Chain Venturer: Benjamin Nudel of Archimed Capital

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Happy Weekend 🙋🏻‍♂️,

Welcome to Chain Venturer, a series of intriguing conversations with crypto investors. This week, we have Benjamin Nudel of Archimed Capital.

Benjamin Nudel is the Research Lead at Archimed Capital, a thesis-driven digital asset investment firm that backs the builders of a decentralized future. Before that, Benjamin started his career in traditional finance, working on the trading floor across three different banks in London from 2014 to 2021 such as HSBC, BNP Paribas, and Societe Generale. 

He ventured into crypto professionally in 2021, joining Cudo Ventures, a blockchain company developing a decentralized cloud computing network; and Bletchley Park, a digital asset fund of hedge funds.

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Benjamin Nudel of Archimed Capital

Benjamin Nudel is the Research Lead at Archimed Capital, a thesis-driven crypto investment firm that backs the builders of a decentralized future.

Benjamin started his career in traditional finance. He worked on the trading floor across three different banks in London from 2014 to 2021 such as HSBC, BNP Paribas, and Societe Generale. 

In 2021, Benjamin transitioned into the crypto sector, taking on the role of Senior Market Researcher at Cudo Ventures, a blockchain company developing a decentralized cloud computing network. His journey in the crypto space quickly progressed, and after a year with Cudos, he advanced to a position at Bletchley Park, a digital asset fund of hedge funds. Before joining Archimed Capital, Benjamin served as a Senior Associate at Blockstone Capital.

Benjamin earned his Bachelor's and Master's degrees in Industrial Engineering and Management from the KTH Royal Institute of Technology.

Here’s my conversation with Benjamin Nudel. 

Quick takeaways:

• Benjamin sees parallels between crypto and emerging markets, highlighting the potential for substantial yield and the dynamic growth trajectory as key similarities.

• Archimed is a research-focused digital asset investment fund, predominantly investing in liquid assets—approximately 80% of its portfolio—with the remaining going into VC investments.

• Archimed is focusing on liquid assets and early-stage venture capital investments, aiming to act as a Series A investor in the crypto market with a strategic, hands-on approach.

• Archimed is particularly excited about liquid staking within the Cosmos and Solana ecosystems, noting the potential for innovation and growth in infrastructure and DeFi spaces.

• The core of Archimed's thesis revolves around liquidity, which they see as a critical driver for the market. With signals from major central banks indicating a return of liquidity, Archimed anticipates this will further propel the market upwards.

What was the defining moment that drew you into the world of crypto?

Benjamin first encountered the Bitcoin white paper in late 2014 or early 2015. Although he found it intriguing, the predominantly anarchistic and anti-government sentiment within the community seemed at odds with his perspectives. However, the turning point came in late 2016 or early 2017 when his brother-in-law, a university student in the UK with a penchant for computer science and building gaming computers, proposed an investment of 500 pounds each to construct a mining rig. Benjamin, intrigued by the prospect, agreed.

The venture required little from Benjamin beyond the initial financial investment. Remarkably, within six to eight months, they recouped their investment, a return that Benjamin, with his traditional finance background, found astounding. The success was partly due to free electricity, as the mining rig was located in an unused university room, and the buoyant market conditions at the time. Despite not using top-tier equipment or mining Bitcoin, the venture's success piqued Benjamin's interest in the crypto world.

Around the same period, Ripple emerged, capturing the attention of those on the trading floor, including Benjamin, due to its potential to disrupt bank-centric cross-border payments. This led Benjamin to delve deeper into crypto, investing modestly through Coinbase in the most popular coins of the time and closely following market developments.

The defining moment: The advent of Decentralized Finance (DeFi) and the DeFi Summer of 2020 further heightened Benjamin's interest, allowing him to leverage his traditional finance expertise within the crypto domain. For Benjamin, the realization of the potential yields and the unique dynamics of the crypto ecosystem marked the definitive moment that drew him into the world of crypto.

