Michael Bodley

Objections to the SEC’s proposed shifts to the US regulator’s long standing custodial rules are mounting.&nbsp;



In a joint letter this week, representatives from Bain Capital Crypto, Dragonfly Digital, Electric Capital, Haun Ventures and Ribbit Capital on Monday joined a growing number of dissenting industry voices to the SEC’s efforts to shift custodial regulations for registered investment advisers (RIAs).&nbsp;



The five firms in the <a href="https://www.sec.gov/comments/s7-04-23/s70423-186379-340322.pdf">letter</a> said they collectively “manage over $15 billion in assets, including crypto assets” on behalf of institutional investors. None of the five immediately returned a request for comment.



Top industry figures, including the crypto lobbyist <a href="https://blockworks.co/tag/blockchain-association">Blockchain Association</a>, have weighed in recently, too.



“The safeguarding of crypto assets is a vital concern for our industry, but it must be properly balanced against the real concern of stifling emergent technology and innovation,” the letter said.&nbsp;



Read more: <a href="https://blockworks.co/news/blockchain-association-sec-custody-rule">Blockchain Association Calls for Revisions to SEC Custody Rule</a>



A great deal of crypto-native dispatches to the <a href="https://blockworks.co/tag/sec">SEC</a> of late have decried a lack of self-custodial options for digital assets under the new rules.&nbsp;



Signed by top compliance and legal executives from their respective firms, the letter called into question the impact of the proposed rule changes on crypto traders — and, especially, their investors.&nbsp;



The executives went as far as to say that, lacking appropriate crypto self-custody provisions, “investors lose out on an investment opportunity and the adviser is required to neglect its fiduciary duty to its investors.”&nbsp;



The objections pertain to the SEC’s Rule 223-1, which remains <a href="https://www.sec.gov/comments/s7-04-23/s70423.htm">open</a> for public comment. It was first <a href="https://www.sec.gov/news/press-release/2023-30">introduced</a> by the regulator in February.&nbsp;



<h2 class="wp-block-heading">Qualified custodians poised to control crypto for RIAs</h2>



One major and contentious piece of the SEC’s proposal would require qualified custodians, as defined by the federal regulator, to oversee the custody of a basket of assets beyond the scope of what’s currently required.&nbsp;



If they take effect, the SEC’s new custodial rules would expand the requirements for asset safekeeping of client funds overseen by an RIA — even assets not currently regulated by the SEC as a security.&nbsp;



The updated guidelines appear poised to require crypto asset managers, including venture firms with token investments, to tap a US-regulated, qualified custodian for their digital assets.&nbsp;



In making the case for crypto self-custody to be permissible, at least in certain circumstances, the letter repeatedly drew on the idea that forcing crypto custody exclusively into the hands of third-party custodians would ratchet up custody fees and stifle related innovation.&nbsp;



“For a qualified custodian to support a particular crypto asset requires a large upfront investment of operational resources,” the letter said. “This is ultimately a business decision for the custodian as to whether to support a particular asset. Therefore, during the period when a custodian is unable to take custody of crypto assets, advisers have to rely on self-custody.”&nbsp;



The proposal also objected to the SEC’s proposal to make state-chartered crypto custodians gain FDIC approval in order to operate.&nbsp;&nbsp;



There have been “many safeguards that have been developed to self-custody crypto assets,” the letter said.&nbsp;



And the representatives in the letter said that they agree with the SEC that “an overhaul of the entire framework is advisable.”&nbsp;



Ideally, if certain crypto-friendly provisions are added in.&nbsp;



“Investment advisers need a unified and consistent framework for the custody of client assets of all types in order to provide investors with professional investment management services,” the letter said.&nbsp;



It gave a few industry examples, including multi-signature wallets and cold storage kept on-location by a crypto investment firm.&nbsp;



And crypto asset managers should be subject to an outside audit of their investment activities and operations, at least on an annual basis, it said.



