ConsenSys, a developer and service provider focused on Ethereum, has closed a $200 million round of funding at a $3.2 billion valuation. New investors include Marshall Wace, Third Point, ParaFi Capital, and Think Investments, who joined follow-on participants including Animoca Brands, Coinbase Ventures, and HSBC. This round quickly follows a $65 million raise, announced in March 2021, which included JPMorgan, Mastercard and UBS.
In the frothiness of today’s crypto market, which has seen the total market capitalization approach $3 trillion and approximately $15 billion in venture capital invested in 2021, a $200 million round could seem rather pedestrian. Especially for a company that was founded in 2014.
However, according to Joe Lubin, CEO and Founder of ConsenSys, who also happens to be a co-founder of Ethereum, this ‘goldilocks’ round is just right for the firm at this point. In an interview with Forbes, Lubin said that “This raise could have been larger if we wanted it to be.”
This announcement comes just as ConsenSys appears to be finding its stride. The company, largely self-funded by Lubin with his personal wealth, was reported to be spending up to $100 million per year. In 2018 it had to undergo a substantial reorganization that saw the exodus of approximately 50% of its employees. Forbes reported at the time that the major cause for this dramatic step was Lubin’s largesse in funding a wide constellation of projects with little oversight or follow-up to ensure that key deliverables were met. These ‘spokes’ made relatively little direct revenue, and most of the funds coming in to the company came from consulting services from another part of the business in the form of cash and equity stakes in clients.
Lubin disagrees with this characterization. “I would argue that when ConsenSys started, there was no ecosystem. The technology was incredibly immature, so we ran lots of experiments,” he says.“Some succeeded wildly and were spun out as separate companies, while many of those experiments were terminated. We still learned a lot from those experiments, and throughout the way, we’ve consistently gained traction.” But regardless, that burn rate was unsustainable.
What came out the other end was a more focused streamlined organization with defined boundaries between the development and consulting services. It was also aided by the massive jump in the price of ether (Ethereum’s native asset), which has surged 489% year to date. Lubin says that now the company is profitable, and a few of its flagship projects are beginning to see significant traction.
Chief among them is MetaMask, a self-custodial wallet (where a user controls the keys safeguarding their crypto as opposed to an exchange such as Coinbase), which has become the industry standard for users to interact with Ethereum-based blockchain applications. The wallet currently has 21 million monthly active users, a 38x increase from 2020, and has enabled more than $10 billion in trading volume through a recently-offered token swap feature.
Another is Infura, a technology stack and set of developer tools that allows developers and applications to interact with Ethereum. According to ConsenSys, 350,000 developers are currently using Infura. It has become so popular that some users have expressed concern that it has become ‘too big to fail’, which in some ways is antithetical to crypto’s decentralization ideology. In fact, almost a year ago Infura had a brief outage that led to delays in crypto exchanges processing trades and even disruptions in MetaMask.
On the enterprise side, ConsenSys also brokered an August 2020 deal to take control of Quorum, an open-source version of Ethereum that can be used to create permissioned networks available to verified users, from JPMorgan. Lubin says that the platform is currently being used by 10 central bank digital currency (CBDC) projects and is close to 100 customers overall.
That said, given all of this growth, Lubin and ConsenSys will still need to contend with the fact that Ethereum faces a substantially more competitive environment than it had in years prior. Largely as a result of Ethereum’s well-documented throughput issues (it can only handle a few dozen transactions per second) and high transaction costs, especially during periods of significant demand, a crop of competitors (dubbed Ethereum-killers), has emerged. Chief among them are Solana, Cardano, Algorand, as well certain use-case specific platforms such as Flow, which caters towards NFTs. While these platforms cannot match Ethereum yet as far as usage or developer activity, many of their token prices have matched or significantly outperformed ether (Ethereum’s native token) this year.
Additionally, many have recently announced nine-figure incentive programs to bootstrap growth, activity and users in an effort to play catch up. When asked about these massive new programs, Lubin noted that they were smart initiatives, but also suggested that the face value of these programs would not hold up if the market was suddenly flooded with those tokens.
Although ConsenSys does not support those networks, Ethereum should get more competitive from a throughput perspective once it completes its long-awaiting transition to a more efficient proof of stake model that should support up to 100,000 transactions per second. It is also supporting some other networks that are compatible with Ethereum, most notably Polygon and Avalanche but already offer higher throughput.
Finally, Lubin makes clear that ConsenSys might not be done raising money, noting that “We’re really happy to close this raise, put capital to work, and potentially do something at some point in the not too distant future.”