Briefing note – Web3 and DeFi M&A

Key Contact: Andrew Tzialli – Partner

Web3 and DeFi – Overview

  • When blockchain technology emerged, those seeking to build products utilising the technology predominantly focused on creating alternative forms of traditional currencies. The technology has now morphed into that which is capable of underpinning services and products in a vast range of sectors, though its place in both DeFi and Web3 start-ups is currently taking centre stage.
  • As the name suggests ‘Web3’ refers to the third iteration of the internet and has become an umbrella term for products and companies working in, amongst other things, the blockchain/decentralised space (as many believe it will be this technology that will shape our future version of the internet). Cryptocurrencies, digital assets, decentralised crypto exchanges, decentralised social networks (such as Steemit and Sapien), decentralised autonomous organisations (DAOs), and a sizeable focus on virtual worlds and metaverse platforms/offerings, are some examples of the tech helping to fuel this Web3 movement.
  • Decentralised finance (DeFi) encapsulates new financial products that are built on new and existing blockchain technology. This new class of ‘disruptive tech’ is set to rival traditional financial products and form an integral part of ‘Web3’. Some of the areas which DeFi could impact include:
    • Derivatives and other financial instruments
    • Exchanges
    • P2P and retail lending
    • Prediction markets
    • Asset management
    • Compliance functions (AML/KYC/CTF)

Emerging investor interest

  • 2021 was a breakout year for Web3 with a surge in interest for cryptocurrencies, non-fungible tokens (NFT), and decentralised finance (DeFi). Recent figures from Coinbase show a global cryptocurrency market cap of $1.86T (exceeding $3 trillion at one stage in 2021) and venture capital investors are keen to get in on this market share with PitchBook[1] reporting that crypto start-ups received $30B+ globally in VC investment.
  • It is also worth noting the recent $150m investment by well-established investors and funds (and those perhaps considered more “traditional”) into metaverse company Improbable may be a sign that it’s not just emerging funds that have an interest in the sector.
  • According to PitchBook’s Emerging Tech Indicator report for Q4 2021, Defi and Web 3 had outperformed all other emerging tech sectors in both the volume and value of early and seed-stage deals. Focusing on Q4 of 2021, the volume (26) and value ($2.4 billion) of Web3 and DeFi transactions doubled compared to the same metrics in Q3 – illustrated below.

 

2022 trends

Whilst the price of Bitcoin and other leading cryptocurrencies has been stagnating (by its own high standards) in recent months, the wider blockchain sector has been continuing to grow with PitchBook also reporting that VC investment in Web3, metaverse and DeFi projects has already hit $10 billion globally in quarter one of 2022. We expect investment activity in Q2 to continue on this upward trend and will continue to keep a close eye on developments.

[1] Source: PitchBook’s Emerging Tech Indicator report for Q4 2021

 

For more information in relation to this article please contact Andrew Tzialli.

News and insights

Ireland’s M&A pipeline: experts predict a rebound in 2024

Ireland’s M&A pipeline: experts predict a rebound in 2024

Key Contacts: Eoghan Doyle - Partner Corporate partner Eoghan Doyle featured in the Sunday Business Post at the weekend, commenting on the M&A activity from 2023 and what he predicts for Ireland in 2024. “Ireland will continue to represent a strong value...

read more
Share This