Surviving the Crypto Shakeout: A Deep Dive into 1,200 Seed-Funded Projects from the Last Two Years

This article reviews the situation of cryptocurrency seed round financing in 2022 and analyzes the development trends and market dynamics of more than 1,200 projects. This article originates from an article written by Lattice Fund and was compiled and compiled by Shenchao TechFlow.

Since 2021, how many companies have shipped to mainnet? How many people found product market fit? Who launched the coin?

With the 2024 report, we now turn our focus to 2022 to better understand cryptocurrency progress and trends in the seed stage. The report analyzes more than 1,200 public cryptocurrency pre-seed and seed rounds from 2022, providing insights into industry-wide, sector-specific and ecosystem-level trends. As with our previous reports, we are open sourcing our repository for further exploration and analysis. We invite your feedback and welcome any corrections; please feel free to contact us at hi@lattice.fund .

Executive Summary

Projects from the Class of 2022 received funding during one of the most booming periods in cryptocurrency history. Teams that announce raises this year could benefit from the bull run in 2021 and early 2022. Given the frothy nature of the market, we expect these metrics may be negatively impacted compared to teams that raised capital during a bear market. Our analysis confirms these expectations, but there are also positive takeaways.

Since 2022, nearly 1,200 companies have received a total of US$5 billion in investment, an increase of 2.5 times from the previous year. Here are the main highlights:

Breakthrough 2022

• Any year has its share of major success stories, and 2022 is no exception.
• On the infrastructure side, we’ve seen restaking protocol Eigenlayer, wallet-as-a-service provider Privy, and parallel EVM Sei all raise seed rounds. Remarkably, each of these teams helped launch the broader narrative.
• In the DeFi space, the breakthrough stories of 2022 are Perp Dex such as Vertex and Apex, and professional NFT exchange Blur.
• Gaming is a major consumer segment, with nearly $700 million in investment. Despite significant investment, two of the biggest success stories raised relatively little. Pixels and PlayEmber each raised just under $3 million in seed rounds.

Launching in a challenging market

• Despite facing a bear market, nearly three-quarters of projects have successfully launched products on the mainnet. Product market fit (PMF) and follow-on financing have become more challenging compared to 2021, with both declining significantly year over year.
• 18% of groups have closed or ceased development, up from 13% in 2021.
• Only 12% of teams received follow-on venture funding, down significantly from 50% in 2021.
• Only 15% of projects launched tokens, down from 50% in 2021.

A renewed focus on infrastructure and CeFi

• After a detour in 2021, investors returned to more proven consistent areas such as Infrastructure and CeFi, pouring nearly $2 billion and nearly $450 million respectively into these areas, respectively up from 2021 figures. 3x and 2x.
• 80% of CeFi projects and 78% of infrastructure projects have been launched on the mainnet, reflecting investors’ strong confidence in these areas.
• The results at the application layer are more mixed, with 66% of consumer Web3 products and 68% of DeFi teams delivering products to mainnet.
• Consumer teams are more likely to cease operations, with teams closing at nearly twice the rate as infrastructure teams.
• Payment (86%) and wallet (90%) projects are most likely to launch on mainnet.

Ethereum leads, Bitcoin continues

• Ethereum remains the dominant layer 1 ecosystem in terms of fundraising, while Bitcoin projects continue to show resilience.
• $1.4 billion was invested in Ethereum-based projects, followed by nearly $350 million in Solana-based projects.
• Fundraising for the Polkadot ecosystem has dropped significantly, down 40% year-over-year.
• Teams building on Solana and Ethereum are also likely to receive follow-on funding.
• In contrast, no team in the NEAR ecosystem has been able to raise follow-on funding.
• Projects in the Binance ecosystem are the least likely to remain active, with a third of teams ceasing operations. Solana’s failure rate also doubled from 2021 to 26%.
• The Bitcoin project continues to exist, with 100% of the team still active two years later.

Methodology

The report is based on a combination of first-party data, supplemented by insights from Messari, Root Data, Crunchbase and other sources. To assess the progress of the seed-stage market, we categorized each company by stage, including “active but not yet delivered” and “no longer active,” with additional segments by ecosystem and industry. While every effort has been made to ensure the accuracy of the information, we acknowledge that errors may occur due to reliance on third party information. Within ecosystems, we only include in the chart those ecosystems with more than 15 teams that were able to raise Series A funding.

One of the most challenging aspects of this analysis is determining whether the project achieves product market fit (PMF). Unlike objective milestones of “product delivery,” PMFs are often subjective and can be fleeting, especially in the rapidly changing crypto market. We make these decisions using a combination of on-chain data from analytics providers such as Dune Analytics and DeFiLlama, as well as information from company websites and blogs.

(Note: The picture of Lattice divides the analyzed products from left to right into several stages: active but not delivered, product delivered, with PMF, with tokens, no longer active, acquired and shut down)

Seed Round Projects Status

Our seed-stage review begins with an internal analysis to identify projects that are gaining traction but have not yet raised follow-on funding, and that may become Lattice targets. However, the information proved sufficient to be shared with the wider industry.

