Welcome to zero knowledge. A weekly newsletter breaking down where the top VCs are investing in web3/crypto.
Expect portfolio breakdowns (like this) every Tuesday. And random crypto topics, insights, and updates everywhere in between.
Here we go 💪
This week, we break down Arrington Capital, a fund started in 2017 by Michael Arrington, the co-founder of TechCrunch and Crunchbase.
Here's what to expect 👇
- Recent funding news from Arrington Capital.
- Arrington Capital's portfolio broken down by layer, blockchain, company type, and category.
- 🕵️♂️ The most interesting portfolio company.
- The most interesting innovation in their portfolio.
- 💼 Entire Arrington Capital portfolio (in an Airtable sheet).
- 💰 Tokens available from Arrington Capital portfolio companies.
Recent funding news from Arrington Capital
1. Immutable (tokens 💰)
- Lets users stake their ETH with no minimum deposits or maintaining of infrastructure.
- NFT Platform Immutable Raises $200M at $2.5B Valuation.
- Why Arrington Capital (re)invested in Immutable's $2.5B round.
2. Aperture (equity 💵)
- Aims to be the AppStore of Defi. It's a cross-chain yield aggregator bringing opportunities spanning multiple blockchains into a unified interface.
- $5.3 million seed funding led by ParaFi Capital, Arrington Capital, Costanoa Ventures, and Divergence Ventures.
Below is a thematic view of Arrington Capital's investments by:
- Category (ex: infrastructure vs. finance companies)
- Company type (ex: payments vs. NFTs and digital ownership companies)
- Layer (ex: L1 vs. L2)
- Blockchain (ex: Eth vs. Solana)
#1 Investments by category
#2 Investments by company type
#3 Investments by layer
#4 Investments by blockchain
Most interesting portfolio company 📈
- Elevator ⚡️: an incentive token yield optimizer and liquidation protector.
- In plain English 🙏: the easiest way to earn the highest yields available across the Terra ecosystem.
- Key insight 🕵️♂️: The UI in defi was built for robots, not for humans. Taking advantage of the best yields in defi is a difficult, confusing, and time-consuming endeavor. If you're not doing it full-time, good luck. Even after you've done all the work to find, transfer, and allocate funds to a yield opportunity, your money is still continually at risk of liquidation.
- Key solution ✅: There are two solutions: 1) yield optimization and 2) liquidation protection. 1) nexus utilizes smart contract logic to automatically reallocate, balance, and optimize the highest yields for its users using Anchor Protocol. 2) Since nexus is directly managing its user's collateral, the most important aspect is managing liquidation risk. Risk is managed via three different modes, which you can read in detail starting on page 11 of their litepaper. TL;DR on nexus' risk management: the first strategy is front-running Anchor Protocol's price oracle with a much faster price oracle of their own. This allows nexus to know the price of their underlying collateral 2x faster than Anchor Protocol, allowing nexus enough time to adjust their LTV (loan-to-value) levels to avoid liquidation in the event of extreme price volatility. But what happens if there is an issue or malfunction with either the nexus price oracle or the Anchor price oracle? This is where their second and third risk management strategies come into play. Because nexus won't have the benefit of front-running Anchor Protocol, they will be limited to real-time price visibility or no visibility at all (liquidation market freezes). These strategies combat this by aggressively decreasing target LTV levels to overprotect customer collateral from liquidation.
- Example 📜: If you're comfortable with nexus's risk management, you'll choose to use them because it puts yield generation on autopilot. It's the difference between a 3 step process or a 15-step process. See below.
The most interesting innovation in the portfolio
Terra Protocol. Not new, but trending.
- Elevator ⚡️: a layer 1 blockchain that powers a suite of algorithmic stablecoins aiming to become a new global currency.
- Key Insight ️️🕵️♂️: Stablecoins are only valuable if they maintain their price peg to fiat currencies. Most stablecoins attempt to maintain a peg through large cash reserves or precious metals. The key difference with stablecoins in the Terra ecosystem is that they maintain their peg through algorithms, using the forces of supply and demand to maintain a given price.
- Key Solution ✅: Terra (stablecoin) and Luna (token) work in conjunction to create an algorithmic stablecoin solution. The basic principle is this: if the price of Luna is rising, that means there is demand for the Terra stablecoin. If the price of Luna is falling, there is less demand (or too much supply) for the stablecoin. In either case, the algorithm will incentivize risk-free arbitrage traders to take advantage of the misbalance in supply and demand until the price of the stablecoin is once again pegged.
- Example 📜: Imagine the whole Terra economy as two pools: one for Terra and one for Luna. Users burn Luna to mint Terra and burn Terra to mint Luna, all incentivized by the protocol’s algorithmic market module. This is how supply and demand is used to maintain a peg. In the case of the USD peg, TerraUSD (UST) should always equal $1. To maintain the price of TerraUSD, the Luna supply pool adds to or subtracts from Terra’s supply. This is done through incentivizing arbitrage opportunities until the price of the stablecoin returns to its $1 peg.
Individual portfolio company data
Tokens available from Arrington Capital backed companies
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