DeFi’s Global Account: Announcing Our Investment Into C3

We are excited to announce our investment into C3 Protocol, what we believe to be one of the most exciting projects emerging out of the Algorand ecosystem. We led the round alongside Jump Capital, with other excellent investors participating across ParaFi, Mechanism, GoldenTree, Cumberland, DCG,, Node and Borderless Capital.

The team behind C3 have proven themselves a powerhouse for development on Algorand. At Rand Labs, they built a 40+ person team with unique Algorand-based expertise, ultimately producing some of the most widely used products in the ecosystem: MyAlgo and the AlgoExplorer and API. 

The team has been developing on Algorand since 2018, thick and thin, and they are now rolling up their sleeves to build a powerful new primitive. 

C3’s vision is to build a layer for cross-margined and cross-chain trading in DeFi. Liquidity today is fractured across many venues, protocols and blockchains. Instead, users should be able to trade from a single global account plugged into other blockchains, managing their positions and collateral from a single hub.

Fragmented trading is capital inefficient and carries unnecessary risk. A position on protocol X is completely siloed from a position on protocol Y: it cannot be used to collateralize new positions. PnL is localized, siloed protocol-by-protocol. C3 wants to instead make PnL global, covering all positions across blockchains and protocols.

Cross-margining was one of the powerful drivers behind FTX’s sudden rise to dominance, and it is simply a given in TradFi. C3 will achieve DeFi cross-margining by rebuilding the entire trading stack on a single layer. This hub for capital markets will plug into other ecosystems using novel interoperability technology unique to Algorand. This technology will enable decentralized and trustless bridges.

If a given bridge is decentralized and the L1 attesting to transactions is also decentralized (Algorand), then C3’s application layer could spawn a cross-chain ecosystem of decentralized trading. Just as C3 aspires to unite the trading experience fractured across different chains, Algorand has a strong vision for interoperability. While we see the project as a bet on the cross-margining problem in DeFi, C3 is also a strong play on the multi-chain landscape, exporting the benefits of Algorand’s L1 to the rest of crypto. If the application takes off, C3 could propel Algorand as the “chain of chains”.

Blockchains could be converging on a hybrid approach between L1 and L2 scalability — from the rise of Lightning on Bitcoin to rollups and sidechains on Ethereum. In this vein, C3 is taking a hybrid approach to protocol design. The orderbook will host trading on an off-chain L2, leveraging CeFi-type performance, but transactions will ultimately settle on the Algorand main chain at each block. C3 leverages the decentralization and security guarantees of Algorand’s L1, with 4 second settlement times allowing for a quick migration between L2 to L1.

C3 gives life to an idea from our Algorand thesis earlier this year: the role of the Algorand L1 in a cross-chain universe.

C3 is a very ambitious idea: one single global account and PnL universe for DeFi. It ultimately captures our thesis that Algorand will bridge DeFi and TradFi in the long term. In this case, the C3 team is taking the best of CeFi and TradFi trading experiences and bringing these learnings to a fractured and capital inefficient DeFi.

We are excited to back the C3 team on this journey and look forward to their major technical milestones and launch in 2022. 



Yahoo Finance:

Algorand’s Upcoming Ballot Box: Why We Are Voting for Option A

We have decided to vote for Option A in Governance Period 1, Algorand’s first and ongoing governance vote. Voting will conclude on November 14.

We thought it might be useful to publish why we are voting this way and hope to contribute to what is already an extremely vibrant community discussion. 

Governance Period 1: What Is At Stake?

Starting in October this year, Algorand began transitioning toward decentralized governance. To participate in voting decisions, Governors lock up their ALGO for three month windows and then vote on proposed changes. They earn rewards by participating in governance. If they withdraw these ALGOs at any point, they lose the accrued rewards. 

This describes the status quo (Option A). 

Under Option B, not only will anyone who withdraws from governance lose the accrued rewards, they will also be slashed. Option B provides higher staking returns than Option A, designed to incentivize more community participation. 

“Option B: Higher rewards and slashing. The Governance rewards amount for 2022 will be 362M Algos (90.5M per quarter) with a slashing mechanism: the rewards are distributed among the governors who vote and maintain the committed Algos in their wallet for the entire quarterly period. In case of failing to do so, Governors will be subject to an 8% slashing of their committed amount, on top of losing their rewards. The penalties that non-compliant governors pay will be returned to the global rewards pool in the AERP, to be used for future rewards.”

