The History of Hacker Entrepreneurship: Fireblocks, Valuation Tripled in Six Months, the Shopify of the Web3 Field

Author: Afa Rabbit

According to data from the Federal Trade Commission of the United States: Between October 2020 and March 2021, nearly 7,000 people lost over $80 million in the cryptocurrency space due to security issues, an increase of 1,000% compared to the previous year.

As an important infrastructure in the crypto ecosystem, the company Fireblocks is worth studying. The founder, coming from a hacker background in Israel, is a serial entrepreneur whose valuation tripled in six months. In March of this year, he also participated in the Innovation Summit of the Bank for International Settlements, where he shared his views on digital assets as a representative of entrepreneurs.

Note: In this article, the term "hacker" refers to experts passionate about cybersecurity technology, not individuals involved in computer crimes.

What is the story behind the founding of Fireblocks? What insights can Fireblocks' development provide to today's entrepreneurs and investors? Is its valuation too high? These are several questions this article attempts to explore.

Note: The copyright of this article belongs to the original author Afa Rabbit. Reproduction of this article's content without the original author's permission is considered infringement. If you wish to reproduce or quote this article, please indicate the source and original author. The content of this article is for information display and sharing purposes only and does not promote or endorse any business or investment activities. This article does not provide any investment advice.

Company Overview

Founded in 2018, Fireblocks' core technology products mainly consist of Fireblocks Networks and MPC-based wallet infrastructure.

Fireblocks Network is essentially a type of information transmission infrastructure layer that allows institutions to securely settle on different blockchains without being easily susceptible to various attacks, while simplifying the operational process. Fireblocks currently serves over 1,000 financial institutions, ranging from hedge funds and exchanges to some of the world's largest banks, and collaborates with many payment service providers. It has also monitored numerous cases of assets being illegally transferred.

As shown in the image, clients mainly include banks, fintech companies, exchanges, liquidity providers, over-the-counter traders, and hedge funds. Its main business is to build secure infrastructure and custody services, helping clients securely manage digital assets across various products and services.

What is MPC?

MPC, or Secure Multi-Party Computation

Secure Multi-Party Computation allows multiple parties who do not trust each other to correctly compute any function while ensuring the privacy of each party's input and output information. It can be understood as: multiple parties each possess their own private data but can collaborate on computations without revealing their private data, resulting in the outcome of a target function concerning the private data of all parties. At the end of the computation, each party is unaware of the private data of the others.

Founding Team & Entrepreneurial Story

The founder and CEO of Fireblocks is Michael Shaulov (a cybersecurity serial entrepreneur)

Between 2018 and 2019, Israeli security engineer Michael Shaulov co-founded Fireblocks with Idan Ofrat and Pavel Berengoltz, with Shaulov serving as CEO. For the past 20 years, the three founders have been active in the cybersecurity field.

The three founders, with Shaulov in the middle

Before joining Fireblocks, Michael Shaulov co-founded Lacoon Mobile Security, which was later acquired by Check Point. Shaulov has spoken multiple times at world-renowned security conferences such as RSA Conference, BlackHat, and Infosec. Before venturing into business, Shaulov pioneered mobile security in Israel's military technology unit (8200) and received a special award from the Israeli president for his outstanding contributions. Notably, Shaulov has also held positions in several technology-related venture capital firms.

However, at the inception of Fireblocks, there was no extensive publicity; the team focused on research and development before officially launching the product.

What was the opportunity to start the business?

In 2017, a significant event occurred when the North Korean hacker group Lazarus Group hacked four South Korean exchanges, stealing $200 million worth of Bitcoin. At that time, Fireblocks' current founder Shaulov was working at Check Point and was a member of the task force investigating large-scale network vulnerabilities.

During that investigation, Shaulov identified two trends:

• First, the trend of cybercriminals shifting their focus from traditional finance to digital assets.
• Second, the complexity of protecting digital assets in the corporate environment at that time, along with a lack of solutions.

This led the three entrepreneurs to jointly create Fireblocks: to build an easy-to-use digital asset security platform that protects private keys and API credentials using MPC technology and patent-pending chip isolation technology, helping financial institutions safeguard digital assets from theft or hacking.

Funding History

Funding situation: Valuation tripled in six months

Currently, Fireblocks has completed five rounds of funding:

• June 2019: Series A funding of $16 million;
• November 2020: Series B funding of $30 million, with Paradigm participating;
• March 2021: Series C funding of $133 million, with investors including Ribbit Capital, Coatue, and Stripes;
• July 2021: Series D funding of $310 million, with investors including Sequoia Capital, valuing the company at $2.5 billion;
• December 2021: Series E funding of $550 million, with investors including D1 Capital Partners, valuing the company at $8 billion;

Fireblocks' valuation skyrocketed threefold in just six months, making it one of the three highest-valued private companies in Israel.

