Kyber Ventures Monthly Update - June

Despite uncertain market conditions, driven primarily by the war in Ukraine and subsequent interest rate hikes around the world, the crypto community is more active than ever. Two major crypto events took place in the states last month: Consens2022 and NFT.NYC. Even in such adverse markets, crypto enthusiasts from around the world came together to make Austin and New York the crypto hotspots of the month. The fact that thousands of crypto startups, crypto VCs, and institutional investors came together to enthusiastically discuss the future of cryptocurrencies, NFTs and blockchain while markets tank, shows that we are not in for a repeat of the 2018 crypto winter. Let’s look back at what happened in June with us! 

Macro Market

Crypto is facing the toughest macro-environment ever, with inflation at multi-decade highs, rapidly tightening monetary policies from the FED, and FUD over a looming world recession, there is an extremely strong bearish sentiment in the market. Over the last few months, several high-profile incidents in crypto markets have created a significant risk for larger scale contagion effect fallouts. The full impact of these events is still to be felt and it is unclear how widespread the impact will be. Expect prolonged volatile markets in the coming weeks. 

In a recent testimonial, the Chair of the Federal Reserve Jerome Powell stated that a US recession is “certainly a possibility” and hinted that the FED would continue to increase interest rates by 50-75bps in July while tightening their balance sheet to combat inflationary pressures. The interest rate is forecasted to reach 3.4% by 2022 and 3.7% by 2023. In June, we witnessed a continuation of the high correlation between BTC drawdown levels and FED fund rates. 

BTC

Bitcoin, ranked the eighth largest global asset by market cap at its ATH, is currently struggling to secure the 20th spot. Although it initially showed signs of a slight rebound by holding a unit price of $20K, price adjustment began again when the SEC rejected Grayscale and Bitwise's application for approval of Bitcoin ETF. SEC Chairman Gary Gensler confirmed in an interview on the 27th, that he would not approve Bitcoin spot ETFs for the time being. Enterprises taking up positions on BTC will take longer than we expected.

At the end of June, we saw another large amount of BTC flow into exchanges. This increases selling pressure and may cause Bitcoin's short-term price to decline further. Crypto influencers and traders continue to debate whether historical BTC price performance indicates that it will bottom out around the 20K mark or further adjustments are to be expected. While it's hard to make clear predictions due to unfavorable macro market conditions, if you are a long-term investor, we think now would be a good time to start dollar-cost averaging on your BTC investment. 

Even in a bearish market, web3 founders do not stop building and launching new innovative projects. The amount of year-to-date venture capital funds deployed in web3 is nearly double what they were this time last year. Although we saw a sharp drop in June, the general number of investments this year into web3 companies is on the rise and likely to continue given the capital supply still undeployed. 

We are positive capital inflow into web3 will continue, but expect to see a more conservative approach in regards to startup valuations, business models, and tokenomics. Both established unicorns and early stage projects have started to lower their valuation expectations to more reasonable and moderate levels. 

ETH

ETH had to suffer even more than BTC in June. Large central landing projects such as Celsius, Blockfi, Voyage, and one of the biggest hedge funds, 3AC, failed to protect their treasury in volatile markets and were forced to liquidate their positions, causing a domino effect on the ETH price. 

Actors with significant exposures to Luna UST and synthetic assets such as Lido's Staked ETH (stETH) were responsible for additional mass liquidations when the stETH - ETH price de-pegged due to stETH's limited liquidity getting depleted quickly. 

While the stETH de-pegging issue didn't improve with the announcement of yet another delay in the Merge, the community began to raise concerns about a large amount of Ethereum currently concentrated in Lido's staking pool. Lido put forward a governance proposal to limit the amount of Ethereum that users can stake to face the criticisms. The proposal got rejected by a majority of the community. We think this centralized staking power issue will ease over time as new competitors join the L1 staking service game with better UI/UX and varied DeFi use cases.

On Ethereum's Merge (a different bomb plan with several delays itself), we strongly believe the transition to PoS is likely to be completed by this year. We are following the upgrades closely to predict and prepare for a new relationship between EVM/L2 chains and Ethereum and users’ reactions to the PoS upgrade. 

