Olaf Carlson-Wee rode 2017’s “initial coin offering” craze to become one of crypto’s top venture investors. Now he’s raking in hundreds of millions, from a blockchain rage called DeFi, which promotes the fantasy of democratized financial services.
rode 2017’s “initial coin offering” craze to become one of crypto’s top venture investors. Now he’s raking in hundreds of millions, from a blockchain rage called DeFi, which promotes the fantasy of democratized financial services.
"Whatever the ideal, in practice, DeFi is a speculator’s paradise...even after crypto’s recent correction, the amount at risk stands at nearly $80 billion." “I like being the first person to believe in someone,” says Carlson-Wee, just back from spending his New Year holiday with a dozen friends in a house he rented in St. Barts. “Our goal is to invest in breakthrough technologies that will enable new types of human organization and behavior.”
“I’m very much a pragmatist,” he admits. “I don’t think crypto fixes wealth inequality or wealth concentration, but it does shake the snow globe.” crypto journey started in 2011, the summer after his junior year at Vassar College in upstate New York. An avid fan of role-playing video games, he had read about how the underground drug marketplace Silk Road was enabled by a virtual currency called bitcoin.
“Coinbase had the architecture of a central custodian. It was very contrarian in crypto at the time. It was taking on the compliance and antifraud burdens of accepting bank payments,” he says. “This was something nobody had really been able to do.” In 2016, Carlson-Wee informed Armstrong and Ehrsam that he was quitting to form a crypto hedge fund. “I realized that [Coinbase] was going to broadly follow its path with or without me,” he says. “By founding something, I could regain that feeling of super-high leverage.” to be the fuel powering the current DeFi boom. From a capital-raising standpoint, DeFi is the successor to initial coin offerings.
“These loans can be an agreement between a person and a computer, or a corporation and a computer. There’s no concept of identity or legal contract. And yet [because of smart contracts] you can have literally billions of dollars [move] between these people,” Carlson-Wee says. Things don’t always go smoothly, either. Chainalysis estimates that in 2021, 72% of $3.2 billion in crypto assets stolen came from DeFi sites. In early 2020, when the emerging pandemic caused markets to plummet, investors in a Polychain-backed DeFi platform called MakerDAO suffered $8 million in losses when its underlying software liquidated 1,200 collateral positions in response to a 55% drop in the price of ether. At one point the foundation that runs MakerDAO considered an emergency shutdown.
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