Analysis of Messari’s fund holdings in the first half of the year: DOT wins again, public chain and DeFi are the most popular
Originally Posted by Kaushik Guduru, Analyst, Messari
The main points:
The main points:
DOT has once again become the asset of choice, with 35% of funds tracked by Messari holding DOT positions;
SOL surpassed LUNA to become the asset with the highest market value in the fund's holdings. Overall, most assets have lost at least 50% of their market value due to recent price volatility;
The top three positions are all smart contract platforms, and smart contract platforms are also the sector that received the most investment in the first half of the year.
In the first half of 2022, the cryptocurrency space is in chaos. Negative sentiment has pushed prices to their lowest levels since December 2020. Despite market volatility, new institutional investors are entering the market quickly. Hedge funds, venture capital (VC) funds, high-net-worth individuals, and DAOs continue to seek out the best investment opportunities in all areas of cryptocurrency.
Messari typically analyzes and compiles liquid and illiquid portfolios of top VC firms and hedge funds in the crypto space on a quarterly basis, but this year we combined the analysis from Q1 and Q2. Illiquid investments were selected for this analysis based on their potential to issue tokens in the near future. We compile this data using sources such as Dove Metrics, Crunchbase, and Public Portfolios.Due to the assumption that most funds hold Bitcoin and Ethereum, we ignore them in the analysis.
Fund investment analysis
2021 Q4 Analysis Review
The last time Messari conducted such an analysis was the analysis of 57 institutions in March 2021. The five assets with the most funds held are: DOT, ROSE, NEAR, LUNA, and DYDX.
Since Q4 2021, the number of funds analyzed has grown from 57 to 82, and the number of assets from 603 to 678, as new players continue to enter the crypto space.
Investment analysis for the first half of 2022
After a comprehensive analysis of all portfolios, the asset with the most fund holdings is still Polkadot (DOT), supported by 29 out of 82 funds, which means that 35% of the funds we track are betting on the Polkadot smart contract platform success. existStrong developer growth in 2021(Faster initial ecosystem growth than Ethereum) and the recent release of the interchain messaging format (XCM), Polkadot continues to position itself as a leader in the smart contract space. Meanwhile, funds holding DOT will continue to show their influence as projects race to gain a seat in the 2022 parachain auction.
The second most widely held asset is Oasis Network (ROSE). Ranked third is the newcomer Nervos Network (CKB) in the top five, which has soared 12 places. With major protocol updates and progress on interoperability and privacy features, Nervos has strong goals for 2022. It’s worth noting that the top three are all smart contract platforms, indicating the industry’s continued dominance in the crypto space.
The joint fourth most popular assets are dYdX (DYDX) and Radicle (RAD). Radicle made a big jump this time around after being out of the top 20 in the previous report. dYdX was one of the most popular DeFi projects in the first half, while Radicle was the most popular asset in the data management space. The fifth most popular asset is the emerging smart contract platform NEAR Protocol (NEAR), which dropped from third to fifth place.
In the last analysis, Terra (LUNA) was the fourth most popular asset. According to our analysis, Terra is technically the 12th most popular asset, but it was excluded from the analysis since the majority of funds invested in Terra exited during asset crashes. In addition, Terra also has the highest circulating market capitalization in the previous analysis. Clearly, these days are different.
Among the top 30 investment assets, the one with the highest market cap in circulation now belongs to Solana (SOL). In the last analysis, Solana had the second-largest market capitalization, behind Terra. Solana’s role as a leader in the smart contract space is evident, as its market capitalization is almost twice that of the second-placed Polkadot. SKALE Network ( SKL ) has the asset with the lowest circulating market capitalization among the top 30 assets, while FTX Token ( FTT ) has the asset with the lowest circulating market capitalization among the top five assets. Avalanche has fallen below Polkadot since Q4, while Uniswap ( UNI ) and FTT have both surpassed Cosmos (ATOM) and NEAR. Furthermore, most assets have lost at least 50% of their market capitalization compared to the last analysis due to recent price volatility.
Similar to Q4 in 2021, funds have clearly shifted to smart contract platforms and decentralized trading platforms. Among the top 50 assets, smart contract platforms remain the most invested category. The frenzy for smart contract platforms continues to heat up as funds and projects alike look to scale and build smart contract alternatives. Apparently, four of the top five investment assets this quarter were smart contract platforms. Projects like Oasis Network, NEAR Protocol, Nervos Network, and Mina are all trying to grow in the smart contract space, but it remains to be seen how they stack up against industry leaders like Ethereum, Cosmos, Polkadot, and Solana.
Investment continued to increase across all tracks, although most tracks saw only modest growth, a small decline, or were flat. Web3 infrastructure has been at the forefront of investment as industries such as data management and file storage continue to attract interest through assets such as Filecoin (FIL) and RAD. Other project categories are very broad, including games, AR/VR platforms, domain name protocols, and decentralized social networks. These tracks showcase a variety of areas that the crypto industry is just beginning to investigate.
This industry breakdown covers only the top 50 venture capital assets. Outside the top 50, investments in gaming, metaverses, and NFT infrastructure popped up. Framework Ventures recently launched a $400 million fund to support Web3 games, and a16z launched a $600 million gaming fund. Meanwhile, some investment firms like Sfermion only focus on investing in the NFT ecosystem. Such investments expand the opportunities for funds to hold non-traditional crypto assets. Money invested in games could end up owning native NFTs or digital land and tokens. Some funds have begun exploring the idea of directly holding blue-chip NFTs such as BAYC in their portfolios. Monitoring early trends in the venture capital space can help provide investors with an outlook on new market trends in the future.
Finally, due to recent events, it is important to acknowledge the risks of Three Arrows Capital's portfolio. It is no secret that Three Arrows Capital faced solvency issues following the broader market downturn. In order to obtain liquidity to repay creditors, Three Arrows Capital's portfolio assets are at risk of being sold or repossessed by their counterparties. As more news emerges surrounding Three Arrows Capital's situation, it will be important to continue to monitor the fund's confirmed holdings. In addition, if other funds face similar liquidity problems, their investments will also face greater scrutiny.
Thoughts on investing with crypto funds
In an industry that preaches decentralization and financial opportunity, it's always important to remember that the institutional environment operates very differently than your everyday investor. Still, the beauty of the crypto market is that any individual can follow a public fund's portfolio. This helps create a more level playing field compared to a traditional venture capital environment that operates without retail investor competition.
However, increased accessibility has not removed the risk factor behind any of these assets. These funds have risk-mitigating strategies that the average investor may not have or have access to without substantial capital. Due to private equity valuations and different exit strategies, these funds have earlier access to assets and therefore have greater potential profit margins. Whether in bull or bear markets, these funds have the ability to weather turbulence and in many cases still turn a profit. However, the gift of a bear market is that many asset prices are even lower than what some funds entered during a bull market.
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