Forbes

Bubble Surfer

- By Steven Ehrlich

Olaf Carlson-Wee rode 2017’s “initial coin offering” craze to become one of crypto’s top venture investors. Now he’s pulling the strings, and 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 pulling the strings, and raking in hundreds of millions, from a blockchain rage called DeFi, which promotes the fantasy of democratiz­ed financial services.

On a frigid, windy day in January, Olaf CarlsonWee is settling in for a long Zoom call from his $10 million Soho loft in Manhattan, reflecting on how far he has come in the four and a half years since Forbes featured him on its cover, labeling him the poster child for the cryptocurr­ency bubble of 2017.

Back then, a speculativ­e frenzy of hundreds of initial coin offerings (ICOs) pushed the cryptocurr­ency market to well over $100 billion in value as greedy fools bid up junk tokens backed by little more than a white paper and some quirky computer code. Then 27, with three years of Coinbase work experience under his belt, Carlson-Wee was considered a sage. He had started a San Francisco–based hedge fund called Polychain Capital that was backed by Andreessen Horowitz, Union Square Ventures and Sequoia Capital, and his fund’s assets had swollen from $4 million in September 2016 to $200 million.

Today, despite recent turbulence that saw bitcoin and other cryptocurr­encies fall 30% to 50% in a matter of weeks, the market for them is still close to $2 trillion, and Polychain’s assets are $5 billion—up 125,000% since inception. Carlson-Wee just closed a $750 million raise for his third venture fund, backed by Tiger Global Management and Singapore’s Temasek Holdings, two of the smartest and most successful investment firms on the planet.

“We had a lot of interest. Many, many hundreds of millions in demand more than we raised,” boasts Carlson-Wee, now 32, clad in a lime-green tie-dyed T-shirt, running his fingers through his spiky, bleached blond hair.

Carlson-Wee’s net worth has grown to an estimated $600 million because among crypto investors, he has an uncanny knack for deftly navigating a market chronicall­y infected by hyperbole and assets without any discernibl­e intrinsic value. Among the most profitable of his early investment­s was a major stake in ether, the token underpinni­ng the ethereum blockchain—now worth $2,700, but trading for less than $12 back in 2016 when Carlson-Wee’s Polychain went all in.

He is not shy about his new riches, quite literally created from ether. His 6,000-square-foot Soho digs, which he recently bought fully furnished, was once an art gallery owned by prominent NYC collectors. Its opulent interior design, described by its realtor as lower Manhattan’s “most Instagram-worthy” residence, was inspired by the luxury Hôtel Costes in Paris and features tin ceilings, gold columns, a cobra-shaped snakeskin chair and chandelier­s fashioned from organ pipes and crystal. Its master bathroom is a study in gold, including a mirrored ceiling and a shimmering gold-plated bathtub with a large dollar sign hanging on the wall above it. A few months before he bought this New York party palace, when bitcoin was trading above $50,000, he closed on another trophy property in the Hollywood Hills. That $28.5 million, 12,000-square-foot mansion has breathtaki­ng ocean and Los Angeles skyline views, an indoor pond, infinity pool, seven bedrooms and spaces for ten cars.

One of the keys to Carlson-Wee’s success has simply been being early. He met ethereum founder Vitalik Buterin, for example, when the then-19-year-old briefly worked at Coinbase in 2013. That was just before Buterin wrote his revolution­ary blockchain white paper, which one-upped bitcoin by creating a multipurpo­se computing platform based on so-called “smart contracts.” These agreements have no convention­al legal standing, but because the terms are blindly enforced by computers, they are more immutable. Without smart contracts there could be no ICOs or NFTs.

In 2018, at the Web 3.0 conference in Berlin, Carlson-Wee met MIT research scientist Harry Halpin—the co-creator of a super-privacy protocol called Nym. Halpin was frustrated by traditiona­l VCs’ reluctance to back him. Says Halpin, “This smartly dressed young fella came up to me and said, ‘We at Polychain are interested in funding subversive technology.’ ” Polychain led a $6.5 million round for Nym last July, just before the startup hired Chelsea Manning.

“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.”

Polychain’s most ambitious investment foray to date has been its backing of a phenomenon known as decentrali­zed finance, or DeFi, which uses blockchain technology in peer-to-peer applicatio­ns. The promise is that DeFi could eventually become a cheaper, more private, secure and accessible replacemen­t for traditiona­l financial institutio­ns, including banks and exchanges. Carlson-Wee was an early investor in DeFi’s biggest winners, such as Uniswap, an exchange; lender Compound; MakerDAO, a lender and stablecoin creator; and DeFi derivative­s exchange dYdX. Blockchain-traded DeFi tokens have had eye-popping returns. The total market now amounts to $78 billion, up from $10 billion in January 2020.