Option B Is At Odds With PPoS

We think that the introduction of slashing to Algorand governance could undermine some of the principles behind Pure Proof-of-Stake (PPoS). From the very beginning, Silvio Micali focused on PPoS as a protocol without incentives. The whole point is that unlike bonded PoS, there is no need to “punish bad behaviour”. 

We believe that Algorand could become the most decentralized Layer 1 because of PPoS’ core properties. Cryptographic sortition is open to anyone. Every ALGO token has the same probability of being selected for the lottery. There are no major hardware requirements. Participants can buy more tokens, but they can’t privilege one ALGO against another.

Unlike bonded PoS, Algorand doesn’t need to punish bad behavior. Proposal B breaks from this “no slashing” ethos, introducing an explicit penalty for non-compliant Governors.

PPoS was designed to escape the drawbacks of conventional PoS. Consensus on Algorand is easy to achieve and difficult to subvert, so easy that it doesn’t need to introduce complex incentives to motivate behavior. In practice, this helps Algorand avoid the wealth inequality and increased centralization that plagues other PoS systems. 

To some extent, we think that option B diverges from these core principles. 

Incentives Are A Slippery Slope

Option B does not explicitly undermine PPoS. The vote is about the treatment of Governors, not consensus on transactions.

Even if Option B passes, PPoS maintains its advantages over traditional bonded PoS when it comes to consensus. Cryptographic sortition stays the same. 

However, it could set a bad precedent more generally. We argue that incentives can become a slippery slope. Algorand’s goal should be to encourage network participation without needing to resort to carrots or sticks. This might take longer, but it’s better for the protocol in the long run. Once you start “centrally planning” incentives, it’s hard to go back to the “pure” environment originally envisioned by Algorand’s inventors. We run the risk of ending up where we started — slowly conceding to the ideas that underlie bonded PoS. 

Short Term Incentives Vs. Long Term Incentives

Participating in consensus on Algorand is like running a Full Node on Bitcoin. Nobody pays you to run one: you do it because you believe in the network, and ultimately want to protect your holdings. Taken to its logical conclusion, this is a powerful dynamic, one that most PoS protocols struggle to replicate. In Bitcoin, we frequently have moments where Full Nodes exercise sovereignty and override powerful economic entities like miners — despite the fact that they aren’t receiving any portion of the block subsidy. 

They are motivated by long term incentives. Similarly, we think that governance on Algorand should be encouraged through long term economic alignment, not something paid for with short term rewards. Being a Governor should be part of the culture of the network, it shouldn’t be a political subsidy. 

In the short run, we would make more money if we voted for Option B. It likely incentivizes greater participation over the upcoming three month window.

In the long run, it’s not clear to us that this is a sustainable way to bootstrap governance. PPoS should have a similar political ethos to the Full Nodes: you do it because you want the network to be thriving in ten years, not because you’re being paid more over the next three months. 

Algorand should motivate a self-driven culture of governance. The political process should be contested and contentious, but it shouldn’t need a handout. Slashing is analogous to mandatory voting. Do democracies which force their citizens to vote (or risk being slashed by a fine) end up with a more engaged civil society? We are skeptical of this idea.

In addition, rewards will eventually run out. If some participants are voting for yield, will they stick around when yield dries up? We think the status quo (Option A) will make Algorand governance more robust and sustainable, something that doesn’t need to rely on short term economic incentives, attracting Governors with a longer time horizon. 


The Algorand Foundation has done an incredible job at rolling out decentralized governance. When we initially published our Algorand thesis in June, we loosely compared Algorand’s approach toward self-government with the American experiment. We’ve been pleasantly surprised at just how engaged the community has been. Regardless of the outcome, the Governors have been out in full swing, mostly on Reddit. 

In Algorand’s spirit of “built-in evolvability”, we believe that participation at the Governance layer should remain open to all members of the network and align with the ethos of PPoS: governance should be easy to achieve but difficult to subvert. 

Option B may serve the opposite function: it may result in Governance that is more difficult to achieve and easier to subvert. 

We argue that introducing an explicit cost to non-compliant Governors (Option B) may unintentionally undermine PPoS. 

PPoS is a very simple and elegant idea. It guarantees decentralization through self-selection, not complex incentives. Option B breaks from this simplicity and overlays a new, economically-motivated governance layer. 

We hope this post was helpful and look forward to community feedback.

Life After Taproot: The Coming Age Of Narratives For Bitcoin Innovation & Governance

Taproot is the first change to Bitcoin since 2017. It will introduce Schnorr signatures, Merkelized Alternative Script Trees (MAST) and a reformed scripting language known as Tapscript. Collectively, these upgrades will make the Bitcoin codebase simpler and unlock a number of new capabilities.

