A Detailed Look at Top VC Paradigm: A Model of Value in Crypto Investment

Author: Jian Shu

Paradigm positions itself as a research-driven technology investment firm, focusing on the cryptocurrency industry and other cutting-edge related technologies. Paradigm's investment style often leads it to engage in projects at an early stage, with investment amounts ranging from tens of millions to hundreds of millions of dollars, and it continues to support the companies it invests in post-investment, covering various aspects from technology (mechanism design, security, engineering) to operations (recruitment, public listing, legal and regulatory strategies).

After several years of development, public data shows that Paradigm's staff has expanded to nearly a hundred, which is already a considerable scale for a crypto-native fund.

How did Paradigm grow to become one of the leading crypto funds?

Even in web3, whether a project has received funding is an important indicator of its potential, especially if it has received early investment from a leading fund like Paradigm, which can create a strong positive feedback loop in the market (e.g., the previous Friend.tech), stemming from trust in top crypto funds. So how did Paradigm rise and grow to become one of the most well-known crypto funds?

Paradigm was founded in 2018 and received $400 million in initial funding from Yale University's endowment fund that same year.

It can be said that Paradigm made its fortune through BTC; during the bear market of 2018, it chose to primarily invest in BTC and ETH. Whether this was based on a strong market judgment or luck, Paradigm's first investment achieved a perfect bottom. Following this news, Harvard University and Yale University's endowment funds added approximately $350 million more to their investment in Paradigm. Paradigm's BTC bottoming timeline (Image source: Twitter user: @splinter0n)

After successfully weathering the bear market, what truly made Paradigm famous was its investment in the incubated Uniswap in 2019, which achieved tremendous success. People gradually began to pay attention to this crypto-native fund that adheres to a research-first and deeply engaged investment philosophy. The series of successful investments led Paradigm to complete a $2.5 billion fundraising round in November 2021.

If Uniswap was merely a lucky bet for Paradigm, that wouldn't say much. However, several other projects it invested in early on (such as Lido, Optimism, dYdX, and Blur) also achieved success, making Paradigm undeniably grow to be on par with leading crypto funds like a16z and Coinbase Ventures.

However, in May of this year, Paradigm was also embroiled in a public relations storm, triggered by its quiet removal of crypto-related content from its company profile during a website update, leading to accusations that it was abandoning the crypto industry in favor of the hotter AI sector.

Many criticized Paradigm's actions as "disloyal," arguing that a crypto-native fund should not invest in other fields. Under public pressure, Paradigm had to add a line at the beginning of its new website stating, "We focus on crypto and related technologies at the frontier" to quell the outrage.

However, in reality, among the projects disclosed by Paradigm, only one is related to AI (ArenaX Labs), and ArenaX Labs is working on a Web3+AI game, not completely distancing itself from the crypto industry.

But even if we take a step back, in the face of the current mixed crypto market, Paradigm's choice to expand its investment scope is understandable. After all, for a fund that has moved past its startup phase and has a larger scale, broadening the investment range and diversifying risks is a common and sustainable strategy.

How does Paradigm integrate technical research into its organizational structure?

Paradigm was co-founded by Matt Huang and Fred Ehrsam. Matt Huang was previously a partner at Sequoia Capital. He focuses on early-stage venture capital and has been an angel investor in companies like ByteDance and Instacart.

Fred Ehrsam was previously a co-founder of Coinbase and served as its president from 2012 to 2017. Before founding Coinbase, he also worked at Goldman Sachs for a period. Since purchasing his first Bitcoin in 2011, Fred Ehrsam has been focused on the crypto space and has become an angel investor in several high-growth crypto companies, bringing extensive investment experience. Matt Huang (left) and Fred Ehrsam (right)

It is noteworthy that in Paradigm's team, in addition to employees with financial investment backgrounds and functional roles, a significant proportion of researchers are led by crypto technology, with some holding high positions.

For example, Paradigm's third employee, Charlie Noyes, is a research-oriented researcher in crypto technology, and he and his team have published papers on Uniswap, MEV, Cosmos, and other fields; there is also general partner and research director Dan Robinson, who focuses on researching blockchain protocols and smart contracts. In the investment incubation of Uniswap, Dan Robinson and his team helped solve many liquidity and smart contract issues for Uniswap.

There are also other researchers in key positions, such as research partner and chief technology officer Georgios Konstantopoulos and research partner and security lead samczsun. Paradigm's investment philosophy driven by technical research is vividly reflected in its organizational structure.

In earlier interviews, Matt Huang explained that Paradigm, as an investor, does not just write Twitter threads for projects but hopes to write contracts together with them.

What are the characteristics of Paradigm's external investments?

According to data from Rootdata, Paradigm has publicly participated in a total of 95 rounds, leading 54 of them, with a historical total of 79 investment projects. Here is a comparison with several other leading crypto institutions:

• Compared to other leading crypto institutions, Paradigm's lead investment rate is 56.8%, second only to a16z's 62.3%, significantly higher than Coinbase Ventures and Binance Labs;
• In terms of investment scale comparison, both the crypto-native fund Paradigm and a16z show an inverted trapezoid shape, with a higher proportion of participation in large investment projects over $20 million, while Coinbase Ventures and Binance Labs, as corporate strategic investment departments, show a positive trapezoid distribution, reflecting an "even distribution" approach and an attitude of "investing a little in everything";
• However, in terms of total number of investments, Paradigm is relatively restrained, having only made 6 investments this year. Overall, Paradigm's investment also exhibits characteristics of "picking one out of a thousand" and "daring to place heavy bets."

Below is a list of Paradigm's investment projects compiled by the author, excluding projects that have already issued tokens or have rug-pulled, for readers' reference in decision-making (sorted by cumulative funding amount).

Of course, no investment institution is ever right all the time. Even though Paradigm maintains a relatively restrained investment style, its portfolio includes 10 to 15 projects that are currently stalled, especially the collapse of FTX, which caused Paradigm to incur losses of around $215 million.

Conclusion and Reflection

After understanding Paradigm's development and investment situation, I believe that Paradigm's circumstances and investment style are quite similar to a well-known investment institution in China—Hillhouse Capital.

• Coincidentally, Hillhouse's first fund also came from Yale University's endowment fund;
• In terms of track record, Paradigm became famous through the deep incubation of Uniswap, while Hillhouse is well-known for its early heavy investment in Tencent, which brought in substantial returns;
• In terms of investment philosophy, Paradigm's deep involvement in project construction aligns with Hillhouse's previously proposed philosophy of "walking alongside entrepreneurs," and both have the characteristic of daring to place heavy bets.

Hillhouse and its founder Zhang Lei have been referred to as the "father of value investing" in China, focusing on investing in projects with long-term value and social benefits. In the crypto industry, which is permeated with restlessness, Paradigm, with its research-first approach, seems to be setting a benchmark for value investing in the crypto space.