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Forbes Analysis of Paradigm: A Cryptocurrency Investment Firm Where Ambition Outweighs Economic Returns

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The two founders of Paradigm are heavyweights in the cryptocurrency space, but for the mainstream financial world, they still need to put in more effort rather than just guiding mainstream financial institutions to quietly make money behind the scenes.

Original title: "These Young Inverstors Are Still Betting Big On Cryptocurrency—And Are Talking Harvard And Stanford Along For The Ride"

Original author: Alex Konrad

Original translation: 0x33, Rhythm BlockBeats

On a secluded patio at the luxurious Ventana Big Sur, dozens of The world's top cryptocurrency experts are playing a special after-dinner game.

It was a relaxing weeknight in November 2019, and attendees gathered around the heater, drinking wine and Hot chocolate, talking to each other — a real-life imagining of a computer concept known as the Byzantine general problem. This question imagines a leader giving orders to unreliable and loyal lieutenants.

It is wise to break the ice with this game, a secret meeting designed to bring Different factions in the crypto community unite.

Away from the smoke of Telegram chats and Twitter threads, this investment firm called Paradigm brings these elites together , hoping to use this meeting to remind this elite group that they are more in common than ever: they are all united by a common goal to make cryptocurrency more mainstream.

These elites may be divided on the merits of Bitcoin vs. There is disagreement over its impact in the crypto space. But Paradigm’s point is simple: These entrepreneurs, researchers, and top university professors all have the same commonality compared with the outside world, which is full of cryptocurrency skeptics.

Brian Armstrong, the billionaire CEO of Coinbase and close friend of Fred Ehrsam, praised: "I think people will take this Think of it as one of the most precious moments in history, like the Lexheed Martin Skunk Works team, Pixar Animation Studios or the Apollo program.” “A small group of people get together and do some pretty impactful things that then have a huge impact downstream.”

< p line="K0Aq">“They all face challenges,” says Paradigm co-founder Matt Huang. He co-founded Paradigm in 2018 with Coinbase co-founder Fred Ehrsam.

In 2018, Paradigm converted its $400 million initial capital into Bitcoin and Ethereum at the end of the crypto bubble, And convert it to USD when needed for personal investment.

Almost a year later, this mission is still a work in progress. When the coronavirus sent global stock markets tumbling in March, crypto assets led by bitcoin also tumbled, even as advocates insisted it was a safe haven that operates independently of traditional financial trends.

The world is facing more pressing problems: the spread of the pandemic, the US presidential election, work suddenly going online and Remote and disrupted life — there’s no solution to these problems in the crypto space, at least not yet. When Armstrong announced in September that Coinbase would not tolerate political discussions outside of its financial mandate, 5% of his staff left the company.

These uncertainties are regarded as motivation by Paradigm, a brand new investment firm that has rapidly emerged as a leader in the crypto space A leader, but its ambitions go beyond the pursuit of huge financial returns.

Fred Ehrsam, 32, and Matt Huang, 31, combined traditional finance with the crypto space, convincing Harvard and Top institutional investors like Stanford gave them $750 million to invest in this crypto market.

And their investment tool is very strange, it is an open-end fund, and the capital redemption time is longer than the general risk Invest longer. Then they did something even more unusual: They put all their money into cryptocurrencies, basically Bitcoin, at a time when prices were at post-bubble lows. The venture succeeded, and the value of Bitcoin has tripled since Paradigm's initial investment, which means that investing in Bitcoin alone has helped Paradigm triple their initial capital.

In 2018, when the crypto bubble burst, both breathed a sigh of relief

“They started their business at the right time. They convinced some of the smartest investors in the Get paid,” said Mike Novogratz, a former hedge fund manager and crypto investor. "After the investment institution has made money, it needs to pay tribute to this team."

