Arthur Hayes’ Fund Wants to Avoid Regulatory Conflicts With Decentralization

Maelstrom is the debut fund from BitMEX founder Arthur Hayes’ family office. Just five months old.

BitMEX’s former CEO is serving as Maelstrom chief investment officer, with Akshat Vaidya — previously BitMEX’s vice president of corporate development and strategic finance — operating as the fund’s investment head.

Hayes, who’s still on probation as a result of Bank Secrecy Act charges, has indeed been active in crypto since his case was finalized.

But Maelstrom must find its footing as crypto experiences tightening across its venture capital landscape, alongside diminished late-stage funding.

While there are signs of revitalization, startups should avoid securing funds at excessively high valuations in order to mitigate the impact of any subsequent bear market.

Blockworks caught up with Vaidya to learn more about how Maelstrom navigates that necessary realism, while maintaining focus on tangible returns.

Blockworks: Can you provide an example of a startup you’ve invested in that you believe is doing an excellent job in building decentralized infrastructure?

Vaidya: Our debut investment in January was in Obol Labs, a distributed validator technology middleware company that allows Ethereum validator keys to be “split” among multiple node operators, effectively reducing single points of failure for Ethereum staking.

We like startups like these for a few reasons:

1. The team has a mission-critical offering addressing a potentially huge market.
2. It’s led by high-quality founders building strong tech/operational moats, making it difficult for competitors to enter the sector.
3. Its business model is complementary — and sticky with profitable protocols or businesses in Ethereum staking — rather than competitive.

Blockworks: Given your focus on decentralization, how does Maelstrom see the current regulatory landscape affecting the future of decentralized systems and blockchain technology?

Vaidya: We like to invest where there is no conflict between regulatory concerns and decentralization. There have honestly been cases in the past where regulators rightfully called out counterparty and ecosystem risks of custodial business models in our industry that would have been mitigated or eliminated entirely by greater decentralization. This is where we like to play.

Blockworks: What strategies does Maelstrom employ to ensure that investments are both technologically innovative and financially viable in the long run?

Vaidya: Our financial, operational, legal and tech diligence is rooted in our DNA as founders, builders and operators ourselves. [Hayes] built one of the first profitable unicorns in this industry, and hence Maelstrom has a knack for selecting winning teams and products.

Blockworks: How does Maelstrom support founders after initial investment?

Vaidya: [Hayes] is one of the few investors out there in any industry who has ever built a profitable unicorn from the ground up himself. Many investors out there are excellent at backing winners; but [Hayes] is also excellent at building them. Founders tend to view his experience, relationships and advice as hard to come by.

And given our check size ($100,000 — $250,000), we rarely crowd out others on the cap table. Hence, other like-minded investors tend to invite us to deals as well, as they see us as complementary, not overly dilutive or redundant.

Blockworks: How do you anticipate the future of decentralized products, services, and markets to evolve in the next 5-10 years? How does Maelstrom position itself for these changes?

Vaidya: Within our lifetimes, a nontrivial amount of global GDP will be directly or indirectly cleared on blockchains (public, state-permissioned, and private). We expect this change to come about the same way it did for Zoom — prior to Covid, Zoom spent nearly a decade building infrastructure for a world that didn’t exist yet. Legacy in-person workplace infrastructure worked just fine until suddenly it wasn’t an option.

That’s when new, alternative workplace infrastructure (like Zoom) turned out to be visionary, proving indispensable for the world it predicted would eventually come. Nowadays, if you don’t use Zoom, Hangouts or Teams you basically don’t exist. That seismic behavioral change came about in a span of just six to 18 months.

Blockchain too will have its “Zoom/Covid” cambrian explosion moment some day, when legacy financial infrastructure starts to fail us (for any number of geopolitical, economic or technological reasons). When that happens, our portfolio will be positioned to capture meaningful value.

Blockworks: Given Arthur Hayes’ background, does Maelstrom focus specifically on blockchain-based financial products?

Vaidya: Maelstrom is open to any business model that monetizes the internet in a new way previously impossible.

Blockworks: Could you elaborate on Maelstrom’s long-term mandate? How does this affect your investment decisions compared to other funds that might prioritize quicker returns?

Vaidya: Our family office structure allows us to invest with a longer horizon in mind than typical venture funds, which are boxed into deals with three- to five-year exits. Of course we’ll do those deals too; but we’re also building a long-term portfolio of decentralized infrastructure companies/protocols that will serve as building blocks of the future.

This interview has been edited for brevity and clarity.

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