2023 Q3 Web3 Primary Market Review and Track Analysis: The Bull Market Is Gradual, How to Lay It Out?

*Author:*Colin

Primary market supply and demand side activity declined for three consecutive quarters

In Q3 2023, the total financing amount of the market was 1.694 billion US dollars, and there were 170 financing events, and the average financing size increased slightly (Ramp and BitGo, two fund infrastructures for traditional institutions, completed 400 million financing). In October 2023, the amount raised was $426 million, which is the lowest amount raised in nearly four years. The amount of financing and financing events have continued to decline, the overall trading in the market is not active, and institutions are still mainly conservative strategies, and the main funds are invested in infrastructure and strong fundamental projects, such as Flashbot.

Source: RootData

Market sentiment has been dulled and is expected to pick up in the next two quarters

In the process of continuous decline in investment and financing funds, the decline is gradually narrowing, and the original main tracks such as DeFi, GameFi, and games have fallen to the freezing point, and RWA and BTC projects have not brought continuous activity in the altcoin market.

We believe that the current state of the primary market has been similar to the emotional blunt in Q4 2019, institutions only invest in projects with strong fundamentals, and the optimization projects of the conventional track have completed the layout of the basic framework in the past year and a half, and they are relatively conservative for emotional or small innovation projects, and it is difficult for the market to break the emotional freezing point with a new narrative in a short period of time. The current state of the market needs to re-energize confidence after a qualitative change in fundamental growth.

CHART SOURCE: ROOTDATA 2023.09.28

Considering the current volume of on-chain funds, the number of wallets, and the fundamentals of infrastructure continue to grow, we believe that the primary market is experiencing a bottom and is expected to bottom out in the next two quarters:

1. Zksync, Starknet, Celestia, Layerzero, Eigenlayer, Scroll and other projects will have major fundamental updates and testnet iterations in the next two quarters, or the mainnet will be launched, which can drive potential on-chain behavior activity and opportunities for further ecological layout.

2. After the upgrade of Ethereum Cancun, the L2 ecosystem will bring further prosperity, the TVL of the L2 ecosystem in Q3 will stabilize at 10 billion US dollars, and the asset volume and trading volume will enter a bottleneck period of growth.

3. The game track will usher in a large-scale launch, which has a high probability of driving the market; In the second half of 2021, the game financing volume exceeded 5 billion US dollars, and after more than a year and a half of preparation, the new generation of chain games has been greatly improved in terms of production quality, operational maturity, playability, and experience optimization, and will be launched in the next three quarters.

Industry track analysis

Overall, this bear market cycle has lasted for more than 6 quarters, during which almost all the old narratives have evolved and developed to varying degrees, some of which have been fully falsified by the market, and new narratives have also appeared one by one to test the waters, generating effective market feedback. In the 6 quarters of observational research, we believe that the market has generated sufficient inductive and deductive materials, which can lead to more reliable research ideas and perspectives.

ETH will have a Cancun upgrade in the next six months, and BTC will have its next halving in 7 months; We believe that as of Q3 2023, the potential core tracks in the next bull market cycle have basically emerged in the market

Based on past market experience and inductive summary, we divide the existing main tracks into four categories according to the priority of occurrence, the reasons for the growth outbreak, the scale of the overall supply and other factors:

Ethereum legitimacy driven (important)

Ethereum legitimacy mainly describes the core technology path of the current development of the blockchain, and this category has raised more than 10 billion US dollars in the 6-quarter bear market, basically accounting for about 40% of the entire market fundraising scale.

As the airdrop of large-scale projects has become one of the few effective asset issuance paths and market hotspots in the bear market, such projects have continued to accumulate high user data and ecological resources. At the same time, the important core competency of projects in the “Ethereum legitimacy” category in the early stage is ecological BD, which enhances brand voice and ecological attention through cooperative news, narrative nesting, airdrop expectations, and strong capital endorsement of head projects. The fundamental development of such projects is mainly based on the construction of technology ecology and narrative, which is not greatly affected by market sentiment and the price of Bitcoin, and with better financial strength and airdrop effect, we believe that it is easier to become the main leading track of the market in the early stage of the bull market. **

Turning Point in Objective Trend or Creating a New Asset Class (Significant)

The rapid growth of the primary market track and leading the market usually requires one of the following criteria:

• The original track or technical environment has developed steadily, and new narrative ideas or operational strategies have been generated, such as GameFi and DeFi;
• Objective trends and steady growth in the volume of users or assets, reaching qualitative changes that lead to new product categories, such as derivatives trading;
• New narratives, generating new asset classes, with unlimited distribution channels for a large number of new assets, such as NFTs;

Therefore, we have sorted out which categories of tracks in the current market meet one of the above criteria, and believe that some segments of the market have begun to gradually approach the inflection point, and it is more likely to become the engine of the next round of bull market.

Scale Expansion of Mature Tracks

Relying on user scenario breakthroughs or operational experience to bring large-scale traffic