The crypto market experienced a remarkable surge in 2021, attracting substantial investments from venture capital firms. The popularity of smart contracts and decentralized finance (DeFi) paved the way for numerous companies to venture into the crypto industry, albeit without a comprehensive understanding of its intricacies. Surprisingly, a recent report by Lattice reveals that only a meager 5% of these cryptocurrency and blockchain startups have managed to develop products that gained significant market traction.

Lattice, a reputable crypto venture fund, conducted an analysis of nearly 800 crypto companies that collectively received $2.6 billion in investments throughout 2021. Astonishingly, only around 5% of these companies successfully reached the stage of developing a viable product.

Among the remaining projects, a staggering 70% remain stuck in the development phase after releasing a product to the mainnet, while approximately 20% have completely shut down operations.

The Lattice report also examined projects across various blockchains and crypto niches, uncovering interesting trends. Notably, Ethereum emerged as the most successful blockchain, with 4% of Ethereum-based projects achieving Product-to-Market Fit (PMF). Solana followed closely behind with a 3% PMF success rate, while BNB projects experienced the highest rate of failure, with 30% ending up in shutdown mode.

The report further highlighted the allocation of venture capital funding for different Web3 projects. Web3, DeFi, infrastructure initiatives, and CeFi collectively received substantial investments, amounting to $977 million, $762 million, $639 million, and $237 million, respectively. However, it is essential to note that significant funding did not necessarily translate into successful PMF achievement.

The blockchain’s CeFi and infrastructure projects demonstrated substantial growth rates, with 90% of infrastructure initiatives successfully deploying their products to the mainnet. On the other hand, less than 75% of DeFi projects achieved the same milestone, highlighting the challenges faced within this niche.

In 2021, the crypto space became inundated with similar companies vying for the same customer base. Unfortunately, lacking strong, differentiated products that deliver genuine value, many of these projects struggled to gain user adoption and retention. A notable example is the proliferation of Web3 companies and new blockchain games, most of which failed to achieve PMF. Interestingly, despite the lack of success in the market, 70% of these projects opted to launch their own tokens, many of which currently exhibit minimal market capitalization.

Moreover, these projects faced fierce competition from well-established initiatives that had entered the market pre-2021. For instance, a survey of the current top 10 DeFi tokens by market cap revealed that all were seeded back in 2019. Axie Infinity, a blockchain-based game, serves as another prime example, having raised its seed round in 2019 and enjoying a robust presence in the blockchain gaming sector.

Given the current low success rate, it is highly likely that more crypto startups will falter before mainstream adoption becomes a reality. However, it’s important to remember that the crypto industry is still in its nascent stages, leaving room for many projects to thrive. While only a fraction of startups have achieved real market traction, constant innovation, differentiation, and a thorough understanding of customer needs will be vital for future success in this rapidly evolving landscape.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.