Axios Pro: Fintech Deals

March 15, 2022

Axios Pro Exclusive Content

Happy Tuesday, Fintech Deals readers.

Situational awareness: Elon Musk is not selling his crypto, per his Twitter, despite inflation.

1 big thing: The rise of B2DAO

A wallet filled with ones and zeroes.

Illustration: Rebecca Zisser/Axios

Gauntlet, a company servicing decentralized autonomous organizations (DAO) and protocols, raised $23.8 million in Series B funding at a $1 billion valuation. Ribbit Capital led the round, and was joined by the Paradigm and Polychain.

Why it matters: Gauntlet's valuation signals that investors believe the explosive growth in DeFi — an area of crypto aiming to cut out the middleman that remains scantily regulated — has legs.

  • DeFi Llama estimates about $197.5 billion was locked up in DeFi startups as of Monday, up nearly 4x since the same time last year.

State of play: Gauntlet sits in a burgeoning new category of companies dubbed B2DAO that has been getting attention from venture investors looking to capitalize on the DeFi trend.

  • Protocol security company Forta last year raised $23 million, led by Andreessen Horowitz, after spinning out of OpenZeppelin.
  • Snapshot, a DAO voting platform, raised $4 million in funding, with 1kx leading the round.

The background: DeFi protocols and DAOs have a completely different governance structure from traditional companies, which creates very specific organizational needs.

  • For example, lending is the second-largest use case for DeFi, with some $46.6 billion in value locked up, per DeFi Llama.
  • Bankers know lending models face constant change by internal risk-management groups, according to macro factors.
  • It gets even more complex in DeFi protocols, where such decisions are usually put to a vote among those who own tokens — making no single person responsible for handling risk.
  • One of Gauntlet's products currently monitors about $38 billion in assets, automatically making proposals to adjust the community's risk.

The peculiarity: While DeFi protocols ostensibly don't have a central authority, companies like Gauntlet are still centralized.

  • "DAOs still need to have things done off chain," says CEO and founder Tarun Chitra, adding that what Gauntlet does is too computationally difficult to do on the blockchain — though he hopes that will change in years to come.

Still, by proximity, Gauntlet does now have some of the transparency of its DeFi customers.

  • Aave gave a rare glimpse into the earnings of the private company when it put a proposal to use Gauntlet up for a vote among token holders last year.
  • That proposal revealed it would be paying the equivalent of about $8 million annually.

The bottom line: Venture investors love buying picks and shovels because it's akin to investing in an index. Companies like Gauntlet, which take tokens as payment, serve as an index of DeFi and DAO customers.

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