In brief
- ConsenSys raised $65 million from blue chip companies like UBS.
- The company forecasts revenue of $60 million for 2021.
- ConsenSys is positioning itself as a bridge between traditional and crypto finance.
ConsenSys, the Brooklyn-based Ethereum software developer and incubator, announced on Tuesday that it has raised $65 million in funding from investors including JP Morgan, UBS, Mastercard, and leading crypto companies. It is the first external funding round ConsenSys has ever done.
The round, rumors of which first surfaced last August, comes at a pivotal time for ConsenSys. The company is seeking to rapidly expand its partnerships with traditional financial companies, while also positioning itself as a leader in developing new protocols and building infrastructure for the Ethereum blockchain. (ConsenSys also funds an editorially independent Decrypt.)
In an interview with Decrypt, ConsenSys founder Joe Lubin described the funding round as "very oversubscribed" and called JP Morgan the lead investor. He added that all of the investors—including crypto firms Protocol Labs, Maker Foundation, and The LAO—will play a strategic role, helping ConsenSys navigate different industries and geographies.
"It's a nice mix between the traditional economy and venture capitalists and new crypto protocols," Lubin said. "It lets us retain our street cred while validating the tech with legacy financial institutions."
Despite the big-name investors and sizable capital raise, many in the crypto industry are likely still unfamiliar with the nature of ConsenSys's business. This is in part due to the company's sprawling operations and rapid series of evolutions since Lubin founded it in 2014 as an incubator for a variety of Ethereum-related projects. ConsenSys swelled to more than 1,000 employees and a laundry list of portfolio projects by 2016, then laid off hundreds of people amid the downturn of "crypto winter."
More recently, the company has been on an upswing thanks to the soaring price of ETH (up 1,240% in the past 12 months) and high-profile partnerships, including with JP Morgan, which spun off its enterprise blockchain unit Quorum and sold it to ConsenSys. Meanwhile, ConsenSys has seen huge adoption of some homegrown projects like MetaMask, a wallet for navigating the decentralized web. Other popular ConsenSys-funded products include Ethereum infrastructure provider Infura, blockchain developer tool kit Truffle, and EulerBeats, a collection of music NFTs created by Treum, a ConsenSys company.
The surge in demand for its software tools, including from major financial companies, recently led ConsenSys to split into two corporate entities. The newer one is called ConsenSys Software Inc (CSI), and is dedicated to supplying a blockchain software stack to enterprise clients. The original "mothership" company once known as ConsenSys AG has been rebranded to ConsenSys Mesh, and continues to serve as an incubator and venture capital firm.
Ambitious plans and a token-rich balance sheet
Lubin frames the investment from the likes of JPM and Mastercard as proof that the traditional finance world is rapidly integrating with the new realm of digital money—one that revolves around decentralized financial platforms and new software protocols.
In this fast-emerging new economy, Lubin views ConsenSys as a lynchpin that supplies the picks and shovels to companies and consumers.
As an example, he cites a ConsenSys product called MetaMask Swaps, which facilitates rapid swapping of different crypto assets. The tool is available to MetaMask users on the browser extension and the mobile app, while ConsenSys is also offering it as a developer kit and an enterprise bundle to big companies. In the future, Lubin claims ConsenSys will be an engine for a wide variety of other products in the world of decentralized finance (DeFi): insurance; savings accounts; borrowing protocols; data feeds; custody services; and more.
But despite its high profile partnerships and recent product momentum, ConsenSys's financial situation represents something of a black box—especially at a time when other crypto companies, notably Coinbase, are publicly revealing details of their balance sheets ahead of going public. Coinbase saw profit of approximately $730 million to $800 million on revenue of $1.8 billion in Q1.
Lubin says ConsenSys is poised to double its revenue in 2021 to a relatively modest $60 million. A good portion of this revenue currently comes from MetaMask, which charges service fees of 0.875% on token swaps, and has earned almost $17 million on more than 2 billion in cumulative swap volume. Lubin envisions a series of future revenue streams composed of per-transaction service fees like what MetaMask generates, as well as licensing deals for enterprise software products.
For now, the valuation of ConsenSys is opaque, in part because the new $65 million investment came in the form of convertible notes, which allow the investors to convert their capital into equity only in certain circumstances. Lubin says that ConsenSys will likely receive a formal valuation in the next 12 months.
There's another unusual feature of the recent investment round: a portion of it came in the form of Ethereum-based stablecoins DAI and USDC. These will be just the latest digital tokens added to ConsenSys's balance sheet—tokens that amount to a wild card in assessing what ConsenSys is worth.
According to Lubin, the company's token holdings are very significant, though he didn't elaborate further. In many cases, ConsenSys acquired tokens as a result of backing crypto startups. Lubin acknowledged that not all of the projects for which ConsenSys holds tokens are of equal value, but said the company holds more than 100 different types of tokens.
At least a portion of those are in blue-chip crypto projects like Ethereum and Filecoin—meaning ConsenSys could very well be holding tens of billions of dollars on its balance sheet.