Blockwall's Year in Review

Dear Founders, Investors, and Friends,

As we close another turbulent and exciting year, we would like to reflect on the key developments and strategic decisions shaping our fund's performance and the broader crypto and Web3 market in 2023.

For the crypto industry, 2023 marked a significant turning point with the beginning of broader institutional adoption. A decade after their initial introduction, some of the world’s biggest asset managers first filed for a spot Bitcoin ETF and, more recently, for a spot Ethereum ETF. These applications were preceded by a change in narrative, with prominent Wall Street figures like BlackRock’s Larry Fink labeling tokenization as the next generation of financial markets and categorizing digital assets as a “flight-to-quality”. Other notable indicators of this shift included the recent inflows into existing crypto funds, the continuous rise in Bitcoin futures open interest on the Chicago Mercantile Exchange and plenty of anecdotal cases of adoption like the recent partnership between DWS, Galaxy, and Flow Traders to found a stablecoin issuer.

Another pivotal development was the historic settlement between Binance and the Department of Justice. It represented the largest enforcement action against any crypto exchange, with profound implications for the industry. While industry outsiders may focus on the substantial 4.3 billion USD fine, we view the settlement as a positive outcome. It introduces more oversight and stability while keeping the operations of the largest exchange functional. Ultimately, this will only boost investor confidence and lead to a healthier market structure.

Following the final closing of our BWC II fund in November 2022, we eagerly moved to building our portfolio. However, with the crypto and venture economy recovering from major setbacks and the broader economy teetering on the brink of recession, the venture industry became very hesitant. To illustrate this point, the crypto private markets have not seen such low funding figures since mid-2020, right before the last bull market and the venture market also showed the lowest investment figures since Q2 2020. This also affected our activities. We spent considerable time advising our portfolio companies to extend their runways and engaged even earlier than usual with the most promising teams in order to be well positioned for when these startups come back to market.

In June, we announced our strategic decision to expand our geographical footprint to France, with Damien Roch joining as a Partner. As of now, the French ecosystem has surpassed Germany as Europe's second most vibrant early-stage crypto and venture ecosystem and is increasingly closing the gap to the UK. We are extremely excited to contribute to shaping this trend and to invest in innovative ideas originating from France, too.

From Q3 onwards, we observed a turnaround in the private markets. Many great teams returned to the market looking to raise capital. It's a familiar pattern: Price action generates new interest and user activity, leading to new developers contributing ideas that eventually receive funding. In fact, the quality of our deal flow has never been higher. Out of the more than 1,500 deals we screened this year, we invested in 7 outstanding teams this year and already committed to 2 additional teams which will close in January. It is in bear markets that the most significant innovations often emerge.

Investments we made

Of the total seven investments we made, two have already been publicly announced:

1. Blink Labs which help blockchain transaction originators like wallet providers and custodians to recover MEV value from transactions for their users and protect them against frontrunning.
2. Validation Cloud which is the most performant and secure Web3 infrastructure platform that delivers high-performance node, staking, and data-as-a-service.

Our other announcements will follow soon. Watch your inbox. 🙂

Ideas and categories we are excited about

As we enter 2024, the crypto and entire Web3 space remains an incredibly interesting and fast-evolving domain. Among the various categories within this field, here are those that particularly excite us and where we aim to focus our deployment:

