Through a variety of proxy vehicles, the notorious entrepreneur and investor Peter Thiel has jumped into crypto with a battery of big investments. DisruptionBanking recently wrote about Peter Thiel’s political role as a kingmaker in the Republican Party. Now, we’ll explore his influence as a VC in the tech industry.
In 2017, Theil’s Founders Fund acquired hundreds of millions of bitcoin. Founders Fund, where Thiel remains managing partner today, became one of the three principal organs by which he articulated his view as an ideologically-driven investor. Since then, Thiel has oft-expressed his regret.
Thiel feels like he could have shaped the whole ecosystem to his fancy if only he had invested bigly a few years before. He wishes someone had explained to him that digital assets could powerfully serve libertarian purposes, disrupting the established financial order, a tenet of Thiel’s investment strategy. Thiel’s backroom influence is likely why the Trump administration suddenly became pro-crypto.
Regardless, Thiel is now making waves in that ecosystem, but not all of those on the receiving end of his cash bazooka give rosy reviews. In fact, in the case of the EOS token and associated blockchain, the community rebelled against and cut ties with Thiel’s company, citing “broken promises.” More on that below.
It can be tricky to understand Thiel’s influence because he operates with vertically integrated companies, where his ownership is only reflected in the last rungs of a cascade of enterprises.
Mark Zuckerberg’s guru, Thiel talks publicly about his ideas and to some extent about his strategies, but his main speech comes in the form of his investments, often showered by Wall Street accolades later, so we should have a look.
Thiel’s Web of Influence
In his early career, Thiel chose niche markets and sought out companies that create rather than disrupt. Facebook, Airbnb, and SpaceX fit that mold. Thiel’s influence now has three principal vehicles, first Founders Fund, followed by Valar Ventures and lastly Mithril Capital Management. All three seek to champion disruptors.
In 2005, together with Ken Howery and Luke Nosek, Thiel started Founders Fund with the mission of investing in the creation of revolutionary technologies. Next, in 2010, Thiel Capital spun out Valar Ventures, led by Andrew McCormack and James Fitzgerald.
The New York-based firm has become a major backer in the European fintech space, including the Vienna-based Bitpanda, a crypto exchange. Valar Ventures led all three rounds of funding for the firm, during which it tripled in value, from $1.2 billion to $4.1 billion. A similar ascension happened to N26, a German neobank. Currently valued at $3.5 billion, N26 first secured Valar funding back in 2015.
Valar has a diverse portfolio of crypto platforms. Located in Singapore, Vauld provides liquidity to exchanges like Binance and Bitgo, and XanPool is a SWIFT-like payment network with headquarters in Hong Kong. Both have received backing from Valar, and every time, it was Valar leading the round.
From a bird’s eye view, Valar is capitalising on the competition of traditional banking houses, across Europe and the world. Thiel’s motive likely springs from his view of European markets as calcified and in need of disruption. He has previously knocked European regulatory actions against American big tech as driven by jealousy.
In 2012, Peter Thiel and Ajay Royan founded Mithril Capital Management, with the express mission to deliver change in industries where it is “long overdue.” Among its targets are finance, energy, biotech, pharmaceuticals, AI, banking, and various sectors of IT, and it successfully exited from Palantir, among other hi-tech unicorns.
Thiel wields Block.one
In 2018, Peter Thiel, along with Alan Howard and Louis Bacon, backed Block.one, a blockchain software company based in the Cayman Islands. Block.one had launched the EOS token in 2017, built on the EOSIO blockchain protocol. EOSIO bills itself as an open-source protocol that maximizes scalability, security, and transparency.
@Trim_Bot, a Twitter user with insight into Block.one and EOS, told DisruptionBanking that: “EOS is actually a truly decentralised network, similar to Bitcoin. Unlike Ethereum, or Cardano, or any other blockchain, the founders of the protocol aren’t in control of the network. Vitalik invented Ethereum, and he runs the foundation. Likewise for Charles and Cardano. With EOS, it’s truly run by the public, which is why like Bitcoin, it’s not a security.”
J. Tyler Armstrong, an investor who has held EOS for five years, told DisruptionBanking that as “the largest decentralised autonomous organization (DAO) in the world,” he believes EOS “is revolutionary because the consensus mechanism that it uses to validate transactions/blocks is delegated proof of stake (DPOS), where the token holders of the network are able to vote in who validates the network or even who develops and maintains the code base.”
In the case of EOS, Block.one maintained the code base, and in return, Block.one was given a large bounty of EOS tokens, some of which would continue to vest over a period of years. However, the Initial Coin Offering (ICO) was dogged by fears of interference by major Block Producers based in China, as well as allegations of wash trading and vote trading, which may have inflated the price.
In 2019, Block.one coughed up a $24 million to the SEC, settling charges over Block.one’s unregistered ICO without admitting guilt. Although it created a headache for Block.one, the fine was a mere pittance compared to the record-breaking $4 billion raised with the ICO. The SEC scrutiny would become important later.
The EOSIO blockchain has since become the home of dapps, financial instruments, and new technology, such as decentralised identity verification framework, and Google Cloud is providing EOSIO with cloud infrastructure.
