AWeb3VC - Funding Round Up #7

🗓️ Week of: February 12-18, 2023

Web3 Funding Snapshot

The Highlights

🚀This week in Web3 saw over $348M+ in funding across 28 announced rounds. Financial services (category used to bucket CeFi) continues to see an uptick in funding, with infrastructure capturing the largest portion of deal flow. Additionally, we observed several seed-stage Web3 social networks and messaging platforms receiving funding, which could be a leading indicator for more things to come in decentralized social media (DeSo). However, the most significant news out this week comes from the SEC and their newly proposed qualified custodian rules, which expand coverage over digital assets (covered in more detail below).

Note: 2 funding rounds have been included that were cutoff from Funding Round Up #6. This included Tokhit - Private Token Sale ($100M) and Arthur Mining - Seed+ ($4.5M) categorized under DApp and infrastructure respectively. Details on Tokhit's round were limited and appear suspicious (e.g., unnamed single investor, weird valuation). Thus, I've decided to limit my coverage of the round.

🏆 Largest Funding Round ➡️ Taurus, Taurus, an institutional-grade digital asset infrastructure provider, announced $65M in Series B funding led by Credit Suisse. Other investors included Deutsche Bank, Pictet Group, Cedar Mundi Ventures, as well as prior investors Arab Bank Switzerland and Investis. Taurus currently works with over 25 financial institutions and corporate clients in eight countries. The company offers a complete platform for tokenization, custody, and regulated marketplace services for any type of digital assets, including cryptocurrencies and tokenized securities.

Why this matters?👉 Tokenization presents a trillion-dollar market opportunity. However, adoption by issuers and traditional financial institutions has been underwhelming. The fact that Taurus has been able to reach a Series B signals they’re likely seeing decent traction with institutional clients. Additionally, they offer a fully licensed platform in Switzerland, which should be well-positioned to cater to issuers as the global regulatory landscape around digital assets evolves. Nonetheless, having $65M should provide them with a healthy amount of runway as issuers slowly wake up to tokenization.

😎 Noteworthy Company ➡️ Stelo Labs, a startup developing solutions to make crypto transactions safer and more secure for end-users, has announced $6M in seed funding led by Andreessen Horowitz (a16z) Crypto. Other investors include First Round Capital, OpenSea Ventures, Chainforest, BoxGroup, Pear VC, and other notable Web3 angel investors. Stelo provides users with the confidence to transact in crypto by protecting them from phishing and scams through the Stelo Transaction Engine, which simulates, enriches, and analyzes transactions for potential risk or loss. It currently offers three core products: 1) a browser extension that acts like a firewall for wallets; 2) an API for developers to embed the transaction engine into their own applications; and 3) Approvals.xyz, a portal where users can manage their approvals with third-party smart contracts by connecting their wallets.

Why this matters?👉 Stelo, like many other security solutions, is crucial in improving the user experience within Web3. If users can transact safely and confidently, we can help eliminate the perception of risk that has long hung over crypto. Additionally, Stelo's apps serve a utility for both retail and institutional end-users, which could provide flywheel opportunities for their transaction engine. The more screened transactions, the smarter the engine becomes, which can help proactively identify emerging threats and present other future product offerings. Moreover, they are now backed by a16z Crypto, one of the largest investors in Web3. If Stelo works with just a portion of any of a16z Crypto's portfolio companies, they would likely have a pretty meaningful customer base.

👀Observations & Trends ➡️ New Qualified Custodian Rules

Overview🔎On February 15th, the US Securities and Exchange Commission (SEC) announced a new proposal to enhance the safeguarding of customer assets held by registered investment advisors (i.e., fund managers with AUM >$150M), explicitly extending the coverage to digital assets. Under the proposed rule, managers will be required to hold clients' (i.e., LPs') assets with qualified custodians, which is a narrow list of regulated financial institutions, including federally and state-chartered banks, broker-dealers, futures commission merchants, and certain foreign financial institutions. The idea behind using qualified custodians is to provide better segregation of clients' assets and greater protection against the possibility of funds being lost, misused, misappropriated, or impacted in the event of bankruptcy.

Impact🔨 If adopted, the rule would clarify that digital assets must be held by qualified custodians, an area of ambiguity that the industry has long had to deal with. However, funds holding digital assets with non-qualified custodians, such as crypto exchanges or self-custody, will need to move those assets to a qualified custodian. The issue is that there are only a small number of qualified custodians available, and not all of them are technically capable of supporting all the different types of digital assets on the market. Additionally, the proposed rule does not explain how funds using DeFi or staking investment strategies would comply. Under these strategies, funds relinquish some control of the digital assets to a non-custodial counterpart or cryptographic protocol (i.e., smart contract), which does not fit neatly into traditional asset custody analysis.

Fortunately, leading digital asset custody providers that many funds already use should be unaffected. Most of them already meet the requirements of qualified custodians. This includes Coinbase's Custody Trust Co. and BitGo, which are both state-chartered trusts, as well as Anchorage Digital, which has obtained a federal charter from the Office of the Comptroller of the Currency (OCC), the primary bank regulator in the US. However, there are concerns about whether the OCC or state regulators may take further action to impose stricter regulations on these entities.