• ☁️ Enterprise Infrastructure: The influx of institutions into crypto demands new, sophisticated solutions, especially in custody, on-chain data analytics, compliance, and security. We recognize the critical need for robust infrastructure to support these institutional requirements.
• 🌐 Protocol Ecosystems: Anticipating a surge in users seeking a seamless Web3 experience with minimal transaction costs, we maintain our enthusiasm for general infrastructure improvements. We're particularly focused on innovations within the Solana ecosystem. Concurrently, we're deeply involved in the burgeoning Urbit ecosystem, which we believe is vital for fulfilling the promise of true ownership and sovereignty in Web3.
• 0️⃣ Zero-Knowledge Proofs: We foresee that some of the most influential infrastructure developments will center around zero-knowledge proofs, offering new solutions for scaling, privacy, and interoperability. The recent advancements in ZK research and hardware are set to enhance usability and inspire many builders.
• 🎮 Web3 Gaming: The year 2024 is poised to witness the launch of numerous Triple-A games that are not only enjoyable but also leverage the latest advancements in embedded wallets and account abstraction. These innovations will simplify the inherent complexities of blockchain while offering players genuine ownership. At Blockwall, we're particularly keen on novel gaming experiences that are uniquely enabled by crypto, like fully on-chain worlds.
• 💬 Next Frontier of Social Engagement: We believe that the most successful social networks blur the lines with gaming. Crypto introduces exciting dimensions to social media and consumer apps, making them more engaging through financialization and composability.
• 🤝🏻 Web3 Convergence: We are at a pivotal moment in history, where multiple technologies shaping our future internet – Blockchain, Artificial Intelligence, Internet of Things, and Extended Reality – are evolving simultaneously. This convergence creates unprecedented opportunities for new business models and solutions to some of the most pressing global challenges.

If you’re building in these areas, please reach out via email (pitch@blockwall.capital). We’d love to chat!

Research Highlights

This year we decided to become more vocal and share more of our own research and insights publicly.

Among other things, we published deep dives about…

1. Urbit and the foundation it is built upon
2. The MEV supply chain and why we invested in Blink Labs
3. The crucial components of Blockchain infrastructure and why we invested in Validation Cloud
4. The fundamental concepts of Zero Knowledge Proofs and its use cases
5. How the automobile industry can leverage DLT (in collaboration with Accenture)

Next year, we want to double down on our content efforts and increase awareness about the potential of crypto, blockchain technology, and Web3 overall among policy-makers, industry leaders, and fellow investors.

‍

Throwback: AGM 2023

A major highlight for us this past year was undoubtedly our inaugural investor day. It was a remarkable opportunity to gather an incredible array of individuals: our founders and investors, alongside industry experts from around the world.

While this newsletter can't possibly capture the full depth of the insightful presentations, panel discussions, and conversations that took place, we are excited to share a few standout moments from the event:

• Raj Gokal, Co-Founder of Solana, provided an enlightening walkthrough of Solana's vision and its role in shaping the future of the web.
• A panel featuring Barbara Schlyter of DWS, Jan Brzezek from Crypto Finance AG, and Paul-Adrien Hyppolite from Spiko delved into the evolving landscape of capital markets.
• Arjun Sethi, Founder and CIO of Tribe Capital, reflected upon his most valuable lessons as a crypto investor through various market cycles.

For those who couldn't join us this year, we've got you covered! You can access recordings of the talks here.

We extend our heartfelt thanks to all our esteemed participants and speakers for attending and contributing to the success of our event. We look forward to seeing you next year!

Closing thoughts: Our outlook for 2024

As we embark on the journey into 2024, our optimism for the future of crypto as well as Web3 and its potential to transform the world is more vibrant than ever. The market has most likely reached its nadir, and with the long-anticipated approval of a spot ETF possibly just a few months, if not a few weeks away, we might be on the cusp of the next bull market. This upcoming market phase is poised to be distinct from its predecessors, primarily driven by an influx of institutional capital that introduces a new kind of structural demand previously unseen in this sector.

We are also thrilled about the full implementation of the MiCA regulation and anticipate continued efforts by legislators globally to provide clear regulatory frameworks for digital assets. This convergence of factors is set to rekindle consumer interest and spark innovations, further expanding the practicality and global reach of crypto.

At Blockwall, we remain dedicated to our mission of leveraging these innovations to generate value for our investors and to play an integral role in the expansive growth of the crypto, Web3, and venture ecosystem.

We are deeply grateful for the trust and partnership of our investors, founders, and friends. Wishing each of you a joyous, safe holiday season and a happy and healthy New Year!

‍