Forbes: The secret to the success of Paradigm and the ambition of the young people behind it

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Paradigm is not satisfied with guiding mainstream financial institutions such as Harvard, Stanford, Yale University Endowments and Sequoia to make money quietly behind the scenes, but is determined to bring cryptocurrency into the mainstream of the financial industry.

Written by: Alex Konrad, Senior Editor of Forbes Magazine Compiler: Perry Wang

Paradigm, a crypto venture capital fund, stands out for its aggressive Bitcoin trading. However, the two co-founders Fred Ehrsam and Huang Gongyu (Matt Huang)’s goal is not only to bring huge returns to their prominent supporters, they also hope to incorporate cryptocurrency as an alternative currency into the financial mainstream.

On the secluded terrace of the luxury hotel Ventana Big Sur near Monterey, California, dozens of the world’s top cryptocurrency experts are playing a special after-dinner game. It was a relaxing working day in November 2019. Participants gathered around for a week, drinking wine and hot chocolate, and asking each other questions. This is a real version of the imagination of a computer science concept known as the ” Byzantine Generals Problem. ” Imagine a leader passing orders to multiple deputies who are not loyal.

ETHAN PINES provides images for Forbes

With excellent performance, the participants successfully eliminated the three characters who were asked to lie. They demonstrated the power of blockchain in low-tech language, indicating that the blockchain combines a large amount of processing power to create a dynamic, but in fact, unbreakable, decentralized public ledger. This is a technological innovation that supports cryptocurrencies such as Bitcoin BTC and Ethereum.

This is a secret, unrecorded meeting aimed at uniting the different factions of the crypto community, and this game is a smart icebreaker. Away from the gunpowder in Telegram chats and Twitter tweets, the organizer of this conference, an investment institution called Paradigm, wanted to remind this elite group that they are more similar to each other rather than contradictory-because of a common The goal is to achieve unity and make cryptocurrency more mainstream in reality.

“They are all facing challenges,” said Matt Huang, co-founder of Paradigm. He co-founded this VC with Coinbase co-founder Fred Ehrsam in 2018. “These guys are building something completely different from the companies invested by VCs that are clustered together on Dune Road.”

These crypto experts may have disagreements on the advantages and disadvantages of Bitcoin and Ethereum, or have very different opinions on the impact of technology giants like Facebook on the crypto field. However, Paradigm’s point is simple: Compared with the outside world full of cryptocurrency skeptics, the similarities between these entrepreneurs, researchers and top university professors are greater. Brian Armstrong, a close friend of Fred Ehrsam, billionaire and CEO of Coinbase, praised: “I think people will regard this as one of the most precious historical moments, just like the Lexheed Martin (Lexheed Martin) skunk factory team, A historical position like Pixar or the Apollo project. A small group of people gathered together and did some pretty influential things, and then had a huge downstream influence.”

Paradigm invested all of its initial raised capital of US$400 million in Bitcoin in 2018. At that time, the currency market was at a low price, and the price of Bitcoin was less than US$4,000. Then the fund sold them one by one according to investment needs.

Forbes: The secret to the success of Paradigm and the ambition of the young people behind itSource: Coindesk

Nearly a year later, this investment is still in progress. In March 2020, when the new coronavirus COVID-19 caused global stock markets to plummet, although defenders insisted that Bitcoin is a safe haven independent of traditional financial trends, cryptocurrency assets such as Bitcoin also suffered a plummet. In an environment where the world is facing a more urgent situation, the global epidemic, the US presidential election, and life are disrupted by the sudden shift to digital and remote work. At least so far, the encrypted world has not risen to become a savior. When Armstrong announced in September that Coinbase would not tolerate discussions of political opinions outside of its financial tasks, 5% of his employees chose to leave.

All of this has brought more momentum to Paradigm, an emerging investment institution. Paradigm is rapidly emerging as a leader in cryptocurrency investment, but its ambition is not only in the pursuit of excessive financial returns.

32-year-old Fred Ehrsam and 31-year-old Huang Gongyu combined the mainstream financial pedigree and groundbreaking crypto world temperament and persuaded top institutional investors such as Harvard University and Stanford University to provide them with an investment of US$750 million to invest in these distinguished backgrounds Markets that institutions cannot directly access. This investment tool is a very strange open-end fund, and the fund redemption time is longer than the average VC. Then, they did something more unusual: when the price fell to the low after the bubble burst, they invested all of it in cryptocurrency, mainly buying Bitcoin. This is an aggressive investment strategy, and the results may be disastrous. but it is not the truth. Since Paradigm’s investment, the price of Bitcoin has tripled, which means that in addition to other investments, the value of Paradigm’s initial capital has increased by 2 times.

When the Bitcoin bubble burst in early 2018, both of them breathed a sigh of relief. The daily price updates of Bitcoin by short-term speculators, day traders and CNBC Financial Channel were all washed out by this plunge.

