The first quarter of 2023 saw a sharp decline in venture capital funding for Web3 startups, which are companies that use blockchain and cryptocurrency technologies to create a more decentralized and open internet. According to Crunchbase data, Web3 startup funding dropped by 82% year-over-year, from $9.1 billion in Q1 2022 to $1.7 billion in Q1 2023. This is also the lowest quarterly funding amount since Q4 2020, when Web3 startups raised $1.1 billion.

The number of deals between VCs and Web3 startups also decreased by 33% year-over-year, from 499 deals in Q1 2022 to 333 deals in Q1 2023. Moreover, the number of mega-rounds of $100 million or more almost vanished, with only two such rounds recorded in Q1 2023, compared to 29 in Q1 2022. Some of the notable mega-rounds in Q1 2022 included ConsenSys ($400 million), Polygon Technology ($400 million), FTX ($900 million), and FTX US ($420 million).

One of the main reasons for the slowdown in Web3 startup funding is the bearish sentiment in the crypto market, which has seen a significant correction since its peak in November 2022. The total market capitalization of all cryptocurrencies has fallen by more than 50%, from over $3 trillion to around $1.4 trillion as of April 22, 2023. Many investors and entrepreneurs have become more cautious and selective about investing in Web3 projects, especially those that are highly speculative or unproven.

However, some experts believe that the drop in Web3 startup funding is only temporary and that the long-term outlook for the sector remains positive. They argue that Web3 technologies have the potential to transform various industries and sectors, such as finance, gaming, media, social networking, e-commerce, and more. They also point out that there are still many opportunities for innovation and growth in the Web3 space, as well as a strong demand for talent and skills.

Some of the Web3 startups that are leading the way in developing innovative solutions include Terra, a decentralized payment platform that uses stablecoins; Chaingrep, a search engine for digital assets and on-chain transactions; Huddle01, a metaverse platform that enables immersive social interactions; KrypC, a blockchain software company that offers enterprise solutions; and Pillow Fund, a decentralized investment platform that connects investors with curated Web3 projects.