Do you think there are similarities between crypto and the emerging markets, FX, and precious metals you've worked with?

Benjamin observes significant parallels between emerging markets and crypto. This correlation largely hinges on their respective stages of growth. Given that crypto has been around for merely a decade or so, it embodies the quintessence of an emerging asset class. The potential for substantial yield from early participation in the ecosystem and its remarkable growth trajectory mirrors the dynamics often seen in emerging markets.

Furthermore, Benjamin notes the manner in which these assets trade in relation to other values, drawing a comparison to how emerging markets exhibit a high beta in response to developments in the US market, coupled with liquidity considerations. In a similar vein, crypto is characterized as a high-beta technology sector, still in its infancy, yet it shares fundamental drivers, values, and risk profiles akin to those encountered in emerging markets and real-world currencies.

What is Archimed Capital?

Archimed Capital was established in early 2023, originating as a spin-off from Decentral Park Capital, a US-based digital assets investment firm. The inception of Archimed was driven by the desire to cater specifically to non-US investors, addressing the complexities faced by international investors when investing in US-based crypto funds.

Archimed is a research-focused digital asset investment fund, predominantly investing in liquid assets—approximately 80% of its portfolio. The fund's primary interest lies in mid to small-cap names, aligning with its strategy of acting like a Series A investor in the crypto market. Archimed targets tokens that have already launched but are still in the early stages of finding product-market fit, focusing on those with growth potential within their sectors. This approach is fluid and adjusts based on the market cycle.

The investment philosophy of Archimed combines fundamental research and data-driven analysis with qualitative assessments, including regular communications with project teams to monitor developments. This dual approach facilitates informed investment decisions, supporting the fund's long-term investment horizon. Archimed operates as a four-year closed-end fund, typically holding investments for 12 to 18 months, although this duration can vary depending on market conditions.

The remaining 20% of the fund is dedicated to early-stage venture capital investments, allowing Archimed to allocate a portion of its portfolio to promising investment opportunities in their nascent stages. This blend of liquid and early-stage investments underlines Archimed's commitment to a balanced and forward-looking investment strategy.

Do you work closely with the teams of the assets you invest in, similar to a liquid VC, or is your approach more aligned with traditional asset management?

Historically, Archimed has adopted a proactive stance in its engagement with portfolio companies. The founders of Archimed are serial technology entrepreneurs. This experience has imbued them with a keen understanding that the financial sector is not merely a playground for large intermediaries looking to maintain their market dominance. Rather, they view it as a field ripe for innovation, where reinvention is key to staying relevant.

Given this foundation in startup culture and the practice of building companies from the ground up, Archimed's investment strategy is characterized by a hands-on approach. The team leverages their extensive experience and networks in the blockchain and crypto space, cultivated since as early as 2014, to offer significant support and resources to the companies they invest in.

Thus, Archimed aligns more closely with the concept of a liquid VC, actively working alongside the teams of its investment assets to foster growth and success, rather than adopting a passive asset management strategy.

Could you share more details about Archimed's current fundraising?

Archimed successfully completed its first funding round at the end of December and plans to conduct between three and four additional closings throughout 2024. The goal is to increase capital as the fund grows and to offer investors timely opportunities to enter the market.

The initial fundraising efforts began in early 2023, during a period of less favorable market conditions, which led to a lukewarm response rather than outright rejections. However, Archimed remains optimistic, raising funds with the conviction that the crypto market was undervalued following the downturns of late 2021, 2022, and 2023. 

The team at Archimed sees substantial opportunities across the crypto landscape and advocates for portfolio diversification to include crypto assets. They believe that offering both liquid and illiquid investment vehicles presents a unique way for investors to gain exposure to long-term opportunities and to benefit from the market's recovery from its previously undervalued state.

Which sectors are you particularly interested in for the next 12 to 18 months, considering you've covered many in Archimed’s Substack?