Taproot enables key aggregation: complex multi-sig transactions will now look like uni-sig transactions on-chain. Bitcoin thus becomes “more private”, obscuring complex transaction types from blockchain sleuths. In addition, Taproot makes Bitcoin more efficient by unlocking batch verification: nodes more efficiently verify complex transaction types powered by Schnorr signatures. Finally, Tapscript enhances the capabilities of Schnorr while introducing opcodes that make future upgrades more flexible.

In summary, Taproot makes Bitcoin more private, scalable and secure. It is a non-contentious soft fork. An overwhelming majority of participants agree that Taproot improves Bitcoin. Beyond these technical contributions, Taproot could represent a turning point for narratives in Bitcoin innovation and governance.

We are more compelled by Taproot as a catalyst for Bitcoin governance than the idea that Taproot is a revolutionary technology. The upgrade makes marginal contributions to the protocol, but could more importantly catalyze the next major themes in Bitcoin politics. The post-Taproot era leaves behind the PTSD of 2017’s Block Wars, highlighting the continued vibrancy of Bitcoin’s political body.

As the crypto cycle progresses, the market has taken to the idea that Bitcoin is “stuck”, outpaced by innovation elsewhere. Participants interpret post-2017 conservatism as stagnation. We have a fundamentally different take: that Bitcoin politics is more alive than ever before, and that Taproot debates capture this aliveness. Taproot’s activation will be the culmination of four years of discussion following 2017. Despite being non-contentious, the upgrade has spurred a fresh discussion on how to digest 2017’s lessons and juggle power between developers, miners and nodes going forward.

This post-Taproot era introduces new opportunities for Bitcoin evolution, but also highlights growing risks. As Bitcoin enters the sphere of nation state actors and powerful technologists, the network will face new pressures. We speculate that high-trust and well-resourced actors will lead fresh proposals for change that appear far more “reasonable” than the proposals in 2017’s civil war. These could represent covert threats to Bitcoin’s political stability. The debate between technical hardliners and progressive incumbents will likely intensify over the coming year, again shining a light on the robust nature of Bitcoin governance and potentially making the protocol more defensible in the long run.

The next set of debates about stability versus change will force hardliners to sharpen their defense of Bitcoin’s non-negotiables, while motivating incumbents to pursue fresh and increasingly aggressive narratives about evolution.

Within this new chapter for Bitcoin, we think the network will slowly find its place in broader Layer 1 (L1) and Layer 2 (L2) developments, at some point defining its identity in the new “multi-chain” landscape. Taproot (in our view) doesn’t introduce “Bitcoin-native DeFi” or “smart contracts on Bitcoin”, but it will likely motivate burgeoning L1s and mobile, multi-chain developers to explore Bitcoin-centric innovation. This presents new opportunities as well as new risks – how the network digests these discussions will be an important signal going forward. At the same time, Taproot’s contribution to the privacy of Lightning channels could further invigorate Bitcoin’s L2 story, just as the Lightning network shows signs of a mainstream “breakout”.


The League Of Parachains: Polkadot

Polkadot has a novel answer to the multi-chain problem analogous to coexistence between nation states within the international community. Each nation pursues its own destiny and vision for the future, yet these disparate cultures come together to form alliances, engage in trade and live in a world of diplomacy rather than warfare.

This is the idea behind the Relay Chain, Polkadot’s “Layer Zero” (L0). Developers build custom blockchains that meet the needs of particular applications and users (“the Parachains”), but these chains cooperate under one banner of shared security. They each focus on building the core competencies of their Layer One (L1), but collectively share the security of the L0.

Polkadot’s goal is to thus become the blockchain of blockchains, separating state from application and allowing each L1 focus on its own chain’s customizability. The L1s outsource security to the mothership: each nation receives the benefits of a standing army without needing to raise, maintain and deploy a standing army. The Parachains can thus redeploy resources otherwise spent on L1 security into their chain’s core competency. This shared security unlocks (1) Parachain customizability without sacrificing security and (2) built-in interoperability between different Parachains.

Polkadot requires unique economics. The Parachains depend on Relay Chain security, but security is not free. It is scarce. Parachains slots are therefore scarce, with an entire economic architecture built around how developers acquire, maintain and outsource aspects of security to the L0 – again analogized to the way a nation would join and maintain status within a global order.