Crypto idealists, including CarlsonWee, believe DeFi is the future of finance, and just the thing to level off a lopsided financial playing field. For centuries middlemen bankers—from the Medicis of Florence to JPMorgan’s Jamie Dimon— have wielded great power and amassed huge fortunes. DeFi aims to cut them out.

All DeFi functions—payments, savings, trading, lending—are conducted on blockchain-based software. Changes are made by token holder vote. There is no central control.

Carlson-Wee’s success lies not only in his ability to find the most promising DeFi startups but in Polychain’s willingnes­s to make outsize investment­s in them. Decentrali­zation and democratiz­ation may be the DeFi ideal, but when it comes to decisions that might affect Polychain’s returns, Carlson-Wee is very much in charge. He doesn’t hesitate to use his firm’s formidable voting power to ensure that the interests of his partners come first.

“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.”

OLAF CARLSON-WEE’S 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 bit

coin. His excitement over the new tech drove him to sink almost his entire life savings—about $700—into bitcoin at prices ranging from $2 to $16. He went on to write his senior thesis in sociology on the emerging cryptocurr­ency.

After graduating in 2012 and spending a few months working as a lumberjack while living in a yurt on a commune in Washington State, he blindly emailed his thesis to Brian Armstrong and Fred Ehrsam, the cofounders of budding crypto exchange Coinbase. They hired him as their first employee and put him in charge of customer service. Carlson-Wee famously insisted that his entire $50,000 salary be paid in bitcoin.

Though he had little coding experience, he helped automate many of Coinbase’s routine customer-service responses. He was eventually put in charge of risk and lowered Coinbase’s fraud rate by 75%.

Early in his crypto career, Carlson-Wee says, he realized that entreprene­urs with a strong vision for the future were funded and rewarded most, rather than those who were reactive or fast followers.

“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.”

But as Coinbase expanded and became more mainstream, it was forced to pay greater attention to regulatory demands. It began to intentiona­lly steer clear of crypto’s bleeding edge, where CarlsonWee felt the most potential lay. He was most excited about Buterin’s new ethereum blockchain, which unlike bitcoin could (theoretica­lly) run virtually any type of digital platform, making possible decentrali­zed versions of Uber, Facebook, Google or Dropbox.

Former Coinbase colleague Adam White, recently president of crypto wallet Bakkt, believes that as Coinbase added dozens of software engineers from top schools, Carlson-Wee had become pigeonhole­d as the “operations guy.”

“I started to realize that Olaf was more than just the guy who was going to work hard and answer [customer] support tickets,” says White, who recalls a holiday party in 2014 at which Carlson-Wee casually told him that bitcoin would never trade as low as $300 again.

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.”

LEVERAGE HAPPENS to be the fuel powering the current DeFi boom. From a capital-raising standpoint, DeFi is the successor to initial coin offerings. Most of the ICOs of 2016 and 2017 were junky digital IPOs in which speculator­s traded ether tokens to invest in hundreds of questionab­le projects. The majority were worse than even the shoddiest stocks. There was almost no disclosure, and investors had no real equity or voting power. Billions were lost.

DeFi is touted as an improvemen­t because investors in these ethereum-based platforms are merely lending their capital, usually in the form of ether or a stablecoin like USD Coin, to others in peerto-peer networks. The rules are set out in smart contracts embedded in the ethereum blockchain. By lending crypto, DeFi investors can make money—lots of it— through something called yield farming.

It works like this: Say you own $10,000 worth of ether. Rather than having it sit in your digital wallet on Coinbase earning zero interest, you could deposit it in a DeFi platform like Compound, making it available for somebody else to borrow for a set time. In exchange you’ll earn an annual yield as high as 30%. But that’s not all. You’ll also be rewarded with Compound’s own tokens, COMP, the platform’s native asset, which entitles you to vote and have a say in governing the network. COMP tokens also trade actively. Between their launch in June 2020 and mid-2021, they skyrockete­d in value from about $65 each to more than $800. Even after the recent crypto crash they’re up about 90% since release.

“You can now have lending agreements for millions of dollars between two people around the world who don’t know each other’s identities,” says CarlsonWee, whose 2018 $2 million investment in Compound led its seed round at a $22 million valuation. Compound released its token in June 2020. Its market cap soared to $4 billion in 2021 and now hovers around $800 million.

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So far Olaf CarlsonWee has managed to avoid most of DeFi’s wipeouts. Still, the value of his Polychain and personal net worth have suffered as crypto prices have hit a gnarly patch.
Surf’s Down So far Olaf CarlsonWee has managed to avoid most of DeFi’s wipeouts. Still, the value of his Polychain and personal net worth have suffered as crypto prices have hit a gnarly patch.
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