As the crypto markets roil from the collapse of FTX, Coinbase, the publicly-traded cryptocurrency exchange domiciled in the U.S., is trying to assure investors that FTX was merely a bad actor and is not indicative of the rest of the industry.
“This is fraud,” Coinbase CFO Alesia Haas said in a Wall Street Journal livestreamed Q&A late yesterday afternoon when asked whether this was the crypto industry’s “Lehman moment.”
“The answer is no,” she said. “I do not think this is a Lehman moment because—again—this is fraud. So one could say this is a Madoff moment, an Enron moment, an MF Global moment.”
FTX, the Sequoia and Paradigm-backed crypto exchange started by Sam Bankman-Fried that was valued at $32 billion merely two weeks ago, spiraled into bankruptcy at the end of last week—not long after the extent of the ties between the exchange and its affiliated trading firm, Alameda Research, were brought to light two weeks ago.
As it turns out, FTX was allegedly lending about half of its customers’ assets—about $10 billion worth—to fund risky bets at Alameda, despite assurances it had made to customers that those assets were being stored at the exchange. When the company began experiencing heavy withdrawal requests last week, a liquidity crisis ensued, FTX froze withdrawals, tried to seal a deal with Binance, experienced a massive hack, filed for bankruptcy, yada yada yada. (FTX did not respond to a request for comment prior to publication.)
The spiral of events has reverberated through the industry—leaving pension funds and venture capitalists with writedowns and crypto startups with no treasuries. Crypto fintech Genesis is experiencing a liquidity crisis in its lending business and has suspended redemptions and new loan originations. The crypto exchange Gemini delayed redemptions for its yield product for retail investors. Then there’s BlockFi and Voyager, which had been in trouble just earlier this year. BlockFi is reportedly preparing to potentially file for bankruptcy, and Voyager is on the hunt for a new buyer. (CrossTower confirmed Monday that it intends to submit a revised bid for Voyager.)
All of this is on top of an already-troubled crypto market that has forced players like Coinbase into layoffs and tanked the value of Bitcoin to around $16,000.
Taken together, the contagion wreaking havoc across the industry is not unlike that of the 2008 financial crisis, Haas said yesterday. “It’s exposing poor credit practices, it’s exposing poor risk management, where companies had too many concentrated positions, not thoughtful risk management around asset liability matches. And so as they have withdrawals. They cannot liquidate their assets at the speed needed to meet the customer demand,” Haas said.
What is desperately lacking right now in the market is trust, and it will take time to rebuild it.
“Whenever you have something of this magnitude happen, it will impact trust,” Haas said. “And that’s why, to me, it is so important to note that this was a bad actor in an offshore market with light regulation where this occurred.”
Haas spent a lot of time outlining Coinbase’s own operations, stating how the exchange holds currencies one-for-one in segregated accounts, which are mostly in cold storage offline, and explaining how the exchange uses third-party insurance providers, and, as a public company, publishes audited financials.
But no crypto company will be immune from the hangover from consumers losing so much money.
“I think there’s going to be the impact of trust lost in the short term, but we’re very optimistic that we can then rebuild piece by piece,” she said.
‘All the dumb shit I said’… In a thread of Twitter DMs posted by a Vox reporter yesterday afternoon, Sam Bankman-Fried admits that comments he has made in the past about balancing ethical imperatives were not true. “Man all the dumb shit I said,” he wrote to the reporter. “It’s not true, not really.”
“You were really good at talking about ethics, for someone who kind of saw it all as a game with winners and losers,” Vox reporter Kelsey Piper wrote.
“Ya,” he retorted.
“Hehe”
“I had to be”
“It’s what reputations are made of, to some extent”
“I feel bad for those who get fucked by it”
“By this dumb game we woke westerners play where we say all the right shiboleths [sic] and so everyone likes us”
Whew.
(Sam Bankman-Fried claimed yesterday on Twitter that he did not intend these messages to be public. He issued a response on Twitter, which you can read in full here.)
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: [email protected]
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Jackson Fordyce curated the deals section of today’s newsletter.
VENTURE DEALS
- Astera Labs, a Santa Clara, Calif.-based data and memory connectivity solutions company, raised $150 million in Series D funding. Fidelity Management and Research led the round and was joined by investors including Atreides Management, Intel Capital, and Sutter Hill Ventures.
- Akeyless, a New York and Ramat Gan, Israel-based cybersecurity company, raised $65 million in Series B funding. NGP Capital led the round and was joined by investors including Team8 Capital and Jerusalem Venture Partners.
- ISEE, a Cambridge, Mass.-based self-driving technology company, raised $40 million in Series B funding. Founders Fund led the round and was joined by investors including Maersk Growth, New Legacy, Eniac Ventures, and others.
- Aescape, a New York-based massage therapy experience creator, raised $30 million in Series A funding. Valor Siren Ventures and Valor Equity Partners co-led the round and were joined by investors including Fifth Wall, Alley Robotics Ventures, Crosslink Capital, Alumni Ventures, and NBA athlete Kevin Love.
