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The cryptocurrency ecosystem endured another tough go in Q3 as fundraising in the space fell to a three-year low, blockchain intelligence firm Messari pointed out in a research report this past week.

Indeed, the amount raised by crypto-focused firms in Q3 fell to just under $2.1B across 297 deals, down 36% in both categories from Q2 and the lowest since Q4 2020, the report said.

Fundraising hit a peak of almost $17.5B across more than 900 deals in Q1 2022, but an industry-wide downturn created by the collapse of the Terra ecosystem emerged shortly thereafter.

In terms of the overall funding amounts and deal counts, returns last year fell sharply in the Q2-Q3 period, when the demise of stablecoin TerraUSD (UST-USD) and sister token Luna (LUNA-USD) wiped out tens of billions of dollars in market capitalization within a week and contributed to the collapse of several other key players like Sam Bankman-Frieds multibillion-dollar empire.

While up handsomely on the year, prices of major digital tokens posted losses for Q3 2023, as investors came to the understanding that interest rates likely will stay higher for longer with inflation still too high for the Federal Reserves liking. Bitcoin (BTC-USD) and ethereum (ETH-USD), the two largest cryptos by market value, retreated 8.6% and 10.6%, respectively, during the quarter. The S&P 500, by comparison, logged a 3.8% loss.

Messari noted the bulk of deals in Q3 were concentrated in early-stage rounds, with seed funding accounting for the largest stage total with $488M raised over 98 rounds. Trends in deal counts show a significant shift away from later stage projects and into early stage projects over the last three years, it said.

Scanning across sectors, chain infrastructure saw the largest share of funding at 18%, while decentralized finance (DeFi) dominated in terms of the number of deals funded with 67. Gaming also scored another robust quarter, attracting nearly $250M.

Interestingly, Binance Labs, the venture capital division of embattled crypto exchange Binance, was by far the most active investor during the quarter, Messari said. Its 23 deals, focused on projects relating to DeFi and gaming sectors, were more than double the next biggest investor, Robot Ventures. The dominance in venture funding comes as Changpeng Zhao-led Binance is embroiled by regulatory woes, with the U.S. Commodity Futures Trading Commission and the Securities and Exchange Commission both alleging the platform failed to register with U.S. regulators and sold illegal securities.

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Cryptocurrency fundraising falls to lowest in three years - report - Seeking Alpha