Crypto Onramps in Trouble.. What's Next? 🏦

GM folks 👋🏻 - Happy Friday.

Crypto markets are down ~5%. Turns out, the conference curse is real. Jokes aside, the situation around Silvergate is concerning. However, that doesn’t stop Olaf Carlson-Wee, the most drippy crypto mogul, from raising $400M. 

In Today's Email:

• What Matters: Crypto banking risks continue, Silvergate in trouble 🏦

• Founders-Investors Highlight: Furqan Rydhan, Founder of Thirdweb 👨‍💻

• Deal Flows: Polychain Capital $400M Fund IV 📈

WHAT MATTERS

Silvergate in Trouble 🏦

State of play: Silvergate, one of the most utilized banks in crypto, announced that its delaying its annual 10-K report, citing that it needs more time to analyze regulatory inquiries. The firm may face DOJ, Congressional, and Bank Regulator inquiries.

• Silvergate might be facing bankruptcy. It reported a loss of $1B in Q4 2022.

• Silvergate is a critical crypto on-ramp. There are now questions if it can continue to operate. The stock was down 58%.

• In the past 24h, Silvergate has lost Coinbase, Circle, Paxos, Galaxy, and CBOE as customers.

What exactly cause Silvergate to be in trouble? — in short, a run on the bank caused by having many crypto-native customers and liquidity duration mismatch.

Matt Levine from Bloomberg explains it best:

The key takeaway: Crypto on-ramp infrastructure is going to be set back in the next 12 month as pro crypto banks deal with regulatory inquiries and massive withdrawals.

• SEN, Silvergate’s private blockchain, was a key tool for crypto firms and exchanges to efficiently move USD between participants. It was operating 24/7, 365 days a year, unlike traditional fiat infrastructures.

• Without SEN, and with the ongoing regulatory crackdown, smaller crypto firms will have an extremely difficult time to get banking support.

Why it matters: This is the first contagion from a crypto crash to the traditional financial system. If Silvergate goes under, it will certainly be weaponized by anti-crypto regulators to create reckless rules that will further push crypto innovations outside of the US.

For builders: If you’re a native web3 firm (closer to a DAO vs a web2.5 company), you need to start thinking about your off-chain expenses infrastructure. I’ve seen projects conducting extremely non-kosher practices such as using a personal’s employee CEX account to pay bills. This won’t fly in the new funding environment.

For investors: The problem of efficient crypto on-off ramp is an extremely lucrative space that hasn’t really been solved. Maybe because its considered a “boring business” with not much native web3 components. Those who solve this problem will unlock enormous value.

BUILDER-INVESTOR HIGHLIGHT

Furqan Rydhan, Founder of Thirdweb & Founders, Inc.

Furqan Rydhan is the founder of Thirdweb and Founders, Inc. He has an extensive entrepreneurial experience, having founded a few companies, most notably Bebo, which was acquired by Twitch for $25M.

• Furqan had both business and technical background. He started creating businesses at a young age before taking on multiple tech roles, including as the CTO of AppLovin and Monkey Inferno.

Previous backgrounds:

• Furqan had jobs as Sr. Software Engineer at ReputationDefender and Product Manager at Cirago International.

• Furqan has always been business savvy. He founded a computer cooling and modification products in 2002, reaching $1M of revenue in year 1.

The big idea: Thirdweb is a web3 no code development tools that helps builders to build projects. In less than 2 years, it acquired 70,000+ developers and deployed 250,000 contracts amounting to 3m transactions in total.

• Furqan is also simultaneously building a web3 VC fund, called Founders, Inc. with a focus on investing in early-stage companies. Founders, Inc. now has more than 50 portfolio companies.

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DEAL FLOWS

Polychain Capital $400M Fund IV 

🤝 Deal flows remain incredibly strong. This week we saw $360M+ in deals, excluding Polychain’s $400M raise, which will most definitely get done given its track record.

Polychain Capital $400M Fund IV: The powerhouse investment firm is looking to raise $400M for its fourth fund. Founded by the most drippy crypto mogul and first employee of Coinbase, Olaf Carlson-Wee, Polychain now manage $6.6B+ in AUM.

• The new fund will target early-stage investments.

• Polychain currently has a team of 45.

• The firm has 8 active funds, according to its latest 13F filings.

Deal flows in the past week:

• Fluus, $600K Pre-Seed Round

• Ammalgam, $750K Pre-Seed Round

• Tsunami Finance, $1.3M Pre-Seed Round

• Neoswap AI, $2M Pre-Seed Round

• Insrt Labs, $2.2M Pre-Seed Round

• Redeem, $2.5M Pre-Seed Round

• Helika, $4M Seed Round

• Affine, $5.1M Seed Round

• Impossible Cloud, $7M Seed Round

• Huma Finance, $8.3M Seed Round

• Mangrove, $7.4 Series A

• Worldwide Webb, $10M Series A

• Towns, $25.5M Series A

• ZenGo, $10M Series A+

• Chain Reaction, $70M Series C

• FactorDAO, $7.5M Public Sale

• Conflux, $10M Token Sale

• Term Labs, $2.5M Unknown Round

• Ether.Fi, $5.3M Unknown Round

• Portal, $5.3M Unknown Round

• Avalon Corp, $13M Unknown Round

• Baldex, $25M Unknown Round

• Hashnote, $5M Strategic Round

• Orange Comet, $7M Equity Round

• Greeks Live, Undisclosed $ Pre-A Round

• Laminar Market, Undisclosed $ Acquisition

• Chiliz, $50M Incubator Fund

• Blockchain Founders Fund, $75M Fund II

QUICK BITES

• Coinbase CEO defends staking.

• Robinhood rolls out crypto wallet for iOS.

• FTX updates its asset shortfall.

• Mt. Gox repayments will start March 10.

• Senators sends a letter to Binance.

• Polygon launches web3 identification service.

• Australia announces eAUD plan.

• Near Protocol starts blockchain operating system.

• Binance releases AI-powered NFT generator.

• Lawmakers argue SEC’s crypto accounting policy.

• Bankless Hosts raising $35M VC fund.

• Silvergate loses Coinbase, Galaxy, and Paxos.

MEME & NOTEWORTHY READS

• Amber Group’s article on the impact of Ethereum’s Shapella upgrade.

• DataFinnovation’s article on stablecoin mechanics 4: USDD origin story.

• @eherrerosj’s thread on Electric Capital’s developer report.

If you enjoy reading this issue, please consider subscribing. It takes 1 minute of your time but it would mean the world to us 🙇

Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.