What is ParaFi Capital? An investment firm that focuses on blockchain and DeFi

ParaFi Capital invests in digital assets that address tangible use cases, demonstrate signs of product-market fit, and exhibit compelling cryptoeconomic models.

lochoang

Published Mar 19 2022

Updated Dec 11 2024

9 min read

In today’s article, we will analyze the ParaFi Capital portfolio as well as the investment thesis with the performance of each project to capture the most valuable insights for the community.

What is ParaFi Capital?

ParaFi Capital is an alternative investment firm focused on blockchain and decentralized finance markets. We take a unique multidisciplinary approach to identify untapped opportunities through a research-intensive, long-term focused investment framework.

ParaFi Capital invests in digital assets that address tangible use cases, demonstrate signs of product-market fit, and exhibit compelling cryptoeconomic models. With their strong backgrounds in finance and technology, the team analyzes these investments through a rigorous fundamental analysis process to ensure they align with our long-term goals for growth as an organization.

The capital firm strictly follows these principles to ensure the best outcomes for the development of crypto and their portfolios:

Analytical Rigor: The firm seeks to solve complex problems in the crypto world by decomposing protocols and models to make informed decisions on the investment process.
Independent Thinking: ParaFi Capital harnesses the independent and unconventional perspectives on their investment to discover hard-to-find sources of return and build long-term value.
Long Term Compass: They make strategic partnerships and investments for long-term relationships and sustainable growth for the company and other parties.

In addition to investing in leading DeFi protocols such as Compound, Aave, Uniswap and Synthetix, ParaFi actively supports their portfolio as a power user, liquidity provider and governance participant as well.

ParaFi Capital Team

The team has deep backgrounds in finance and technology with over a decade of cumulative institutional investing experience at leading asset management firms KKR, Blackstone, and JP Morgan. They are intellectually curious, analytically rigorous, and strive for excellence.

The prominent members of ParaFi Capital include:

Benjamin Forman - Founder & Managing Partner: is previously an executive at private equity firms KKR and TPG.
Santiago Santos - Partner: graduated from Boston University and previously worked at investment banking department at J.P.Morgan.

ParaFi Capital's investment thesis

From the timeline of the investment, we can easily see that ParaFi Capital focused on investing in the blockchain and decentralized finance ecosystems. Therefore, most of the investments are allocated to the blockchain and cryptocurrency sectors.

During the period from Q1 2020 to Q1 2022, ParaFi Capital invested in more than 70 projects. In Q4 of 2021, when the market was in a very strong growth phase, the investment fund has had 17 deals in the last 3 months of 2021.

There are many types of funding rounds available for early projects and investors, depending upon the level of interest among potential investors. It’s not uncommon for early projects to engage at “Seed Rounds” and “Pre Seed Round” as these are the earliest stage of funding a new project.

ParaFi Capital focuses mainly on deals from the earliest rounds such as Seed, Pre Seed and Venture Rounds with the number of investments including:

Seed & Pre Seed Rounds: 31 investments
Series Rounds: 20 investments
Venture Rounds: 10 investments
Funding Rounds: 2 investments

Capital firms that participate in Seed Rounds can gain many advantages such as having the ability to work with the company from early stages and lower entry prices. However, they will be facing a high risk of losing their investments as the projects are in their initial stages without completed products. Therefore, investing heavily in the early Rounds of the project can bring great returns if the project is successfully scaled. However, the risks that exist are enormous

ParaFi is considered a relatively new capital firm in the market as it was only founded in 2018. It is a challenge for them as an investor's responsibility is not only to provide funds for the projects but also to utilize the experience and other resources to accelerate the developments of their partners.

An Overview of ParaFi Capital Portfolio

Below are all the projects that have been invested in by ParaFi Capital since June 2020. We can see that this investment fund has a lot of deals in Seed Rounds and Venture Rounds as mentioned above.