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Bain Capital Crypto Among 5 Firms Bashing SEC’s Proposed Custody Rule

Casey Wagner

<div id="highlights-block_62fa73dadf2ca" class="highlights">
 <ul>
 <li>Dragonfly purchases early Ethereum investor in undisclosed deal</li>
 <li>Dragonfly managing partner Haseeb Qureshi formerly worked as a partner at the hedge fund firm</li>
 </ul>
 
</div>



Cryptocurrency-focused venture capitalist Dragonfly has purchased its first digital assets hedge fund firm backed by Sequoia and a16z.&nbsp;



The acquisition, MetaStable, founded in 2014, is one of the oldest and highest-performing crypto hedge funds. MetaStable was an early investor in Ethereum, Filecoin and Algorand — at one point raking in a return in excess of <a href="https://fortune.com/2017/07/26/bitcoin-cryptocurrency-hedge-fund-sequoia-andreessen-horowitz-metastable/" target="_blank" rel="noreferrer noopener">500%</a>. 



More recently, the fund has invested in trading platform Floating Point Group and layer-1 protocol Iron Fish.&nbsp;



<a href="https://cms.blockworks.co/tag/dragonfly-capital/" target="_blank" rel="noreferrer noopener">Dragonfly</a> managing partner Haseeb Qureshi, who formerly worked as a partner at MetaStable, in a <a href="https://medium.com/dragonfly-research/re-introducing-dragonfly-f6a2deb7078a" target="_blank" rel="noreferrer noopener">blog</a> post Monday said the firm is now “more expansive than it’s ever been.” 



The news comes months after Dragonfly, based in San Francisco, CA, <a href="https://www.prnewswire.com/news-releases/dragonfly-capital-closes-oversubscribed-650-million-crypto-venture-fund-iii-301543290.html" target="_blank" rel="noreferrer noopener">closed</a> its third crypto venture fund at an oversubscribed $650 million. Its second fund, closed in 2021, cleared $250 million. The company remains interested in native protocols, Web3 initiatives and tokens that aim to create new digital economies, General Partner Tom Schmidt said in <a href="https://www.prnewswire.com/news-releases/dragonfly-capital-closes-oversubscribed-650-million-crypto-venture-fund-iii-301543290.html" target="_blank" rel="noreferrer noopener">May</a>. 



Dragonfly will also soon be the new owner of 10 million LDO tokens — equal to 1% of the total supply — after the Lido DAO <a href="https://thedefiant.io/lido-dragonfly-deal-approved" target="_blank" rel="noreferrer noopener">approved the sale</a> earlier this month. Lido is a liquidity platform where traders can earn yields on staked assets. LDO token holders came to an agreement after floating <a href="https://cms.blockworks.co/after-failed-first-attempt-lido-relaunches-proposal-for-diversified-treasury/" target="_blank" rel="noreferrer noopener">different versions</a> of the proposal. 



Dragonfly committed to buying the LDO tokens at $1.45 apiece, or at the two-week average price as of the vote plus a 5% premium, whichever is higher. There is a one-year lockup period.



As part of a brand overhaul, also announced Monday, the firm has dropped “Capital” from its name.&nbsp;



The acquisitions and rebranding effort fit into Dragonfly’s broader goal to reintegrate itself as a crypto-native brand. Its new look is affectionately inspired by the “hacker” and “weirdo” culture often displayed throughout the space, according to Qureshi.&nbsp;



“It’s time for a refresh,” Qureshi said.



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Crypto Venture Firm Dragonfly Acquires Hedge Fund Backed By A16z, Sequoia

<div id="highlights-block_62e160807d821" class="highlights">
 <ul>
 <li>Lido is now offering to sell 1% of its LDO token supply to Dragonfly Ventures</li>
 <li>Dragonfly also has the freedom to withdraw from the commitment if the price per LDO token exceeds $2.25 during the voting period</li>
 </ul>
 
</div>



Two days after its <a href="https://cms.blockworks.co/in-buffer-against-bear-market-lido-opens-new-door-for-dao-money-management/" target="_blank" rel="noreferrer noopener">first plan</a> failed to pass, the Lido Finance DAO has rolled out a new governance proposal to diversify the asset makeup of its treasury in an effort to secure operating costs for the next two years.&nbsp;



The newest proposal comes after the decentralized governance body voted against selling 10 million LDO tokens, or 2% of its total supply, to venture capital firm <a href="https://cms.blockworks.co/tag/dragonfly-capital/" target="_blank" rel="noreferrer noopener">Dragonfly Capital</a> on Monday.&nbsp;



