What Are VCs Funding After FTX? More Decentralized Infrastructure

Infrastructure projects and regulatory-resistant protocols have attracted cautious investors.

AccessTimeIconFeb 21, 2023 at 2:24 p.m. UTC
Updated Feb 21, 2023 at 8:56 p.m. UTC

Venture capital and other investments into crypto companies plunged 91% year over year in January. This is a particularly tough comparison to draw, with one year representing the end of a record-setting bull market – the calm before a series of crypto scandals – and the other following the collapse of multibillion-dollar centralized crypto exchange FTX, a series of high-profile bankruptcies and the implosion of a systemically important stablecoin called UST.

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In the post-FTX investment landscape, deal paces have slowed and startup valuations have fallen back to Earth. However, venture capitalists CoinDesk interviewed largely agree on a number of crypto verticals of interest – and those don’t include centralized finance players.

Infrastructure by any name

Infrastructure remained the most stable investment vertical in January, with the broad term referring to multiple facets of the crypto world. This can range from inter-blockchain portals to on-chain wallets – and includes any software innovations that will make static digital identities feasible, non-fungible tokens useful and decentralized autonomous organizations real competitors to corporations and governments.

Crypto-focused investment firm Multicoin Capital was among those caught with exposure to FTX when the exchange suspended withdrawals in November, but the collapse has only strengthened the firm’s investment resolve, co-founder and managing partner Kyle Samani told CoinDesk in an email, noting that decentralized finance (DeFi) “performed beautifully throughout the volatility.”

“We’re particularly interested in proof-of-physical-work networks,” said Samani, referencing projects such as Multicoin portfolio company Helium, which incentivizes people to build physical telecommunications networks. “The network design has matured to a point where others can stand on the shoulders of the first movers.”

Generalist Web3 fund Shima Capital, an active firm that has the backing of hedge fund billionaire Bill Ackman, is particularly interested in consumer and infrastructure projects, general partner Yida Gao told CoinDesk in an email.

“We have a strong thesis around how gaming will bring forth the next wave of crypto users,” he said. This is includes building the floors that will support that heavy flow of newcomers, like industry-specific chains, which can put data-heavy computer games on-chain and foster economies for in-game assets, as well as new network protocols like account abstraction, a proposed way to rewrite how smart contracts work to allow for new capabilities like asset recovery, stable user identities and fraud protection systems.

“[T]here are currently promising opportunities to back founders building for this massive market both at the consumer and infrastructure levels of the Web3 stack,” said Gao. For consumers, he mentioned investing capital in game design studios, which may attract new crypto users with what they build, and time developing intellectual property standards, which is alluring for what it allows users to build.

Regulation-resistant investments

The misdeeds of FTX founder Sam Bankman-Fried and other executives have increased the calls for stricter crypto regulation in the United States, which puts many startups in murky legal territory. That’s why Tribe Capital, another active investor last month, prefers to focus on so-called decentralized, censorship-resistant protocols.

“Government regulations are a form of censorship, whether they’re valid or not,” explained Tribe managing partner Boris Revsin, who joined the firm in July. “Protocols that are global in nature – meaning not necessarily based in or serving the United States – have a stronger narrative and a stronger go-to-market plan, because they’re not as impaired by the uncertainty that’s been created by U.S. regulators.”

Whether it’s tools for consumer-facing apps, infrastructure for industries to build on or the legal code in which everything is embedded, 2023 is a year for building.


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Brandy covers crypto-related venture capital deals for CoinDesk.

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