With initial coin offerings (ICOs) facing increasing regulatory scrutiny, more and more funding for cryptocurrency and blockchain-related projects are pouring in from venture capitalists.
According to a report by Outlier Ventures, VC investments have surged 316% from a total of $900 million in 2017 to over $3.85 billion in 2018. VC is the now the dominant source of funding in the crypto world with investments across all funding stages.
A recent slate of 119 deals in the third quarter are the most ever reported.
Conversely, ICOs are down almost 74% from the $3.8 billion raised in the first quarter with September’s ICOs reaching a total of $150 million.
Eden Dhaliwal, partner and head of crypto-economics at Outlier Ventures, says,
“This quarter saw significant negative sentiment around utility tokens from an investment standpoint. Many investors have grown frustrated over regulation and exasperated over valuations of tokenized networks. This represents a new cycle back towards equity based blockchain investments until the crypto community makes advances in validating tokens as a new asset class with viable business models. That said, projects with well designed token economies are still finding support from the community and increasingly from VCs.”
According to the report, without a recovery in Bitcoin’s price, the ICO model that swept 2017 is not likely to return.
Aron Van Ammers, founding partner of Outlier Ventures, says that the transition into a more VC-based investment pool has sparked the creation of more services catered to the less tech-savvy, more institutional grade client.
“As we see the focus of early stage investment into tokens shift away from tech-savvy retail investors toward VCs, hedge funds and ultimately larger institutional investors, we’re seeing a large growth in new businesses and services enabling the larger institutional investors to enter the space. Self-sovereignty means self-responsibility, and when your private keys are lost or stolen there is no broker to call. Institutional investors have a need to reduce that technical complexity and risk. New players solve that problem: from institutional-grade custody providers, to trading platforms offered by the financial incumbents.”
Zero Knowledge Proofs
The report also singles out zero knowledge proofs as the hottest new tech on the crypto/blockchain space with initiatives from Ernst & Young and ING.
“Enterprises seem to be taking an increasing amount of interest in zero knowledge proofs (ZKP). Notably, the quarter had ING and EY release more information on their work in the space. EY launched the prototype of a system that enables private transactions on the Ethereum public network. Named Ops Chain Public Edition, it uses ZKP for authentication of entries on the ledger. ING open- sourced a tool that allows enterprise to use ZKPs to verify a claim without necessarily requiring access to the data itself. Public implementations of both developments remain pending.”
Developers say that zero-knowledge proof technology dramatically lowers barriers to blockchain adoption as ZKP allow organizations to transact on the same network as their competition but in complete privacy while running a network on Ethereum’s public blockchain. Enterprises will be able to leverage the power of Ethereum while maintaining secure private transactions.