The Bera is loose

The Bera is loose.

Last week I wrote about how blockchain technology is a generational shift in infrastructure, that moves economic activity from our current web of centralized intermediaries like banks or large social media companies onto decentralized protocols that are pretty much frictionless: truly global, 24/7 and infinitely malleable like software itself. We believe this will lead to both much better, and much fairer systems.

However, this infrastructure needs to be built from scratch and it needs to be optimized to a point where it can support an important part of global economic activity. We are in the middle of this zero-to-one period in which all of this is being built, and we are only at the start of seeing the first real use cases built on top of that infrastructure.

One of the most fascinating aspects for us as investors in this infrastructure, is that all the initial funding is coming from a completely new cohort of VCs, that we call crypto-native VCs. This was a category that was non-existent only a decade ago. These VCs provide 95% of the early-stage funding, and unlike traditional venture, their early ownership is typically non-dilutable, regardless of future rounds.

That even at the base layer of blockchain technology things are still moving and innovation keeps taking place, is well illustrated by yesterday’s launch of Berachain. A new layer 1 blockchain that will compete head-to-head with today’s largest layer 1s like Ethereum and Solana. Berachain’s key innovation is its ‘Proof-of-Liquidity’ consensus protocol, where validators secure the network by staking assets that also serve as liquidity within its in-house DeFi ecosystem (this is an uber simplistic explanation, so please read this if you are interested in the nuance).

The point to make is that nothing in terms of blockchain infrastructure is set in stone yet. It will take many years before it is clear who the big winners are and where most of the value will accrue. This is why we like to invest across the full blockchain landscape, in the most promising projects. The key is to invest early, so that even in case other technologies come to dominate, the investment can still achieve a good outcome.

Early, private rounds in Berachain took place at fully diluted valuations between $50m to $420m in the 2022 to 2023 timeframe. They were all funded by crypto-native VCs. Berachain is currently trading at a $3.8b valuation. As a caveat I should add that the jury is still out. There is an initial 1 year lock-up for private investors before they can monetize a portion of these gains.

Also this week

• Helium Mobile has introduced the nation's first free phone plan on a 5G network, operated by individuals. The "Zero Plan" offers 3GB data, 300 texts, and 100 minutes of calls monthly, with a waitlist now open
• The FDIC released a multitude of documents related to Operation Chokepoint 2.0 in which banks with crypto-related business plans were probed on risk management and consumer protection
• The U.S. Commodity Futures Trading Commission will convene a public roundtable to reassess its approach to prediction markets, potentially impacting platforms like Kalshi and Polymarket
• Hester Peirce, who was appointed by Acting Chair Mark Uyeda to spearhead the Crypto Task Force, laid out 10 of the group’s priorities, including resolving the question of what makes a cryptocurrency a security vs. a commodity, and creating a more “viable” path to registration by modifying the SEC’s existing paths
• U.S. Senators Scott, Hagerty, Lummis, and Gillibrand introduced a new stablecoin regulatory framework, the GENIUS Act, which would provide regulatory clarity to both banks and non-banks with regards to issuing and holding stablecoins
• MicroStrategy rebranded to "Strategy" and set a goal to increase the value of their BTC holdings by $10 billion in 2025

Relevant financial updates

• Berachain*, an alternative L1 known for its liquidity bootstrapping mechanism recently launched its token network and currently trades at a $3.8bln FDV
• Reservoir*, a platform providing NFT trading APIs and tools, raised a $14mln Series A led by Union Square Ventures with the participation of Coinbase Ventures, 1KX, Framework, Variant and Archetype
• Rho Protocol*, a platform offering non-custodial on-chain trading of crypto-native and traditional finance interest rates raised a Seed round led by CoinFund with the participation of Flowtraders, SpeedInvest and Auros
• Beamable*, a game development platform raised a $13.5mln Series A led by Bitkraft with the participation of Arca and Solana Foundation
• Cedar Money*, a payments company that enables seamless cross-border money movement on stablecoins raised a $9.9mln Series A led by QED
• Mighty Bear Games*, a game development studio based in Singapore raised a $4mln Strategic round with the participation of Amber Group, Bitscale, Ton Ventures and Karatage.
• Herd*, a company developing an on-chain framework for AI agents raised a $1.8mln Pre-Seed led by Semantic with the participation of Archetype.
• Olas (aka Autonolas)*, a decentralized platform offering a suite of smart contracts designed to coordinate, secure, and manage software code on public blockchains raised a $13.8mln Series A led by 1KX with the participation of Borderless and Tioga, amongst others.
• Taproot Wizards*, a Bitcoin Ordinals project featuring one of the largest NFT collections in Bitcoin raised a $30mln Series A led by Standard Crypto with the participation of Cyber Fund, Collider and Geometry.
• Spindl*, a crypto analytics platform for attribution services was acquired by Coinbase.
• Bridge*, a company offering stablecoin-based solutions for cross-border payments was acquired by Stripe. The transaction was fully executed on February 2nd.
• Membrane, a company developing software and services to bridge traditional financial infrastructure with blockchain-based systems was acquired by Paxos

*Underlying TBV portfolio position | Prices as per 31/01

Interesting things to read

• Former Chairman of Silvergate Bank Mike Lempres joins Castle Island for a discussion of Silvergate, the crypto-focused bank that was forced into liquidation in early 2023 following a bank run. This are the first on the record comments from any Silvergate executive following the voluntary liquidation announced in March 2023
• Governments and public sector organizations leverage blockchain technology to move away from siloed and inefficient centralized systems. Current systems are inherently insecure and costly, while blockchain networks offer more secure, agile, and cost-effective structures
• The New Yorker published an interesting article on Operation Chokepoint 2.0
• Unchained interview with Chris Dixon on why we will finally see new app innovation in crypto