Fri, October 11, 2024 | 3:23PM ET

Sluggish Start to Q4

Name: FS Insight
Price range: $$$

Tom Couture ^AC

Vice President of Crypto Strategy

Weekly Recap

Q4 has represented the least funded quarter in each of the past two years, and two weeks into this year, the trend is on pace to remain intact. The first week of the fourth quarter was one of the least funded weeks all year, with just $11 million raised across eight deals. Although not overly impressive, funding rebounded this week to $120 million across 21 deals. Concentration in the Infrastructure category continues to present itself as a recurring theme, representing 74% of this week’s funding and 62% of the deal count. Gaming was the second most funded category, which included a $10 million Seed round completed by PiP World, which is aspiring to become the “Duolingo of crypto” through a gamified educational experience.

Seed rounds led fundraising and deal counts among disclosed deals, representing 29% of total funding and 33% of total deal count. Three strategic rounds were completed this week, including TON -93.25% raising $10 million from Gate.io. The crypto exchange plans to deepen its involvement and governance of the network and contribute to its ongoing development.

Funding by Category

Sluggish Start to Q4 — Source: Fundstrat

Funding by Stage

Deal of the Week

Yala Finance raised $8 million in a Seed round co-led by Polychain Capital and Ethereal Ventures. Other investors included Amber Group, HashKey Capital, Anagram, Galaxy Vision Hill, and others. Yala’s founders include ex-employees from Binance, Circle, and Alchemy Pay. Together they are aiming to drive the development and expansion of Bitcoin DeFi with the development of a Bitcoin-backed, yield bearing stablecoin called YU.

Why is This Deal of the Week?

Bitcoin as a standalone asset represents more than half the total value of the entire asset class. Most Bitcoin remains on Bitcoin’s base layer, unproductive and idle. There is an enormous opportunity to turn Bitcoin into a productive asset and unlock a new wave of capital efficiency within the industry. Yala Finance is aiming capitalize on this opportunity by creating a bitcoin-backed, yield-bearing stablecoin.

Users can deposit bitcoin into MetaMint, a cross-chain protocol allowing for instant conversion of native bitcoin into stablecoins on EVM chains. Users will receive yBTC, a tokenized representation of their deposit, and instantly mint YU on a destination chain. MetaMint removes the need for bridging or wrapping and simplifies the user experience. Yala is also incorporating an insurance feature into its protocol to address 10-minute block production and additional safeguards to prevent liquidations from high volatility or restaking. Yala plans to extend collateral options to staked bitcoin, which they call “Pro Mode.”

Yala is still being developed, with its testnet launch expected this month and mainnet launch planned for the first quarter of 2025. Yala’s native token YALA N/A% will also launch alongside mainnet. Investors have already committed over 2,000 BTC in deposits and the funding will be used to enhance development and add more people to the business development, engineering, and marketing teams.

Selected Deals

OpenGradient, a decentralized AI network, raised $8.5 million in a Seed round from investors, including Coinbase Ventures, a16z CVX, Foresight Ventures, SALT, Black Dragon Capital, and others. OpenGradient is aiming to accelerate open-source AI development by democratizing model ownership, streamlining AI deployment, and ensuring universal access to cutting-edge AI technologies. OpenGradient’s E2E platform offers scalable on-chain AI computing, ensuring verifiability and attribution while enhancing security for AI deployment and hosting. OpenGradient uses a multi-layer technology stack, including an EVM-compatible blockchain with heterogeneous AI compute architecture (HACA) and a proprietary library of feature-rich tools to support and scale secure AI workflows on-chain. They also have their own SDK for web2 developers to leverage, reducing the burden of learning the on-chain nuances of AI development. OpenGradient’s testnet is expected to go live before the year ends.

Semantic Layer, a dapp infrastructure layer, raised $3 million in a seed round led by Figment Capital, with participation from Hack VC, Robot Ventures, Bankless Ventures, Fenbushi Capital, and others. The current MEV distribution is skewed, with over 70% going to validators, and the rest is split between builders and searchers, while users receive none. Users are the sole originators of the transaction, and Semantic Layer believes they should receive the majority of MEV shares. Additionally, malicious actors can send private transactions to prevent circuit breakers from front-running their transactions, making proactive security very difficult. Semantic Layer aims to improve transaction execution with its Verifiable Aggregation Rules (VAR) and Verifiable Sequencing Rules (VSR), which give more control to dapps when dealing with multi-chain transaction ordering and bundling. Semantic Layer’s Application Specific Sequencing (ASS) framework also helps reduce MEV leakage and prevent malicious transactions from executing. Together, Semantic Layer is striving to make the meta transaction programmable, enabling customized MEV distribution and native scaling for protocols. The funding will be used to enhance the development of Semantic Layer and improve company awareness within the industry.

