In the contest to build DeFi projects, Etherem-based startups have the edge on their Solana counterparts.
About a fifth of Ethereum projects closed down over the last two years, according to a report from Lattice, a venture capital fund. That’s better than the 26% of Solana projects that foundered.
The researchers looked at blockchains with at least 15 crypto startups that raised funds during 2022.
BNB Chain-based projects were the least likely to remain active, with one-third of teams ceasing operations.
Speculative capital
Lattice said an influx of speculative capital during the bull market drove projects to over-extend themselves.
Many of those projects blamed the brutal market decline caused by events like the Terra ecosystem collapse and the FTX bankruptcy for forcing them to shut down, according to public statements from their founders in their closure notices.
The report also noted that nearly 80% of seed-stage Ethereum-based startups had shipped products since 2022, while just over 60% of Solana projects could say the same.
While Solana’s price has climbed 32% this year, the report stands as a grim reminder of crypto’s brutal two years that preceded 2024′s rally.
Market crash dampened VC interest in follow-ups
Investors poured over $5 billion into nearly 1,200 crypto startups in 2022, a 150% increase from 2021, according to Lattice.
That’s lower than DefiLlama’s figure of $19.5 billion which comes from a broader accounting of crypto VC deals whereas Lattice only considered blockchains where at least 15 projects secured funding.
Nearly 30%, or $1.4 billion, went to seeding Ethereum-based startups while early-stage Solana projects attracted 7%, or $350 million.
The buzz around things like NFTs, the metaverse, and web3 gaming buoyed the influx of capital. Understandably, many crypto entrepreneurs decided to capitalise on those trends, which may have been a mistake.
“Chasing narratives can get you rekt,” Lattice Capital Co-Founder Regan Bozman tweeted. “$700 million went into gaming seed rounds but Gaming and Metaverse had some of the highest fail rates and likelihood to be active without anything shipped.”
Gravy train
When the excitement waned from scandals and industry failures, the gravy train ceased to run. That made it harder for startups to raise more money. Only 12% of the 2022 cohort have raised follow-up funds.
While 72% of the teams that bagged funding have launched a product since 2022, 18% have either failed to ship or have shut down.
Ethereum-based startups from the period were the most successful in shipping products as 80% of them did so, compared to only 61% of their Solana-based counterparts.
Things are improving
As previously reported by DL News, VCs are predicted to splash $12 billion to back crypto projects in 2024 with some of that funding likely to go towards seeding new startups.
Lattice identified an uptick in investments in privacy-enhancing technology, artificial intelligence, and DePIN which stands for decentralised physical infrastructure networks.
Earlier this year, global asset manager Franklin Templeton tipped Solana as a leading network for DePIN.
Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.