Why this matters?👉 This is not the end of the world and is more tolerable compared to other proposals that the SEC is working on. Most funds will already comply, and digital asset custody providers will likely see an uptick in business. However, the rule leaves many unanswered questions, especially around topics like self-custody and the services that enable it. For example, Fireblocks' largest customer base is funds, and they have been pushing clients to self-custody over using custodians. This could also limit the types of tokens and digital assets funds can invest in. Without self-custody, funds will need to be more selective in the early-stage tokens and projects they invest in until their custodians can offer full support. On the other hand, the consequences of all of these actions could ultimately push more funds and investors offshore, which kind of got us here in the first place...🙈

Funding Rounds

Top 15 Rounds

Note: Tokhit - Private Sale ($100M) not included above as details surrounding the round are limited

Want access to our complete dataset or propose an update? Contact: [email protected]

All Rounds

Tokhit - Private Sale ($100M) | Social network where creators, influencers and crypto enthusiasts share experiences, connect with their followers and where content is rewarded via digital assets: https://tokhit.com/

Arthur Mining - Seed+ ($4.5M) | Developer and operator of high-performance data centers for bitcoin mining operating in the US and Brazil: https://arthurmining.com

Caldera - Seed ($9M) | A modular no-code blockchain platform which allows users to launch and run high-performance, customizable, and application-specific Layer 2 blockchains: https://caldera.xyz/

Empires Not Vampires - Seed ($1M) | Web3 game studio and developer of Paradise Tycoon: https://empires.games/

Kolibrio - Seed ($2M) | Broadcaster extractable value relay (BEV) solution that allows blockchain transaction broadcasters and their users leverage on-chain order flow auctions (OFAs) to generate income from maximal extractable value (MEV) opportunities: https://www.kolibr.io/

Taurus - Series B ($65M) | Provider of institutional-grade digital assets platform for custody, tokenization, and operator of a licensed organized trading facility for tokenized assets: https://www.taurushq.com/

Orb Labs - Seed ($4.5M) | Cross-chain messaging protocols and tools for developers to build accessible and scalable omnichain applications: https://orblabs.xyz/

Monad Labs - Seed ($19M) | Proof-of-stake (PoS) Layer 1 blockchain and decentralized computation platform that combines the best of performance and portability: https://www.monad.xyz/

Hilbert Group - Private Placement ($546K) | Investment company which specializes in quantitative, algorithmic trading strategies in digital asset markets: https://hilbert.group/en/

Hilbert Group - Debt ($2.1M) | Investment company which specializes in quantitative, algorithmic trading strategies in digital asset markets: https://hilbert.group/en/

Superplastic - Series A+ ($20M) | Global entertainment brand that creates and manages a roster of synthetic artists and influencers and creates physical and digital goods (e.g., NFTs) around those characters: https://superplastic.co/

Ironblocks - Seed ($7M) | End-to-end security solution for Web3 platforms using a smart contract-based tools to automate threat detection and protection: https://www.ironblocks.com/

Aura Network - Seed ($4M) | NFT-centric Layer 1 blockchain network: https://aura.network/

NFEX - Seed ($3M) | Decentralized derivatives exchange offering perpetual swaps for NFTs: https://www.nfex.io/

Alongside - Seed ($11M) | Developer of low-fee index products designed to enable total market exposure to crypto: https://alongside.xyz/

The NFT Gaming Company - IPO ($7M) | Developer of Web3 gaming platform that offers its own proprietary games as well as games developed and published by third parties; Users have the ability to mint unique avatars playable in all of the games on the platform in the form of NFTs: https://www.nftgco.com/

Modular Cloud - Seed ($1.7M) | A block explorer for modular blockchains including the Celestia network: https://explorer.modular.cloud/

Zion - Seed ($6M) | Web5 social network that empowers creators and offers users a decentralized identifier system, decentralized web nodes and a Bitcoin Lightning wallet: https://www.zion.fyi/

Sending Labs - Seed ($12.5M) | Web3 native communications protocol supporting a fully decentralized private community chat app: https://sending.me/

Nefta - Seed ($5M) | End-to-end Web3 game development and growth solution offering a product suite of tooling, brand management, and advertising network: https://nefta.io/

Salsa - Seed ($2M) | Web3 native messaging platform utilizing Proof of Attendance Protocol (POAP) allowing users to mint events as digital collectibles: https://salsa.me/

Stelo Labs - Seed ($6M) | Open-source extension and API that acts like a firewall for users’ wallets that makes crypto transactions safe and secure from phishing and other attacks: https://www.stelolabs.com/

Botto - Private Sale (Not Disclosed) | Decentralized autonomous artist platform that creates fine art NFTs based collective feedback from the community: https://botto.com/

GrainChain - Strategic ($29M) | Suite of smart contract solutions to facilitate new liquidity options at every stage of the global the global agricultural industry supply chain: https://www.grainchain.com/

Yield Guild Games - Private Sale ($13.8M) | Play-to-Earn gaming guild, bringing players together to earn via blockchain-based economies: https://yieldguild.io/

Cysic - Seed ($6M) | Developer of hardware to increase the efficiency of Zero-Knowledge (ZK) proof generation including the development of a Field Programmable Gate Arrays (FPGAs) semiconductor for multi-scalar multiplication (MSM): https://cysic.xyz/

Unagi - Seed ($5M) | Free-to-play fantasy sports platform for mainstream consumers leveraging NFTs: https://play.ultimate-champions.com/

Phi - Seed ($2M) | An immersive social gaming world focused on on-chain identity visualizations and social experiences: https://philand.xyz/

New Funds

No new funds this week

Cool Resources

If you enjoy AWeb3VC's weekly round-ups, also be sure to check out Antithesis. They too offer a weekly newsletter on the latest crypto/web3 deal coverage.

About

AWeb3VC is a source for venture funding news, emerging startups and trends across Web3. I've been closely following cryptocurrencies and digital assets since 2013 and started working in space since 2018. Now I'm on a mission to build the most extensive venture ecosystem for BUIDLERS in Web3, starting first by tracking those BUIDLERS.