VC shifts back to "professor coin," does Web3 need an academic background?
They are playing a game of technological innovation, rather than product-market fit.Original Title: 《Crypto VCs Turn Back to 'Professor Coins' as Funding Rebounds》
Authors: Hannah Miller, Muyao Shen
Translation: Luffy, Foresight News
As funding in the cryptocurrency industry soars again, venture capitalists are turning back to crypto startups founded by professors.
Companies like Sahara, CheckSig, and NEBRA are all founded by academics and have raised new funds in the past two months. Among a number of projects referred to as "professor coins," two have stood out. EigenLayer, founded by former University of Washington professor Sreeram Kannan, raised $100 million from Andreessen Horowitz in February, while Babylon, founded by Stanford professor David Tse, secured $18 million last December. Both projects focus on a rapidly evolving area in cryptocurrency known as "re-staking," which allows new projects and blockchains to gain a competitive edge by borrowing the security infrastructure and resources of Ethereum or Bitcoin.
Riad Wahby, a professor of engineering at Carnegie Mellon University and CEO of the cryptocurrency startup Cubist, stated that some of the technologies used to generate returns in the cryptocurrency cycle "come from the research of David and Sreeram." "They have researched a lot of these re-staking technologies. I mean, it's kind of like their brainchild. I think more and more of these technologies will come from research."
According to Kannan's profile on the University of Washington's Information Theory Laboratory webpage, he spent two years as a postdoc at UC Berkeley and Stanford, where he worked with Tse. According to the computer science literature site DBLP, the two co-authored 23 academic papers between 2015 and 2023, publishing extensively on concepts related to blockchain and the startups they rely on. Neither Kannan nor Tse responded to requests for comment.
Re-staking Favored by Capital
Global venture capital activity in cryptocurrency startups, source: PitchBook
Kate Laurence, CEO of Bloccelerate VC, stated that her venture capital firm often views an academic background as a disadvantage when deciding which founders to support. "Professors tend to focus on academia and theory rather than practice and commercial application," she said.
However, Kannan's work on re-staking and his close relationship with Tse prompted Bloccelerate to invest in EigenLayer first, followed by Babylon. "They collaborated to solve the same problem, but EigenLayer addresses a different market," she said.
The process of "re-staking" draws from the operational methods of Ethereum. In Ethereum, tokens are "staked" into the network to help validate transactions on the blockchain. For new projects and blockchains running the same mechanism, establishing their own staking systems can be too slow and costly due to a lack of user activity and funds. Re-staking allows new players to leverage Ethereum's staking capabilities to gain a competitive edge.
Babylon employs a similar approach but focuses on Bitcoin. This task is more complex because Bitcoin uses a different mechanism (proof of work) to validate transactions. If successful, the Babylon platform will also address a long-standing issue for Bitcoin holders: the lack of yield.
Vance Spencer's company, Framework Ventures, also invested in Babylon, and he stated that it makes sense for advanced technological outcomes to come from universities. "There are too few people who can build blockchains," he said, "and they are likely to come from these research institutions."
What Controversies Exist?
Emin Gun Sirer, a former associate professor of computer science at Cornell University and CEO of Ava Labs, which developed the Avalanche blockchain, stated that the road ahead for professor-led crypto projects is often not smooth, with most projects ending in failure.
"They are playing the game of technological innovation," Sirer said, "rather than product-market fit."
According to DefiLlama, while the EigenLayer platform has attracted over $15 billion in crypto assets, it has also faced setbacks, with critics arguing that it misunderstands the broader crypto asset market.
Although Kannan told Bloomberg in February that they had no plans to issue tokens, EigenLayer announced a token issuance plan in April and began distribution on Friday. The total supply of Eigen tokens is approximately 1.67 billion, with over half designated for investors and early contributors, a plan that sparked strong discontent in the community after being disclosed. This allocation method has led to criticism of the EigenLayer team and initial supporters for profiting at the expense of others, raising concerns among users about potential sell-off pressure. The decision to make the tokens non-transferable at launch also disappointed some early users who had invested heavily in EigenLayer.
The Eigen Foundation, responsible for the token plan, stated in a blog post that by restricting token transfers, it can have more time to improve the project's decentralization and enhance key features associated with the tokens.
The total value of cryptocurrencies on EigenLayer has exceeded $15 billion, source: DefiLlama
Ayesha Kiani, COO of the cryptocurrency hedge fund MNNC Group and a part-time professor at New York University, opposed the criticisms related to EigenLayer, arguing that the startup is not just another "get-rich-quick scheme." She said Kannan and Tse are working to improve the crypto industry.
"The industry criticizes them for a lack of decentralization or just being a means to make money," she said, "but in this industry, we are now accustomed to free incentives, and if things don't go well, we basically have to abandon the project."
