Many crypto projects funded in 2021 still searching for success

Despite an influx of funding into various crypto projects in 2021, very few have reached “product to market fit” status — with certain segments such as DeFi lagging others in even getting offerings off the ground.

In a recent report, Lattice, a crypto venture fund, found that a mere 5% of crypto projects have achieved product-market fit (PMF) within approximately two years after their fundraising efforts. The company’s study involved an analysis of 780 publicly available crypto pre-seed and seed rounds that took place in 2021. The purpose of this investigation was to assess the influence of the $2.6 billion invested into these projects.

Lattice’s findings show that among the crypto projects outside the 5% that achieved product-market fit, 70% managed to successfully launch a product on the mainnet or reached an equivalent level of development. However, 20% of these projects either did not complete their product development or seemed to have ceased operations, possibly shutting down.

Though certain types of crypto projects showed success after taking in funding, following through on initiatives was harder to come by for others. The report broke down the crypto sector into four categories: CeFi, DeFi, infrastructure and consumer/Web3.

Lattice found that nearly 90% of infrastructure projects delivered a product to mainnet, while less than 75% of DeFi projects did.

Newsletter

Subscribe to The Breakdown

This came despite DeFi seeing the second-largest investment volume in 2021 of the four categories — amounting to $762 million — as investors saw traction in the sector. The consumer/Web3 segment gained $977 million of funding that year.

“The wrinkle though is that by 2021 it might have been too late,” the report states. “If we take the current top 10 DeFi tokens by market cap, all of them were seeded in 2019 or earlier.”

Wrapped bitcoin (WBTC), avalanche (AVAX) and dai (DAI) lead the way, according to CoinGecko — each with market capitalizations greater than $4 billion. WBTC launched in 2019, while AVAX and DAI were introduced in 2020 and 2017, respectively.

Like projects involved in DeFi, gaming companies have also had trouble finding product-market fit. Despite that, 70% of those gaming projects have launched a token.

Nine out of 10 funding rounds in the gaming segment came in the second half of 2021, well after Axie Infinity raised its seed round in 2019.

“Important lesson: be careful about chasing the hottest new trend,” the Lattice report notes.

One-third of the crypto projects that secured early-stage funding in 2021 went on to raise additional capital. Among these projects, those focusing on centralized finance and infrastructure experienced greater success in securing further funding. In contrast, the DeFi sector saw fewer projects, with less than 30% of them successfully raising additional funds.

Crypto private financings — for rounds at all stages — amounted to $5 billion during the first half of 2023, down 75% from the $20 billion worth of funding during the first six months of last year, according to crypto advisory firm Architect Partners.

According to the report, the “depressed” venture capital market poses challenges for companies that secured early-stage funding in 2021 and are seeking additional funding. The venture capital firm highlights that a considerable number of these teams are operating “on less than 12 months of runway.”

It added: “Given how challenging the early-stage fundraising market is today and how far valuations have fallen since 2021, we’d expect the shutdown percentage to begin increasing very rapidly.”

Get the news in your inbox. Explore Blockworks newsletters:

The Breakdown: Decoding crypto and the markets. Daily.
Empire: Crypto news and analysis to start your day.
Forward Guidance: The intersection of crypto, macro and policy.
0xResearch: Alpha directly in your inbox.
Lightspeed: All things Solana.
The Drop: Apps, games, memes and more.
Supply Shock: Bitcoin, bitcoin, bitcoin.