Venture capital is gathering big-time lately – and even China seems to be jumping on the Web3 train! Plus, a crypto security firm sounds the alarm on phishing scams. Let’s see how investors can proceed with caution in today’s New Digital World.
Shanghai Aims to Become Capital of the New Digital World
Is China coming around on crypto? Well, there’s a currency angle and a technology angle…and the municipality of Shanghai, at least, is keen to encourage the latter in its city.
Shanghai – home to a small nation’s worth of people: 3.5X as many as New York – just laid out its goal to “construct a digital China,” with technology making up 60% of Shanghai’s economy by 2025!
Specifically: Shanghai is looking to encourage AI (including smart vehicles and robots), blockchain, cloud/big data, e-commerce, telehealth, fintech, smart cities with digital twins, and Web3. “Supply capacity has been significantly improved,” officials assure us in the “14th Five-Year Plan for the Development of Shanghai’s Digital Economy.”
Smart contracts, NFTs – including gaming as well as art and intellectual property – and “blockchain open-source platforms” were all name-checked in Shanghai’s five-year plan.
The “digital China” thing is also pretty literal: Shanghai will dedicate 10 billion yuan ($1.5 billion!) to metaverse projects. While being wary of “excessive financial speculation and malicious hype” in the metaverse… Shanghai officials see metaverse as a cornerstone of the digital China, which they project to contribute 1.5 trillion yuan ($224 billion) by 2025, reports The South China Morning Post.
If the city of Shanghai succeeds in “foster[ing] 10 leading companies and 100 small-sized firms” for metaverse alone, it’ll be well on its way to become the capital of the New Digital World by 2025.
Can they win? Yes, very possible, since – as we’ll see later in this issue – a staggering amount of venture capital is also headed their way, specifically for Chinese crypto startups.
China’s economy has been in big trouble lately, with the zero-COVID lockdowns… But throwing money at a problem is kind of China’s thing – and famously triggered China’s epic real-estate boom in the 2000s and beyond.
Although China is no big fan of Bitcoin (BTC-USD), it may be relenting on mining it – and coming around on stablecoins, specifically.
Phishing Up 173%, Says Web3 Security Firm
Certik are blockchain experts that Web3, crypto, and DeFi projects can call for a cybersecurity audit. And last Wednesday, we learned that “over $2 billion has been lost [to cyberattacks] in Q1 and Q2 alone, meaning…that 2022 is already the most expensive year for Web3 by far,” according to Certik’s “Web3 Security Quarterly Report.”
Certik spotted 290 phishing attacks on Web3 projects in Q2, versus 106 of them in Q1 – so phishing is up 173% this past quarter. “The vast majority of these attacks targeted projects’ Discord servers,” where most communities gather to chat and share files.
Certik slammed Discord (and Telegram) for not supporting account verification (aside from the server owner), like Twitter (NYSE:TWTR) does:
“This allows hackers to clone accounts and lay bait” like fake giveaways and token offers, said Certik. Community managers should consider 2FA authentication, “requiring multiple users to authenticate identity” when these leaders log in, and educate members about “exercising the utmost caution whenever clicking on links.”
My takeaway: Being able to do your thing online under a pseudonym is pretty cherished in Web3/crypto… But those projects may want to branch out from Discord – and look into Web3-friendly authentication services. Polygon (MATIC-USD) just launched “private identity checks” for crypto communities, specifically. And Polygon ID may be a big deal for the rest of us, too.
Speaking of phishing: Market makers at the decentralized exchange Uniswap (UNI-USD) certainly wished they’d been a little more careful yesterday. They “fell for a phishing scam” where malicious tokens mysteriously appeared in the wallets they use as Uniswap liquidity providers (LPs).
“The name of the token directed users to a malicious interface that claimed the users could swap these tokens for UNI,” said Uniswap in a Twitter thread. Instead, going there “gave the attacker the ability to redeem all of the user’s Uniswap v3 LP tokens for their full underlying value.”
Luckily: “There was no exploit” of Uniswap itself, which is one of the biggest crypto exchanges, comparable to KuCoin (KCS-USD). “The Protocol always was – and remains – secure.”
But still…a good reminder to look out for these “airdrop” phishing scams (as well as sketchy links in your social media or crypto accounts). And if you see the British Army promoting random NFTs on YouTube – or posing as Cathie Wood’s ARK Invest account – it’s also because they were hacked.
Crypto Startups Raise Funds in the $100 Millions Lately
This past week, I’ve been seeing more venture-capital deals in my news feed. And sizeable ones, too: $100 million, $75 million, $140 million! But these deals have a different flavor than the last time I noticed an uptick in venture capital in mid-May…
On May 23: I counted 17 deals in the previous week; they were smaller – $26 million here, $46 million there – but the biggest among them tended to go to Web3 gaming startups.
Now in July: Animoca Brands – which owns the development firm behind The Sandbox (SAND-USD) metaverse – just raised $75 million. This was “a significantly smaller raise than last year – albeit at a slightly higher valuation” of $5.9 billion, reports Decrypt. Gaming has been one of the more stable sectors of the New Digital World, Cointelegraph confirmed yesterday, and which I’ve highlighted before as holding fairly steady in their daily active user base.
But aside from Animoca… The biggest deals rolling in this week are not for gaming – but for Web3 infrastructure projects:
Gnosis Safe raised $100 million in yesterday’s round. Spun off from Gnosis (GNO-USD), the project will rebrand to just “Safe.” It provides multi-signature wallets, where at least three people sign off on transactions. “Many highly valued NFTs, including 13% of all Cryptopunks, are currently secured using Safe,” the team says.
Mysten Labs is “said to have raised $140 million so far” in their Series B, but they’re targeting “at least $200 million,” according to Blockworks. Mysten’s co-founders once worked on Facebook’s Diem stablecoin – and now bring you Sui (SUI-USD), “a decentralized, proof of stake blockchain [that’s] horizontally scalable” for NFTs and Web3.
Last week, Rubix (RBT-USD) raised $100 million for its “green blockchain community” from one firm: LDA Capital, which does cross-border transactions. Rubix has a unique design, “proof of pledge,” which it says is more environmentally friendly than proof-of-work but more decentralized than proof-of-stake (where the largest tokenholders may control the network).
There were a couple $50 million rounds last week, too. And we may be about to see a LOT more:
Venture capitalists are really gathering up lots of coins, so to speak. Multicoin Capital, benefactor of FTX (FTT-USD), just launched a new $430 million fund… Konvoy, an early investor in Axie Infinity (AXS-USD), launched a $150 million fund…
And staggering amounts are gathering at Lightspeed Venture Partners and Sequoia Capital China:
Lightspeed raised $7 billion, while Sequoia raised $9 billion for Chinese crypto startups, specifically. That level of investment is almost like creating an entire new Cardano (ADA-USD) or Solana (SOL-USD). It will certainly be interesting to see who gets all this venture capital – and runs with the ball.
On the date of publication, Ashley Cassell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. To have more news from The New Digital World sent to your inbox, click here to sign up for the newsletter.