Therefore, the funds raised through these rounds are mostly under $30M. However, there are some very prominent Rounds with huge amounts of money called for such as:

Ammonia Brands (18-Jan-2022): Raised $358.9M
Fireblocks (1-Dec-2021): Raised $550M
ConsenSys (17-Nov-2021): Raised $423.9M
Gemini (18-Nov-2021): Raised $423.9M
Solana ((9-Jun-2021): Raised $314M
BlockFi (11-Mar-2021): Raised $350M

Looking at the big deals that ParaFi has invested in, it can be seen that 4/5 deals are made in the second half of 2021 and early 2022 when the market is already in an uptrend period. This is also understandable when these platforms have good reputations in the market and prove their products are good as well as having a large number of users or supporters.

Before that, there were a number of prominent projects such as Uniswap, Aave and 1inch that were invested by ParaFi in 2020 when the market was on the downside. Unfortunately, it’s not possible to know the entry price and exit price of an investment fund. However, with early investment in DeFi platforms from mid-2020 and experiencing two uptrend periods in 2021, the capital firm has earned great returns on its investments.

It is crucial to know the investment thesis of a capital firm as well as to predict their connections in the markets and then to evaluate whether the investments are effective or not. Although we are not part of the team, we can somewhat evaluate their resources, connections and knowledge by looking at the ecosystems or categories that the firm has heavily invested in.

In the portfolio of parafi capital, there are 17 projects per year on Ethereum and 12 other projects in the Multi-chain group. DeFi platforms also account for the largest number of 14 projects.

As we all know, the market in 2021 is completely different from before. Although Ethereum is still the largest ecosystem in the market and is the standard for other ecosystems to develop. However, there were many blockchain platforms that grew at a rapid pace such as Solana, Luna, Avalanche or Binance Smart Chain.

In addition, as DeFi, AMM and Infrastructure projects account for the most investments in the portfolio, showing that the firm is looking for long-term and sustainable growth instead of speculating on short-term trends such as Metaverse or GameFi.

Blockchain Platform

Solana: is the fastest growing blockchain platform in the market with ROI of 36,984% at today's price. The private token sale raised a total of $314M and was led by Andreessen Horowitz and Polychain Capital with other highly respected and reputed capital firms such as Multicoin Capital, Alameda Research, and ParaFi Capital. The huge fundraised will accelerate the development of the project as well as its ecosystem.

Manta Network: is a privacy layer project in the Polkadot ecosystem, has completed a new round to further develop decentralized financial use cases by enhancing blockchain privacy. Manta Network raised $5.5M in a venture round included participation from more than 30 venture funds, including crypto hedge fund CoinFund and alternative investment firm ParaFi Capital.

DeFi

1inch: A decentralized exchange that aims to offer the “best rates by discovering the most efficient swapping routes across all leading DEXes. The platform raised a total of $12M in a Series A round from institutional investors, including Pantera Capital, ParaFi Capital and Nima Capital. These funds will be used to further develop a variety of 1inch products, hire additional team members, fuel the project’s expansion into new markets and amplify marketing activities.
Beta Finance: A decentralized finance startup providing money market protocol for lending, borrowing, and short-selling crypto assets. The project has raised a total of $5.8M in funding in a Venture-Series Unknown round on Oct 29, 2021. The investment included ParaFi Capital and Multicoin Capital as the leading investors.
Coin98: A cross-chain liquidity aggregation protocol, is the second product of Coin98 Labs following Coin98 Wallet, a crypto’s first cross-chain compatible wallet that allows DeFi users across many blockchain networks to use DeFi services with a single wallet. The project has raised a total of $1.25M in a seed round led by ParaFi Capital, Multicoin Capital, Hashed and Spartan Group.
Uniswap: A cryptocurrency exchange that uses a decentralized network protocol. The project has raised $11M in a Series-A round with the participation of Andreessen Horowitz, Union Square Ventures, Version One, Parafi Capital, Variant, SV Angel and Paradigm. This investment round will help them to grow their team and build Uniswap V3, which will dramatically increase the flexibility and capital efficiency of the protocol
Acala Network: Was founded to build a DeFi infrastructure for Polkadot’s multi-chain ecosystem. The project has closed a $7 million simple agreement for future tokens (SAFT) led by Pantera Capital. Among other investors such as Arrington XRP Capital, ParaFi Capital, Coinfund, Spartan Capital and others.
Aave: An open-source and non-custodial protocol enabling the creation of money markets. This is the most popular lending platform in the market and ParaFi Capital participated in the ICO with a total of $4.5M raised for Aave back in Jul 2020.
Notional Finance: The first fully decentralized ethereum-based protocol for borrowing and lending at fixed rates. The platform closed a $10M Series A funding round from institutional investors, led by Pantera Capital with participation from Parafi Capital, 1Confirmation, Spartan Group, Nascent, Nima Capital, and others.