“Google Cloud will continue to provide its highly provisioned, low-latency infrastructure to Block.one,” said Dan Larimer, then-CTO at Block.one. “Through secure oracles, inter-chain transaction reporting, key management, and high-integrity full-node validation, Google Cloud’s confidential computing infrastructure will enhance the security, scalability, and decentralisation of blockchain technology.”
Rebellion against Block.one
However, the EOS community waited for Block.one to start delivering on its promises.
Trim_Bot explained: “Block.one did contribute a little bit to the EOS main network, but they claimed they’d be deploying at least $1B in capital to support the EOS network, and that didn’t come to fruition. Block.one will claim they provided a lot of value to the network and fulfilled their end of the bargain, while the community feels as if Block.one just effectively did a rug pull. Block.one did try to build some major products on EOS but ran into a lot of regulatory scrutiny. The truth is probably somewhere in the middle.”
Facing regulatory scrutiny as a result of the unregistered ICO, Block.one seemed to scrap its plans for EOS. The promised decentralized ecosystem promised by Block.one failed to materialize and activity on EOSIO subsided. Instead of reinvesting investor funds as promised, Block.one shifted its attention to Bullish Global, even transferring its 20.2 million EOS tokens to a Bullish account.
According to a post on EOSgo.io, the EOS community became hostile to Block.one “for all their broken promises.” Dan Larimer, the CTO, resigned from Block.one in protest.
EOS started leaking talent in Larimer’s absence. Then, Larimer came back with a vengeance, accusing Block.one of mismanagement and abandonment and leading a revolt against Block.one’s influence on the EOSIO blockchain.
Larimer continued, arguing, “When every change must go through a committee, every ring must be kissed, and the highest value is ‘not breaking’ and ‘not risking’ then innovation will slow.”
Aaron Cox, co-founder of Grey Mass, told DisruptionBanking that it was “a statement of frustration” over having “a single person being the checkpoint in terms of accessing public funding,” when the community preferred “a decentralised means,” in alignment with the ethos of EOS.
Block.one and the EOS community at first conducted negotiations to find a resolution, but Block.one reportedly walked away from the talks. Larimer engineered an upgrade that will soon give complete control over the EOS codebase, and EOS Network Foundation (ENF) has fully severed ties with Block.one. In addition, the EOS community voted to discontinue the $250 million in tokens that would be transferred to Block.one over the next five years.
J. Tyler Armstrong said, “To put it in perspective a bunch of random people across the internet just used code and a blockchain to vote out a company that was not up holding its end of a deal to develop and maintain the network. I think that that is incredibly revolutionary.”
Block.one: EOSIO’s Neglectful Patron
In the fallout between EIOSIO and Block.one, most of the events seem to unfold on LinkedIn and Twitter, where rumors emerge of top talent flowing back to EOS.
According to @Trim_Bot, “For years, people on EOS were reluctant to build anything (i.e. a wallet) because Block.one claimed they were working on those sorts of things. This led to basically a stand-still, where builders were waiting for Block.one to do something, Block.one promised to do something, but for whatever reason they never delivered. It set back the EOS network quite a bit…
“A lot of the top engineers at Block.one joined the company because they wanted to build on EOS, including Dan Larimer, but after seeing years of minimal contributions from Block.one, they decided to return to the community and start building on EOS.”
This impetus was behind the recent founding of the ENF, which Trim_Bot says is responsible for “providing leadership, deploying capital – all the things you would have expected from Block.one.” Trim_Bot added:
“So is Block.one the bad guy? I think they really let down the community, and got rich by selling them false hope. But the biggest contribution they ever made to the EOS community is making it very clear this is a public network, and not Block.one’s blockchain, which may end up going down in the history books as the best thing B1 ever accomplished, as it ensures EOS will not be considered a security.”
Some of the EOS community are not ready to bury the hatchet. Yves La Rose, the founder of the ENF, told Hacker Noon that the ENF is gearing up for legal action against Block.one, commenting:
“We have been disappointed with Block.one’s reaction to our attempts to negotiate a solution following its failure to fulfill its commitments. As a result, we are exploring all possibilities to reach a resolution of this outstanding issue by other means.”
Despite the disappointment and bad blood, the EOS community has since bounced back from its fateful relationship with its neglectful benefactor, with new policies, new VCs, and newfound motivation. EOS seems to be an outlier in Thiel’s sphere of influence, where he is generally regaled with adulation and beseeched for advice by young founders. The EOS fiasco may give some entrepreneurs pause, but for Block.one, it will likely be a mere bump in the road.
By proxy, Thiel still controls a sizeable investment of EOS tokens, but the digital mutiny against Block.one underlines the risk of power struggles in the DeFi ecosystem. For Thiel, Bitcoin will always be the one that got away.
Recently, Thiel stepped down from Facebook’s board to focus his efforts on “cleaning house” in the Republican Party and reinstalling Trump as dictator-for-life. Naturally, his turn toward politics will leave less time for steering unicorn companies, but his influence will continue to be felt.
Author: Tim Tolka, writer, journalist, and BI researcher
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The Editorial Team at #DisruptionBanking have taken all precautions to ensure that no persons or organisations have been adversely affected or offered any sort of financial advice in this Article. This Article is most definitely not Financial Advice.