parties were pre-existing crypto native players, reﬂecting operational dynamics change for category-leading players as they changed strategies. More prominent organizations acquired the smaller players in the market to weed out the competition and diversify into an entity providing a full range of product/service suites. As markets cool off after bull runs, the correction tends to offer lucrative deals for acquirers.
A YoY increase of more than 100% happened only twice in the last 10 years, and both incidents occurred after bull runs in the sector.
Figure 81: M&A amount transacted by category (in billions) Source: The Block Research
Trading/Brokerage accounted for 139 M&A transactions totaling $4.94 billion. Pure Exchange and Brokerage subcategories contribute ~95% of the total amount transacted in Trading/Brokerage M&A.
$3.5 billion of consolidation is attributed to projects under Infrastructure. R&D and Mining/Node Infrastructure are two dominating categories that contribute to 70% of the total deals under Infrastructure. It also makes up 93% of the total transaction amount recorded under Infrastructure deals.
The NFTs/Gaming category corresponds to 75 M&A deals. The deals are spread over various subcategories like Game Studio, Gaming, Infrastructure, Marketplace Platform, etc.
The Distributed Ledger Technology subcategory comprised the most consolidation under the Enterprise category, with 29 companies. Digital Asset Holdings, a company that offers developer tooling and infrastructure solutions to businesses, acquired three companies in 2015-2016. However, Huobi's acquisition of controlling interest in Patronics Holdings, a Hong Kong-based investment holding company, for $77 million for 71.67% of the total shares is the most signiﬁcant transaction to occur in the Enterprise M&A space.
The DeFi category saw only 29 deals totaling $167 million. Its Asset Management subcategory attracted the most attention as it accounts for $211 million out of the $222 million transacted in DeFi M&A.
M&A Activity by Firm
Figure 82: Most active ﬁrms in M&A 2013 - 2022 Source: The Block Research
Coinbase and Animoca Brands led the race with 30 and 22 acquisitions, respectively. Coinbase acquisitions are more diversiﬁed, with a soft focus on Infrastructure and Trading/Brokerage. On the contrary, Hong Kong-based blockchain gaming conglomerate Animoca Brands' acquisitions are highly concentrated in the NFTs/Gaming category. Notably, 18 out of 22 acquisitions for Animoca are from NFTs/Gaming. Animoca raised at least $600 million YTD among its subsidiaries to fund strategic acquisitions, investments, and product development.
FTX, led by Sam Bankman-Fried, primarily played "clean up" for the crypto sector after the collapse of Terra and crypto lending providers. Although the ﬁrm itself did not have sufﬁcient money to help itself, it extended lenders' support and concentrated on purchasing distressed assets. Such activities include its extended credit lines to BlockFi and Voyager Digital – the option to acquire BlockFi, and the purchase of Voyager's assets and intellectual property (IP).
10 of the 15 most active ﬁrms in blockchain-speciﬁc M&A provide digital asset trading services, which took over companies of various categories and are not restricted to Trading/Brokerage. As user adoption increases in various stages of a market cycle, trading exchanges beneﬁt immediately as their users access various services offered by exchanges like spot trading, margin trading, token listing, Initial Exchange Offering, over-the-counter (OTC) deals, etc. When user engagement is high, the exchanges experience a windfall, creating a sudden capital for investments and acquisitions. To stay relevant and stay ahead of the competition, these ﬁrms inﬂux this capital into acquiring companies with strong potential or those that may fulﬁll voids that the current product/service suite may have.
However, cryptocurrency exchanges further up on the list, including Coinbase, Binance, and Kraken, have been noticeably inactive with their M&A pursuits in recent times. Of these three exchanges, Coinbase is the only one that made an acquisition this past year, purchasing the US-based derivatives platform FairX in January.
On the contrary, an intriguing observation among these companies is that the ﬁrms later down the list, including Gemini, WonderFi, Graph Blockchain, and Robinhood, made many of their acquisitions in 2021 and 2022. 20 of the 22 acquisitions by these four companies were over the past two years.
M&A Landscape in 2022
As a market cycle matures, category leaders use their windfall proﬁts, along with money raised by outside investors at high valuations, to acquire smaller providers that are either emerging competitors or offer complementary product suites to expand in new geographies and/or improve their product/service offerings. They also tend to acqui-hire most of the ﬁrms and acquire their talent to scale and diversify faster than the competitors.