Main Business & Business Model

Main Business

According to Fireblocks' official website, their main business includes the following categories:

SWIFT for Crypto: First is the settlement service, aimed at being the SWIFT for the crypto space, solving the previously complex, manual, and risky settlement workflows across platforms. It connects to over 1,200 liquidity exchanges and trading parties on one platform, enabling instant settlements, rebalancing, and payments.

MPC As A Service: Provides a platform for securely storing and transferring digital assets while ensuring operational efficiency for clients and trading teams.

Tokenization: Through Fireblocks' tokenization engine, stablecoins and security tokens can be deployed, managing the entire lifecycle of minting, burning, and transferring on Fireblocks.

Security Services: Combines MPC, cryptography, and hardware isolation technologies to protect fund security; reduces the probability of external attacks, internal collusion, and human errors.

Anti-Money Laundering/Compliance: Integrated with crypto compliance providers, allowing users to automatically detect and flag high-risk transactions.

Policy Security: Fireblocks' workflow authorization engine meets regulatory compliance requirements.

DeFi Permissioned Business/DeFi: Fireblocks' secure wallet infrastructure can be used in permissioned DeFi projects, providing enterprise-level protection and customizable governance and policy controls for accessing DeFi applications for trading, lending, and staking. It enables trading on decentralized exchanges (DEX), strategic planning, and designing DeFi investment portfolios.

Business Model: Shopify for Crypto, What is the Market Demand?

Fireblocks can help enterprise users handle various security or compliance needs in a one-stop manner, including all policies and workflows. For all the complex tasks that enterprises need to complete, Fireblocks can assist, somewhat like Shopify for Crypto.

Fireblocks currently primarily operates in the B2B sector, with clients including banks, fintech startups, and other financial institutions. The demand lies in the fact that many financial institutions are seeking a solution to store cryptocurrencies and diversify their balance sheets.

Fireblocks' technology can white-label crypto custody products (white-label SaaS products are generic products produced by third-party vendors and then rebranded for different B2B clients), meaning clients can use Fireblocks' products integrated with their own brand. This allows financial institutions to implement direct custody themselves without relying on third parties, helping to extend digital asset use cases from cryptocurrencies to payments, gaming, NFTs, and digital securities, ultimately aiding enterprises in associating with digital asset businesses.

Fireblocks provides these B2B users with a secure processing method, that is, processing private keys through multi-party computation. Specifically, key generation is completed by multiple different devices.

Fireblocks has also initiated a liquidity partner network, allowing users to connect directly with 30 different exchanges, enabling over-the-counter trading desks and market makers to settle across several different exchanges through Fireblocks.

Fireblocks' Users

Fireblocks currently has hundreds of B2B users (financial institutions). Clients mainly include enterprises that already support cryptocurrencies and digital assets, as well as those considering entering the crypto space. Its clients include global banks (such as BNY Mellon, Credit Suisse), crypto-native exchanges, lending institutions, hedge funds, and over-the-counter clients, including many traditional banks seeking to enter the cryptocurrency space, as well as companies like Revolut, BlockFi, Celsius, PrimeTrust, Galaxy Digital, Genesis Trading, and Crypto.com, along with publicly listed company Robinhood.

What Needs Does It Meet?

Fireblocks is somewhat like "banking as a service," but it focuses on crypto assets.

Fireblocks offers a wide range of integrated services with the entire crypto ecosystem, as enterprises would need to invest significant resources and incur high costs if they wanted to build these integrations from scratch, especially if cryptocurrency is not a core element of their business.

Due to anti-money laundering compliance requirements, Fireblocks has also integrated with compliance providers Elliptic and Chainalysis, allowing enterprise users to tag and reject transactions based on rules.

Company Development History

In 2021, with the booming crypto market, Fireblocks began to make significant strides, announcing many collaborations with other (public chains, projects): In June 2021, it announced a partnership with BSC, followed by collaborations with Dogecoin, Solana, Celo, Songbird, Optimism, Arbitrum, Fantom, Avalanche, Cardano, Polygon, and Crypto.com;

In 2022, it continued to expand its business scope: acquiring First Digital to create tools that integrate digital assets with everyday financial activities. Why acquire First Digital?

In response to the growing demand for consumers to pay with crypto digital assets, payment service providers and merchants are actively seeking methods to support crypto and digital asset payments. However, wallet integration costs are often very high. Particularly, how to conduct manual KYC? How to perform AML screening? Payments across different chains can be quite complex. Thus, in February 2022, Fireblocks acquired the stablecoin and digital asset payment technology platform First Digital to further expand its payment business.

