Sebastian Sinclair

<div id="highlights-block_62be2e7ca520f" class="highlights">
 <ul>
 <li>Despite current market woes, OP Crypto is launching a fund of funds designed to back budding fund managers of early-stage crypto startups</li>
 <li>OP Crypto&#8217;s latest fund follows on the success of its venture capital fund which is backed by the likes of Galaxy Digital and Digital Currency Group</li>
 </ul>
 
</div>



Venture capital firm OP Crypto, founded by former Huobi executive <a href="https://www.linkedin.com/in/davidgancheng/" target="_blank" rel="noreferrer noopener">David Gan</a>, said Thursday it has launched a new vehicle aimed at emerging fund managers focused on early-stage digital asset investments.



Dubbed OP Fund of Funds I (OP FoF I), the investment vehicle will target managers with vertical expertise in blockchain infrastructure, decentralized finance, non-fungible tokens (NFTs), the metaverse and games, among other areas. Emerging managers are those with limited experience charged with managing assets below a particular monetary threshold.



Despite <a href="https://cms.blockworks.co/vc-funding-slows-again-in-june-but-experts-say-worthwhile-projects-will-get-money/" target="_blank" rel="noreferrer noopener">declining venture capital interest</a> and a contracting market, OP Crypto said its latest fund has scooped up $50 million in commitments from the likes of FTX subsidiary LedgerPrime and investment firm FJ Labs. The new fund is attempting to target a hard cap of $100 million, according to a statement. 



Though not typical in crypto, fund of funds are a type of investment strategy operating as pooled capital that invests in other funds with the aim of reducing risk by broadening the diversity of investment vehicles under its belt.



Founded last year, the British Virgin Island-domiciled venture capital firm seeks to invest in fintech and blockchain technology sectors both indirectly, through its latest fund, and directly with another, dubbed Venture Fund I. 



The latter fund, which picked up a sizeable investment of $50 million from participants in March, is backed by some of the industry&#8217;s largest players including Galaxy Digital and Digital Currency Group, as well as institutional investors Bill Ackman and Alan Howard.



Lucas He, OP Crypto’s chief operating officer and another Huobi alumni, will serve as OP FoF I&#8217;s general partner. A veteran in the crypto space since 2013, He previously held fund of funds roles at Huobi Capital and State Street, according to his <a href="https://www.linkedin.com/in/lucashe/details/experience/" target="_blank" rel="noreferrer noopener">LinkedIn</a>.



Meanwhile, OP Crypto founder <a href="https://www.linkedin.com/in/davidgancheng/" target="_blank" rel="noreferrer noopener">David Gan</a> will take on the role of president and adviser to the fund without commitment conflicts, as it is expected Gan will continue to devote his attention to Ventures Fund I, according to the statement.



Investors in OP FoF I will receive access to deal flow from the managers and have the opportunity to double down on specific projects via co-investment opportunities, OP Crypto said.



&#8220;We plan to be a franchise of different crypto native funds,&#8221; He told Blockworks in an email discussing OP Crypto&#8217;s investment strategy. &#8220;Starting off with direct venture fund I and then following with FOF I, we plan to launch many successive fund vehicles down the road serving different purposes and risk appetites to our investor base.&#8221;



When asked about OP Crypto&#8217;s risk management approach amid the backdrop of overleveraged hedge funds, investors and liquidity providers, He told Blockworks his firm took a &#8220;disciplined approach.&#8221; To achieve this, He said OP Crypto deploys slowly — having invested only around 20% of its total operating capital last year — while also seeking to double down at reasonable valuations during the market downturn.



For OP FoF I specifically, he added, the fund will attempt to back managers that also share this &#8220;disciplined&#8221; and &#8220;concentrated approach&#8221; to deployment.&nbsp;



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OP Crypto’s ‘$100M’ Fund of Funds To Back Early Stage VCs

Sam Reynolds

<div id="highlights-block_613a23744f9dd" class="highlights">
 <ul>
 <li>OP Crypto has an investment mandate that sits at the intersection of DeFi, Web 3.0, the metaverse and China </li>
 <li>Despite China’s harsh regulatory approach to crypto, Gan is still bullish on the prospects the market holds for investing in digital assets and DeFi</li>
 </ul>
 
</div>



Gaming and the metaverse will drive “Apple-level user adoption” of crypto. China’s market can be tapped by digital assets companies, as long as you communicate things “in a way that the central government is able to approve”.&nbsp; These are bold words from OP Crypto’s David Gan, the ex-Huobi executive that recently launched a $25 million fund backed by some of the biggest names in the blockchain industry both in North America and Asia, including the Digital Currency Group, Galaxy Digital, Huobi Ventures and the Brooker Group.&nbsp;



However, while it might have been possible at one time to dismiss blockchain gaming as a nothing burger — and certainly it was a ghost town for years — the blockchain powered play-to-earn game <a href="https://axieinfinity.com/" target="_blank" rel="noreferrer noopener">Axie Infinity</a> recently crossed the 1 million mark in active users and hit a trading volume of just over $1.92 billion.



