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The world’s largest tech investors are pouring money into cryptocurrency infrastructure companies, as the growing industry struggles to keep up with new users.
Alchemy, which makes software for cryptocurrency developers, said on Tuesday its valuation had risen to $10.2bn after receiving a $200mn round of funding led by the private equity investor Silver Lake and venture capital company Lightspeed Venture Partners.
That announcement came a day after Polygon, an Indian company that offers software to lower the cost and friction of transacting on the popular ethereum digital ledger, raised $450mn in a sale of the company’s cryptocurrency tokens led by Sequoia Capital India.
The deals show how tech investors believe they can cash in on companies that help developers create cryptocurrency apps and handle large transaction volumes, one of the early challenges of the growing crypto industry that some call “Web3”.
Companies such as Alchemy help power many popular cryptocurrency projects. Silver Lake, which manages more than $90bn in its funds, had never invested in a cryptocurrency-focused company before Alchemy.
“There’s a lot of people working on infrastructure for Web3,” said Nikil Viswanathan, co-founder of Alchemy. “There’s a lot of space in the market.”
The deals followed a record $31.6bn of investment into private cryptocurrency companies last year, according to PitchBook data, helping to fuel a boom in digital assets that has sharply divided some software developers.
While investors have poured money into consumer cryptocurrency apps in sectors such as gaming, they have also paid steep prices to win deals in start-ups that want to make it easier to develop and maintain Web3 apps.
Ethereum’s current transaction processing limits, and the long delays to its efforts to revamp its system, have driven up fees — known as “gas prices” in crypto industry parlance — providing a boost to rival blockchains with faster networks and lower costs.
Solana Labs, which developed one of the most popular alternatives, raised more than $300mn from Silicon Valley venture capital company Andreessen Horowitz and other investors in June last year. Near Protocol raised $150mn last month to help develop another competitor.
More than 40 other investors took part in Polygon’s financing, including Tiger Global Management and SoftBank’s second Vision Fund.
Sandeep Nailwal, co-founder of Polygon, said the cash would be used to invest in new groups it had acquired. Polygon paid $400mn in December to buy Mir Protocol, a start-up that is also trying to improve the performance of ethereum.
“We definitely want to be the AWS of Web3,” Nailwal said, referring to Amazon’s cloud computing division.
Alchemy made its first product a year and half ago and claims to make the most widely used software program for cryptocurrency apps, such as OpenSea, to communicate with ethereum and several other blockchains.
The company said $105bn of transactions went through Alchemy software on an annualised basis, up from $45bn in October, when investors valued the start-up at $3.5bn.
Polygon said 2.7mn monthly active users are making 3mn transactions a day on Polygon, more than double the volume on ethereum. The company’s token, MATIC, has a market capitalisation of more than $14bn based on the current circulating supply.
The emergence of the infrastructure start-ups has prompted concerns that new intermediaries will amass enough traffic to become gatekeepers to the supposedly decentralised cryptocurrency world, similar to how today’s tech giants have come to dominate the web.
Nailwal said Polygon would not be able to exert such influence because its network would be mostly run by a “community” of independent developers.
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