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Web3 Funding Cratered In 2023

Editor’s note: For more Web3 coverage, visit Crunchbase’s Web3 Tracker, where we track startups, investors and funding news in the Web3, cryptocurrency and blockchain space, powered by Crunchbase’s live, comprehensive data.

It is not surprising to hear crypto, blockchain and Web3 protocols fell out of favor with investors last year — however, venture dollar numbers show exactly how unpopular the space became in 2023 among those who write checks.

Funding to Web3 startups — defined as those in the crypto and blockchain sectors — fell 74% year to year, with less than $7 billion going to startups in 1,564 deals, per Crunchbase data. In 2022 those numbers stood at $26.6 billion in 2,891 deals.

The 2023 numbers represent the least amount of cash rolling into the industry since 2020 — when it was still nascent and saw only $5.7 billion in investment dollars — and is a far cry from the big-money days of 2021, when nearly $33 billion was invested.

Fourth-quarter blues

Web3 funding numbers have fallen pretty steadily quarter to quarter and Q4 of last year was no different.

The fourth quarter witnessed only $1.1 billion raised by Web3 startups in 221 deals — a 21% drop in dollars from the previous quarter and a whopping 65% from the final quarter in 2022 when investors spent $3.1 billion on the sector.

While it is easy to pick apart several areas of an ecosystem where funding dropped when declines are this significant, it is hard to move past the dearth of large growth rounds the sector saw last year in general and Q4 in particular.

Last quarter saw only crypto exchange raise a nine-figure round, locking up a $110 million raise in Series E led by Kingsway Capital. However, even that round came with a caveat — the company raised the round at a valuation less than half of the $14 billion number it received in March 2022 when raised a Series D led by Lightspeed Venture Partners, per Bloomberg.

For all of 2023, Web3 startups saw only eight rounds of $100 million or more, the biggest being:

  • Switzerland-based Islamic Coin, a Shariah-compliant crypto asset, raised $200 million from ABO Digital.
  • Vancouver-based Blockstream, which provides blockchain technology solutions for financial markets, raised $125 million in a convertible note and secured loan financing.
  • Vancouver-based messaging protocol LayerZero Labs closed a $120 million Series B funding round from 33 investors, including a16z crypto and Sequoia Capital, valuing the company at $3 billion.

Comparatively, in 2022 Web3 startups saw 118 such rounds — including huge $450 million rounds for companies like Yuga Labs and Polygon (we won’t even mention the $400 million round for FTX and its U.S.-based exchange).

What happened?

Of course, the easy thing is to say this is Sam Bankman-Fried’s fault.

While not entirely untrue, Web3’s decline seems to link to more than just one man — who was found guilty of seven criminal charges, including two counts of fraud and five counts of conspiracy, in November for stealing about $8 billion from customers using his FTX cryptocurrency exchange.

Funding is still down across the board, and while Web3 was the buzziest sector in the go-go days of 2021, it also seems to have taken the greatest brunt of the pullback.

While seemingly every investor was once interested in the next crypto exchange, security feature for digital assets, or blockchain layer, now most have retreated in more difficult times to industries they know better, such as SaaS and enterprise software.

The one area that has not seen investors flee is obviously AI, and that too has hurt Web3. Investors left their shiny new toy in Web3 and fled to AI in droves. Instead of investing billions of dollars in infrastructure for decentralized applications, they are putting that money into AI-enhanced everything, from sales to massage chairs.

But obviously the crypto problems played a huge role. FTX’s collapse along with problems faced by others such as crypto hedge fund Three Arrows Capital and brokerage Genesis played havoc with the digital asset market, as other ancillary parts of the sector, like NFTs, fell on hard times.

Hope for Web3?

For founders and VC firms still interested in the sector however, not all hope is lost.

First off, bitcoin continues to see a significant rebound — jumping more than 100% from last March’s lows and now is well above $42,000. April’s halving event for the digital currency — when the rate at which new bitcoins are released into circulation is cut in half — always causes increased interest in bitcoin and that likely will be the case in the first half of the year.

Also, the added focus by regulators on the industry may help. Just earlier this year the SEC approved spot bitcoin ETFs from 11 firms — including well-established BlackRock — in a long-awaited decision. The added scrutiny and regulation likely will add to its legitimacy in the eyes of many and increase adoption.

As for Web3 infrastructure players — startups looking to help build decentralized applications or help with ethereum scaling — times may remain tough as the ecosystem continues to be built out.

There is a chance AI could help with some of the automated processes needed in the buildout of a decentralized internet, which could attract investors. However, time will tell if even AI can help jump start investment in the sector.

Last year was brutal for what was once the reddest of red-hot spaces — 2024 may be better, but likely not by much.


For Web3 funding numbers we analyze investments made into VC-backed startups in both cryptocurrency and blockchain.

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Illustration: Dom Guzman

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