Infrastructure

The Graph: Offers an indexing and query protocol for Web3 using GraphQL. The project has raised $5.1M in a funding Round from AU21 Capital and ParaFi Capital among other investors.
Zapper: A decentralized Finance dashboard, that has raised $15M in a Series A round led by Framework Ventures with the participation of ParaFi Capital among other investors.
Radicle: A fully decentralized code repository, has raised $12Mn in funding, integrated its peer-to-peer network with Ethereum. The funding round was led by NFX and Galaxy, with participation from Placeholder, Electric Capital and ParaFi Capital.

Options & Derivatives

Lyra Finance: Has raised $3.3M co-led by the largest venture capital firms in DeFi, Framework Ventures and ParaFi Capital, with support from other investors as well. Lyra is the first options protocol to manage risk for its liquidity providers, which enables it to offer the best pricing and liquidity for traders.
Polymarket: An open finance application meant to be an auditable, low-friction, globally accessible of real-time knowledge. The project has raised $4M in a Seed Round with the participation of ParaFi Capital among other investors.

Stablecoin

Fei Protocol: A project building a more capital-efficient decentralized stablecoin, raised $19M in a Series-A round from Andreessen Horowitz (a16z), Framework Ventures, Coinbase Ventures and ParaFi Capital, among others.
DeFiDollar: Has raised $1.2M in funds from a Seed Round with the participation of ParaFi Capital, CMS Holdings and DeFi Alliance among other investors. The funds will be used to pay the salaries of the existing team and hiring more developers to strengthen the development process.

NFT, Metaverse & GameFi

Amonica Brands: The company driving digital property rights via NFTs and gaming to build the open metaverse, has raised $358M in a funding round, making the company’s value at a pre-money valuation of over US$5 billion. The round was led by Liberty City Ventures with the participation of ParaFi Capital and other highly respected and reputed investors.
Rarible: A blockchain-based marketplace for tokenized digital art and NFTs. The project has raised a $1.75M Seed Round. The round is led by 1kx, who is joined by ParaFi Capital, Coinbase Ventures with other investors.
Metasoccer: An entire soccer universe developed on the blockchain. The company has just raised 2 million euros in a recent round of financing supported by the investment fund Play Ventures with the participation of Defiance Capital, Parafi Capital, DAO Maker, Kyros Ventures and other investors.

Should we follow the ParaFi Capital Portfolio?

As you all know, it is very important to keep an eye on mutual funds to understand market trends and insights into each investment they have invested in. Therefore, following ParaFi Capital is a necessity. In addition, we should also monitor other large investment funds such as Three Arrows, A16z, Multicoin and other investment funds to make comparisons and find insights for investment decisions.

As for ParaFi Capital in particular, although the investment fund was only established in 2018. However, they have made very profitable investments such as:

Aave: 72.95x from ICO price to ATH.
Uniswap: 142x from listing price to ATH.
1inch: 11x from ATL price to ATH price.

However, we need to note that ParaFi invests heavily in projects based on the Ethereum blockchain. The market in 2021 has seen many other prominent blockchain platforms such as Binance Smart Chain, Solana or Avalanche. Therefore, this is a good sign for those heavily invested in Ethereum blockchain specifically. As for those who are interested in other ecosystems, ParaFi Capital may not be a very suitable compass.

Please note that is purely based on the writer’s opinion, the market will always change and so will investment funds. It is very likely that in the future, ParaFi Capital will expand its investment fund in other areas such as GameFi, Metaverse and in other ecosystems such as Solana, Avalanche. Therefore, we need to monitor investment funds closely to make accurate judgments for the time being.