By embedding First Digital into Fireblocks' technology stack, Fireblocks has expanded support for B2C, B2B, cross-border, and other payment forms through USDC, Celo, and other stablecoins and cryptocurrencies.

In 2022, it officially announced a partnership with Moonbeam;

In May 2022, Fireblocks launched its Web3 engine;

Business & Revenue Data

In 2021, Fireblocks' revenue forecast for 2021 continued to rise as it rapidly expanded its business scale, with its client base growing from 100 to 800, achieving a 600% revenue increase within a year, ultimately reaching $50 million to $100 million, with the assets secured on its platform doubling to $2 trillion. Fireblocks' workforce grew from 70 to 260 within a year, with half based in New York and half in Tel Aviv, and it continues to grow.

Shaulov believes that the development of the metaverse and the NFT industry will also bring certain opportunities to Fireblocks, as many gaming companies are exploring layouts in the crypto space. Thus, in late May 2022, Fireblocks launched its own Web3 engine.

Advantages: Time Accumulation + First-Mover Advantage

Regarding the company's advantages, Shaulov mentioned in an interview:

• First, Fireblocks has set the standard for the industry; currently, it dominates the secure asset custody business;
• Second, Fireblocks' previous planning and predictions regarding the development directions of the NFT, DeFi, and digital payment markets have been validated by the current market, and the development of many businesses has proceeded relatively smoothly in line with the established strategy;

Revenue Grew by 600% in One Year

In 2021, the company updated its annual revenue forecast four times. Initially, the revenue forecast was $8 million, but as it continued to increase, it was adjusted to $25 million, then to $35 million, and finally to $45 million. In 2021, Fireblocks' revenue reached $60 million, growing by over 600% within a year. In 2022, it is estimated that Fireblocks' projected revenue will double.

Investor Perspectives

Sequoia partner Ravi Gupta believes that Fireblocks is "the leading backend infrastructure in the crypto world." Ravi Gupta also pointed out that Fireblocks' team has significant potential to build a lasting and large-scale business, serving both crypto-native companies and traditional financial institutions. Fireblocks' business growth, product delivery quality, and customer feedback metrics are all very positive.

Other Evaluations

One Question: Is Fireblocks' Valuation Too High?

Has the valuation increased more than threefold in six months? Is it rising too quickly?

In response to this question, Shaulov said: "The company's valuation is indeed somewhat high at the moment, but the surge in valuation is due to solid business growth. In 2014, many startups emerged and received a lot of funding, and we felt that many products and market matches were not well executed at that time. However, the market today has washed away many companies, and the overall market infrastructure has improved.

Today's surge in valuation, I believe, is not much related to any specific company but is mainly due to macroeconomic fluctuations related to the Covid-19 pandemic, with the dollar being excessively printed. Many venture capitalists have seen astonishing returns on paper and IPOs, which has brought a higher multiplier to the amount of capital, and some of that money may have come in rather absurdly."

Will Fireblocks Be Acquired?

Shaulov responded: "The future is unpredictable, but when analyzing today's market landscape, a significant part of the value we provide comes from Fireblocks' network. If someone were to acquire us, they would lose a substantial portion of the business. For example, after Coinbase acquired Unbound, it ceased most collaborations with Unbound's previous clients, and after PayPal acquired Curv, it also stopped working with most of Curv's prior clients.

Consider who has the capability to acquire Fireblocks, such as Visa? Visa has $400 billion in cash, but that is not enough. Although traditional institutions have a lot of money, they are far behind in the crypto space, lack sufficient understanding of the market, and their management and boards may not have enough motivation. Meanwhile, Fireblocks is solidifying our dominant position, which will lead us to the public market in the future."

How to View Competitors

The repeated acquisitions of Fireblocks' competitors by giants have given Fireblocks a certain level of recognition. Regarding competition, Shaulov views it this way:

"Technically, Curv is the closest to Fireblocks' solution. Curv was founded in 2014 and initially provided general technology for web applications, later deciding to enter the crypto space. However, from Curv's business perspective, its market penetration remains limited.

Unbound, on the other hand, is the least similar to Fireblocks. Six months ago, Coinbase announced its intention to enter the wallet technology space, initially attempting to develop its own product. However, after discussions with us and other industry researchers, they found it too cumbersome and chose to acquire Unbound, mainly to complement their development capabilities and business, especially after establishing a center in Israel.

What Fireblocks Brings Us to Think About:

Entrepreneurs with a technical background often possess strong engineering capabilities. Fireblocks serves as a great case study on how to communicate and collaborate effectively to onboard a large number of partners (various public chains, gaming companies) in such a short time. How to continuously enhance management capabilities and commercialization skills (marketing, dealing with capital), and how to train oneself to have a sense of product and business?

These are all topics that require ongoing reflection.