Binance, the largest cryptocurrency exchange in the world, is opening its own venture capital fund.

Binance Labs, the company’s venture arm, announced Wednesday that it has raised $500 million for its first start-up fund, with support from venture capital companies DST Global and Breyer Capital, as well as undisclosed family offices and organisations. It comes after Andreessen Horowitz unveiled a massive $4.5 billion fund to invest in crypto start-ups last week.

Binance Labs intends to invest the funds in startups developing “Web3.” Though the name is still vague, Web3 refers to a hypothetical future iteration of the internet that is more decentralised than current online platforms and incorporates blockchain, the shared digital ledgers that power most major cryptocurrencies.

Binance’s new fund is being launched at a time when bitcoin and other digital currencies are experiencing significant declines. Bitcoin has dropped by more than half since hitting an all-time high of about $69,000 in November. This has taken a toll on publicly traded crypto businesses like Coinbase, whose stock has dropped 69 percent since the beginning of 2022. Investors are concerned that the downturn will spread to privately held crypto start-ups.

While start-up values of $1 billion or more are “slowing down a bit,” there is “no present impact in early-stage private markets,” according to Ken Li, executive director of investments and M&A at Binance Labs.

Binance Labs is aiming to take advantage of the recent drop in digital assets to discover founders working on what it sees as the next big thing in technology. Its investments will be divided into three categories: pre-seed, early-stage, and growth equity, and the fund will invest in both tokens and shares.

“We are looking for projects with the potential to drive the growth of the Web3 ecosystem,” Li said. Such projects may include infrastructure, nonfungible tokens, and decentralized autonomous organizations. Binance estimates there are currently around 300,000 to 500,000 active Web3 developers, a number it hopes to grow “substantially.”

Binance has recently made a number of high-profile stock investments. This is the first time the company has formally formed a venture capital fund with funding from outside investors.

Binance Labs’ portfolio includes Forbes, the business news publication, and Sky Mavis, the firm behind the popular nonfungible token game Axie Infinity. It was also a backer of Terraform Labs, the troubled Singapore-based start-up behind the failed stablecoin Terra.

Binance Labs “always conducts due diligence and is confident in its investment approach,” according to Li. “We understand that investing in the early phases entails risks,” he continued. “The industry is still young, as it was back then.”

Binance also intends to purchase a $500 million investment in Twitter in order to assist Elon Musk’s quest to acquire the social media service, a move that the company says would help it achieve its goal of “bringing social media and Web3 together.”

Binance, the world’s largest digital currency exchange, was founded in 2017 by Chinese-Canadian entrepreneur Changpeng Zhao. According to CryptoCompare data, the firm handled $490 billion in spot trading volumes in March.

In an earlier interview, Zhao stated that Binance has “billions ready to invest” in Web3. Some prominent tech personalities, including Musk and Twitter co-founder Jack Dorsey, have expressed reservations about the trend. Zhao said he believes in the concept, but that making it a reality will take time.

“Exactly how it’s going to shape up, what exactly Web3 looks like, which company, which projects — nobody knows,” he said.

“Before Facebook started, nobody could predict that,” Zhao added. “We’ll just have to see what turns out.”

(Adapted from Bloomberg.com)