Coinbase co-founder founds the largest VC fund in crypto

cryptocurrencies and a three -year -old investment company has launched the biggest new risk capital fund in history to keep the party running.

Coinbase co-founder Fred Ehrsam and the former Sequoia capital partner Matt Huang collected $ 2.5 billion for Paradigm One this month. Investors tried to provide money for the fund so that they could raise the twice of the originally intended amount.

"It is probably small compared to what we will achieve in 10 years," said the Financial Times in the sparse headquarters of Paradigm in the city center of San Francisco, where plastic film covered new office equipment.

The sensational fundraising campaign of Paradigm could stir up fears of a bladder in cryptocurrencies, especially in the niche corners of the decentralized financial world, in which the company has made a name for itself. At the beginning of this year, the VC company Andreessen Horowitz also collected twice as much as it had hoped for a new cryptocurrency fund, and brought 2.2 billion

More than all other investors, both companies have placed their assets on a growing ecosystem of applications based on Ethereum, a digital ledger that enables programmers to write contracts that automatically carry out functions such as money transfers.

crypto may look like a speculative casino from the outside.

But that distracts many from the deeper truth: the casino is a Trojan horse in which a new financial system is hidden.

-Matt Huang (@matthuang) 25. May 2021

The programs run on so -called tokens, digital assets, which are granted to users over time and often give them a say in governance. Paradigm has accumulated some of the largest token stocks in the industry by putting on development teams early on and awarding rights for future distributions.

The first fund of Paradigm, which initially raised $ 400 million in 2018,, according to the Financial Times, achieved an annual internal return of more than 200 percent in the first half of this year.

The assets of the fund have reached up to $ 10 billion, although it can fluctuate strongly with the price of cryptocurrencies, said people familiar with its holdings. Paradigm is structured like a hedge fund, i.e. no capital has to be returned to investors up to a certain date, which is required for VC funds. Paradigm refused to comment on performance.

The founders of Paradigm said that the world of token -based apps, sometimes also referred to as Web3, had even more space to grow. Several so-called decentralized financial protocols, which are supported by Paradigm, such as the token exchange uniswap, have increased to value last year because more and more people remove money from the old financial system. In areas such as gaming and music, developers also experiment with new ways to offer consumers with the help of token.

"The largest companies in the world are large Internet tech companies that are powered by network effects," said Ehrsam. "We think in the future for decades, it is very clear that the largest companies in the world are operated with tokens."

Ethereum is still confronted with twin -folds. The network had to struggle with high transaction costs in peak times, and some cryptocurrency entrepreneurs have questioned its dominant status as an infrastructure for decentralized apps.

"The story still has to be decided," said Ehrsam. Paradigm also not only relies on Ethereum, but also invests in a credit app called Jet Protocol, which runs on the competing network Solana, which claims faster transaction speeds.

The founders of Paradigm said that they regarded their token investments as long-term participations, the payment of which could take at least 10 years. Like Bitcoin, the assets can be very volatile depending on the moods of the cryptocurrency speculators.

"If the liquidity should dry up in the room, you will hold a lot of assets," said Graham Duncan, an early investor from Paradigm. But he is still confident about her chances. "I think her time horizon will get through," he said.

Start-up founders said that Paradigm quickly developed into a coveted investor, among other things by recruiting a five-member research team for working with portfolio companies. Financial service companies and investors of the company, including the foundations of the Harvard and Yale universities, have also contacted paradigm to get advice on how digital assets work.

Sometimes Paradigm Sweetheart deals have negotiated with cryptocurrency groups who are looking for their support. During a recently carried out 73-million dollar token sales for Lido, an app to achieve returns with Ethereum and other blockchains, Paradigm led a group of investors who received a discount of about two thirds in comparison to the token's open market price at the time of the initial administration.

Optimism, a non-profit company that develops a program to make Ethereum transactions more efficient, contacted paradigm to make investments after the company had hired programmers that had been hoping for.

"If we wanted to access their time, it made sense to try to get a check from Paradigm," said Jinglang Wang, co -founder of Optimism.

opyn, a program for cryptocurrency options, decided this year for an investment offer from Paradigm that the company rated lower than Andreessen was willing to pay, said a person who was informed about the deal and wanted to remain anonymous. Andreessen refused to comment.

paradigm bought about 20 percent of the company at a value of $ 28 million together with the right to a proportional share of all tokens that Opyn finally creates.

After the investment, Paradigm worked with Opyn boss Zubin Kottech and other employees to develop a new kind of cryptocurrency derivative during a week-long retreat in rural North Carolina. Dave White and Dan Robinson, two Paradigm researchers, became the main authors of a paper that presented the concept.

Investors are rather skeptical about large VC funds, as they are difficult to invest profitably. Huang said he had little doubt about Paradigm's strategy. "If Fred and I ever work in a situation with low growth and low returns, we would prefer death," said Huang.