To price and allocate the scarce resource of network security, Polkadot turns to the free market: to the candle auction. These enable permissionless, competitive and fair allocation of resources, financed by the network’s future users through a process known as CrowdLoans. Projects that can’t secure a Parachain slot can still access Relay Chain security by renting it out from winning Parachain slot holders through a pay-per-use model.

In this report, we unpack the technical and philosophical foundations of Polkadot. The first section will focus on how Polkadot answers the blockchain trilemma, converging on the customizability of the Parachains. The second section will unpack the financing of Parachains through CrowdLoans, candle auctions and Parathreads. In the third and final section, we explore prominent Parachain pioneers and describe how they are leveraging Polkadot’s architecture to build their own custom blockchains.


Illuminating The Dark Age Of Blockchain: Algorand

In this paper, we argue that blockchains are trapped in a dark age of technology centralization. The wars of multi-chain DeFi push the market to abandon decentralization, its oldest and most foundational principle. Crypto’s citizens search for “fast” technologies that optimize for DeFi yield generation, even if this hands power to a new class of kingmakers – from centralized exchange operators to political figureheads who guide the destiny of these networks.

This dark age presents users with a choice: performance or decentralization, but not both. Following on from our 2019 report at the launch of MainNet, we argue that Algorand represents an opportunity to transcend this paradigm. It is the first “fast L1” which can coordinate between billions of people without trending toward plutocracy. Consensus is fast yet open to anyone: Algorand currently performs 1,000 TPS with < 5 second finality without sacrificing decentralization.

Solving the “blockchain trilemma” compromising other networks, Algorand has been live for two years with no downtime. A series of novel cryptographic and political breakthroughs create a new system of self-government and evolvability unlike any other L1 blockchain. The end result: a way forward for DeFi without forsaking decentralization and a ground-up network for risk-averse TradFi applications like Central Bank Digital Currencies (CBDCs) and asset securitization.

If the Enlightenment – an 18th century intellectual movement focused on the ideals of reason, liberty and constitutional government – was humanity’s new base layer protocol, then the scientific method and industrial revolution were simply the apps that followed.

What apps could emerge in an Algorand age of reason? One simple application is “fast DeFi” without centralization and inefficiencies like miner extractable value (MEV). Another application – arguably the ultimate goal – is the eventual merger of DeFi and TradFi. We could see a wave of hybrid experiments where DeFi plugs into TradFi, bridging old and new capital pools.

This, perhaps, is crypto’s industrial revolution – a productivity boom that will come long after the end of the DeFi wars. In our view, Algorand could be the immutable home of high-value assets, where hybrid experiments emerge and grow to global scale.


The Space Race For Open Markets: Vega

Are modern markets open markets? Markets are part of our lives in unimaginable ways yet have never been more mysterious. Today, trading is a game of warring algos and enigmatic finance, addicted to obfuscating collateral and hiding system risk. Crypto promised to get us a step closer to open markets, gifting us perfect and incorruptible collateral as well as the power to verify everything without a ratings agency or bank.

Yet the mysteries of market structure linger, and are in some new ways worse than TradFi. Nobody can contest the pristineness of crypto collateral, but crypto market infrastructure is addicted to its own redlining – from the existential CeFi cascade to HFT’s adversarial cousin, MEV.

Vega is the world’s first open protocol for creating, maintaining and aligning markets. It is a decentralized launchpad for all trading. In some sense, Vega concepts are more than a subset of DeFi – they represent an evolution in the history of markets. If Vega succeeds, it will become a modular galaxy for everything from market creation to risk modeling and incentive alignment. It marries active and passive liquidity, encourages risk model experimentation and ultimately solves the derivatives trilemma.

A true Blue Ocean opportunity, Vega is the multi-verse of markets, dragging humanity out of an adversarial war of all and leading us to a new space race for open liquidity.


Toward Credibly Neutral Derivatives: Announcing Our Investment Into Vega

Like a prison tattoo, March 12 2020 is branded into every crypto trader’s mind. Nobody can forget the terror of that fated candle. No trader will ever escape the disbelief of watching a derivatives market that developed over years break within minutes.

Crypto desperately needs credibly neutral derivatives. A year from this PTSD-inducing moment of market history and not much has changed. Put aside the fact that we still don’t know what happened on that day the majority of derivatives volume is still executed off-chain in the opaque land of the centralized exchange. 

The market needs decentralized derivatives that can match the centralized experience, a place where traders can take on leverage, move capital efficiently and hedge risk without worrying about something breaking or someone squeezing them behind a curtain.