Lido’s <a href="https://research.lido.fi/t/treasury-diversification-2-part-2/2657" target="_blank" rel="noreferrer noopener">new plan</a>, introduced Wednesday, proposes that Dragonfly Ventures will instead purchase 1% of the total LDO token supply from its treasury, half of the initial offer. The remaining 1% “will be handled at a future date,” Lido said in the new proposal.&nbsp;



Dragonfly will commit to a final LDO price of either around $1.45 per token, which is the previously defined 7-day time weighted average price (TWAP) under a 50% premium, or a 7-day backward-looking TWAP taken at the time of vote completion under a 5% premium. Dragonfly will pay whichever price is the higher of the two.&nbsp;



Dragonfly also has the freedom to withdraw from the commitment if the price per LDO token exceeds $2.25 during the voting period. Voting is set to open on Wednesday, July 27, at 6 pm ET.&nbsp;



“I think LDO holders should accept this offer,” said Mika Honkasalo, a digital asset researcher and investor.&nbsp;



Honkasalo was surprised that the original offer did not pass but is more confident in this new proposal.&nbsp;



<blockquote class="wp-block-quote">“[It] cleans up some of the minor issuers from previous sale terms,” he said.</blockquote>



The majority of LDO’s treasury is at present made up of the organization’s native token — equating to some $237 million — according to <a href="https://tokenterminal.com/terminal/projects/lido-finance" target="_blank" rel="noreferrer noopener">data</a> from Token Terminal. $366 is now held in stablecoin USD Coin (USDC).&nbsp;



The investment would be a smart move for Dragonfly as current volatile market conditions continue, <a href="https://www.linkedin.com/in/adamscochran/" target="_blank" rel="noreferrer noopener">Adam Cochran</a>, general partner at venture capital firm Cinneamhain Ventures, told Blockworks when the <a href="https://cms.blockworks.co/in-buffer-against-bear-market-lido-opens-new-door-for-dao-money-management/" target="_blank" rel="noreferrer noopener">original proposal</a> was announced. 



“Right now, after a collapse of a lot of speculation in the space, there is a huge incentive for investors to back projects that have a path to revenue and ownership of key infrastructure,” Cochran said.



“Lido is one of a handful of projects that has both that opportunity and a product market fit, and I think the interest in these types of projects is going to continue to grow as we face uncertainty in macroeconomic conditions and as we see some of the froth come off the crypto space,” he said.



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After Failed First Attempt, Lido Relaunches Proposal for Diversified Treasury

<div id="highlights-block_62d9bcb189908" class="highlights">
 <ul>
 <li>Lido Finance has issued a new proposal to help fund the DAO for the next two years</li>
 <li>Voting has not yet opened, but Dragonfly Capital could be the buyer of 2% of LDO’s total supply if the proposal passes</li>
 </ul>
 
</div>



The Lido Finance DAO has rolled out a governance proposal to diversify the asset makeup of its treasury in an effort to serve as a buffer against current market conditions.



The plan ought to ensure the Lido <a href="https://cms.blockworks.co/tag/DAOs/" target="_blank" rel="noreferrer noopener">DAO</a> (decentralized autonomous organization) will have enough capital to fund operating expenses for roughly two years.



<a href="https://cms.blockworks.co/tag/lido/" target="_blank" rel="noreferrer noopener">Lido</a> suggested selling 2% of its native token, LDO, from the DAO treasury. The token will be priced at a 7-day time weighted average price (TWAP) under a 50% premium, roughly $1.45 per token. On Thursday, LDO traded around $1.50.



Digital asset-focused venture capital firm <a href="https://cms.blockworks.co/tag/dragonfly-capital/" target="_blank" rel="noreferrer noopener">Dragonfly Capital</a> is in the running to purchase a sizable number of tokens, according to Lido — although there are “a number of interested parties” the collective did not identify. 



<a href="https://www.linkedin.com/in/adamscochran/">Adam Cochran</a>, general partner at venture capital firm Cinneamhain Ventures, told Blockworks he doesn’t “think the deal is adequately priced.”



“Whenever you&#8217;re buying a block of tokens from the team over the counter, you are both impacting the circulating supply and avoiding price slippage, so there is a baked-in price discount,” Cochran said.



