The arrest heard ’round the crypto world

Hey everyone, and welcome back to Chain Reaction.

Last week, we discussed $4.5 billion in new crypto funds from a16z. This week, we’re talking about the arrest that has everyone in the NFT space sweating bullets.

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crimes of the future

The crypto space has been moving so quickly over the past couple years that builders have generally seemed to believe existing rules didn’t apply to them. Well, after years of snails’ pace legal action, it seems U.S. prosecutors are starting to feel it’s time to challenge that perception.

This week, the U.S. Attorney’s Office in the Southern District of New York arrested and filed charges against a former OpenSea executive who used his position to front-run NFT projects that were going to be listed on the home page of the marketplace. Members of the community discovered his actions by tracking his activity on public blockchains.

I would’ve loved to rant on this during the podcast, but news broke while we were recording, so I’ll leave you with some thoughts here.

The arrest was pretty much a massive shock to people in the NFT space who generally believed that Nate Chastain had acted unethically but that it couldn’t be “insider trading” because NFTs weren’t securities. This is a framing that was held by many, including Chastain’s boss at OpenSea who fired him.

“I do think there was a misframing of it as insider trading. We don’t view NFTs as financial assets, so that does not apply. That’s a very specific term for a very specific thing,” OpenSea Devin Finzer told Decrypt in September.

There are an awful lot of people taking a very close reading of the SDNY press release, which states it specifically charged Chastain “with wire fraud and money laundering in connection with a scheme to commit insider trading in Non-Fungible Tokens.” They notably describe NFTs as “digital assets” later in the release. Also, it’s worth reiterating that this is the DOJ — not the SEC — charging him, though it is the Office’s Securities and Commodities Fraud Task Force handling this case.

Now, why don’t crypto people want NFTs to be classified as securities? Well, there’s a lot of existing regulatory guidance there, and most feel it would basically upend the industry if NFTs were unilaterally subjected to securities law; it would certainly raise the barrier of entry for creation of NFTs and curtail a lot of the experimentation happening in the space right now.

Another big reason that it would be bad if NFTs are treated as securities is that it would mean an awful lot of people have been doing illegal things for an awfully long time.

The NFT space made it through this latest crypto bull run without any meaningful regulation coming down on it. As NFT volumes start to show signs of slowing, there’s a fear that more regulation could be just around the corner.

the latest pod

What’s up, it’s Anita here to give you a preview of the latest episode of our Chain Reaction podcast, where we unpack the latest web3 news, block-by-block for the crypto-curious. 

This week, we talked about Coinbase’s new approach to what can be one of the most anxiety-inducing aspects of corporate life — the performance review. Our colleague, Amanda, wrote about how the crypto exchange is trying to emulate Ray Dalio’s hedge fund, Bridgewater Associates, by letting employees give each other real-time feedback and ratings. Is this part of tech’s descent into a Black Mirror-style reality? Tune in to hear our thoughts.

We also recapped two recent crypto comeback stories, one from the OnlyFans founder and CEO who left the company after trying to ban sexually explicit content from the platform and another from the architect of the highly unstable stablecoin, Terra. 

Our guest this week was Outdoor Voices founder Ty Haney, who shared details about her pivot from athleisure to crypto with her new venture, Try Your Best. Haney broke the news on our podcast that the startup just landed its second round of institutional funding.

Subscribe to Chain Reaction on Apple, Spotify or your alternative podcast platform of choice to keep up with us every week.

follow the money

Where startup money is moving in the crypto world:

  1. New York-based enterprise blockchain startup Digital Asset took in a strategic investment of undisclosed size from Japanese banking giant SBI Holdings.
  2. InfStones, a blockchain infrastructure provider, nabbed $66 million in a round led by SoftBank and GGV.
  3. Indian music NFT startup FanTiger bagged $5.5 million for its seed round led by Multicoin Capital.
  4. LivingCities, a metaverse-focused social startup co-founded by Foursquare founder Dennis Crowley, banked $4 million in early funding led by DCVC.
  5. Zimbabwe’s FlexID received an undisclosed amount of funding from Algorand for its blockchain-based identity system for the underbanked.
  6. Web3 augmented reality gaming company Jadu raised $36 million in funding for its Series A led by Bain Capital Crypto.
  7. VillageStudio raised $2.3 million in an Animoca Brands-led round for its NFT-based Playken avatars.
  8. Web3 payments API Merge got $9.5 million in seed funding led by Octopus Ventures.
  9. GoSats, an India-based bitcoin rewards platform, raised $4 million in a pre-Series A funding round from investors including Y Combinator, Accel and Gossamer Capital.
  10. DAO management platform Utopia Labs closed a $23 million Series A led by Paradigm.

the week in web3

It was an uncharacteristically quiet week in web3, and our team members in the U.S. took some time to enjoy the rare, uneventful long weekend. Still, some big personalities made waves in the space, for better and for worse.