Ithaca, an infrastructure development company, raised $20 million from Paradigm. Ithaca is a spin-off company from Paradigm, with Paradigm’s CTO and general partner Georgios Konstanopoulos serving as Ithaca’s CEO. Paradigm co-founder, Matt Huang will also serve as Ithaca’s Chairman. Ithaca is striving to accelerate the development of the crypto frontier. Its first project is a layer-2 network called Odyssey, built using Reth, the OP Stack, and Conduit, and will be the first of multiple technologies that Ithaca plans to develop. Odyssey plans to set itself apart from other L2s by shipping multiple features slated on the Ethereum roadmap that no team has built yet. Odyssey will enable more robust smart contract wallets to provide frictionless onboarding to crypto. Odyssey is live on testnet and open for developers to begin creating applications.

Disclosures (show)

This research is for the clients of FS Insight only. FSI Subscription entitles the subscriber to 1 user, research cannot be shared or redistributed. For additional information, please contact your sales representative or FS Insight at fsinsight.com.

Analyst Certification (Reg AC)

Tom Couture, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Neither I, nor a member of my household is an officer, director, or advisory board member of the issuer(s) or has another significant affiliation with the issuer(s) that is/are the subject of this research report. There is a possibility that we will from time to time have long or short positions in, and buy or sell, the securities or derivatives, if any, referred to in this research.

Conflicts of Interest

This research contains the views, opinions and recommendations of FS Insight. At the time of publication of this report, FS Insight does not know of, or have reason to know of any material conflicts of interest.

General Disclosures

FS Insight is an independent research company and is not a registered investment advisor and is not acting as a broker dealer under any federal or state securities laws.

FS Insight is a member of IRC Securities’ Research Prime Services Platform. IRC Securities is a FINRA registered broker-dealer that is focused on supporting the independent research industry. Certain personnel of FS Insight (i.e. Research Analysts) are registered representatives of IRC Securities, a FINRA member firm registered as a broker-dealer with the Securities and Exchange Commission and certain state securities regulators. As registered representatives and independent contractors of IRC Securities, such personnel may receive commissions paid to or shared with IRC Securities for transactions placed by FS Insight clients directly with IRC Securities or with securities firms that may share commissions with IRC Securities in accordance with applicable SEC and FINRA requirements. IRC Securities does not distribute the research of FS Insight, which is available to select institutional clients that have engaged FS Insight.

As registered representatives of IRC Securities our analysts must follow IRC Securities’ Written Supervisory Procedures. Notable compliance policies include (1) prohibition of insider trading or the facilitation thereof, (2) maintaining client confidentiality, (3) archival of electronic communications, and (4) appropriate use of electronic communications, amongst other compliance related policies.

FS Insight does not have the same conflicts that traditional sell-side research organizations have because FS Insight (1) does not conduct any investment banking activities, and (2) does not manage any investment funds.

This communication is issued by FS Insight and/or affiliates of FS Insight. This is not a personal recommendation, nor an offer to buy or sell nor a solicitation to buy or sell any securities, investment products or other financial instruments or services. This material is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice.
The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Intended for recipient only and not for further distribution without the consent of FS Insight.

This research is for the clients of FS Insight only. Additional information is available upon request. Information has been obtained from sources believed to be reliable, but FS Insight does not warrant its completeness or accuracy except with respect to any disclosures relative to FS Insight and the analyst’s involvement (if any) with any of the subject companies of the research. All pricing is as of the market close for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, risk tolerance, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. The recipient of this report must make its own independent decision regarding any securities or financial instruments mentioned herein. Except in circumstances where FS Insight expressly agrees otherwise in writing, FS Insight is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client website, fsinsight.com. Not all research content is redistributed to our clients or made available to third-party aggregators or the media. Please contact your sales representative if you would like to receive any of our research publications.