<h3 class="wp-block-heading">Gaming and the metaverse</h3>



“Gaming and the <a href="https://cms.blockworks.co/heres-why-one-company-ventured-into-the-metaverse/" target="_blank" rel="noreferrer noopener">metaverse</a> is going to drive the next hundred million users into the space,” Gan told Blockworks in an interview. “Then, I think the next billion level — the ‘Apple level’ — adoption will come from the resulting social networks.”



Axie Infinity is big, but it&#8217;s not yet ‘billion level’ big. So how do we get from here to there?



Gan thinks that the value creation in gaming comes from the capital contribution and subsequent earnings from gaming. And certainly that’s been seen in the Philippines, one of the hottest markets for the game, where <a href="https://fortune.com/2021/08/25/crypto-video-game-axie-infinity-crypto-traders-unemployed/">it&#8217;s been re</a><a href="https://fortune.com/2021/08/25/crypto-video-game-axie-infinity-crypto-traders-unemployed/" target="_blank" rel="noreferrer noopener">p</a><a href="https://fortune.com/2021/08/25/crypto-video-game-axie-infinity-crypto-traders-unemployed/">orted that office workers</a> make much more gaming than they do in their day jobs.&nbsp;&nbsp;



“[When gaming] you&#8217;re not just contributing capital, you&#8217;re contributing, and playing and getting involved in the platform itself,” Gan said. You&#8217;re able to have an alternative means to make additional income. I think, with the rise of crypto and the blockchain space, that really unlocked that value in a meaningful way to a very global audience.”



With the interoperability of the metaverse, the success on one gaming platform is portable to another, and thus creates a social network effect.&nbsp;



“The Web3 space allows users to create content and monetize it in different niches where you wouldn’t have that ability in the past,” Gan said. “I think as the metaverse evolves you’ll have one big decentralized sandbox. This will then lead to laser-focused sandboxes that evolve from it — where you’ll be able to do things that align with your interests. Ultimately, people are looking for more niche and focused experiences and they’ll want in-game items to be transferred across these sandboxes”&nbsp;&nbsp;&nbsp;&nbsp;



<h3 class="wp-block-heading">Bridging the East to West gap</h3>



Aside from gaming, Gan said that he’s going to be working to bridge the gap between East and West — US-founders and a market in Asia, and Asia-based founders and a market in the US.



Ultimately, China will play a big role in his gap-bridging efforts. Even though regulators in the country have been <a href="https://cms.blockworks.co/bitcoin-breaks-below-30000-on-china-concerns/" target="_blank" rel="noreferrer noopener">less and less tolerant of crypto</a>, Gan still believes there’s a market, and points out as a reminder that while China has been critical of crypto it has <a href="https://techcrunch.com/2021/02/03/bsn-china-national-blockchain/" target="_blank" rel="noreferrer noopener">embraced blockchain technology</a> as a key <a href="https://cointelegraph.com/news/china-s-new-blockchain-infrastructure-to-digitize-securities-and-futures" target="_blank" rel="noreferrer noopener">component of technology infrastructure</a>.&nbsp;&nbsp;



<blockquote class="wp-block-quote">“You have to communicate it in a way that the central government is able to approve. That starts with the technology, pointing out some of the technical benefits, and also the ability to communicate that into a developer focused community,” Gan said.&nbsp;</blockquote>



Even though there’s not much of an onshore decentralized finance (DeFi) market to speak of in China, Gan thinks that it could develop in parallel with <a href="https://cms.blockworks.co/china-ecny-meant-to-replace-domestic-cash/" target="_blank" rel="noreferrer noopener">China’s CBDC</a> the eCNY — a currency that eventually everyone in China will be forced to use.



Things in China move quickly, so Gan believes that overnight China could have such a market as long as regulators approve.



“That’s why it’s so important having a team half in China and half in the US, and be very flexible on how we operate on both ends,” Gan said.&nbsp;&nbsp;



But all this depends on regulators being cooperative. And so far there’s not much evidence this will happen anytime soon. After all, Axie Infinity, which kicked off the blockchain gaming boom has <a href="https://cointelegraph.com/news/philippines-regulator-tells-axie-infinity-players-they-must-pay-tax-on-income-from-game">attracted interest from regulators in the Philippines</a> about its in-game token with the dreaded question for crypto: is it a security?



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