Only a small fraction of crypto ventures, around 5%, have achieved product-market fit after securing funding in 2021, as revealed by a recent study. Numerous DeFi groups have also fallen short in delivering their offerings as of now.
In 2021, despite a surge of capital pouring into various crypto endeavors, only a select few have truly achieved the coveted “product to market fit” status. Among these, DeFi stands as a notable laggard, struggling to lift off the ground.
A recent comprehensive analysis conducted by Lattice, a prominent crypto venture fund, has unveiled that a mere 5% of crypto initiatives have attained the sought-after product-market fit (PMF) within approximately two years of their fundraising endeavors. This in-depth study encompassed an examination of 780 publicly available crypto pre-seed and seed rounds that transpired in 2021, aiming to evaluate the far-reaching impact of the impressive $2.6 billion invested in these ventures.
Lattice’s exhaustive findings divulge that, within the remaining cohort of crypto projects falling outside the 5% PMF achievement, an impressive 70% have successfully launched their products on the mainnet or have reached an equivalent stage of development. However, a rather modest 20% of these projects either failed to conclude their product development efforts or appeared to have ceased their operations, potentially leading to discontinuation.
While certain categories of crypto projects have flourished with financial backing, others encountered significant challenges in turning their initiatives into reality. The report has dissected the crypto landscape into four distinct categories: CeFi, DeFi, infrastructure, and consumer/Web3.
The data revealed by Lattice demonstrates a staggering accomplishment rate of nearly 90% for infrastructure projects in delivering their products to the mainnet. In stark contrast, DeFi projects trail behind with a success rate of less than 75%.
This discrepancy persists despite DeFi securing the second-highest investment volume in 2021 among the four categories, amassing an impressive $762 million. The consumer/Web3 segment secured an even larger funding pool of $977 million during the same year.
However, a noteworthy observation from the report is that this success might have been constrained by timing, as all of the top 10 DeFi tokens by market capitalization had their seeds sown in 2019 or earlier.
Leading the pack are Wrapped Bitcoin (WBTC), Avalanche (AVAX), and Dai (DAI), each commanding market capitalizations exceeding $4 billion according to CoinGecko. WBTC was launched in 2019, while AVAX and DAI made their debuts in 2020 and 2017, respectively.
Similar to DeFi-linked initiatives, gaming enterprises have also grappled with achieving product-market fit. Despite these challenges, an impressive 70% of these gaming projects have successfully launched their respective tokens.
Interestingly, the majority of funding rounds within the gaming sector emerged in the latter half of 2021, a significant time span after Axie Infinity had secured its seed round in 2019.
A salient lesson to be gleaned from this analysis is the importance of exercising caution when pursuing the latest trend, as emphasized by the Lattice report.
Out of the crypto projects that secured early-stage funding in 2021, a substantial one-third proceeded to raise additional capital. Notably, those concentrating on centralized finance and infrastructure demonstrated higher efficacy in securing further funding. On the flip side, the DeFi sector encountered more challenges, with less than 30% successfully securing supplementary funds.
As of the first half of 2023, crypto private financings across all stages have amassed $5 billion, a marked decrease of 75% from the $20 billion recorded in the first six months of the previous year, as reported by crypto advisory firm Architect Partners.
The report highlights the somewhat “depressed” state of the venture capital market, presenting a formidable obstacle for companies that secured early-stage funding in 2021 and are now seeking additional investments. This situation places a significant number of these teams in a precarious position, with less than a year’s worth of financial runway.
The report aptly concludes, projecting a potential rapid increase in the percentage of projects facing shutdown, given the current challenging landscape of early-stage fundraising and the considerable decline in valuations since 2021.