David Canellis

<div id="highlights-block_628516b22f243" class="highlights">
 <ul>
 <li>Permissionless panelists agreed that algorithmic stablecoin Terra’s doomed design was reckless</li>
 <li>Terraform Labs founder Do Kwon was originally scheduled to appear on-stage alongside his critics</li>
 </ul>
 
</div>



Circle redeemed $7 billion worth of USDC last week as markets reacted to Terra’s demise — highlighting how critical stablecoin collateralization is during intense volatility.



The Boston-headquartered stablecoin issuer redeemed $61 billion last year, Circle’s vice president of product management Joao Reginatto said during a panel discussion at Blockworks’ Permissionless event in Palm Beach on Wednesday.



That means Circle processed more than 11% of its total redemptions for an entire year in just one week — a week that saw $280 billion drained from cryptocurrency’s total market capitalization.



Other panelists included <a href="https://www.castleisland.vc" target="_blank" rel="noreferrer noopener">Castle Island Ventures</a>’ Nic Carter, Visa’s head of CBDC and protocol Catherine Gu, MakerDAO lead developer Sam MacPherson, and Frax founder Sam Kazemian. Terraform Labs founder Do Kwon was originally scheduled to appear on the panel.



“Our model is super boring, it’s very, very simple: full collateralization,” Reginatto said. “Customers bring a dollar, we give them 1 USDC, we keep that dollar. They bring USDC, we give them back a dollar.”



Circle’s approach is in stark contrast to Terraform Labs’ failed algorithmic stablecoin TerraUSD (UST). Circle backs USDC with a mix of cash and US Treasurys, while UST sought to maintain its dollar peg via arbitrage and a complicated minting and burning process involving a secondary token, LUNA.



<h3>Terra was crypto’s ticking time bomb</h3>



Terraform Labs’ bombastic founder Kwon had tried to reinforce UST’s viability by amassing more than $3 billion in bitcoin. This wasn’t technically collateral to back UST, but crypto to be spent on “defending” the stablecoin’s peg if it started to shake.



Still, UST collapsed from $1 to as low as $0.04 earlier this month. LUNA, on the other hand, fell from more than $86 to a fraction of a cent. More than $46 billion had been vaporized from UST and LUNA’s combined market capitalization in just four days.



“Luna/Terra was clearly the largest ticking time bomb [in the crypto space], certainly the most fragile project,” Carter said.



Carter described Terra’s non-collateralized design as “reckless financial engineering,” and labeled its demise predictable for those who “had a bit of perspective.” Terra’s algorithms were veiled in complexity, even deliberately so, making it difficult for onlookers to investigate and understand how they were supposed to work.



“People couldn’t speak out against it because [Kwon] was so vocal on Twitter. There was a sense that you don’t want to offend your industry peers who had invested in Terra — there were enormous incentives to not investigate,” Carter added.



<a href="https://twitter.com/MakerDAO?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor" target="_blank" rel="noreferrer noopener">MakerDAO</a> lead developer MacPherson agreed that Terra’s design was reckless, “pretty much from the start.” UST’s implosion emphasized the need for stablecoins to be collateralized, MacPherson said. It’s why MakerDAO chose to overcollateralize its stablecoin DAI (currently by 164%), “so that users can be certain they can always trade DAI for a dollar.”



<h3>Stablecoins are crypto’s killer app</h3>



Panel host Kate Rooney of CNBC asked Visa’s Gu how the finance giant felt about the Terra fiasco. Gu said Visa wants “interesting use-cases” and its focus in the stablecoin space is on fiat-backed digital currencies. Visa also studies projects that utilize on-chain collateral — a fancy term for crypto-backed stablecoins such as MakerDAO’s DAI.



<blockquote class="wp-block-quote">“We must think about how these different projects are being constructed — safeguards and standards are important for consumers, retail investors and institutions alike,” Gu said.</blockquote>



It’s important to understand how stablecoin reserves are audited and who models and tests their systemic risks, she said, stating that “even the safest assets can have risk.”



Frax founder Kazemian agreed, despite his stablecoin’s reliance on a fractional algorithm to maintain its peg — although it’s designed somewhat differently to Terra’s UST. Frax is currently 89% collateralized, with the remaining 11% maintained by algorithms that generate value by interacting with various decentralized finance (DeFi) protocols.



Kazemian said: “This is why Frax’s collateralization is entirely on-chain. Its collateralization is adjusted by an algorithm, and you can see the amount of debt and liquidity across lending markets. You can’t just do a lot of these things and hope for it to work out for the best: You paint a target on your back.”



Some believe that CBDCs (central bank digital currencies) could one day fill the gaps in the stablecoin market. Visa’s Gu cited a recent Bank for International Settlement study that found nine out of 10 central banks are researching and actively experimenting with CBDCs. Unlike stablecoins, CBDCs will have the same status as other central bank money, that is, full convertibility to other forms of legal tender currency.



