AI-focused crypto projects have experienced a significant surge in funding, with a 500% rise in venture capital (VC) investment in Q3 of 2024. This comes at a time when the overall VC investment in the crypto sector has been declining. According to a report by Galaxy Digital Research, there were only eight new funds raised in Q3, the lowest since Q3 of 2020, with a combined total of $140 million.
The decline in capital allocation to crypto VC started in Q3 of 2023 and has continued since then. The report attributes this trend to events that occurred in 2022 and 2023, which led many investors to withdraw from the crypto sector. Despite the overall decline in VC investment, AI-focused crypto projects have managed to attract significant funding, proving that VCs are still interested in artificial intelligence within the crypto industry.
The report also highlights the sectors that have attracted the most VC investment. Decentralized finance (DeFi) projects, Layer-1 networks, and the Web3/NFT/Gaming/DAO sector have seen the highest investment amount. In Q3 of 2024, DeFi startups raised $462.3 million, accounting for 18.43% of all VC fundraising. The Layer-1 sector raised over $400 million, and the Web3 sector raised over $350 million.
Interestingly, despite the regulatory ambiguity in the US, crypto startups based in the country received the most funding from VCs, with 44% of the deals having recipients in the US. This is likely due to the presence of established VC firms and the enthusiasm for innovation within the US market.
Overall, while the VC investment in the crypto sector has shown a decline, AI-focused projects have garnered significant interest and funding. This indicates the ongoing excitement and potential for artificial intelligence within the crypto industry.