Crypto VCs Bet Big on L2 Interoperability, Shun AI for Now

Crypto VCs Eye L2 Interoperability as the Next Big Thing, AI Interest Declines

Crypto VCs– In the second quarter of 2024, blockchain venture capital (VC) spending surged to an impressive $2.7 billion, with layer-2 blockchains and infrastructure projects emerging as the big winners. As blockchain technology continues to evolve, certain sectors are gaining momentum, particularly decentralized social media, decentralized physical infrastructure networks, and decentralized science.

Decentralized Sectors on the Rise

These decentralized sectors are currently attracting significant attention, reflecting a growing interest in innovative and scalable blockchain solutions. However, it’s worth noting that some major venture capital firms are beginning to pull back from artificial intelligence investments due to lower-than-expected revenue and demand.

Infrastructure Projects Take Center Stage

Olaf Hannemann, co-founder and Chief Investment Officer of CV VC, a company that invests in both equity and tokens, shared insights with Cointelegraph. He emphasized the importance of picks and shovels investments, focusing on the infrastructure necessary for the long-term success of decentralized applications.

Infrastructure topics such as decentralized social, physical infrastructure networks, and decentralized science and health are exciting for us, Hannemann explained. Decentralized business models still offer a lot of potential, with really good infrastructure solutions being crucial in the long term to develop good applications.

Key Investments in Q2 2024: Monad, BeraChain, and Babylon

The second quarter saw a 2.5% increase in VC funding compared to the previous three months. Among the key beneficiaries were the layer-1 platform Monad, decentralized finance protocol BeraChain, and Bitcoin restaking platform Babylon, which secured $225 million, $100 million, and $70 million in investments, respectively.

The Ethereum Layer-2 Scaling Opportunity

Anirudh Pai, partner at VC firm Dragonfly, highlighted Ethereum layer-2 scaling as one of the biggest opportunities in the industry. However, he also pointed out the challenges that come with this growth, particularly liquidity fragmentation. As value disperses across multiple chains like Polygon and Arbitrum, there is a rising demand for interoperability solutions such as AggLayer and Matter Labs One.

Caldera, one of our portfolio companies, has done a great job addressing the liquidity fragmentation issue on Ethereum, Pai noted. Their upcoming Metalayer will connect the universe of disparate rollups that exist on Ethereum today. The Metalayer is a unified rollup ecosystem platform that aims to enable ultra-fast rollup deployment on layer-2s, including Optimism, Arbitrum, ZKsync, and Polygon.

MegaETH: Turbocharging Ethereum with Real-Time EVM

Caldera isn’t the only Ethereum-related project attracting attention. In June, Dragonfly participated in a $20 million seed funding round for MegaETH, a real-time Ethereum Virtual Machine (EVM) project boasting a nine-figure valuation. Ethereum creator Vitalik Buterin and Consensys founder Joseph Lubin are also backing this project.

MegaETH promises to revolutionize EVM smart contracts by processing 100,000 transactions per second—a hundred times faster than Ethereum’s native EVM. This project represents a significant leap forward for Ethereum scalability and could have far-reaching implications for the entire blockchain ecosystem.