DEVELOPMENT
Unlike another giant crypto-world investor, Andreessen Horowitz, Paradigm remains out of the media spotlight as it quietly builds its empire.
As one of the leading venture capital funds in the Tier 0 crypto industry, Paradigm has been quick and precise lately. Not only has it made billions of dollars investing in Uniswap, but it is also investing in Cosmos, Mina, MakerDao, dydx, Opyn, Lido, Starkware, ZORA, Showtime. It’s time to figure out who’s behind it.
Matt Huang and Fred Ehrsam
Matt Huang is co-founder and managing partner of Paradigm.
Previously, Matt Huang was a partner at Sequoia Capital, specializing in early-stage venture investments, including directing the company’s cryptocurrency policy.
He was the founder and CEO of analytics company Hotspots.io, YCombinator, which Twitter acquired in 2012, and a business angel at companies like Bytedance and Instacart.
He received his bachelor’s degree in mathematics from the Massachusetts Institute of Technology.
Fred Ehrsam is co-founder and managing partner of Paradigm.
He is also a co-founder and board director of Coinbase. Previously, he worked as a trader for Goldman Sachs in New York.
He received his bachelor’s degree in computer science and economics from Duke University, cum laude.
About company
Paradigm is an investment company specializing in supporting crypto/Web3 companies and protocols.
The company aims to outsmart investment organizations that are betting in the broader technology industry. It is focused on supporting the crypto/Web3 companies and protocols of tomorrow.
Makes big bets on DeFi projects like Uniswap, who are now giants in the field and have invested in sensational newcomers like Royal: a service that seeks to convert music licensing fees through NFT.
The staff consists of about 60 people.
A bit of history
Paradigm was founded in mid-2018 when the market was bearish. A group of elites came together in this environment and decided to do great work. They are Matt Huang, Fred Ehrsam.
The first founder of Paradigm was Matt Huang.
His father, Huang Qifu, graduated from Stanford University Business School. After graduation, he taught at the Massachusetts Institute of Technology, Stanford University, and the University of Pennsylvania.
In 1989, he was promoted to full professor at Massachusetts. Shortly after being named JCPenney Finance Professor in 1994, he decided to leave the academic world and enter the investment community.
He first went to Goldman Sachs, then moved to Long Term Capital Management (LTCM) as a major partner, was engaged in hedge fund management and was responsible for the Asia-Pacific business. In the mid-1990s, during the prosperity of LTCM, Huang Qifu managed assets equivalent to China’s GDP (about $1 trillion).
The governors of any central bank in the Asia-Pacific region listened to his opinion.
As the eldest son of Huang Qifu, Matt Huang followed in his father’s footsteps, studying math at the Massachusetts Institute of Technology and going on an internship at Goldman Sachs. Before college, he and his classmates founded the tech company Hotspot.io, which was acquired by Twitter a few years later.
On Feb. 19, 2014, Fortune reported that Sequoia Capital is seeking people from Goldman Sachs and Twitter to manage the sixth phase of a $900 million growth fund.
Matt Huang is the same man who was taken away from Twitter to run the growth fund.
During his four years at Sequoia Capital, Matt Huang has led several investments in blockchain startups, including Polychain Capital, Metastable and Filecoin.
Eventually, in June 2018, he decided to leave Sequoia Capital to create Paradigm, a cryptocurrency asset investment company that also received investment from Sequoia Capital.
The second founder of Paradigm is Fred Ehrsam, well known in the cryptocurrency market. Fred Ehrsam started as a trader at Goldman Sachs and then joined Coinbase as a co-founder. He then left Coinbase and only worked there as a board member.
Fred Ersam met Matt Huang and is possibly related to Matt’s father, Juan Cifu. After the financial crisis, Juan Cifu announced the end of his career due to market miscalculations and declining net worth. However, after his retirement, Huang Qifu was so busy that he and other former financial colleagues founded Starling Ventures in 2011, and Coinbase turned out to be one of the projects that Starling Ventures invested in.
For an investment organization, the source of funding is important. It is an important reference point in the investment community.
By October 2018, three of the best-known funds – Harvard, Stanford and Yale – joined Sequoia to invest in the mysterious new company Paradigm, their first major investment in a cryptocurrency-focused fund. The investment amounted to $400 million.
Paradigm was an unusual fund: its partners had no fixed date when to return their capital to investors (the more typical scheme is 10 to 12 years). And Paradigm can also invest differently than a typical venture capital firm: about 60% in alternative assets, such as cryptocurrencies, and the remaining 40% in the usual shares of startups.
