As the crypto space continues to grow and mature, more and more financial institutions are beginning to understand the potential of Web3 technology and its applications for real-world use.
Venture capital still invests millions in decentralized projects despite a slowdown in crypto markets. While investment in emerging technologies continues to decrease, investment in crypto has been surprisingly resilient.
According to a report by Pitchbook, Web3 investment continues to beat out all other categories among emerging tech. The third-quarter investment in Web3 and decentralized finance (DeFi) projects reached $879 million. In terms of investment volume, Web3 beat out fintech and biotech.
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Venture capital is continuing to invest in crypto projects, even after the disastrous collapse of the crypto exchange FTX. The collapse of the third largest exchange in the world is making venture funds realize the importance of decentralization.
‘FTX Collapse Highlights Why Web3 is the Future’
Many investors argue that the gross mismanagement of consumer funds in FTX highlights the value of transparent and open technology.
One of them is Thomas Caddick, Chief Investment Officer at Maitri Capital, a UK-based Web3 hedge fund. Caddick believes that institutions are starting to realize the benefits of decentralized technology. However, there are still many barriers to overcome.
"The collapse of a centralized entity like FTX, as well as all the failures of regulatory oversight and due diligence in investing, really make a case for decentralization," Caddick explained to DailyCoin. "Institutional players are starting to realize that Web3 is definitively going to be the future."
‘Fund Managers Will Need Technical Skills’
Matiri Capital is part of the Liberty Ecosystem, along with two other partner companies. One is GameFi platform Liberty Gaming, backed by Animoca Brands. The second is Skylaunch, a multi-chain IDO platform backed by several tier-one VCs.
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The fund, regulated by the UK’s Financial Conduct Authority, invests in a broad range of early-stage Web3 startups. It relies on institutional-level due diligence for all its investments. These include an investigation of the founding team, technical architecture, and business solutions, as well as analyzing market sentiment and current trends.
These are the areas where many institutions still lag. Part of the reason for slow institutional adoption lies in regulatory issues, but that’s not the only barrier to adoption.
"The major problem is that there is still a lack of understanding of Web3 among fund managers," he said. "To successfully invest in Web3, fund managers need to understand the underlying technology."
Web3 Hedge Funds Need Deep Diversification
Other than requiring deep technical knowledge, Web3 poses additional challenges for investors. One of them is the challenge of diversifying the portfolio.
As a hedge fund, Maitri Capital relies on diversification and hedging to deliver consistent returns.
"As part of our Web3 investment strategy, we diversify at two different levels," Caddick explained. "We invest in a wide selection of asset classes, including equity, staking programs, liquid tokens and DeFi. Moreover, we invest across different sectors in the blockchain space, including metaverse, DeFi, crypto lending, etc."
For now, most crypto assets fall into the category of emerging technology. This makes them strongly correlated both to tech and to each other. However, Caddick believes that hedging will become easier as the sector matures.
"Diversifying with Web3 allows us to absorb the gains of this growing sector," Caddick said. "It also allows us to avoid too much exposure to overleveraged sectors of the industry."
