Ummm, It’s Pronounced ‘Build Market’?

Disclaimer This article is for general information purposes only and isn’t intended to be financial product advice. You should always obtain your own independent advice before making any financial decisions. The Chainsaw and its contributors aren’t liable for any decisions based on this content.

Following the recent string of ‘less-than-ideal’ events in the crypto market — namely the roughly $40 billion implosion of the Terra (LUNA) ecosystem and subsequent DeFi liquidation cascade that claimed 3AC, Voyager and Celsius as victims — it’d be all too easy to conclude that interest in Web3 development would have taken a substantial hit.

However, a new report from Telstra Ventures shows us the exact opposite is true, with interest in Web3 development remaining extremely consistent in the face of brutal market conditions. To borrow a popular turn of phrase that was frequently overheard at NFT NYC:

“It’s not a bear market, it’s a build market.”

So WTF is going on when the bulls disappear?

Web3 builders have been going hard

Not everyone has run for the hills. Telstra’s report examined developer activity on the Ethereum, Bitcoin and Solana blockchains, with analysts looking at the roughly 1000 active organisations contributing to more than 30,000 open source projects across the chains.

By using the four-year compound annual growth rate (CAGR) as a yardstick, Telstra Ventures found that Ethereum’s contributor community grew at a CAGR of nearly 25%, Solana at 173% and Bitcoin at 17%. Ethereum network development still took out the number one spot, with nearly 4000 monthly active developers on the network in July.

As proof of build market, ethereum and web3 developer numbers hold steady.
Ethereum network development numbers — Telstra Ventures

According to Telstra Ventures General Partner Yash Patel, “Blockchain developers’ commitment to Web3 ecosystems forms the basis for the sector’s medium and long-term viability, despite short-term price fluctuations.” 

The report also revealed some interesting facts about the funding behind Web3, showing that venture and corporate investors are well aligned with seven of the top 10 most active projects across the major blockchain ecosystems. Additionally on each network, only four to five of the top 10 most active projects are actually backed by VC firms or corporate investors, suggesting that a host of under-appreciated and unrealised investment opportunities remain. 

Web3 continues to take the lead in VC investment 

Pure development activity isn’t the only area where Web3 has been reigning supreme. Traditionally, the DeFi sector has been the number one player when it comes to receiving venture capital (VC) inflows, but Q2 of this year saw this narrative flip, as Web3 took the number one spot for VC funding.

Coinbase Ventures’ Q2 report demonstrated this newfound interest first-hand, which was backed up by an additional report from Cointelegraph’s Venture Capital database outlining that Web3-related technology garnered a whopping 42% of all public venture capital in Q2.

While the raw numbers showed a 26% decrease in overall VC investment into the crypto sector more broadly, it was interesting to note the number of smaller, individual deals actually increased — a win for decentralised VC investing.

Bear markets have always been catalysts for utility

Raymond Hsu, CEO of crypto wealth management firm Cabital, told The Chainsaw that the key theme behind successful projects in the nascent Web3 space will be utility. 

Historically, bear markets have been prolific drivers of innovation. The lack of free-flowing capital and absence of hype means that only the most dedicated, efficient and utility-driven projects survive.

“As the industry emerges, more users are seeing real utility with crypto and real applications being built on top of blockchains beyond crypto being just an investment asset,” Hsu said.

“Utility with clear and tangible benefits is critical for convincing more users to participate actively in crypto and Web3. Enabling users to be able to access crypto easily using local fiat currencies will be important as well,” he added.

During the 2018 crypto winter, we saw several disruptive projects emerge from the primordial ooze of a near three-year bear market, namely industry NFT marketplace OpenSea and the now number one decentralised exchange, Uniswap.

For those of you biting your nails and pacing up and down while waiting for the next bull run, it’s important to remember these projects took multiple years to be successful. It took OpenSea nearly three years to generate significant volumes of revenue, so it’s reasonable to expect a similar recovery timeline for the

Wen bull market?

When asked about how long it could take for crypto to see some reprieve from the current market uncertainty, Hsu said it could yet be another 12 months as we wait for interest rates to stabilise. Hsu went on to explain the most crucial elements for crypto and Web3 investors to keep an eye on moving forward.

“Interest rates and the macroeconomic trend are the most important factors. Besides, the regulator’s pressure on DeFi is another important thing to watch following what happened to Tornado Cash,” he said. 

“There will be more scrutiny on security — ensuring projects spend enough time thinking about it instead of rolling out quickly without the right compliance and risk measures in place. This [will] improve the reputation of the crypto industry now, which has gotten quite bad due to the insolvencies and security hacks recently.”

The good news for bull market hopefuls is, this time, Web3 development is backed by a record volume of Venture Capital funding and broad scale community interest. Andreessen Horowitz’s $4.5 billion crypto investment fund is testament to this shifting narrative, allowing a greater number of well-funded blockchain-related tech ventures to be more capable of surviving the perils of a bear market.