Click here to visit Archimed’s Substack.

Archimed's focus is closely tied to market cycles, primarily centering on the ecosystems of Ethereum, Solana, and Cosmos, while also allocating a portion of our attention to alternative Layer 1 solutions. Its main interests lie in infrastructure-related developments, including scaling solutions, decentralized finance (DeFi), privacy technologies, and the infrastructure surrounding NFT monetization and financialization.

In the next sort of 12 to 18 months, Archimed is particularly excited about advancements in the infrastructure layer over the application layer. The potential for innovation in scaling solutions, coupled with the importance of staking mechanisms—especially liquid staking—stands out as a crucial area. Liquid staking, which addresses issues related to long unbonding periods as seen in networks like Cosmos, offers a compelling opportunity for capital efficiency and enhanced utility within the staking domain. This market segment, particularly within the Cosmos and Solana ecosystems, represents a significantly underexploited area with considerable growth potential.

Furthermore, Archimed is keen on exploring the evolution of infrastructure that supports data availability as well as the overall scaling necessary for the crypto ecosystem's next phase of growth. This includes bridging solutions and cross-protocol swaps, which Archimed believes are fundamental to fostering interoperability and fluidity across the blockchain landscape.

Can you share your crypto markets outlook for the next 12 to 24 months?

Benjamin believes that in the next 12 to 18 months, the crypto market is poised to reach new all-time highs. However, he anticipates that this upward trajectory will not be without its challenges, including potential corrections influenced by the significant leverage within the market. This leverage is primarily observed on platforms with a substantial retail investor presence. Despite these potential setbacks, Benjamin envisions a "perfect storm" scenario where interest rates decline, possibly leading to dollar weakness—aligning with the US narrative as it approaches election season.

The core of Archimed's thesis revolves around liquidity, which they see as a critical driver for the market. With signals from major central banks indicating a return of liquidity, Archimed anticipates this will further propel the market upwards. Although expecting some corrections along the way, Benjamin says right now is a good time to invest, with a long-term perspective, to seize the value present in the market. This balanced view reflects a strategic approach to navigating anticipated market dynamics over the next year and a half.

How do you think the decreasing rewards from Bitcoin halvings, especially in the long term like 2028 or 2032, will affect miners?

Benjamin notes that raising awareness about the future of Bitcoin mining is crucial, especially considering that in less than a decade, 99% of all Bitcoin will have been mined. This scenario presents a significant challenge as, without substantial BTC price growth, relying solely on transaction fees could become problematic for miners. This issue could, in turn, lead to broader implications for the network's security.

Interestingly, the Bitcoin ecosystem has begun to explore avenues for generating additional fees for miners to secure the network's future. Innovations such as inscriptions, NFTs, and the introduction of new token standards like BRC-20 are at the forefront of these efforts. These developments are essential for the ongoing security discussion, bridging the gap between previous debates over block size and network scalability.

The resolution of the block size debate, which culminated in the SegWit activation and subsequent fork in 2017, set the stage for the current discourse. The prevailing perspective since then has largely overlooked the looming security budget issue, showing resistance to innovations like inscriptions. However, there appears to be a shift in this stance, recognizing the need for sustainable solutions.

Among the potential strategies, Bitcoin could evolve into a settlement layer with cross-protocol applications leveraging its security. The alternative involves adjusting Bitcoin's economic model, perhaps by increasing block sizes or adopting a mechanism similar to Ethereum's, which balances token burning and minting to ensure security without solely depending on transaction fees.

How do you foresee the development of the EU's crypto landscape in the next 1-2 years, especially with regulations like MiCA coming into play?

Drawing a parallel to the post-World War II emergence of the Eurodollar market, Benjamin observes a similar dynamic unfolding in the current global crypto regulatory landscape.

