Paradigm, the DeFi venture capital powerhouse that backed Uniswap and MakerDAO, has broadened its portfolio by taking part in a $1.5B investment in Citadel Securities, a global market maker estimated to handle 27% of U.S. securities volume.
The TradFi deal, which was led by Sequoia Capital, signals that Citadel Securities will explore the digital asset sector. Paradigm co-founder Matt Huang stated that Citadel intends to extend its reach into “more markets and asset classes, including crypto.” Likewise, he said the deal will “broaden” Paradigm’s own investment approach in the traditional securities markets.
Some crypto analysts say it looks like Paradigm is hedging against potentially bearish headwinds in the crypto markets. The combined capitalization of DeFi assets is down nearly 20% in two months, according to CoinGecko.
Cinneamhain Ventures partner Adam Cochran likened Paradigm’s investment to selling cryptocurrency for stablecoins. “If you thought the market was bullish, you wouldn’t take your cash, invest it in a USD denominated market maker who focuses on MEV style fee extraction,” he said in a tweet. “They can access any deal they want, any asset, any farm and they chose a fiat tradfi player.”
The deal was striking given that Ken Griffin, the billionaire hedge fund manager who founded Citadel Securities, has been an outspoken critic of cryptocurrencies. In October, Griffin described crypto assets as “a jihadist call” against the dollar. “I wish all this passion and energy that went to crypto was directed towards making the United States stronger,” he reportedly said.
Citadel Securities, which is managed separately from Griffin’s hedge fund, specializes in providing liquidity services to institutional investors in more than 50 countries. The firm claims to handle more than one-quarter of all shares traded on the U.S. stock market, with online brokerages such as Robinhood making up a significant share of the volume.
Citadel Securities is now valued at roughly $22B following its first-ever outside investment. Sequoia partner Alfred Lin will join Citadel’s board as part of the deal.
Paradigm backs many leading teams in the DeFi sector, including UniSwap, dYdX, and Synthetix. It was founded by Huang and Coinbase co-founder Fred Ehrsam in 2018. The firm focuses on making long-term and multi-stage investments in crypto firms, including Optimism, Aztec, and MakerDAO among its early-stage investments. Paradigm launched a new $2.5B venture fund in November.
The deal comes amid a volatile week, with leading assets down by more than one-third since posting all-time highs during Q4 2021.Some investors predicted Citadel will begin exploring market making in digital assets. And Griffin cozying up to crypto may be a positive signal.
The billionaire recently won an auction for the last privately owned first edition copy of the U.S. constitution for $43.2M, beating out prospective tokenization collective ConstitutionDAO’s bid to purchase and issue fractionalized NFTs representing the document.