In November and December 2018, Paradigm did not perform the usual maneuver. Venture capitalists typically “call” or request by wire the money they’ve raised in portions as needed, say 10% at a time. Fred Ersam and Matt Huang set aside all $400 million of their first big deal and then invested it in Ethereum and Bitcoin, using one of their own startups, the cryptocurrency-focused trading platform Tagomi, to identify the cheapest places to convert coins back into fiat currency.
In one fell swoop, Paradigm gave universities and other elite patrons like Matt Huang’s old company Sequoia, restricted by their own statutes about buying too much cryptocurrency, much more access to bitcoin at under $4,000.
Universities and patrons took a stance of “maintaining a degree of separation and denial if the deal went wrong.” It was a neat trick that allowed Paradigm to secretly raise another $350 million from the same pool of investors to add to its first fund.
Total investment from universities in 2018 was $750 million.
At the same time, Paradigm invested some of the money from its first $400 million fund in the next eight projects:
1. Uniswap is a decentralized transaction protocol. It allows any user to seamlessly exchange assets for ETH (or ERC20 tokens) through a Metamask wallet. The founder is Hayden Adams, a former Siemens mechanical engineer in New York. Paradigm has invested an exclusive $1 million in seed round funding to expand the team.
2. O(1) Labs – is trying to rebuild computing systems with cryptography and cryptocurrency, and has been developing the Coda protocol. Its seed round investment was funded by Fred Ersam, Polychain Capital and MetaStable Capital, while Coinbase Ventures, General Catalyst and Accomplice participated in the A investment round.
3. Numerai is a company that provides equity market strategies for hedge funds and investment managers, using artificial intelligence to model transactions. In 2016, it received Series A funding from First Round Capital, Fred Ehrsam and Union Square Ventures.
4. Tendermint – Founded in 2014, Tendermint is Cosmos’ parent company for the token economy infrastructure. A funding round A comes from Bain Capital and 1confirmation, which is mainly used to expand the team and develop the Cosmos network and ecosystem.
5. Tagomi is a cryptocurrency e-brokerage service provider that provides institutional investors with brokerage services in Bitcoin, Ethereum and other cryptocurrencies. Its co-founder and CTO is Greg Tusar, former head of electronic trading at Goldman Sachs. It has raised a total of two funds totaling about $28 million with investors including Pantera Capital, Collaborative Fund, Digital Currency Group, Elad Gil, Founders Fund, Joe Lonsdale and SV Angel.
6. Veil is a peer-to-peer trading platform based on Augur and 0x for predicting markets and derivatives. Initial round investments come from 1confirmation and Sequoia Capital.
7. StarkWare is an Israeli provider of blockchain privacy solutions. The four founders are leading blockchain scientists and developers.
Eli Ben Sasson and Alessandro Chiesa are the founders of Zcash. This is one of the reasons why Zcash and StarkWare work together.
Yuri Kolodny is the CEO of several technology companies.
Mikhail Ryabzev has worked at Intel and IBM research labs with 14 years of development experience and is the developer of the Zcash-StarkWare system.
Intel Capital, less common in blockchain investment projects, is also investing in StarkWare, which is also a recognition of Mikhail Ryabzev’s development technology.
StarkWare has had two funding rounds, raised $36 million and received $6.7 million in funding from the Ethereum Foundation. Investors include Atomico, Coinbase Ventures, Data Collective, Fred Ersam, Intel Capital, Matt Huang, Sequoia Capital, Undisclosed Investors, Bitland, Floodgate, MetaStable Capital, Naval Ravikant, Pantera Capital, Polychain Capital, Vitalik Buterin and ZCash.
8.Spacemesh is developing a blockmesh operating system using the PoST protocol. Spacemesh’s blockchain protocol is used on standard PCs, so it is resistant to ASICs and the inability to use cloud computing. Spacemesh has had two rounds of funding totaling $18 million, including investors 1kx, Arrington XRP Capital, Bain Capital, Coinbase Ventures, Collaborative Fund, Danhua Capital, Electric Capital, Gumi Cryptos, Jack Herrick, MetaStable Capital, Polychain Capital, Alignment Capital Group, Bancor Protocol, BRM Group, iAngels.
You can easily find that there are unbreakable ties between the co-investors in these eight projects, and most of them are established investment institutions. For example, Coinbase, Union Square Ventures, Pantera Capital, Sequoia Capital, Polychain Capital, and Matt Huang and Fred Ehrsam have flashed as investors in these projects.
Paradigm’s timing was perfect; it was anything but coincidental. At the height of the bitcoin craze in 2017, Fred Ehrsam stepped down as president of Coinbase, the $8 billion cryptocurrency marketplace he co-founded with Brian Armstrong five years earlier.
Let’s add content to this story and talk a little bit about “coincidences.”