If the proposal is approved and Dragonfly leads the buy, it could mark a new era for DAO treasury management.&nbsp;



“This type of structure should have already been more common because it doesn&#8217;t make sense for your treasury to be fully in your own token,” said Mika Honkasalo, a digital asset researcher and investor. “You need to have proper runway and you can&#8217;t rely on the market always being on your side.”&nbsp;



The majority of LDO’s treasury is at present made up of the organization’s native token — equating to some $237 million — according to <a href="https://tokenterminal.com/terminal/projects/lido-finance" target="_blank" rel="noreferrer noopener">data</a> from Token Terminal. $366 is now held in stablecoin USD Coin. 



Despite being at odds when it comes to pricing, Cochran said the investment would be a smart move for Dragonfly as current volatile market conditions continue.



“Right now, after a collapse of a lot of speculation in the space, there is a huge incentive for investors to back projects that have a path to revenue and ownership of key infrastructure,” Cochran said. “Lido is one of a handful of projects that has both that opportunity and a product market fit, and I think the interest in these types of projects is going to continue to grow as we face uncertainty in macroeconomic conditions and as we see some of the froth come off the crypto space.”&nbsp;



Voting for the <a href="https://research.lido.fi/t/treasury-diversification-2/2570" target="_blank" rel="noreferrer noopener">proposal</a>, which was released Monday, has not opened yet. 



“I think people are on board with a variation of [the proposal], for sure,” Honkasalo said. “If you have to raise, you have to raise. Some version of it will get passed.”



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In Buffer Against Bear Market, Lido Opens New Door for DAO Money Management

Garrett Harper

In this episode of Empire, Jason is joined by Haseeb Qureshi and Tom Schmidt of Dragonfly Capital. Haseeb and Tom are top venture capitalists with unique insights into crypto&#8217;s current trends, new innovations and market sentiment. If you want expert advice on the market, these are two people you ask.



Haseeb Qureshi and Tom Schmidt discuss:



<ul><li>the venture capital landscape</li><li>power is shifting to investors</li><li>being long crypto while fighting the Fed</li><li>supercharged crowdfunding</li><li>convertible bonds &amp; debt financing</li><li>the changing meta</li><li>how projects choose where to build</li><li>the end of airdrops</li><li>market outlook</li></ul>



Check out what they had to say in the video below.👇



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="Can Crypto Find a New Narrative? | Haseeb Qureshi &amp; Tom Schmidt" width="1024" height="576" src="https://www.youtube.com/embed/ZAOhG9KdPu0?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



<h3 class="wp-block-heading">About the show</h3>



&#8220;Empire&#8221; is a twice-a-week show where we share the real crypto stories that aren’t heard elsewhere. On Mondays, Jason and Santiago Santos interview crypto industry movers and shakers to talk about their struggles, bold moves and tough decisions. Finish off the week with Friday&#8217;s weekly roundup episode that covers the top news and narratives of the week.



For any NPR or Guy Raz fans out there, you can think of &#8220;Empire&#8221; as a &#8220;How I Built This&#8221; for Web3.



Subscribe to &#8220;Empire&#8221; today on&nbsp;<a href="https://podcasts.apple.com/us/podcast/empire/id1554930038" target="_blank" rel="noreferrer noopener">Apple</a>&nbsp;or&nbsp;<a href="https://open.spotify.com/show/4UTePv1CR3APdKOiosR3Iq" target="_blank" rel="noreferrer noopener">Spotify</a>. Watch episodes on&nbsp;<a href="https://www.youtube.com/channel/UCEOv-8wHvYC6mzsY2Gm5WcQ" target="_blank" rel="noreferrer noopener">YouTube</a>.



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Podcast: Can Crypto Find a New Narrative? | Haseeb Qureshi & Tom Schmidt

Ben Strack

<div id="highlights-block_62697aca73bac" class="highlights">
 <ul>
 <li>Founded in 2018, Dragonfly has invested more than $700 million overall</li>
 <li>Most US venture capital firms don’t focus enough on crypto projects in Asia, according to a Dragonfly Capital executive</li>
 </ul>
 
</div>



Dragonfly Capital has launched its third crypto venture fund with $650 million in commitments, earmarking the capital infusion to back later-stage startups as the crypto industry matures.