This research is valuable because it sheds light on the health of individual sectors, ecosystems, and the broader early-stage market over time. Given that most seed-stage teams raise funding to sustain operations for approximately two years, we decided to use that time frame to look back at the seed years.

In 2022, more than 1,200 cryptocurrency companies raised more than $5 billion in seed and pre-seed funding. Looking back at this group, 72% of companies have launched on mainnet or equivalent, up from 66% last year. Meanwhile, 18% of projects have either failed to deliver or have been closed, consistent with last year’s figures.

However, the most significant drop was among teams looking for PMF, which dropped to nearly 1.5%. It’s worth pointing out again that for projects executed off-chain, it’s difficult to assess how attractive they actually are, so we may be missing out on some teams with early PMFs.

During a bear market, attracting users becomes increasingly difficult as retail interest wanes. Popular industries in 2022, such as NFTs, the Metaverse, and games, are not attracting users as they were two years ago.

In contrast, infrastructure projects that primarily serve other cryptocurrency companies have proven more resilient. The best example is Eigenlayer, which announced a seed round of financing in January 2022 and successfully expanded its AVS go-to-market strategy, with intermediary software projects eager to cooperate.

It’s a good reminder that today’s hot industries don’t always follow investor interest. For example, there are 75 teams in the Metaverse space that have raised nearly $280 million, but no team has found PMF, more than 21% of the teams have closed, and you can hardly hear anyone talking about the Metaverse. Compared to DePIN or Ai, they have almost no registrations in 2022 but are two of the hottest topics today.

Data shows that 72% of seed round projects in 2022 already have mainnets

VCs Tighten Their Wallets

The 2022 team raised funds during one of the most booming periods in cryptocurrency history. Teams announcing raises in 2022 likely did so before the collapse of Terra and FTX, which sent the market into a deep freeze. Although overall funding increased by 92% compared to 2021, the subsequent market tells a different story. Only 12% of teams in the 2022 class were able to raise more capital in the past two years. This is in stark contrast to teams in 2021, when nearly a third of teams received follow-on funding.

Interestingly, token issuance has also declined year by year, with only 15% of teams in the 2022 group launching tokens, compared with 50% in 2021. This significant decline can be attributed to two main factors:

1. The 2022 cohort likely missed the bull window, with many teams scrambling to launch products in the first half of 2024 and then drying up over the summer.
2. Due to declining liquidity in DeFi, the launch of decentralized exchanges (DEX) has fallen out of favor, and token issuance has shifted to centralized exchanges (CEX). CEXs now charge hefty listing fees, often reaching seven figures, and require a large percentage of the token supply. The saturation of the token market, combined with the selectivity of CEX and the diminishing appeal of DEX launches, makes bringing tokens to market more challenging.

Fly To Infrastructure

Infrastructure investment tripled compared with 2021, reflecting a clear shift in investor focus. While interest in infrastructure appears to be waning towards the end of 2024, it is the most favored sector throughout 2022 and 2023. In contrast, DeFi was the only industry to see a year-over-year decline in investment, likely due to the fallout from DeFi’s surge in quick-money schemes and Ponziomics in the summer of 2020.

Investors are rewarded for following infrastructure trends, and these teams are most likely to raise follow-on funding and launch on mainnet. Conversely, DeFi and consumer teams are more likely to launch tokens, but also more likely to close. The application layer is feeling the pressure – without additional funding, teams are forced to either launch tokens or shut down themselves.

Data shows that basically more than 70% of the seed round financing projects in various tracks have been delivered on the mainnet (black part); but most of them have not found PMF.

Not All Ecosystems Are Created Equal

Development across ecosystems reveals significant differences in project success rates. Nearly 80% of Ethereum-based projects have shipped product, which is better than Solana, which only 61% has shipped product, down from 75% in 2021. While Solana has clearly weathered the bear market well, a massive influx of capital in late 2021 could lead to a glut.

Failure rates for 2022 seed-stage teams remain consistent with 2021 teams, but significant differences emerge within each ecosystem. As observed last year, teams within the Binance ecosystem are the most vulnerable to closure, and now teams within the Avalanche ecosystem have joined the ranks.

Notably, the failure rate for Solana-based projects doubled, with more than 25% of teams ceasing operations. This increase is likely due to the influx of speculative capital during the bull market, leading to overexpansion and subsequent attrition during the particularly challenging period Solana faced post-FTX.

However, it’s clear that the teams that have made it through this difficult phase have been rewarded. Additionally, it’s worth highlighting the resilience of the Bitcoin ecosystem team, who not only continue to deliver, but show extraordinary resilience, reflecting the reliability of the Bitcoin network itself.

The subsequent funding landscape in 2022 reveals significant declines across all major ecosystems. Only 13% of Ethereum-based projects were able to receive additional funding, down from 31% in 2021. Likewise, only 13% of Solana startups raised follow-on funding, down significantly from 30% last year.