- Paradigm fund launches in summer 2018 in a very right bear market phase
- Paradigm’s founders left their previous jobs (Sequoia and Coinbase), clearly for something more interesting than they had before.
- Gary Gensler’s famous public course on cryptocurrencies at MIT began in September 2018. Since these deals are prepared very in advance, it was time to prepare Gary Gensler to teach a course on cryptocurrencies at MIT. Although MIT is not listed as an investor from the universities, I think you realize it’s all one team. MIT was chosen as the best fit for this role. Gary Gensler mentions (in his course) that he was trained for 6 months to teach a course on cryptocurrencies. It turns out, preparing to teach the course, he started around April 2018.
- In October 2018, universities give $400 million to the Paradigm Foundation.
- In December 2018, Paradigm mainly invests in Bitcoin and Ethereum. Purchases are made at a perfect bottom – the purchase price is below $4,000.
- On such news, universities allocate another $350 million.
Universities have done what they do best – in parallel with the allocation of money, they have taken a serious approach:
- Popularization of the topic of cryptocurrencies.
- We brought to a new level the discussion about the necessary regulations in cryptocurrency.
- trained Gary Gensler in blockchain and cryptocurrency technology.
All of this will come in handy in his future as head of the SEC.
I believe that the founders of Paradigm and those around them were aware of the future movement of the market.
Does this mean that they were in close circles with the “manipulator”?
My opinion: yes, they were.
This alone can explain the whole chain of events:
- Allocating hundreds of millions of dollars to a new fund from the most conservative investors-the universities. They would not trust such money with promises that “the guys would try very hard.
- Buying at the very bottom of the market and after that there was generally only growth (see Bitcoin chart above).
- The allocation of an additional $350 million by universities, after Paradigm had already purchased Bitcoin and Ethereum.
Cryptocurrency portfolio
Company funds for cryptocurrency investments:
Nov 15, 2021 Paradigm One Crypto VC Fund $2.5 billion
In November 2021, Paradigm completed raising $2.5 billion for Paradigm One, their first venture capital fund. The fund raised was twice the amount they had originally hoped for. Nevertheless, Fred Ehrsam said: “It’s probably not much compared to where we’re going in 10 years.”
In creating the new megafund, Paradigm said it will continue to support companies at different stages of growth, from “just a glimmer of an idea” to “later-stage leaders.
Below are general and detailed data about the company’s crypto portfolio, where they are leading investors.
In 2018-20, the company participated in the following investment rounds as a lead investor:
$30 million in StarkWare Industries/Starknet blockchain
In Cosmos Network, Veil, Flashbots
$12 million in Tagomi
$11 million in Numerai
$9 million in blockchain Cosmos/Tendermint
$27.5 million in MakerDAO
$28 million in Amber Group
$12 million in Argent
$7.7 million in KEEP network
$1.68 million in Reflexer Labs
$4.4 million in Gauntlet
$3 million at Sia
$3 million in Skynet Labs
$30 million at Fireblocks
$12 million at Synthetix
In 2021, the company participated in the following investment rounds as a lead investor:
$100 million in TaxBit
$15 million in CoinSwitch Kuber
$6.7 million in Opyn
$8 million in Zora
$75 million in StarkWare Industries/Starknet blockchain
$100 million Chainalysis
$11.3 million in Gitcoin
$51 million in Lido
$7.6 million in Showtime
$65 million in dYdX
$7.9 million in Fractional
$8 million to Euler
$21 million in Osmosis Foundation
$431 million in Genesis Digital Assets
$21 million at BetDEX
$17 million in Aztec Protocol
In 2022, the company participated in the following investment rounds as a lead investor:
$300 million in NFT platform OpenSea
$110 million in Rain
$400 million in FTX US
$109 million in Phantom blockchain
$27 million in Magic Eden
$150 million in blockchain Optimism
$8.8 million in Ribbon Finance
$11 million in Blur
$35 million in Fractal
$6 million in Mad Realities
$12 million in LootRush
In blockchain Lightspark
Conclusion
Fred Ehrsam and Matt Huang say they’re taking a long-term view: “We think the view that crypto will become a huge trend is still pretty controversial, but in our opinion, it’s the most important technology trend of the next 20 years.”
Major technological development milestones:
1969: ARPANET.
1982: TCP/IP
1993: HTML
1990-1994: Web browsers
1994-1998: Search engines
1999: SaaS
2003-2004: Social Networks
1999-2007: Mobile Technologies
2009-present: Cryptography
Every now and then, new technologies come along that change everything. The Internet has defined the last few decades of innovation. Cryptocurrency will define the next few decades.
Coinbase CEO Brian Armstrong is confident that its co-founder Fred Ehrsam will succeed. “I think they will probably become one of the best performing funds in the world, but it will take five or 10 years to prove it.”