  • OnlyFans founder Tim Stokely is pivoting to crypto after leaving the company last December following controversy over his push to ban sexually explicit content from the platform. Anita wrote about the new “family-friendly” NFT startup he’s launching alongside another former OnlyFans exec that will allow people to buy, sell and trade virtual cards featuring influencers and celebrities.
  • NFT platform OpenSea had fired Nate Chastain, its head of product, back in September after he was accused of front-running trades on the platform. Now, he’s been arrested and charged with insider trading; Lucas has the details.

added analysis

Here’s some of this week’s crypto analysis you can read on our subscription service TC+ (written by TC’s Jacquelyn Melinek): 

VC funding for crypto projects fell in May, but many investors remain bullish
VC funding in crypto has fallen month-over-month from April to May, but many investors are not concerned. “For investors like us, it’s time to buy,” Stan Miroshnik, partner and co-founder of 10T Holdings, told TechCrunch. The pace of capital deployment might be more measured as investors and founders alike become more calculated, but VCs will still continue to have a robust amount of activity, Miroshnik said. Even though there might be a gloomy sentiment in digital asset markets, true crypto-native funds will continue to invest heavily, Saurabh Sharma, head of investments at Jump Crypto, said to TechCrunch. 

As crypto becomes more mainstream, can it stay decentralized?
Whether it’s first-time buyers of cryptocurrency or people learning more about NFTs, Bitcoin and the general crypto ecosystem, there has been an uptick globally in awareness of crypto. But as it gains momentum, regulators worldwide will continue to monitor the space more closely, but the headline speaks for itself: what does this mean for the future of crypto? A number of founders and executives in the industry weighed in with their thoughts. 

Longtime Bitcoiner Dan Held says this ‘crypto winter’ won’t be as harsh as others
As the cryptomarkets remain bearish, some longtime market participants, like Dan Held, director of growth marketing at crypto exchange Kraken, aren’t worried. Even though there is lots of talk of a crypto winter circulating through the community, Held said the sentiment for this current market cycle is different. While he — and many others — persisted through major market cycles over the years, the narratives have shifted a lot, thanks to more prominent institutional players and massive amounts of capital entering the space. 

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Can Andreessen Horowitz prevent the next crypto winter?

Hey everyone, and welcome back to Chain Reaction.

Last week, we talked about the rough road ahead for Coinbase. This week, we’re talking a bit about Andreessen Horowitz’s multibillion-dollar bet on web3’s continued viability. Read on to check out the latest episode of the Chain Reaction podcast as well.

To get this in your inbox every Thursday afternoon, you can subscribe on TechCrunch’s newsletter page.


May hasn’t been the kindest month to crypto. Consecutive weeks of drops have left whispers of the “buy the dip” going cold as industry players buckle down for winter.

A brief moment of warmth came this week, when Andreessen Horowitz (a16z) announced that it has raised $4.5 billion for its fourth crypto fund, more than doubling the size of its last fund. It’s the largest institutional crypto firm to date and comes at an interesting time…

While VC firms the world over have been pressing their portfolio companies to cut burn rates and buckle down for bad times, many crypto founders were already prepared for this moment, having raised stupid amounts of money from VCs solely for the purpose of not having to raise cash later. While tech broadly has not suffered a prolonged recession since the early 2000s, crypto startups have endured much tighter windows of boom and bust. Despite plenty of coffers being full, it’s fair to assume that a crypto winter will put plenty of venture-backed startups on ice.

A16z didn’t let too many details fly on their exact plans for this fund, but they did interestingly detail that they’re planning to devote at least $1.5 billion of the fund to seed deals. That’s an awful lot of seed deals — likely hundreds of them — coming from a single fund.

The question is whether the rest of the venture ecosystem around crypto sticks around. Plenty of hedge fund entrants to the markets have gotten burned and other traditional venture firms seemed to sheepishly poke their head into this cycle and may already be close to the door.

For a market that’s been frothing with dumb money for a couple years, any sort of pullback is going to leave startups in a lurch, and a16z’s focus on young companies with their new fund may be tough for companies eyeing growth dollars.

neumann, new man?

Now that Lucas has given you the breakdown on a16z, it’s Anita here to get you up to speed on the latest episode of the Chain Reaction podcast, where we unpack the latest web3 news, block-by-block for the crypto-curious. 

We talked plenty about Andreessen Horowitz, which really said “what downturn?” this week, announcing the largest dedicated crypto venture fund ever. Granted, much of that capital was probably raised before the crypto markets started tanking, but we unpacked the storied firm’s strategy and discussed a somewhat questionable investment it just made in a well-known grifter’s new blockchain startup (hint: he kinda looks like Jared Leto).

