Coinbase Ventures’ Crypto Outlook Emphasizes Incremental Gains — Not Radical Shifts

As a technology built on disruption, it’s not surprising that much of the attention and funding goes to discovering the Next Big Thing.

That’s a message that stands out in the blog posted today by Coinbase Ventures, recapping of what it did in Q1 and what it sees happening in crypto over the rest of the year, it’s that sometimes building a better mousetrap can mean improving on the old one rather than designing one from scratch.

As one of the most active venture capital firms in a very active crypto market — a record $12.5 billion was invested — the investment arm of Nasdaq-listed crypto exchange Coinbase made 71 investments over the first three months of the year.

“Given that we invest in projects in their infancy, our activity can offer a lens into what the industry has in store in the near future,” Coinbase Ventures associate Connor Dempsey wrote on the company’s blog on April 21.

Interestingly, the scene on view had a lot of boring things like infrastructure to make blockchains work better, make cross chain transactions safer and more efficient, and building payments and payroll management platform for the much-hyped next-generation, blockchain-based version of the internet, Web3.

Read also: Web3: Is There Any ‘There’ There? And if so, Where Is It?

In many ways, there’s one big thread running through Dempsey’s outlook: The need for community and communication.

The NFT Train

Dempsey said that while last year’s non-fungible token (NFT) activity “centered around simple buying and selling (aka flippin’ JPEGs), the next wave of projects are building utility around NFTs.”

See: PYMNTS NFT Series: What Are NFTs and Why Are They Crypto’s Newest ‘Next Big Thing?’

That can mean decentralized finance (DeFi) lending protocols that let users put up valuable NFT collectables as collateral, rather than just cryptocurrencies, or infusing NFTs into more familiar gaming formats by making it easier for developers to integrate them into existing titles

That said, on April 20, the company launched a beta version of its long-awaited its new marketplace for NFTs, Coinbase NFT. And while it can leverage the company’s 89-million-person user base, its main point of differentiation is its focus on community building, said Coinbase V.P. of product Sanchan Saxena.

The marketplace is about “more than just buying and selling, it is about building your community. It is about making sure that you can connect and engage with them on the platform,” he said. “It’s a very social marketplace.”

Coinbase has also partnered with Yuga Labs, the developer behind the hottest of the NFT collectables, Bored Ape Yacht Club (BAYC), Dempsey pointed out. While community building was behind BAYC’s initial success, the latest venture is a Coinbase-produced movie trilogy in which Ape owners can submit their collectable avatars for casting.

Also read: PYMNTS NFT Series: NFTs Target Collectors Market With Avatars, Celebrities

The whole Web3 gaming sector, built on an NFT infrastructure, is booming thanks to Axie Infinity’s $4 billion NFT sales boom, Dempsey said.

While the play-to-earn, massively multiplayer online (MMO) game’s sales have been dropping deeply, it “was enough to put the entire gaming world on notice and the next wave of blockchain based games have been quietly raising [funds] ever since,” he said.

Let’s Talk

On the infrastructure front, Coinbase Ventures is betting on some so-called Ethereum killers like Solana, backing the “foundational apps and protocols needed for an ecosystem to thrive” — the automated market makers, lending/borrowing markets, oracles and yield farming ventures that proved central to Ethereum’s DeFi industry.

Read more: PYMNTS Blockchain Series: What Is Solana?

It’s also betting on projects that allow the transfer of data and transactions across different blockchains in order to support the growing need of “value on one chain to flow to another.” This means Ethereum competitor Polkadot, which can be thought of a central hub linking 100 separate “spokes” — separate blockchains that can interact through that hub.

See: The Most Ambitious of the ‘Ethereum Killers,’ Polkadot’s Launch Could Begin the Reinvention of DeFi

It also means supporting companies that allow cross-chain payments, but in a safer and better managed way than the DeFi bridges protocols that have been seen hackers exploit flaws to steal more than $1.5 billion in less than a year.

Read also: PYMNTS Crypto Crime Series: Latest DeFi Hack Drains Record $625M

“There’s more tooling on the way to help DAOs and Web3 communities flourish,” he said. “Solutions for payroll (Diagonal, Zebec), social engagement & networking (Taki, Backdrop, Bonfire), and commerce (Rain) all point to a future where these online communities can coordinate more seamlessly.”