“They started their business at the right time. They convinced some of the smartest investors in the world to allow them to buy Bitcoin and ETH and get a return. Mike Novogratz, a former hedge fund manager and heavyweight in the cryptocurrency industry, said. The organization has made money and pays tribute to this team.”

But the expectations of the investors behind Paradigm for Fred Ehrsam and Huang Gongyu are not just another shrewd crypto trading venture capital. As their company is in a rapid recruitment model, investment has made a good start, and some of the start-ups they have invested in are showing signs of explosion. The two new elites who are shortlisted for the Forbes Under 30 Elite List insist that they have been ahead of the development curve. And this curve will soon make ordinary people care about cryptocurrency and its global potential. “We think we did the icing on the cake, Ehrsam said. “But of course this is not our fire.”

If the timing of Paradigm’s entry is perfect, it is no accident. At the height of the Bitcoin boom in 2017, Fred Ehrsam has stepped down as President of Coinbase. He co-founded Coinbase with Armstrong five years ago. Now, the valuation of this cryptocurrency exchange has reached 8 billion U.S. dollars.

Fred Ehrsam, who is slender and has a brown retro haircut, graduated from Duke University. He was a semi-professional e-sports player in high school and briefly worked as a Goldman Sachs trader after graduating from college. As Bitcoin broke through $19,000 in December 2017 and rose by nearly 2,400% in just one year, cryptocurrency insiders are as confused as everyone else. Even at the Coinbase board meeting where Fred Ehrsam still serves as a director, insiders were surprised by Bitcoin’s skyrocketing frenzy, and they asked, “Why is this?”

Large VC organizations in Silicon Valley are also asking this question. Huang Gongyu worked at Sequoia Capital, which was well-known for investing in star technology companies such as Apple and Google, and WhatsApp and Stripe. He was also paying close attention to this field.

Huang Gongyu was an entrepreneur who founded a social analysis company with the help of entrepreneurial accelerator Y Combinator, and then sold it to Twitter. Huang Gongyu has black hair and dresses similar to a low-key trendy shoe blogger. He himself has been buying Bitcoin since 2012. But unlike Fred Ehrsam, the “parabolic” price trajectory of cryptocurrencies and a wave of unknown companies issuing their own tradable tokens through dubious legal listings (called ICOs) have discouraged him from this field.

When the Bitcoin bubble burst in early 2018, both of them breathed a sigh of relief. The daily price updates of Bitcoin by short-term speculators, day traders and CNBC Financial Channel were all washed out by this plunge. For Fred Ehrsam and Huang Gongyu, what remained in the crypto space at the time were more attractive long-term investments-these people looked smarter and used the heat curve surrounding cryptocurrencies to build big businesses. The two men lobby traditional investment institutions with counter-trend speculative strategies: now is the time to invest in new companies, which will create a crypto investment strategy that can achieve long-term victory.

Forbes: The secret to the success of Paradigm and the ambition of the young people behind itCoinbase CEO Brian Armstrong believes that his co-founder Fred Ehrsam will succeed. “I think they may become one of the best performing funds in the world, but it will take five to ten years to prove this result.” JAMEL TOPPIN provides pictures for Forbes

The non-profit endowment funds of top universities represent the most powerful and difficult endorsement of new VC fund managers. Huang Gongyu said that the “public turmoil” against Bitcoin in 2017 has not disappeared, but the fund manager is reluctant to directly contact cryptocurrencies and trust early investors with insufficient credit in the crypto field. With Coinbase’s top VC support and Sequoia’s reputation, Paradigm looks safer.

Garry Tan, an early investor and partner of Coinbase, said: “The cryptocurrency field is full of hot-headed people. Fred and Huang Gongyu have one thing in common. They are very calm, clear-headed and self-controlling.”

The lobbying of the two has achieved results. As of October 2018, Harvard, Stanford and Yale, the three most notable university endowments, have joined hands with Sequoia to invest in this mysterious emerging VC institution. This is also the first large-scale support of three university funds focusing on investment in the crypto sector. Of funds. (All three college funds mentioned above declined to comment on this article).

As an “open-end” fund, Paradigm is particularly unusual. The time for its partners to return the proceeds to their supporters is not fixed (typical structure is generally 10-12 years). And Paradigm’s investment will also be different from ordinary VC companies: about 60% of assets are invested in alternative assets such as digital tokens, and the remaining 40% of assets are used to invest in equity in start-ups.

Then Paradigm quietly took its boldest move. VC investors usually “convene” or request a wire transfer of the funds raised, such as 10% at a time. Ehrsam and Huang Gongyu summoned all their $400 million in funds, and then invested them all in ETH and Bitcoin. They execute these transactions through a start-up that they invest in-Tagomi, a platform that focuses on cryptocurrency trading, and when some investments require the payment of U.S. dollars, they also use Tagomi to find the most suitable trading venues to realize the conversion of encrypted tokens. Into legal tender.