- Parallel Domain, a San Francisco-based autonomous development synthetic data startup, raised $30 million in Series B funding. March Capital led the round and was joined by investors including Costanoa Ventures, Foundry Group, Calibrate Ventures, and Ubiquity Ventures.
- Rewst, a Tampa, Fla.-based automation platform for managed service providers, raised $21.5 million in Series A funding led by OpenView.
- MadKudu, a Mountain View, Calif.-based product-led-growth platform for B2B marketers, raised $18 million in Series A funding. Felicis led the round and was joined by investors including BGV, Alven, Techstars, and other angels.
- Methodical Games, a Raleigh, N.C.-based game development studio, raised $15 million in seed funding led by Lightspeed Venture Partners.
- Beti, a New York and Tel Aviv, Israel-based construction site management software company, raised $11 million in funding. PSG led the round and was joined by 97212 Ventures.
- Centivax, a South San Francisco-based vaccine platform technology developer, raised $10 million in seed funding co-led by NFX and the Global Health Investment Corporation.
- Solestial, a Tempe, Ariz.-based solar energy company for space, raised $10 million in seed funding. AEI HorizonX, Airbus Ventures, GPVC, Stellar Ventures, Industrious Ventures, and others invested in the round.
- Freshpaint, a San Francisco-based customer data activation platform, raised $9.5 million in Series A funding by Intel Capital.
- Omneky, a San Francisco-based marketing platform, raised $7.5 million in seed extension funding. Technologist John Donovan, Orbit Ventures, and Ethos invested in the round.
- OneSchema, a San Francisco-based CSV importer application for developers, raised $6.3 million in funding. General Catalyst led the round and was joined by investors including Sequoia Capital, Y Combinator, Elad Gil, and Contrary Capital.
- Fennel, a New York-based ESG-focused investing app, raised $5 million in seed funding. Founding partner of Wilson Sonsini Goodrich & Rosati Larry Sonsini, former managing director of trading at Blue River Asset Management Paul Sinsar, UC Davis professor John Rundle, and others invested in the round.
- Supernova.io, a Prague-based SaaS design system platform, raised $4.8 million in seed funding. Wing Venture Capital led the round and was joined by investors including EQT Ventures and Kaya VC.
- Arey, a Los Angeles-based e-commerce business for the hair care industry, raised $4.15 million in seed funding co-led by Female Founders Fund and Greycroft.
- SigmaOS, a London, U.K.-based web browser developer, raised $4 million in seed funding. LocalGlobe led the round and was joined by investors including Y Combinator, 7percent Ventures, Moonfire Ventures, Shine VC, TrueSight Ventures, Pioneer Fund, Venture Together, and others.
PRIVATE EQUITY
- BDT Capital Partners acquired a minority stake in Exyte, a Stuttgart, Germany-based facilities design company. Financial terms were not disclosed.
- Caltius Equity Partners acquired a majority stake in APHIX, a Frankfort, Ky.-based commercial landscape services provider. Financial terms were not disclosed.
- Carlyle acquired a majority stake in Incubeta, a London, U.K.-based marketing firm. Financial terms were not disclosed.
- Enlightenment Capital acquired Agile Defense, a Reston, Va.-based digital transformation solutions provider to the Department of Defense and other federal customers. Financial terms were not disclosed.
- ICG, through its ICG Infra I fund, acquired Dos Grados, a Madrid, Spain-based renewable energy platform. Financial terms were not disclosed.
- Prospect Partners recapitalized Entech Computer Services, a Fort Myers, Fla.-based managed technology and cybersecurity services provider. Financial terms were not disclosed.
- The Riverside Company agreed to acquire a majority stake in BioDue, a Sambuca, Italy-based developer and manufacturer of food supplements, medical devices, and cosmetics. Financial terms were not disclosed.
OTHER
- Biocodex acquired a majority stake in Hilma, a Brooklyn, N.Y.-based natural remedies company. Financial terms were not disclosed.
- SonderMind acquired Total Brain, a San Francisco-based neuroscience company. Financial terms were not disclosed.
PEOPLE
- GI Partners, a Scottsdale, Ariz.-based alternative investment firm, hired Matt Barker as a managing director. Formerly, he was with 3i Infrastructure.
- Offline Ventures, a Menlo Park, Calif.-based venture capital, hired Ryan Davis as CFO. Formerly, he was with Pantera Capital.
- Shore Capital Partners, a Chicago-based private equity firm, hired Brian Tracy as head of investor relations and Sarah Gabriel as chief people officer. The firm also promoted Justin Bentley to partner and head of capital markets, Formerly, Tracy was with Burford Capital and Gabriel was with Kirkland & Ellis.
- Zetta Venture Partners, a San Francisco-based venture capital firm, hired Apoorva Pandhi as a managing director. Formerly, he was with Foundation Capital.
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