Those backing the new fund include Tiger Global, KKR, Sequoia China, Invesco, Top Tier Capital Partners and Ivy League endowments. The fund was originally aiming for $500 million in commitments, <a href="https://www.sec.gov/Archives/edgar/data/1900344/000190034422000001/xslFormDX01/primary_doc.xml" target="_blank" rel="noreferrer noopener">a regulatory filing</a> shows.



Dragonfly intends to “double down” on its backing of the next breakthroughs in crypto infrastructure, DeFi and smart contract scaling, as well as consumer products, such as NFTs, crypto games and DAOs.



“Our strategy is still early-stage investing, but we&#8217;ll now be able to lead more Series A and Series B rounds as well,” Dragonfly Managing Partner Haseeb Qureshi told Blockworks. “Our goal is to support entrepreneurs in every round from seed to exit.”



The new fund has not yet made any investments.



<a href="https://cms.blockworks.co/dragonfly-launches-second-vc-fund-with-225-million/" target="_blank" rel="noreferrer noopener">The firm last year launched</a> its second venture capital fund, focused on international decentralized technologies, with $225 million.



Founded in 2018, Dragonfly has invested more than $700 million, including stakes in Avalanche, NEAR Protocol, Compound, MakerDAO, 1inch, Matter Labs, Anchorage and Dune Analytics.



Despite venture dollars flowing into crypto in recent years, Qureshi said the biggest gap in the market right now is investing in Asia.



“Dragonfly has been global from day one, so we have deep roots in Asia,” he said, adding that the firm was an early backer of Amber Group, Babel Finance, Matrixport and Bybit. “We believe that it&#8217;s a hugely important part of the market that&#8217;s neglected by most of the US [venture capital firms].”



Amber Group reached a $3 billion valuation with <a href="https://cms.blockworks.co/crypto-trading-platform-amber-group-eclipses-3b-valuation-with-latest-raise/" target="_blank" rel="noreferrer noopener">its fundraise in February</a>, while Matrixport <a href="https://cms.blockworks.co/matrixport-raises-100m-and-hits-unicorn-status-with-1b-valuation/" target="_blank" rel="noreferrer noopener">hit a $1 billion valuation</a> last year.



Bybit, which recently moved its headquarters from Singapore to Dubai, unveiled crypto options trading this week. CEO Ben Zhou said the firm is confident that the new offering will help normalize crypto options trading, “just like what Robinhood did for stock options.”



Qureshi declined to comment about potential future fund plans.



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Dragonfly Capital’s Latest Crypto Fund Aims to Invest From ‘Seed to Exit’

Morgan Chittum

<div id="highlights-block_621eabc4c01c6" class="highlights">
 <ul>
 <li>Led by Archetype, raise investors include Coinbase Ventures, Dragonfly Capital, Solana Ventures and ParaFi</li>
 <li>Parcl has 15 full-time employees but hopes to expand its staff to 25 by the end of the year</li>
 </ul>
 
</div>



Parcl, a startup that digitizes real estate investments via the Solana blockchain, raised a $4.1 million seed round Tuesday, earmarked for marketing and staffing.



The New York-based company has 15 full-time employees but aims to expand its staff to 25 by year-end, co-founder and CEO Trevor Bacon told Blockworks.



“It&#8217;s a tough hiring environment, but we&#8217;ve managed with our team and vision to have been able to attract some of the best talent,” Bacon said.



Parcl’s mission is to give everyone a chance to invest in real estate, a market which has historically high barriers to entry, but consistent returns.



Parcl’s protocol allows users to invest in a digital square foot of real-live property via its price index, which replicates the price per square foot in various neighborhoods. The platform has transaction fees, but no minimum investment requirement.



“[For example], Tribeca will have a price per square foot of like $2,000, and we&#8217;ll call that a ‘parcl,’” he added. “‘A parcl’ is one square foot of any given neighborhood, and the blockchain is what allows you to create those assets and trade them. It’s basically a way to gain exposure to real estate.”



Led by Archetype, raise investors include Coinbase Ventures, Dragonfly Capital, Solana Ventures, ParaFi, Shima Capital, Slow Ventures, Tribe Capital, Not Boring Capital and FJ Labs.



Parcl will launch a testnet, along with the release and sale of a non-fungible token (NFT) collection in the coming weeks. All of the proceeds, Bacon said, will go toward buying someone a house.



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