Notably, ecosystems such as Flow, StarkNet, and NEAR have struggled to attract additional investment, with none of their projects receiving subsequent funding, highlighting the challenges these platforms face in maintaining developer and investor interest. This is especially interesting considering the amount of funding entering the base layer of each ecosystem in late 2021 and 2022, with Dapper Labs raising nearly $600 million in 2021, NEAR raising $500 million in 2022, and Starkware raising $500 million in 2021. Raised nearly $200 million and 2022.

What Happens Next

The situation for the 2022 vintage is more challenging than that of 2021. In a sideways market without significant net new retail participation, finding PMF remains a challenge. Some teams have turned to today’s hot industries for retail participation (such as gambling-related apps). Additionally, significantly fewer teams receiving follow-on funding will limit the time these teams have to move onto something new. Finally, the significant increase in seed-stage startups and the tightening of the token issuance market means that more teams are trying to pass narrower token issuance opportunities.

Compounding all of these issues is the fact that investors have turned to today’s more popular industries (such as DePIN and Ai) and ecosystems (such as Base and Monad). This highlights that returns come not from chasing what’s hot now, but what’s hot 1-2 years from now.

We have no doubt that the seed-stage market for cryptocurrencies will remain healthy, with nearly every fund actively participating, including a16z’s newly launched crypto startup school. For this group of teams looking to raise Series A funding and beyond, the robustness of the later-stage market remains an issue. Even within our own portfolio, we’re seeing narrative shifts impact founders’ ability to raise capital.

Industries And Trends Worth Watching

Privacy-enabled Apps

Investment in privacy-enhancing technologies has increased recently, with two privacy infrastructure trends emerging over the past year: zero-knowledge transport layer security (ZK TLS) and fully homomorphic encryption (FHE). ZK TLS adds a privacy-enhancing layer to today’s secure communications on the Internet. ZK TLS projects like Opacity are working with companies like Lattice portfolio company NOSH, allowing Nosh to leverage the existing web2 delivery market.

In this example, the driver logs in with Doordash credentials in the nosh driver app, which the protocol treats as proof of identity. When the demand side of the network matures, drivers can make deliveries for Doordash in the nosh driver app and earn tokens if the order comes from the protocol network (not Doordash). We expect more use cases to emerge for this new privacy primitive.

Similar to ZK TLS, advances in FHE infrastructure may lead to a new class of encryption applications, from private Defi to DePINfied data collection. An early practical example of this technology is sharing sensitive health information with artificial intelligence companies. Lattice portfolio company Pulse is using the DePIN flywheel to collect health data that can be monetized by allowing researchers to analyze encrypted genetic data to identify patterns or biomarkers without accessing the original genetic information, thus maintaining confidentiality.

As privacy infrastructure advances and merges with broader trends — namely, artificial intelligence agents and decentralized physical infrastructure networks for data collection (DePIN) — it could usher in a new wave of consumer- and Enterprise-focused applications.

Augmented Reality Applications And Infrastructure

Broader technology trends are heavily influencing the efforts of cryptocurrency founders and the flow of investor funds. We’ll see this firsthand with the surge in AI-related startups in 2023-2024 following OpenAi’s massive AI improvements.

With Apple, Meta, and Snap all launching significant strategies in the AR space, we expect to see more and more crypto startups pop up in the space as AR-related technology finally reaches the masses. An example from Lattice’s product portfolio is Meshmap, which is building a decentralized 3D map of the world.

As the installation of AR devices is set to explode in the coming years, it will be critical for app developers to build 3D maps of experiences. It may be too early to get excited about Metaverse in 2021, but the lesson from last year and this year’s reports is that what people aren’t paying attention to is where alpha can be generated.

Blockchain-powered Collectibles Market

Collectibles trading is mostly associated with digital asset trading (particularly NFTs), but a market for blockchain-powered collectibles is emerging, from spirits markets like BAXUS to watches on platforms like watch.io and Kettle. Collectibles trading is already a huge off-chain market, but it is plagued by a lack of instant settlement, physical custody and reliable authentication.

We believe these challenges present an opportunity for the Blockchain Collectibles Market (BECM), a marketplace specifically designed to meet the needs of collectibles traders. BECM enables instant transactions through cash settlement, dramatically reduces settlement time from weeks to seconds by using stablecoins, and uses NFTs to represent physical assets held by trusted custodians.

This model can unify decentralized markets, enhance liquidity, remove the burden of personal storage, and build trust through identity verification. BECM also supports financial innovations, such as borrowing against collections, to make collecting more financially viable. With these efficiencies, BECM has the potential to significantly expand the total addressable market for collectibles by bringing in more traders, liquidity, and inventory.

Ecosystem Rotation

Our tables and charts only include ecosystems with more than 15 projects raising venture financing, with the smallest number closer to 15 projects and therefore just excluded. Perhaps this is not surprising, but we expect significant changes in the ecosystem, given the trends we are seeing, Polkadot, NEAR, and Avalanche will be replaced by L2 ecosystems as well as emerging L1 and 2 ecosystems such as Monad, Berachain, and MegaETH system replaced.