Holding On Until the Spring Breeze Arrives: Q3 2023 Web3 Primary Market Review and Sector Analysis
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Holding On Until the Spring Breeze Arrives: Q3 2023 Web3 Primary Market Review and Sector Analysis
The current market condition requires a qualitative leap in fundamental growth to re-ignite confidence.
Navigating Web3 tides with focused insightsPrimary Market Supply and Demand Activity Declines for Three Consecutive Quarters
In Q3 2023, the total market financing amount reached $1.694 billion, with 170 funding events recorded. The average deal size slightly increased, driven by two infrastructure projects targeting traditional institutions—Ramp and BitGo—each securing $400 million in funding. In October 2023 alone, total fundraising amounted to $426 million, marking the lowest monthly figure in nearly four years. Both funding volume and event count have declined consecutively, reflecting weak overall market activity. Institutional investors continue adopting conservative strategies, concentrating capital on core infrastructure and fundamentally strong projects such as Flashbots.
Data source: RootData
Market Sentiment Dulls, Potential Recovery Expected in Next Two Quarters
Amid ongoing declines in investment and financing volumes, the rate of decline has begun to narrow. Previously dominant sectors such as DeFi, GameFi, and blockchain gaming have hit rock bottom. RWA and Bitcoin-related projects have failed to sustainably energize the broader altcoin market.
We believe that the current state of the primary market resembles the sentiment stagnation seen in Q4 2019. Investors are focusing exclusively on projects with strong fundamentals, while optimization efforts within conventional sectors have largely completed their foundational development over the past year and a half. Markets remain cautious toward projects driven primarily by narrative or minor innovations. In the short term, it is difficult for new narratives to break through this emotional low point. A recovery in confidence will likely require fundamental growth reaching a tipping point.
Chart source: ROOTDATA 2023.09.28
Given the current scale of on-chain capital, wallet growth, and continuous improvement in infrastructure fundamentals, we believe the primary market is undergoing a bottoming process and may begin to recover in the next two quarters:
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Projects such as Zksync, Starknet, Celestia, LayerZero, EigenLayer, and Scroll are expected to roll out major fundamental upgrades, testnet iterations, or mainnet launches in the coming two quarters. These developments could stimulate on-chain activity and create new opportunities for ecosystem expansion. The absence of major infrastructure launches in Q3 contributed to a lack of directional momentum in on-chain behavior and market sentiment;
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Following Ethereum's Cancun upgrade, L2 ecosystems are poised for further growth. In Q3, L2 TVL stabilized around $10 billion, but both asset scale and transaction volume had entered a growth bottleneck. The post-upgrade reduction in gas fees and improved user experience are expected to effectively boost secondary market prices and sentiment, opening new windows for L2 ecosystem development;
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The gaming sector is set for a wave of large-scale project launches, which could significantly reinvigorate market dynamics. After more than a year and a half of preparation—following over $5 billion in game-focused funding in the second half of 2021—the next generation of blockchain games now offers substantial improvements in production quality, operational maturity, gameplay, and user experience, with many slated for release in the next three quarters.
Industry Sector Analysis
Overall, this bear market cycle has lasted over six quarters. During this period, nearly all prior narratives have undergone varying degrees of evolution and testing—some thoroughly disproven, while new ones have gradually emerged and received meaningful market feedback. Through six quarters of observation and research, we now have sufficient data to form reliable analytical frameworks and perspectives.
Ethereum is scheduled for its Cancun upgrade within the next six months, while Bitcoin’s next halving is expected in seven months. We believe that by Q3 2023, the key sectors likely to drive the next bull cycle have already surfaced in the market.
Based on historical market patterns and comprehensive analysis—including order of emergence, drivers of growth, and overall supply scale—we categorize the current major sectors into four categories:
Ethereum-Centric Legitimacy (Important)
Ethereum-centric legitimacy refers to the core technological trajectory shaping the current evolution of blockchain. Over the past six quarters of bear market, projects in this category have raised over $10 billion in funding, accounting for approximately 40% of total market fundraising.
Because major project airdrops have become one of the few effective methods of asset distribution and market catalysts during bear markets, these projects have accumulated significant user data and ecosystem resources. Early-stage success for "Ethereum-centric legitimacy" projects largely depends on ecosystem business development—leveraging partnerships with leading projects, narrative layering, airdrop anticipation, and strong institutional backing to enhance brand visibility and ecosystem attention. Their fundamental progress focuses on technical advancement and narrative construction, making them relatively insulated from general market sentiment and Bitcoin price fluctuations. Given robust funding and effective airdrop mechanisms, these projects are well-positioned to lead the market in the early stages of the next bull cycle.
Objective Trends Reaching Inflection Points or Creating New Asset Classes (Important)
Rapid growth in a primary market sector and its ability to lead the market typically requires meeting at least one of the following criteria:
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An existing sector or technical environment evolves steadily, giving rise to new narratives or operational strategies—for example, GameFi and DeFi;
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An objective trend—such as user adoption or asset scale—grows consistently until reaching a qualitative shift, resulting in entirely new product categories, such as derivatives trading;
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A novel narrative emerges, creating a new asset class with broad, unrestricted distribution channels—for example, NFTs.
Based on these criteria, we have identified current market sectors that meet at least one condition. We believe certain niche areas are approaching critical inflection points and are highly likely to serve as engines for the next bull market.
Expansion of Mature Sectors
User Scenario Breakthroughs or Operational Expertise Driving Mass Traffic
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