Last weekend was an exciting one for cryptocurrency investors, with the values of bitcoin (BTC), ether (ETH), and other coins rising by double-digit percentages. When you zoom out on the price chart, the image becomes clear: things aren’t looking good.
Every crypto reporter’s email was flooded with fundraising announcements from fledgling decentralised finance (DeFi) startups and non-fungible (NFT) ventures a year ago. From algorithmic stablecoins to yield-farming platforms to metaverse land sales, each new narrative seemed to entice venture capitalists to invest hundreds of millions of dollars.
Today, inboxes are emptier, and keywords appear to be insufficient for a $10 million seed investment. But things haven’t completely quieted down. Despite the market collapse, several teams have continued to court investors and crypto Twitter users. They appear to have more technical, infrastructure-focused proposals than the speculative loan platforms and colourful Web3 ideas of the past.
Here are some of the most important sectors for tech investment in Ethereum.
Zero-knowledge and scaling
Zero-knowledge (ZK) technology remains one of the most frothy industries for investors. The technology is complex, but the premise is simple: ZK proofs employ clever cryptography to allow people to “prove” something is true without revealing how.
ZK proofs are commonly used in blockchain privacy, security, and scale, but they also have applications outside of cryptography. Scroll, Matter Labs, and Polygon are among the teams developing ZK tech for Ethereum, with each developing a rollup to scale Ethereum using ZK proofs. ZK rollups are likely to become the primary mechanism for individuals to access Ethereum in the future.
With Ethereum’s transition to proof-of-stake, crypto miners were replaced by crypto validators, also known as “stakers”—people who “stake” crypto with the network and earn incentives for helping to keep it secure.
EigenLayer is one of the most buzzy staking-focused firms that has gained traction as the overall crypto market has deteriorated. EigenLayer bills itself as a “general-purpose marketplace for decentralised trust,” allowing users to “restake” tokens locked up to validate Ethereum, re-using those tokens to help protect other Ethereum software.
Obol Labs, on the other end of the Ethereum staking spectrum, announced this week that it had raised $12.5 million in series A funding to develop its approach to distributed validator technology (DVT). According to Obol Labs, the technology will let validators work more securely and in line with crypto’s decentralised ethos.
MEV: Maximal Extractable Value
Maximal extractable value (MEV) is a type of profit obtained by examining Ethereum’s pending transaction pool (the “mempool”) in order to identify successful deals. Initially considered a nuisance for the entire ecosystem because MEV-optimizers frequently use techniques that eat into the earnings of other traders, firms such as Flashbots have long been at work spreading out MEV’s riches to additional stakeholders.
As MEV extraction has become more equitable, it has expanded into a lucrative cottage industry, with MEV-focused enterprises continuing to attract attention and funding, notwithstanding broader market conditions.
Flashbots, on the other hand, has surged in popularity since Ethereum moved to proof-of-stake in September. MEV-Boost, a piece of Flashbots middleware that distributes pre-made, maximum-extractable-value-optimized blocks to the validators who add them to the blockchain, now accounts for 94% of the blocks (bundles of transactions) published to the Ethereum ledger. Flashbots made headlines two months ago when it announced the creation of SUAVE, a new blockchain that will run in parallel with other networks to enable a decentralised MEV market.