Primary Market Bear Market Investment Unveiled! a16z and Paradigm Bet on GameFi and NFTs

According to A&T Capital’s research on primary crypto market investments from May to August 2022, bear market investments showed clear trends: top-tier institutions preferred to invest in either very early-stage or late-stage projects, with GameFi, NFT, and the metaverse ranking as the top three categories by number of seed round deals. a16z Crypto went all-in on Seed round NFT platforms, and all four of Paradigm’s investments were also at the Seed round.

Three Core Trends in Primary Market Bear Market Investments

(Source: A&T Capital)

During the crypto bear market from May to August 2022, primary market investments exhibited characteristics distinct from those in a bull market. In terms of investment stages, funds were more willing to back very early or late-stage projects, while Series A and B rounds saw a significant decrease. This polarized investment strategy reflects institutional risk management in uncertain environments: either betting on early-stage projects for outsized returns or investing in later-stage projects for safety.

Exit strategies focused on projects that could quickly reach the secondary market, with a noticeable increase in investments in blockchain gaming and crypto asset management projects. This preference stems from liquidity constraints in a bear market, driving institutions to seek faster exit channels for capital turnover. GameFi and NFT projects, with their community bases and tokenomics, can often achieve token listings in a short period, meeting the liquidity needs of bear market investors.

In terms of investment direction, Layer1 (L1) projects led by PoS made up about 50%, while hybrid chains (PoP hybrid models) saw a significant increase in attention, reaching 22%. PoW accounted for a very small portion, with its financing amount less than 1% of the total, indicating that capital favors low-energy, highly scalable consensus mechanisms. On Layer2, general scaling solutions accounted for 73%, with industry-specific chains—especially those built for GameFi—gaining attention, highlighting that these applications have specific needs that generic Layer2 solutions cannot perfectly address.

The Bear Market Investment Landscape for L1 and L2

L1 Investments Show Clear Technical Preferences

PoS at 50%: Significantly outperforms other categories. Compared with PoW, PoS offers lower energy consumption and higher scalability and throughput.

PoP Hybrid Model at 22%: Combines the benefits of PoW and PoS, avoiding centralization, security risks, MEV risks, and DoS threats.

PoA at 25%: Ensures speed and high performance without sacrificing security, making it well-suited for private blockchain applications.

PoW below 1%: Excessive energy consumption and centralization trends have made it less attractive to capital.

For Layer2 (L2), Scaling Protocols and DeFi Protocols performed better in financing. Scaling Protocols accounted for 73% of investments (excluding Aptos), indicating a heightened demand for scaling solutions due to higher gas fees, TPS, and latency. Although DeFi Protocols attracted 34% overall attention, 66% of these projects focused on cross-chain protocols, and in terms of financing amount, they accounted for only 11.5%.

It’s worth noting that very few Oracle projects received funding, accounting for just 1% of total Layer2 financing. This may be because the Oracle concept lacks innovation and its use cases are limited by industry needs. Popular tracks like GameFi and NFT typically do not require Oracles, resulting in low interest in this sector during the bear market.

Application Layer Investments: GameFi, NFT, and Metaverse Form the Big Three

At the application layer, investment distribution shows a clear primary market preference during the bear market. Trading platforms and fintech together accounted for 47% of funding targets, with other categories each below 6% and distributed fairly evenly. However, by project count, the top three categories for number of deals were NFT, gaming, and metaverse—a sharp contrast to the distribution by funding amount.

The top three seed round categories by project count were also gaming, NFT, and metaverse. By funding amount, the top three were trading platforms, centralized exchanges, and security. This discrepancy reveals the dual-track logic of bear market investment: large capital flows to mature tracks like infrastructure and trading platforms, while early-stage project numbers are concentrated in innovative areas like GameFi, NFT, and the metaverse.

Alpha and Beta analysis shows that X-to-earn, Web Builder, and Legal have Beta attributes, indicating generally good financing and positive market sentiment. For Layer2, the Seed-Angel stage has Alpha, with Polygon being the Alpha project in this stage—its funding exceeds the sector average by over 2x. At the application layer, Alpha projects are scattered across different rounds and tracks.

Bear Market Primary Market Investment Strategies of Top Institutions

(Source: A&T Capital)

a16z Crypto made two application investments, both at the Seed round, and both platform-type projects: a creator platform to help creators NFT-ize original works, and an NFT pledging platform enabling players to access high-barrier games through lending.

(Source: A&T Capital)

a16z made 7 investments in total, including one L1 project (Aptos) and six applications. Of the six application investments, two were Seed rounds and four were Series A, with five focused on gaming/x-to-earn and one on NFT, demonstrating the firm’s strong conviction in the GameFi track.

Paradigm made four investments, all in applications and all at the Seed round. These included an NFT marketplace, gaming/x2e, social, and metaverse, indicating a focus on early-stage projects and a diversified sector strategy.

Dragonfly made 12 investments, including one Layer2 cross-chain bridge and 11 applications. The investment rounds mainly focused on early Seed and growth stages. Of the 12 application investments, five were in Gaming, three in asset management, and two in social—Gaming accounted for 41.7%, making it their top priority.

Sequoia Capital made five investments, including one Layer2 project (StarkWare) and four applications. There was a clear preference for later-stage rounds, including one ICO round. The four application investments included two in metaverse, one in asset management, and one in insurance, showing that traditional VCs favored later-stage and metaverse tracks during the bear market.

DCG (Digital Currency Group) invested in 10 projects, with no stage preference—ranging from Seed to Series F. Their top preferences were: Wallet (including exchanges with built-in wallets), Security (code audits, security checks), and Analytics tools (data analysis, tracking, alerts).

Tiger Global made 14 investments, covering projects from Seed to Series D with no clear stage preference. Among 12 application investments, four were infrastructure, four asset management, two analytics, and two exchange projects, reflecting a broad investment strategy.

Bear Market Primary Market Investment Takeaways

In summary, bear market primary market investments showed distinct structural characteristics. Top institutions polarized their choices by stage, with Seed and late rounds garnering more attention, while Series A/B middle rounds cooled off. In sector selection, GameFi, NFT, and metaverse led in project count, but trading platforms and fintech dominated in funding amounts, indicating that while the market maintains interest in innovative sectors, it allocates large capital more cautiously.

Technologically, PoS and hybrid consensus mechanisms have become mainstream, Scaling Protocols received overwhelming attention, and industry-specific chains are emerging. Focus on security has notably increased, reflecting heightened risk control during the bear market. These trends provide a clear framework for understanding the bear market investment strategies of top institutions.