Figure 83: M&A activity by category in 2022 Source: The Block Research
The acquisition of Gem by OpenSea in Q2 2022 for $238 million is the largest M&A transaction in NFTs/Gaming category history. Although acquired, the NFT marketplace aggregator, Gem, still operates as a standalone entity.
Over 97% of the maturation phase funding rounds in NFTs/Gaming occurred in the last two years. Increased occurrence of Mid and Later Stage funding deals for NFTs/Gaming suggests maturation for the category. So naturally, as this subsector matures, the competition in the landscape will increase as more participants compete for the same piece of the pie, leading to consolidation.
Although the terms of the deals were not disclosed, one Q1 2022 M&A deal is worth mentioning. Yuga Labs, the spearhead studio of NFT PFPs and creators of the BAYC, acquired Larva Labs' IP rights of Cryptopunks and Meebits. After this acquisition, Yuga Labs introduced Otherside. Conceptualized as a metaverse that intertwines NFT-powered virtual worlds with elements of massively multiplayer online role-playing games (RPGs), Otherside is geared towards an interoperable virtual experience. Otherside is easily the most ﬂamboyant attempt of a bootstrapped metaverse by a gaming studio whose promising value proposition attracted an investment of $450 million from ace investors like a16z, Animoca brands, etc.
Binance is the leading multinational crypto exchange growing its geographical operations and product offerings at a breakneck pace. In April 2020, Binance acquired CoinMarketCap for $400 million. Since then, CoinMarketCap added various education and trading-related services to its service suite. Following up on this development from its competitor, in August 2020, FTX acquired Blockfolio, a live price tracking application, to expand its footprint in the retail market. FTX, too, projected a similar trajectory only to falter miserably in November 2022, but Binance's acquisitions are more distributed across various categories as compared to FTX. FTX's six out of eight acquisitions are within Trading/Brokerage, whereas Binance bought ﬁrms from every category except DeFi and NFTs/Gaming.
FTX's acquisition of the bankrupt lender Voyager's assets for $1.4 billion at a bid auction in September 2022 is the largest M&A transaction ever recorded. The deal breakdown subjected FTX to paying at least $111 million for Voyager's non-crypto assets, including its users and IP.
In 2022, DeFi exhibited 8 M&A transactions. The DeFi category generated the lowest M&A deal count in the history of the sector. This depicts that DeFi still exhibits nascency. None of the top 100 TVL DeFi protocols made an acquisition or was acquired by any company.
Similarly, Web3 development is in its initial phase. With only 32 deals in the last ten years, 8 in 2022, Web3 projects are set to evolve as we believe the necessary infrastructure for these projects is in better shape than before.
State of Employment in 2022
With a noticeable growth in user adoption, number of ﬁrms, and cash infusion in the industry, it becomes imperative that more employment opportunities will be generated to cater to the growing demands of the current operating market.
This subsection evaluates the hypothesis made above and offers commentary on the current state of employment in the digital asset sector.
The Block Research analyzed employment data of 424 ﬁrms. This dataset was sourced from The Block Research's funding database, which has aggregated funding data of over 4,200 companies that have raised over 6,500 funding rounds since 2017. Firms with a valuation above $300 million and/or have raised a venture funding round of more than or equal to $20 million were considered for this analysis.
The employment data has been sourced from ﬁrms' ofﬁcial documents and communication sources, press releases, LinkedIn, Pitchbook, etc. The ofﬁcial communication sources of ﬁrms, like their websites, press releases, and Twitter accounts, were prioritized over other sources when aggregating data.
Note that the data behind employee count can be misreported either by the data aggregators or by the companies themselves. Along with that, the actual employment count may have changed after the date of the last public disclosure. However, The Block Research's process of manual ﬁltering and updating increases the accuracy of the data for this analysis.
For ease of assessment of various types of companies and macro-level estimations, the 424 ﬁrms were categorized into 11 different categories: (1) CFS, (2) Infrastructure, (3) L1, (4) Mining, (5) DeFi, (6) NFTs/Gaming, (7) Game Studio, (8) Trading/Brokerage, (9) Web3, (10) DAI, and (11) Enterprise. These categories are created based on the business model and value proposition of the ﬁrm.
