For venture capitalists looking for significant returns on their crypto investments, layer-1 blockchains that are compatible with Ethereum’s software are a pretty popular bet.
This week, two layer-1 blockchains compatible with the Ethereum Virtual Machine (EVM) secured significant funding. Monad, which is developing a parallel EVM, raised $225 million in a round led by Paradigm.
Meanwhile, Berachain, an EVM-compatible layer-1 built with Cosmos’ software development kit (SDK), closed a $100 million Series B funding round co-led by Brevan Howard Digital’s Abu Dhabi branch and Framework Ventures.
Read more: Paradigm leads $225M round for high-throughput blockchain Monad
Monad’s raise was the largest crypto venture round since cross-chain messaging protocol Wormhole secured $225 million in November. Monad’s valuation wasn’t disclosed, though Wormhole was valued at $2.5 billion when it raised the same amount in the fall.
Monad justifies its lofty fundraising with the promise to deliver a much more performant EVM. For context, Monad hit 10,000 transactions per second in testing, while Ethereum often sits around 15 TPS.
The parallel EVM is yet to go to mainnet however, and as Solana experienced this week, the obstacles blockchains encounter in the real world can be unpredictable.
Berachain, which also has not yet launched its mainnet, is set to introduce a “proof-of-liquidity” (PoL) consensus mechanism. This model aims to improve upon Ethereum’s proof-of-stake (PoS) by addressing limitations around liquidity and centralization.
Unlike PoS, where users delegate tokens to validators who lock them up as stakes, PoL incentivizes users to contribute liquidity to decentralized exchange pools. Users’ contributions are then rewarded with governance tokens, improving both the security and efficiency of the network.
Berachain’s PoL model separates its governance tokens (BGT) from its transactional gas tokens (BERA), to prevent the centralization of stake. This promotes a fairer distribution of rewards and influence among participants.
Notably, this proof-of-stake downside — the fact that too much of the liquidity supply can end up being staked — has been on the Ethereum Foundation’s mind as of late. With around a quarter of the ETH supply now staked, some EF researchers are proposing ways to discourage staking and keep ether liquid.
Read more: Smell Ethereum’s cooking: What ETH has in common with pro wrestling
And of course, Berachain’s active online community looks good to investors as crypto’s memecoin phase carries on.
Mini Q&A: Dragonfly’s Tom Schmidt
Blockworks caught up with Tom Schmidt, partner at the crypto venture fund Dragonfly, to talk about the recent upswing in crypto VC activity.
Keep reading for excerpts from Blockworks’ conversation with Schmidt.
Blockworks: What are you seeing in the crypto venture world currently?
Schmidt: I think crypto VC is just starting to get a little bit warmer. The past two years have been really just ice cold. You know, these rounds are not super competitive, they happen pretty slowly. It’s great on my end because it gives you a lot of time to do deeper due diligence, build up time with the team, etc.
Overall though, it’s maybe reminiscent of fall 2020, in that we’re seeing institutions start to get more into crypto, we’re starting to see them come a little bit more into the rounds. We’re starting to see some interesting novel use cases and a little bit more excitement in the asset class.
But it isn’t like peak frenzy, you know, CNBC’s every other story is about crypto, which is great for VC because I think there’s still great opportunity and deals to be had, but it’s not as sort of easy pickings as it was maybe a year ago.
Blockworks: Going off of that fall 2020 analogy, last cycle there were some bets that worked out and some bets that very noticeably didn’t. What are the lessons learned from the prior cycle and what sorts of investments do you think are going to pay off in four years’ time?
Schmidt: The beauty of being a proper venture fund is we have a very long fund life and so we can make bets that we think are going to pay off in five years or something like that. Obviously in venture too, there is this weird dynamic where you know most of your investments aren’t going to pan out. They’re going to be a zero or a 1x or something like that. And then you have one or two that are going to pay for the entire fund.
So there’s always going to be things where you invest, where you lose money. Like, that’s the nature of the business. I think the lesson from the past year has been don’t invest in anything that is going to blow up or embarrass you or embroil you in lawsuits.
There’s this component to crypto where everything is inherently a little bit procyclical, right? Like even Coinbase earnings, they go up when the price of bitcoin goes up and they go down when the price of bitcoin goes down. There’s some businesses that you look at that are maybe procyclical on the downside but conversely, they do not get paid and there’s no convexity when markets really rally, and those are the businesses that I’d try to avoid where you’re basically not getting paid for the risk that you’re taking.
This interview has been edited for brevity and clarity
Other notable funding news
- Bitcoin mining hardware producer Auradine closed an $80 million Series B.
- A new report showed a spike in pre-seed rounds for Bitcoin ecosystem startups.
- Alpen Labs announced a $10.6 million seed round led by Ribbit Capital to apply zero-knowledge proofs to Bitcoin rollups.
- Blockchain beauty platform KIKI World rolled out a “community commerce platform” with a16z crypto and the venture arm of cosmetics giant Estée Lauder as financial backers.
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