A sobering new report from Crunchbase found that Web3 funding from venture capital (VC) funds has plunged 76% in the second quarter when compared to the same period a year ago.

The numbers don’t improve if you compare the first half of 2023 to the same period in 2022. In 2022, Web3 startups raised nearly $16 billion in the first half of the year, but this year’s fundraises have totaled just $3.6 billion — a 78% drop.

Web3 was defined by Crunchbase as cryptocurrency and blockchain startups, which have been hit hard by the ongoing crypto winter. While VC funding has slowed overall, with Crunchbase reporting an 18% drop across all sectors in the second quarter of 2023, crypto-related funding has had a much steeper decline. Meanwhile artificial-intelligence (AI) startups have become the new shiny object for investors, seeing $25 billion in funding in the first half of 2023.

There were still some significant funding rounds in the first half of 2023. Sam Altman, CEO of OpenAI, saw success with his crypto project Worldcoin, which got $115 million in a Series C round in May 2023 led by Blockchain Capital. Another company managing a 9-figure funding round was crypto protocol LayerZero, which raised $120 million backed by Andreessen Horowitz (a16z), Christie’s and others.

Even as funding levels off, many prominent firms remain positive on the future of Web3, with a16z highlighting the strength of the sector in its second annual “State of Crypto” report, which noted Web3 gaming especially as showing strength.

In June, the firm was part of a $37 million round backing Mythical Games along with ARK Invest and Animoca Brands. Mythical Games had just announced their NFL Rivals app had passed 1 million downloads shortly before the fundraising announcement.

Binance Labs, the VC arm of the crypto exchange, is similarly still optimistic about Web3, and noted an interest in funding companies that bridge the transition between Web2 and Web3, especially in gaming.

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