MakerDAO’s MacPherson didn’t have strong opinions about CBDCs, but if they come on-chain they could potentially serve as collateral for decentralized stablecoins, he said.



Circle’s Reginatto was a little less positive.



“Central banks don’t come across as the type of organization that could operate these mechanisms at scale,” he said. “Frax, Maker, Circle, these are very complicated to operate.”



Reginatto also explained that Circle believes in the permissionless nature of public blockchains, stating that the firm never signed a deal with Maker and Frax, but both projects leverage USDC to collateralize their tokens.



But the most scathing critique of the CBDC concept came from Carter, who labeled stablecoins “an incredible consumer product.”



“Stablecoins are crypto’s killer app so far, no question. They’ve been responsible for great transactional autonomy,” Carter said, before stressing that privacy is incredibly important when it comes to cash in a digital context. Policymakers are considering the privacy pitfalls of putting digital dollars on an immutable ledger, but Carter was skeptical that they would ultimately choose to emulate the relative anonymity of cash.



“No government is going to give that to us, no CBDC plan is sincere about that…We have to look at the stablecoin sector for that.”



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Stablecoins Are Crypto’s Killer App So Far – Just Not Terra

Sebastian Sinclair

<div id="highlights-block_620dcc7aef20b" class="highlights">
 <ul>
 <li>Castle Island Venture Fund III will focus on financing startups building monetary networks, internet infrastructure and financial services</li>
 <li>The $250 million fund follows its second fund focused exclusively on public blockchains</li>
 </ul>
 
</div>



Venture capital firm Castle Island Ventures has announced a $250 million raise for its latest crypto fund focused on startups building out monetary networks, internet infrastructure and financial services.



Blockworks <a href="https://cms.blockworks.co/castle-island-ventures-raises-hundreds-of-millions-for-new-fund/" target="_blank" rel="noreferrer noopener">previously reported</a> on the imminent launch of the fund, dubbed Castle Island Ventures III.



According to a company <a href="https://medium.com/castle-island-ventures/announcing-castle-island-ventures-iii-25b91a792e6a" target="_blank" rel="noreferrer noopener">blog post</a> on Wednesday, Castle Island Ventures said it believed the industry was in its &#8220;early days&#8221; of a monetary transition toward a rules-based monetary order and was seeking to capitalize on the movement.



&#8220;The new fund will support our mission to partner with visionary entrepreneurs building transformative companies powered by public blockchains,&#8221; company partner Matt Walsh said in the post. 



<a href="https://www.castleisland.vc/portfolio" target="_blank" rel="noreferrer noopener">Castle Island&#8217;s portfolio</a> includes a number of well-known crypto startups and ventures, including BlockFi, Bitwise, CoinMetrics, Mash, MoonPay and River Financial.



Walsh further said his company intended to invest in firms it believed could affect change in the financial services sector whilst leveraging Web3 protocols to shake up legacy financial services firms and their inability to evolve.



<blockquote class="wp-block-quote">&#8220;In parallel to the monetary and financial transformation that is underway, ‘Web3’ and new internet architectures propose digital property rights and enable new protocols and businesses that seek to disrupt and disempower online data and tech monopolies,&#8221; Walsh said.</blockquote>



The Boston-based company also announced Ria Bhutoria — formerly director of research at Fidelity — as general partner, joining the likes of Nic Carter, Walsh and Sean Judge.



Its latest raise follows its previous <a href="https://cms.blockworks.co/castle-island-ventures-raises-second-50-million-fund/" target="_blank" rel="noreferrer noopener">$50 million</a> fund last year, focused exclusively on public blockchains. The company&#8217;s first fund debuted back in 2018 and was valued at $30 million.



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Castle Island Ventures Confirms $250M Fund Targeting Web3 Startups

Michael Bodley

<div id="highlights-block_61f96a54916d2" class="highlights">
 <ul>
 <li>The firm is expected to finalize its fundraise in the next couple of weeks, sources said</li>
 <li>Castle Island has previously hit on winning VC stakes in companies including Bitwise and BlockFolio</li>
 </ul>
 
</div>



Cryptocurrency venture capital firm Castle Island Ventures has raised hundreds of millions of dollars for its latest fund as institutional investors continue to plow capital into the space, despite record valuations.&nbsp;



The huge fundraising haul reflects Castle Island’s track record of investing early — often in pre-seed or seed rounds — in some of the most successful crypto companies in the industry, according to three sources familiar with the matter who confirmed the fundraise.



Sources were granted anonymity to discuss sensitive business dealings. The precise amount raised isn&#8217;t known, and the firm declined to comment.