We are thrilled to announce our investment into Vega Protocol, which we believe will be the most important player in this emerging world of decentralized derivatives. We are excited to co-lead the round with Cumberland DRW, one of our closest trading partners. The round brings together a strong group of trading firms and DeFi investors including ParaFi Capital, Coinbase Ventures, CMT Digital, Signum Capital, DeFi Alliance, CMS Holdings, Three Commas, SevenX Ventures, GSR, ZeePrime Capital and more.

Vega marries the ingenuity of DeFi with the hard-won wisdom of order books. It unites the AMM with the CLOB, breaking the dichotomy between active and passive liquidity. In Vega, market makers are owner-operators, incentivized to seed markets; while passive LPs provide liquidity to their strategies. The team complements this novel economic design with a heavy focus on risk management and capital efficiency, pioneering solutions to challenges like frontrunning, multi-chain collateral and scalability. 

A snapshot of the Vega exchange interface.

We are stoked to get behind a team of world-class entrepreneurs, engineers, academics and traders and will publish more on our investment in the coming months.

Toward the Wild West Net!

The Block:

Vega Roadmap:
Vega TestNet:


Algorand’s First Australian Tour, A Welcome from Arrington XRP Capital

Next week, Algorand is launching its first official Australian tour, where Founder Silvio Micali and Steve Kokinos will host a packed week of events in Sydney and Melbourne.

As Australian partners at the fund, Ninor and I are thrilled to welcome two of crypto’s brightest minds to our very own backyard. 

Silvio and Steve are a dynamic duo to say the least and definitely a pair you don’t want to miss live. As part of the roadshow, Algorand is hosting a big week of events from lectures at Australia’s top universities to a series of meetups and panel discussions with industry leaders from the local scene. 

Arrington XRP Capital will be joining the tour alongside partners Mozaik Capital, Blockchain Australia, Sydney Blockchain Professionals and the Blockchain Centre.

For our Aussie readers, here’s a summary of Silvio and Steve’s week ahead:

September 4 – Melbourne

September 5 – Sydney

September 6 – Sydney

On the 5th, I will moderate a panel discussion between Silvio and Steve, where we will be joined by legal mind Hannah Glass from King & Mallesons and blockchain engineer and Deepyr founder Adrian Guerrera. 

One of the best parts of being a crypto fund manager is the opportunity to not only invest in projects and founders globally, but to make friends and build communities across the world. It’s events like these that make the 24/7, timezone-agnostic chaos of the crypto markets well worth their permanence.

Algorand is one of the most ambitious projects in crypto. The team’s vision for a “borderless economy” aligns very closely with our own guiding principles at Arrington XRP Capital: our team is spread across continents and we invest globally in technologies and teams that are unbounded by the closed walls of a legacy financial system.

Hopefully the first of many. Welcome!

The Monetary Experiment: Algorand

We explore the monetary experiment of Algorand, a new cryptocurrency invented by Turing Award winner Silvio Micali. Arrington XRP Capital will be participating in the Algorand economy by running a relay node and bidding in the Algorand Foundation’s dutch auctions.

Algorand brings together bleeding edge cryptography with a clever economic model that bootstraps Algo currency markets. This is a novel development that ties the token and technology to economic incentives that encourage efficient market pricing.

The Algorand Foundation will distribute 30% of Algos through downside-protected dutch auctions. In this world, auctions are akin to monetary policy catalysts, not only circulating tokens, but guiding price discovery both today and in the future. The clever part of this story is that any purchaser can refund their Algos one year after purchase, giving them up to 90% downside protection. This has wide implications for Algo market dynamics.

Algorand’s monetary experiment marries Silvio Micali’s solution to a three decade challenge in distributed systems with lessons from Foreign Currency (FX) trading, options pricing theory and traditional asset management. As these markets mature, we predict that Algo will behave unlike any other cryptocurrency today. Not a stablecoin; but a cryptocurrency whose economic model motivates financial markets to form rational expectations and seek out self-fulfilling equilibrium.

The downside-protection clause also opens up a new world for institutional investors such as family offices or endowments who have not yet ventured into cryptocurrency because of its drawdowns. The simple question for these investors as well as others who hold cash in their cryptocurrency portfolios is thus: Why hold cash when you can hold downside-protected Algos, gaining cryptocurrency exposure without significant downside risk?

Algorand’s economic experiment is unprecedented. It is where macroeconomics meets cryptocurrency; and we believe that it will have wide-ranging implications for cryptocurrency portfolio management, hedging and broader market dynamics.