But Paradigm's investors are very impressed with Ehrsam and Huang expects far more than a savvy crypto trading firm. Some of the startups they’ve invested in are showing signs of breaking out as their companies go into rapid-hiring mode. The two Forbes Under 30 alumni insist they've been ahead of the curve and will soon put ordinary people on the radar of crypto and its global potential: "We think we'll make it the icing on the cake" Elsa said Tom. "But it definitely didn't get momentum from us."

Paradigm's entry was so perfectly timed, but it's definitely Not by accident. Ehrsam had already stepped down as president of Coinbase in 2017, when the bitcoin craze was at its height. Remember, Coinbase is an $8 billion cryptocurrency market. The Duke university graduate is a former e-sports player and trader at Goldman Sachs. After resigning, he paced up and down the apartment anxiously, blogging and angel investing all day long.

In December 2017, the price of Bitcoin broke through 19,000 US dollars, an increase of nearly 240 in just one year %, crypto insiders were as confused as anyone else and asked, "Why did this happen?"

The big VCs in Silicon Valley are also asking this question. Sequoia Capital is known for investing in companies such as Apple, Google, WhatsApp and Stripe. At Sequoia, Huang is watching the space closely. Huang is a former entrepreneur who ran a social analytics company through startup incubator Y Combinator and sold it to Twitter. Huang has held bitcoin in his own name since 2012. But like Ehrsam, he was held back by "parabolic" price action and a frantic wave of token offerings via ICOs from unknown companies.

When the bitcoin bubble burst in early 2018, both men breathed a sigh of relief. To Ehrsam and Huang, those who stayed represented far more attractive long-term investments — people who looked smart and had built big businesses when the hype cycle kicked in again. Ehrsam and Huang use contrarian speculation to lobby traditional investment institutions: now is the time to invest in new companies, which will create a crypto strategy that can win in the long run.

The non-profit endowments of top universities are the most influential and Hardest to come by, getting investment from a top university means the new fund gets an entry card. The “public commotion” of 2017 hasn’t gone away because of it, Huang said, but investment managers are reluctant to touch cryptocurrencies directly or trust untrustworthy early investors.

With the popularity of Coinbase and Sequoia backed by top VC firms, Paradigm looks safer. Garry Tan, an early investor and partner at Coinbase, said: “Cryptocurrency is full of often hot-headed figures, but there is one thing in common between Ehrsam and Huang, they are very calm, cool and good at collecting.”

The lobbying of the two was successful. By October 2018, three of the most prominent endowments of Harvard, Stanford and Yale had joined Sequoia Capital in investing in the mysterious new company, marking their first major investment in a cryptocurrency-focused fund.

However, Paradigm is more unusual as an "open-ended" fund, meaning its partners have no fixed dates Can return the investor's capital to the investor (generally the typical structure is 10 to 12 years). Moreover, Paradigm's investment will also be different from ordinary venture capital firms: about 60% of assets will be used to invest in alternative assets such as digital tokens and currencies themselves, and the remaining 40% will be used to invest in the usual startup equity.

Then, quietly, Paradigm made its boldest move yet. VCs typically come to "call in" or wire the funds they raise as needed, such as a single use of 10% of the funds. However, Ehrsam and Huang pulled together all their $400 million and put it all into Ethereum and Bitcoin. They complete the purchase and sale through Tagomi, a start-up focused on cryptocurrency transactions, and when they need to exchange encrypted assets into US dollars, they also use this platform to achieve.

Paradigm has let the company's university endowment and other backers, such as Huang's old firm Sequoia Capital, These companies, which have many restrictions on the purchase of encrypted transactions, have purchased a lot of bitcoins at prices below $4,000.

These institutions were originally restricted from buying large amounts of cryptocurrencies. And Paradigm holds the coins directly, a neat trick that made it easy for Paradigm to secretly raise $350 million from the same investors last year as a supplement to its first fund.

“If it works, it has huge potential. If the results are not as expected, this allocation of funds is also manageable, so it does not It's going to end the world," Ehrsam said.