Figure 84: Number of employees by category in 2022 Source: The Block Research
In 2019, we observed 158 companies with a total employment count of 18,200. Based on our current study, 424 ﬁrms employ 82,542 people in the digital asset sector. 50% of the people are employed in the Trading/Brokerage category, whereas CFS employs 10,635 people.
State of employment for three companies in the Enterprise category was identiﬁed. Although there were other companies which ﬁt our primary criteria of consideration for this study, they were excluded due to the difﬁculty in locating team members who work in blockchain-related departments.
Figure 85: Largest companies in digital asset sector by employee count in 2022 Source: The Block Research
33 companies have an employee count of 500 or more. Binance has the largest team size of 7,300 people, followed by Coinbase's 5,000. Bitmain, the application-speciﬁc integrated circuit (ASIC) manufacturer, employs 2,000 people, the largest head count for a company that does not offer trading services.
According to our 2019 research, there were 50 companies with more than or equal to 100 employees. As of December 2022, 181 companies employ at least 100 people.
Figure 86: Changes in employee count over the years Source: The Block Research
Comparing the largest companies in 2019 to their current status reveals that most companies increased in size, with Binance exhibiting the highest growth at over 1,000%. The only aberration was Huobi, whose employment number dropped by 23%. This is because of the decline in Huobi's revenue caused by China's cryptocurrency ban in 2021.
Employment in Crypto Unicorns
As mentioned in the Crypto Unicorns subsection, there are 11G unicorns in the industry, out of which 7 have lost their unicorn status following the FTX-Alameda Research disaster. For this analysis, we have excluded these companies from the list.
Figure 87: Number of employees in unicorn companies by category in 2022 Source: The Block Research
109 unicorns together employ 54,810 people in the industry. Although these 109 companies correspond to only 26% of the analyzed sample space of 424 companies, 66% of the employees belong to these companies. There are 33 Trading/Brokerage category unicorns employing over 35,000 people suggesting that this category may be relatively more mature than others.
Comparison with Non-crypto Technology Companies
Figure 88: Comparison of tech giants with crypto unicorns in 2022 Source: Annual company reports, Wall Street Journal, The Block Research
It is interesting to note that although employment in the industry has increased at an unprecedented rate in the last two years, valuation and employee count in non-crypto tech giants are orders of magnitude higher than in crypto unicorns.
The Block Research analyzed the state of employment for 424 companies, 10% of the total funding database, based on their valuation and venture funding history. We consider this dataset the top 10th percentile of the industry as it may employ a signiﬁcantly higher number of employees than the rest. However, according to our venture funding database, there are more than 4,200 projects in the industry. In order to estimate the total employment in the digital asset sector, we estimated employment for the remaining 90% of the projects based on our current sample space via some conservative calculations.
As previously discussed, we categorized 424 companies into 11 categories. We calculated the average employee count per project for every category. While taking averages, we excluded 'outlier' ﬁrms that employ signiﬁcantly higher people than the rest to eliminate bias. For example, the average number of employees excluding Binance in a Trading/Brokerage company is 269, but Binance employs 7,300 people. The Block Research identiﬁed 15 outlier ﬁrms that employ 32,300 people. Binance, Coinbase, Crypto.com, Chainalysis, and 12 others are considered outliers for the purpose of this analysis.
Figure 89: Average number of employees in top 10th percentile by category in 2022
Source: The Block Research
These averages taken for every category represent the companies in the top 10th percentile of the industry. For the remaining 90% of the projects, we created ﬁve different models, which provide us with a range of probabilistic numbers of employees. We assumed the average number of employees per category for the remaining 90% of the projects to be 10%, 20%, 30%, 40%, and 50% of the top 10% average.
Figure 90: Estimated average number of employees in bottom 90th percentile in 2022
Source: The Block Research
For example, a mining company in the top 10th percentile has 120 employees on average. If we apply Model 1 as shown in Figure 90, a ﬁrm in the bottom 90th percentile will have one-tenth of the employees of a ﬁrm in the top 10th percentile. Therefore, we consider a mining ﬁrm in the bottom 90th percentile to have 12 employees on average.
