Multicoin Capital, one of the top cryptocurrency-focused venture capital firms, was severely affected by the collapse of cryptocurrency exchange FTX.
About 10% of the fund’s total assets under management (AUM) are still pending withdrawals on FTX, according to the letter, sent Tuesday by Multicoin Capital managing partners Kyle Samani and Tushar Jain to partners in the firm’s “master fund.”
"Unfortunately, we are unable to withdraw all of the fund's assets on FTX," the letter reads. “Assets including BTC, ETH and USD are awaiting withdrawals and represent approximately 15.6% of the fund’s assets (excluding side pockets) and approximately 9.7% of the fund’s total assets.”
Before FTX stopped withdrawals on Tuesday, Multicoin Capital was able to withdraw about 24% of the fund’s assets held on the exchange, the letter said. The letter did not mention dollar figures that correspond to percentages.
FTX is one of three exchanges on which the Multicoin Master Fund trades alongside Coinbase and Binance. The exchange founded by Sam Bankman-Fried collapsed amid a liquidity crisis.
Rival exchange Binance struck a deal with FTX on Tuesday for a possible acquisition. If Binance eventually acquires FTX, Multicoin, as a customer of the FTX exchange, is expected to be able to recover 100% of the stranded funds. But the letter states that it is "still possible" that the transaction will not be completed, in which case Multicoin may not be able to fully recover its holdings in FTX, and any recovery may be further delayed.
In addition to assets being stuck in FTX, Multicoin Capital also holds a liquid position in FTT (the native token of the troubled exchange), and its assets trading FTT are also stuck in FTX.
“The fund holds a liquid position in FTT. We acted immediately after Binance announced the purchase of FTX this morning and sold our entire FTT position at an average price of $17.79,” the letter reads. “While we have taken appropriate action, the assets we trade with FTT (BTC and USD) are still on FTX and the fund is currently unable to withdraw that BTC and USD.”
It said in the letter that Multicoin Capital was also indirectly exposed to the FTX situation. That's where it sits in the Solana (SOL) and Serum (SRM) tokens.
"The largest position in the fund is SOL," the letter read. That being said, since Solana is generally considered to be within Bankman-Fried’s sphere of influence, the FTX situation could mean that SOL’s volatility could increase and affect its position in the near term. SOL is currently priced at $18.88, down 32% today.
But in the long run, Multicoin Capital remains optimistic about Solana as its ecosystem continues to grow. “We are long-term bullish on SOL not because of one person and/or entity, but because of the broader ecosystem that develops on top of Solana and the nature of Solana’s underlying technology,” the letter reads. “While the FTX/Binance situation is Obviously not helping SOL in the short term, but we don't think it will hurt our investment time horizon thesis."
As for Multicoin’s holdings in Serum, it stated in the letter that the fund’s SRM tokens will be unlocked over seven years from August 2020 (meaning the fund’s SRM will be vested in August 2027). According to the letter, the fund has been selling SRM at the time of unlocking and has returned about 30 times its initial investment. But the rest of its SRM tokens are designed to be unlocked directly onto FTX.
"It will take approximately five years before side pocket SRM positions are fully unlocked. Given this situation, the unlocking process may or may not change and we will strive to achieve the best possible outcome for investors," the letter reads.
Given the situation with FTX, Multicoin Capital is taking some action. Specifically, it is reducing the fund's counterparty risk by recalling all outstanding collateral. “Apart from the above exposure to FTX, and our exposure to Coinbase (our primary custodian), our only remaining counterparty exposure is Genesis. This exposure represents 1.1% of the fund’s total AUM and we Efforts are being made to eliminate it," the letter reads.
The venture capital firm is also conducting separate communications for partners investing in other funds impacted by these events, including Venture Fund III, which is an investor in FTX US, and it revolves around a one-year-old investment, according to the letter. at FTX International (the entity that entered into the transaction with Binance).
