Over 80% of 2022 Crypto Startups Remain Active Despite Market Chaos

A recent report from venture capital firm Lattice Fund reveals that more than 80% of early-stage startups that raised funds in 2022 are still operational, despite the tumultuous landscape of high-profile cryptocurrency collapses that caused significant market declines. This finding offers a glimmer of resilience within the crypto sector amidst widespread uncertainty.

In an October 1 report on startup funding, Lattice Fund analysts highlighted that over 1,200 crypto startups collectively raised approximately $5 billion in funds in 2022. Remarkably, 76% of these startups successfully launched a product on the mainnet, though 18.5% are no longer active or have shut down.

Among the notable success stories is the Ethereum re-staking protocol Eigenlayer, which Lattice identified as the most successful of its cohort. Eigenlayer executed its go-to-market strategy effectively, delivering a multibillion-dollar product by 2023. However, such success is rare among the 2022 cohort, illustrating the challenges many startups have faced in a volatile market.

Despite these successes, only 1.5% of startups achieved what Lattice termed “Product Market Fit” (PMF), indicating that the path to sustainable growth remains fraught with difficulties. Furthermore, only 12% of projects managed to secure additional rounds of funding, raising concerns about their long-term viability.

Sector Performance and Investment Trends

The Lattice report provides insights into which sectors have fared better in securing investment and launching products. Notably, infrastructure and centralized finance (CeFi) emerged as the most successful sectors, with 80% of CeFi projects and 78% of infrastructure projects successfully launching products on the mainnet.

Conversely, the gaming and metaverse sectors demonstrated the highest failure rates, with many projects failing to deliver tangible products despite attracting significant investment. Regan Bozman, co-founder of Lattice, remarked on the perils of chasing hype in the industry:

“Chasing narratives can get you rekt. $700 million went into gaming seed rounds, but Gaming & Metaverse had some of the highest fail rates and likelihood to be active without anything shipped.”

Ethereum and Bitcoin’s Resilience

Data also indicates that Ethereum remains the preferred layer-1 ecosystem for new projects. Approximately $1.4 billion was invested in 314 Ethereum-based projects, with 18% failing to sustain long-term operations. In contrast, Bitcoin-based projects displayed remarkable resilience; all 18 Bitcoin-based startups that raised funds are still active and progressing today.

The situation for Solana, however, is less optimistic. Despite $350 million invested in 87 Solana-based startups, various external factors—such as the collapse of FTX and a significant drop in the price of the native SOL token—contributed to 26% of these projects failing to make it to 2024.

Interestingly, teams on Solana and Ethereum had equal chances of securing follow-on funding. In contrast, projects built on Near, StarkNet, and Flow struggled, as no projects from these ecosystems were able to raise additional rounds of funding.

Despite the promising performance of the 2022 cohort, Lattice analysts caution that the “2022 vintage” is technically in a more challenging position than those that raised funds in 2021. The current flat market, lacking significant new retail participation, poses obstacles for startups aiming to achieve product market fit.

An increasing number of seed-stage startups combined with a tighter token launch market means many teams will find it difficult to bring their tokens to market and provide returns to their investors.

The report highlights:

“Compounding all of those problems is that investors have moved on to the hotter sectors (e.g., DePIN & AI) and ecosystems (e.g., Base & Monad) of today.”

This shift indicates that investors are increasingly focused on identifying future trends rather than merely following current fads.

Strategic Insights

The Lattice report emphasizes that sustainable returns in the crypto space require a forward-thinking approach. Investors must ask not only what is trending now but also what will be relevant in 1-2 years. This perspective encourages a more strategic approach to investment, where identifying long-term potential becomes as crucial as responding to immediate market dynamics.

As the cryptocurrency landscape continues to evolve, startups will need to navigate these complexities while maintaining agility and innovation to succeed. The ability to pivot and adapt to shifting market conditions will be critical for the survival of many in this competitive sector.

The resilience demonstrated by more than 80% of crypto startups that raised funds in 2022 amidst significant market turmoil is noteworthy. While challenges abound, particularly in certain sectors, the data reflects a broader potential for growth and adaptation within the industry.

Startups that can effectively navigate the current landscape and identify emerging opportunities will be better positioned for success as the market evolves. Investors and entrepreneurs alike must focus on long-term viability and innovation to thrive in this dynamic environment.