Building a successful investment franchise over the past few decades required finding a distribution advantage as products have been mostly undifferentiated. The largest and most successful US franchises — Blackrock (founded 1988), Vanguard (founded 1975), and Fidelity (founded 1946) — are now managing close to $20 trillion in assets.
While traditional finance offers few options for product differentiation, decentralized finance (DeFI) is the opposite. DeFi is rebuilding the financial system with an open source approach and composability at its core, making it possible to combine one money lego block with other money lego blocks to create a much more sophisticated financial system. The other big difference in DeFi is that it provides new and interesting ways for investors to earn additional returns by actively participating in the ecosystem, be it through staking, liquidity providing or other ways that go beyond just holding an asset.
As a result, the success of financial products becomes product-driven, not just sales-driven. And the most successful founders in this space will be engineers, not salespeople.
That’s why we’re excited to announce our investment in Gadze Finance. Gadze’s initial focus is the launch of a quantitative DeFi fund, using financial instruments like yield farming, liquidity provision, arbitrage, and dynamic hedging strategies to generate predictable returns. And there will obviously be many other product opportunities given how early crypto is in its development. Gadze’s ultimate vision is to democratize finance by providing access to custom investment products to anyone.
Gadze is the brainchild of Mike Silagadze and Andrew McGrath. We’ve had the pleasure of working with both of them at our portfolio company Top Hat. Mike started this classroom interaction platform in 2009 and led it as their CEO until very recently; Andrew ran the new revenue line division at the company.
In the past few months, we have seen many Web 2.0 founders beginning to look at crypto. Mike and Andrew are the first of a large wave of repeat founders embracing the opportunity that early technology like crypto / blockchains offers.