The new fund remains open to investors, sources said, though it’s expected to finalize its capital-raising haul in about two weeks. In the meantime, Castle Island is working to finalize commitments from a number of large investors.&nbsp;



The fund, Castle Island Ventures III, is the third for the firm, which also engages in co-investment opportunities with its limited partners. This time around, sources said, Castle Island scored larger institutions as investors, branching out from the high-net worth individuals and family offices that have traditionally backed private digital asset plays.&nbsp;



The third fund is set to follow the strategy of the firm’s first two vehicles — at least for the most part. Those funds earmark about 20% of capital to early-stage tokens, often coming in and investing before the token launches.&nbsp;



<blockquote class="wp-block-quote">“On one hand, these valuations are crazy high,” one source said. “On the other, LPs are looking for experienced, winning managers that can still derive a ton of alpha from this space.”</blockquote>



Massachusetts-based Castle Island’s <a href="https://www.castleisland.vc/portfolio" target="_blank" rel="noreferrer noopener">portfolio</a> includes the likes of Bitwise, BlockFi, Casa, ErisX, Matrixport, MoonPay and River Financial. 



Castle Island is led by co-founders and managers Matthew Walsh and Nic Carter, both veterans of Fidelity’s crypto investment operations. Sean Judge, formerly of Highland Capital, is a general partner.



It would likely go down as one of the largest so far this year, even as firms including <a href="https://cms.blockworks.co/sources-brevan-howard-launches-first-digital-assets-fund-in-massive-crypto-push/" target="_blank" rel="noreferrer noopener">Brevan Howard set up</a> their own operations, which are expected to take in large amounts of capital.



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Castle Island Ventures Raises Hundreds of Millions For New Fund

<div id="highlights-block_61e5a54946010" class="highlights">
 <ul>
 <li>Dual Worlds’ flagship vehicle plans to invest in both digital assets-focused hedge and venture funds</li>
 <li>The fund will focus on decentralized finance, non-fungible tokens, the metaverse, Web 3.0 and play-to-earn gaming</li>
 </ul>
 
</div>



A former Fidelity Digital Funds executive is launching a crypto fund of funds that would back both venture and hedge funds focused on digital assets, according to three people familiar with the matter.



Michael Zinaman plans to hold a first close on capital for the flagship vehicle of his new Dual Worlds firm in February, sources said. A second close would occur sometime later in the year, with the goal being to raise $50 to $100 million overall.&nbsp;



Sources were granted anonymity to discuss sensitive business dealings. Zinaman declined to comment.&nbsp;



The flagship vehicle, Dual Worlds Fund 1, plans to invest in crypto portfolio managers worldwide — ranging from new launches to established funds. It will write both limited-partnership checks and invest in general-partnership stakes or seeding deals from time to time.



Zinaman also plans to make direct equity investments, usually as a co-investment alongside a partner fund.



<h3>Fund of funds landscape</h3>



The number of newcomer crypto portfolio managers from top-tier investment backgrounds has increased exponentially in the last year, industry participants say. This, in turn, has led to a <a href="https://cms.blockworks.co/fidelity-most-institutional-investors-open-to-crypto-want-an-etf/" target="_blank" rel="noreferrer noopener">boom</a> in the fund of funds market as more opportunities have arisen to get in on the ground floor of a new crop of digital asset investors. 



<blockquote class="wp-block-quote">“The fund of funds landscape is really interesting, right, because you have an emergence of crypto funds,” one source familiar with Dual Worlds said. “There’s a lot of them getting started, and they&#8217;re starting to really specialize. You&#8217;re starting to see funds that only do [decentralized finance], funds that only do gaming — you can go down the list.”</blockquote>



Indeed, Dual Worlds plans to focus on strategies specializing in what Zinaman views as the next frontiers of crypto: DeFi, non-fungible tokens, the metaverse, Web 3.0 and play-to-earn gaming.&nbsp;



Joining Zinaman at Dual Worlds are Chris Ott of family office Falcon Capital and Trevor Cohen of Nebari, an investment firm focused on natural resources.&nbsp;



Ott, a founding member and principal of Naples, Fla.-based Falcon, which runs a proprietary trading desk, is a general partner at Dual Worlds. Cohen, a hedge fund veteran and Nebari’s chief financial officer, holds the title of chief operating officer for Dual Worlds and also oversees financial functions.



Dual Worlds counts Matt Walsh, partner at the crypto venture capital firm <a href="https://cms.blockworks.co/fidelity-veterans-go-full-time-crypto-at-the-right-time/" target="_blank" rel="noreferrer noopener">Castle Island Ventures</a>, as a strategic advisor — one of several high-profile advisors to the firm. Walsh declined to comment on Dual Worlds when contacted by Blockworks.



Zinaman also has a number of venture partners whose performance is taken into account when it comes to Dual Worlds’ marketing efforts.



Before working at Fidelity Digital Funds — the crypto asset-management arm of Fidelity, Zinaman spent time as a managing director focused on blockchain and digital assets for Canaccord Genuity. 



He previously spent about a decade in institutional fixed-income sales, specializing in emerging markets.  



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