Figure 91: Estimated number of employees by category in 2022 Source: The Block Research
Based on our estimation, the digital asset industry employs between 120,363 and 282,516 people. 22,940 out of 32,300 in the outliers category are from Trading/Brokerage. When combined with the rest of the Trading/Brokerage ﬁrms' employment, the category may have an employee count in the range of 45,856 to 76,194, the highest number of employees in any category.
In light of the current state of the market, courtesy of events around Terra, 3AC, various lending providers, and FTX, there exists a bearish sentiment across the crypto community. The Trading/Brokerage category has achieved maturity regarding available resources for users for the scale at which markets are currently operating. Given the bearish market structure and maturation of the Trading/Brokerage category, which is responsible for half of the employment in the industry, we expect a pullback on employment generation in the sector for the following quarters.
Figure 92: The largest layoffs in 2022 Source: The Block Research
As evidenced throughout the report, the digital asset industry experienced unprecedented collapses in the span of a few months in 2022, the irrational exuberance of 2021 turned into despondency. The ominous state of the market caused a drop in the revenue for companies across sectors, and the state of ﬁnances of companies caused industry-wide layoffs.
Based on The Block Research's analysis, the industry observed 9,564 layoffs in 2022. As the industry grew by at least an order of magnitude only since the DeFi summer of 2020 in terms of the number of projects, investments, and employment creation, it is safe to speculate that the industry witnessed its highest yearly job cuts in 2022. This subsection provides a summary of layoffs in the digital asset sector in 2022.
Crypto.com reduced its team size by 2,260 across two separate layoffs of 260 in June and 2,000 in October. This is the biggest layoff of the year in the digital asset sector. Although its spokesperson denied the news of laying off 2,000 people, no additional information was provided to turn down the legitimacy of the reports. Hence, for the purpose of this study, we do consider that layoffs occurred.
Coinbase laid off 1,100 people in June and 60 people in November. Kraken witnessed a ~30% attrition rate.
Figure 93: Notable layoffs by percentage in 2022 Source: The Block Research
As mentioned, trading exchanges have laid off the highest percentage of people from their teams. BlockFi and Celsius, albeit insolvent, reduced their size by 20% and 23%, respectively, before ﬁling for bankruptcy.
Figure 94: Layoffs by category in 2022 Source: The Block Research
Reduction in team sizes from companies like Crypto.com, Coinbase, Kraken, Bybit, and other exchanges contributed 7,037 or 74% of the total layoffs in 2022. Based on The Block Research's recent analysis, over 41,000 people work under the Trading/Brokerage category out of estimated 82,248 employees in the digital asset sector. Given that almost half of employment in the digital asset sector corresponds to the Trading/Brokerage category, it is fair to observe signiﬁcant layoffs in that category.
On the other hand, social media giant Snap disbanded its Web3 team in the face of sharply reduced growth this year, laying off 250 employees.
Companies like Stripe and Robinhood, which offer crypto-related products and traditional ﬁntech services, have laid off 1,000 and 1,090 people, respectively. Since it remains unclear whether the staff reduction has occurred on the crypto side of the tea or the rest, these companies were not considered for the layoff count mentioned above.
Although the total layoffs are about 9,500, the industry has also witnessed demises of some major companies this year. The industry observed the Terra crash, 3AC's downfall, and bankruptcy ﬁlings of behemoths like FTX, Celsius, BlockFi, and Voyager. Based on head counts of all the bankrupt companies, their afﬁliated ﬁrms, and the Terra ecosystem, these events have affected 1,600 more employees in some capacity, as per our estimation.
Figure 95: Layoffs across industries in 2022 Source: The Block Research
Based on the data from layoffs.fyi, over 151,600 job cuts occurred across tech industries. As previously mentioned, the digital asset sector currently employs at least 82,248 employees, which would put the attrition rate of the industry at ~10%.
Despite the grim state of the industry, some companies continued to hire. Binance doubled its size to 7,300 employees from a year ago, the largest company in the space considering headcount. Polygon hired over 50 people for its senior positions. Fireblocks raised $550 million at an $8 billion valuation at the start of the year, allowing it to increase its company size from 300 to 500.
An unprecedented series of unpropitious events have occurred this year and will have a negative impact on the industry in the longer run. As over 9,500 employees were let go in 2022, we already notice changing employment structures and hiring patterns across companies. As hypothesized by industry veterans, crypto winter might be here, and companies will err on the cautionary side and keep their teams lean to extend their runway.