Paradigm invested all 400 million U.S. dollars into the cryptocurrency market in one breath, allowing university endowments and other mainstream financial supporters, such as Huang Gongyu’s old club Sequoia Capital, to indirectly hold a large amount of Bitcoin (today’s The transaction price is $11,400). These institutions were originally restricted by their own regulations and could not buy large amounts of cryptocurrency. The direct holding of the currency by Paradigm is a clever trick that made Paradigm easily secretly raised US$350 million from the same group of investment institutions last year as a supplement to its first fund.

“If this investment works, it will have great potential. If the results are not ideal, this allocation of funds is manageable and will not bring the end of the world,” Fred Ehrsam said.

It is too early to judge the success or failure of VC in just two years. Given its investment portfolio, Paradigm’s success or failure is closer to relying on the health of the crypto market itself. From this perspective, Ehrsam and Huang Gongyu were excited when they reconnected with Forbes via Zoom at the end of July. They said, forget the plunge in March, the important thing is that the Bitcoin transaction price has been above $10,000 for 80 consecutive days.

They also said that look at the previously seemingly impossible new allies emerging in the crypto space: billionaire Paul Tudor Jones announced that he bought Bitcoin in May to hedge against inflation; JP Morgan, Mastercard ) And Visa (Visa) and other major institutions announced cryptocurrency plans in the summer. Square invested approximately $50 million in Bitcoin earlier this month.

Currently, 13 of Paradigm’s 28 investments have raised funds or issued tokens at higher valuations.

“When we stepped into everyone’s field of vision, the trend in the cryptocurrency field was still a bit obscure. It was in a down cycle,” said Fred Ehrsam. “Now we feel that these things are always difficult to predict, but it feels like us. We are at the beginning of another bull market climb in cryptocurrency.”

Paradigm is busy hiring. In October, it introduced a second research analyst, legal director, and a security expert. The total number of its team was expanded to 15. One of its earliest investment companies, the New York crypto startup Tagomi they used to trade cryptocurrencies, was acquired by Coinbase for more than $75 million in June this year (Ehrsam himself avoided this transaction). Some other companies they invested in have reached a considerable scale in a short period of time, including the lending platform Compound, which has issued tokens with a market value of US$460 million. The decentralized trading platform Uniswap’s total locked funds surged from 20 million US dollars a year ago to 2.9 billion US dollars.

So far, 13 of Paradigm’s 28 investments have raised funds or issued tokens at higher valuations. This has further helped Paradigm establish its position as a leading investment institution in the crypto sector on par with Pantera Capital and Andreessen Horowitz’s semi-independent cryptocurrency VC. Early Coinbase investor Chris Dixon said that this situation is similar to the situation where VCs scrambled to invest in companies in the early stages more than a decade ago.

But even in Silicon Valley, individual investors often profit from early bets on Bitcoin and similar tokens, but there are many doubts about long-term crypto experts. In the legendary VC agency Kleiner Perkins, partner Monica Desai used to work for Coinbase’s rival Blockchain, but now she claims to be a comprehensive investor. She said that companies like Paradigm have advantages in focusing on investment opportunities in technology and infrastructure, but traditional VCs still have more opportunities in other areas. She said: “Every cryptocurrency company is also a company, or a consumer market, medical or financial technology company.”

Fred Ehrsam and Huang Gongyu stated that the new asset class of cryptocurrency is broad enough to enable the company to devote all its time to finding opportunities in it. But will these be good opportunities? Keith Rabois, an investor in Founders Fund, stated that he has made 7 cryptocurrency investments. He said that Founders Fund, a VC founded by Paypal co-founder Peter Thiel, is still interested in the potential of encryption technology and owns some bitcoins, but the agency believes that it has not seen the influx of elite talents like a few years ago. The grand occasion of the encryption field. He said: “Entrepreneurs are more interested in other topics,” including climate change and healthcare.

“If our job is easy, then this opportunity will not have great potential.”

As Huang Gongyu said, even during the global pandemic, Paradigm’s betting on cryptocurrencies is still “the smartest person to hack on weekends.” But for cryptocurrency Xiaobai, Paradigm’s mission to bring cryptocurrency into the mainstream of the financial industry has just hit the tip of the iceberg.

Marco Di Maggio, an associate professor at Harvard Business School, who is a consultant for a South Korean cryptocurrency startup, said that his MBA students and executive students agree: “So far, there has been too much hype in the crypto field.”

The two founders of Paradigm have the status of rock stars in the cryptocurrency field, but for the mainstream financial world, they need to make more efforts instead of just guiding mainstream financial institutions to make money behind the scenes.

In the face of the COVID-19 epidemic, the second Byzantine General Cocktail Party this year has been suspended. But Ehrsam and Huang Gongyu said they are committed to long-term development. Ehrsam said: “We believe that cryptocurrency will become a major trend, the industry is still difficult to reach a consensus view, but in our opinion, this is the most important technology trend in the next 20 years. If our work is easy, then this opportunity There will be no huge potential.”

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