Kyber Ventures Investments

Aura Network

Aura Network is an NFT dedicated layer-1 blockchain based on the Cosmos ecosystem that allows users to mint, rate, track data or participate in NFT transactions, all with the goal of helping to build a solid infrastructure that supports various types of trading assets in a decentralized market.  

In a now famous thread titled “Demystifying NFTs”, Naval said that “NFTs tokenize all the things. We are going from a world where every protocol has a token, to where every (decentralized) application has a token, to where every valuable digital representation of an object or person has a token.” 

NFT is considered the crucial building block for the Metaverse and web3, which are believed to shape the next generation of the internet. We, KyberVentures, supporting various GameFi and Metaverse projects, have always looked for solutions for NFT mass adoptions and applications that can provide better NFT integrations to Metaverse projects. The team’s vision and tech alignment to tackle these challenges are the reasons we invested in Aura Network. 

Aura Network has successfully launched its 2 main testnets, namely Serenity and Halo. In order to prepare for its mainnet release in September 2022, Aura Network will announce its Euphoria Staging Network soon in July. We are excited to support the Aura team’s journey to becoming the leading layer-1 blockchain to assist users in accessing NFTs effortlessly.

Cadenverse

At the beginning of April, Binance announced they have become an exchange partner of the Grammy Awards. This announcement opened a new era for crypto and music. We want to shape marriage of crypto and music by investing in Cadenverse, a Music Multiverse.

Cadenverse is the new decentralized music distribution and game platform powered by blockchain. The team describes the Cadenverse as a multiverse, where players and their characters will freely move between different universes to create and play with music. Coming to Cadenverse, everyone will be able to unleash their creativity and play with music in a fun way.

Music usage has been a major issue in the music industry over the past 30 years, especially in a digital environment with complex licensing rules and tracking systems. To reward content creators and artists, Cadenverse decided to use a blockchain infrastructure to provide transparency and tracking of created content and leverage the fast-growing gaming market to generate additional revenues for indie musicians. Cadenverse is building the first music-to-earn platform where indie musicians can turn their songs into a playable game via Cadenverse's music cad tech. Each individual musical piece will be represented by an NFT, which accrues royalties when players play games based on a particular musician's song. 

Core Cadenverse team members are from Amanotes, the world's best music online game publisher with 2B+ downloads through 100+ music games. They understand the music and game industry in and out and experience in making the best music games. We expect Cadenverse's highly scalable business model, where users and musicians can interact seamlessly and participate in-game content creations, will open a new era in the music industry with good adoption. 

Cadenverse's first play-to-earn game, Looper Band, is currently in its beta phase and available for download. Meanwhile, its marketplace for collectible song NFTs is slated to go live in the first quarter of next year, and its platform for game song NFTs will launch in the second quarter of 2023.

Metamerge

“Merge games” have a long history of winning the heart of gamers with simple but hard to master core puzzles and meta-layer progression elements. Combining building, storytelling, resources management and treasure hunting, merge game creates a wide world for gamers to explore and develop. In short, players are required to combine objects to unlock and create new items. By unlocking new items, players can gain coins, chests and treasures. This sensation gives them the feeling of advancing quickly with instant rewards.

The MetaMerge team started its development in April 2021 with a vision of combining addictive merge gameplay with blockchain technology on Solana. The game shows the magical world of MetaMerge, where users act as “Masters”, tasked to develop and protect magical islands by merging game items and competing with other players in competitive PvP. Further development of the game will include social gaming with friends: where you can visit each other’s islands, hang out and discover the game world together. 

Metamerge aims to build the first blockchain merge game that can compete with traditional merge games through the use of better game quality and flawless in-game user experience. Users will not even notice the game is running on the blockchain, while benefiting from a more inclusive game economy. KyberVentures decided to invest in their seed round after meeting the highly experienced team multiple times in Vietnam. We see a good potential for them to succeed in onboarding players even in a currently saturated GameFi space. Trying out their recently launched beta just reassured our decision to support the project even further. Check it out here: beta testnet