The Eurodollar market flourished as non-US banks sought to deposit dollars outside the United States, spurred by regulatory uncertainties within the US. This phenomenon propelled London into becoming the financial nucleus of Europe. Today, Benjamin notes, the US faces regulatory uncertainties around cryptocurrencies, driving innovation and growth to regions with more crypto-friendly environments. Countries like Hong Kong and members of the European Union are advancing more accommodating regulatory frameworks, positioning themselves as attractive hubs for long-term crypto investment and innovation.

Investors, seeking stability and clarity for future investments, are drawn to regions where regulatory outlooks are more defined. The challenge remains with the potential for overregulation, which could stifle innovation.

However, Benjamin believes the crypto sector has evolved to a point where certain regions will naturally emerge as centers of crypto activity, embracing the industry, while others may impose restrictive measures, thereby influencing the flow of capital. Dubai and Asia are highlighted as burgeoning crypto hubs, in contrast to the US, which is perceived as lagging due to regulatory hurdles. This shift is reminiscent of the historical context of the Eurodollar, suggesting a potential realignment of crypto innovation and capital towards more welcoming jurisdictions.

What project are you most excited about currently?

From a high-level perspective, Archimed is particularly intrigued by the potential within several key sectors, including liquid staking, DeFi, and Infrastructure.

In the liquid staking sector, Archimed recognizes its growth and relevance, especially in the Cosmos and Solana ecosystems. Despite the challenge of long unbinding periods in Cosmos, Archimed finds projects such as Stride to be highly promising, noting its expanding portfolio and the growing total addressable market as new ecosystems emerge. The recent launch of Celestia, for instance, has quickly become a significant part of Stride's portfolio, offering a compelling liquid staking solution while enabling users to benefit from airdrops.

In the Solana ecosystem, Archimed identifies potential opportunities for relative value investments within its liquid staking initiatives, exemplified by the significant valuation discrepancy between Marinade and Jito despite their similar offerings.

Within the Solana DeFi space, Archimed is particularly interested in platforms such as Orca, due to its inverse valuation relationship compared to its aggregator, Jupiter. In contrast to the Ethereum ecosystem, where the aggregator is typically valued at a fraction of the major DEX, the situation is reversed in Solana. Jupiter, the leading aggregator, commands a significantly higher valuation than Orca, the prominent DEX. However, Archimed believes that Jupiter's success is inherently tied to the growth and adoption of Orca, as the aggregator ultimately relies on the liquidity and trading activity provided by the DEX. This unique dynamic, combined with Orca's relative valuation and activity levels, presents an attractive investment opportunity in Archimed's view. As the Solana DeFi ecosystem continues to mature, Archimed expects Orca to capture a growing share of the market, benefiting from the symbiotic relationship with Jupiter and the increasing demand for decentralized trading solutions.

Moreover, Archimed is enthusiastic about the potential of Across Protocol, a novel bridging solution that addresses the challenge of liquidity fragmentation and high costs in cross-chain transfers. With the upcoming implementation of EIP-4844, which is expected to significantly reduce fees on layer 2 solutions, Archimed anticipates a surge in activity on these networks. As layer 2 solutions continue to proliferate and attract more users, Archimed believes that Across will capture a significant share of the growing interoperability market, making it an exciting prospect in the evolving blockchain ecosystem especially with its V3 version launching.

Rapid Fire Questions

1. What's one piece of content every aspiring investment professional should read/watch?

   • Common Stocks and Uncommon Profits by Philip Fisher.

2. What’s your biggest investment mistake?

   • Not following sort of the set of targets and rules and theses during hype markets.

3. What’s the most underrated use case of crypto?

   • The economic foundations for a unified global community by allowing value to flow freely across borders.

4. What’s your most contrarian view in crypto right now?

   • A lot of networks or protocols don't need a token. There's no direct relationship between the usage and the token.

5. What’s the biggest risk that the crypto space is facing?

   • The potential of restrictive government over-regulation will stifle innovation.

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