For our guest, we had investor Grace Isford join us from Lux Capital to talk about the infrastructure that works behind-the-scenes to make web3 tech run smoothly.

Subscribe to Chain Reaction on Apple, Spotify or your alternative podcast platform of choice to keep up with us every week.

follow the money

Where startup money is moving in the crypto world:

  1. Singapore-based metaverse app BUD closed $36.8 million in a Series B round led by Sequoia Capital India.
  2. NFT-based social platform Primitives raised a $4 million seed round with Redpoint as lead investor.
  3. NFT fraud detection startup Doppel scored $5 million in seed funding led by FTX Ventures.
  4. DAO community management platform Common raised $20 million from Spark Capital, Polychain and others.
  5. Carbon credit tokenization protocol Flowcarbon raised $70 million through a Series A round led by a16z as well as a private token sale.
  6. Blockchain infrastructure provider StarkWare closed a $100 million Series D led by Greenoaks Capital and Coatue.
  7. DeFi personal finance app Pebble raised a $6.2 million seed round led by Y Combinator.
  8. Digital asset manager Babel Finance scored $80 million in a Series B round from Jeneration Capital, 10T Holdings, Dragonfly Capital and others.
  9. NFT social marketplace Bubblehouse nabbed $9 million in seed capital from Cassius Family, SV Angel, angel investors Steve Aoki and David Guetta and others.
  10. Crypto tax prep software ZenLedger nabbed $15 million in a Series B led by Parafi.

the week in web3

Everyone’s been talking about a cooldown in the crypto markets, but as reporters covering the space, we’ve felt busy as ever. It seems like venture investors are keeping busy, too, trying to put massive amounts of capital to work that they raised largely before the markets went south. 

As for the firms currently raising new funds, they seem to have conviction that there are still lucrative opportunities out there in the crypto startup world, and that this downturn will simply separate the winners from the losers. (They’re hoping their portfolios already contain the winners.)

  • A16z’s whopper of a web3 fund speaks to their commitment to the space, even if other firms pull back, investor Arianna Simpson told Lucas in an interview.
  • Soona Amhaz’s Volt Capital announced a $50 million crypto fund, just over a year after it debuted its $10 million vehicle. Marc Andreessen and Chris Dixon are amongst the familiar faces backing Amhaz. Lucas has the details here.
  • Anita wrote about some Twitter drama that unfolded this week as the founder of fintech startup, Eco, took to the platform to accuse the founders of Y Combinator-backed Pebble of copy-pasting its business model. The battle between the startups, which both use stablecoins to provide yield, caused some to question the investment approach taken by accelerators like YC.

TC+ analysis

Curated analysis that you can read on our subscription service TC+ (written by TC’s Jacquelyn Melinek): 

Terra’s community passes proposal to revive LUNA cryptocurrency following stablecoin-led implosion
Nine days ago, Terraform Labs (TFL) founder Do Kwon shared a plan to revive the Terra Ecosystem after its stablecoin and cryptocurrency nosedived earlier this month and brought down the crypto markets with it. Now, the plan has passed approval from Terra’s community for a new Terra 2.0, which not everyone is certain will succeed. Will history repeat itself? 

StarkWare quadruples valuation to $8B in 6 months, closing round in choppy market
Crypto markets may be choppy right now, but big players are still raising capital as demand for scalable blockchain infrastructure remains strong. The most recent example of that fact is StarkWare Industries, which just raised $100 million at a valuation of $8 billion, the company shared on Wednesday. The new capital came just six months after the unicorn closed a $50 million Series C, quadrupling its valuation from $2 billion to $8 billion.

Mastercard exec is bullish on crypto, sees mass adoption ‘sooner rather than later’
Both large and small companies are retaining their crypto optimism despite the recent market correction in the developing technology space. Mass adoption of blockchain technology and digital assets is going to happen sooner rather than later, according to Mastercard’s VP of new product development and innovation, Harold Bossé. But there are a number of challenges right now stopping corporations from entering the market, Bossé said, like lack of senior management understanding and regulatory concerns, among other aspects. 

Luna Foundation Guard adviser says Do Kwon hasn’t reached out since UST crash
There seems to be no shortage of news around Terraform Labs’ cryptocurrency LUNA and algorithmic stablecoin TerraUSD (UST) imploding. Last Friday, one of the four advisers to Luna Foundation Guard (which was Terra’s Singapore-based nonprofit dedicated to protecting UST), told TechCrunch there have been no meetings with Terra founder Do Kwon since UST crashed. How does the adviser keep up with the Terra situation? Through Twitter like everyone else, he said. 

Thanks for reading and please subscribe to Chain Reaction on TechCrunch’s newsletter page,

Lucas and Anita