Two years does not judge a venture fund. Given its portfolio, Paradigm's success depends more on the health of the crypto market itself. At this point, Ehrsam and Huang sounded happy when they reconnected with Forbes via Zoom in late July. Forget the March crash, they say, and focus on Bitcoin’s 80-day streak above $10,000, setting a new record. And look at the unlikely new allies in the space: Billionaire Paul Tudor Jones, who announced in May that he was buying bitcoin as a hedge against inflation; Encryption plans were announced over the summer. Square also invested about $50 million in bitcoin earlier this month.

Thirteen of Pradigm’s 28 investments have raised funds or issued tokens at higher valuations.

“You can see the times we’re in, encryption is a little bit arcane, and it’s still in the doldrums.” Ehrsam said. “Our feeling right now is that these things are always going to be hard to predict, but we feel like we’re in a period where encryption is about to explode.”

< p line="XIU2">Paradigm has also been busy hiring, hiring a second researcher, a legal director, and an encryption security expert in October, bringing its team to 15 people. One of its first investments was New York-based startup Tagomi, which was acquired by Coinbase in June for more than $75 million.

And other companies invested by Paradigm have also developed rapidly in a short period of time, such as the lending platform Compound, which previously issued a token currency, with a current total market capitalization of $460 million. Uniswap, better known as Uniswap, which creates a more efficient marketplace for buyers and sellers of cryptocurrencies and various digital assets, has locked up $2.9 billion in total funds, up from $20 million a year ago.

Thirteen of Paradigm’s 28 investments to date have raised capital at higher valuations or issued proxies currency. That stellar investment track record has helped the firm establish itself as a leader alongside semi-independent crypto funds like Pantera Capital and Andreessen Horowitz, a scene that Chris Dixon, an early Coinbase investor, said feels a lot like it did more than a decade ago. When partnered early-stage venture capital firms scramble to invest in a business.

But even in Silicon Valley, investors often invested in Bitcoin and other cryptocurrencies in the early days to profit Skepticism among long-term cryptocurrency investors also abounds. Monica Desai, head of veteran VC firm Kleiner Perkins, used to work at Coinbase rival Blockchain, but now counts herself as an omnibus investor. When it comes to deep technology and infrastructure-focused opportunities, companies like Paradigm have an advantage, she said. But traditional VCs still make gains in other ways.

Ehrsam and Huang say cryptocurrencies, their new asset class, are diverse enough for a company to spend Find investment opportunities all the time. But are these opportunities good opportunities? Keith Rabois, an investor at Founders Fund, said that he has made seven crypto investments; his company, founded by Peter Thiel, is interested in the potential of cryptocurrencies and holds some bitcoins, but the company doesn't think there is currently an There are a lot of high-quality talents pouring into the encryption field like a few years ago. "Entrepreneurs are just more interested in other topics including climate change and health care," he said.

"If our job is easy, it proves that there is not much potential for this opportunity (encryption field)"

Paradigm is betting on the crypto market, which, even amid the pandemic, is still a place for "highly intelligent people to hack in their spare time" place. But to the uninitiated, Paradigm is only taking the first step in its mission to bring the crypto space into the mainstream. Marco Di Maggio, an associate professor at Harvard Business School and himself an advisor to a South Korean crypto startup, is echoed by his MBA students and executive trainees. "They believe that, for now, encryption is a hype."

Paradigm's two founders are in the field of cryptocurrency They are the best, but for the mainstream financial community, they need to do more than just guide mainstream financial institutions to make money quietly behind the scenes.

Facing the outbreak of the new crown epidemic, the second Byzantine general this year Cocktail parties are suspended. But Ehrsam and Huang say they are committed to the long term. "We think that the encryption field will be a huge trend. Although the industry is still difficult to reach a consensus view, in our opinion, it is not actually the most important technology trend in 20 years," Ehrsam said. Easy, it proves that there is not much potential for this opportunity (encryption field).”