Explanation of the FTX Stake Write-off
In a tweet on Twitter dated November 15, Paradigm co-founder Matt Huang expressed his regret for the fact that FTX and its founder, SBF, had violated the values associated with cryptocurrencies. In particular, Huang asserts that SBF's activities caused a significant amount of damage to the cryptocurrency ecosystem.
In April of 2022, the venture capital firm based in San Francisco that mostly focused on Web-3 investment projected that it had $13.2 billion in assets under management. Following the launch of a $2.5 billion fund in November 2021, the revelation came after Paradigm had dethroned a16Z, which was led by Adressen Horowitz, as the leading venture fund in the cryptocurrency industry. FTX was a member of the company. Within its diverse portfolio, its investments in the US and FTX amounted to approximately $278 million.
The FTX Stake's Effect on the Paradigm Is Disregarded
Huang stated that the stock investment in the failed FTX was written off, but he downplayed the significance of that investment in terms of Paradigm's overall assets. Allegations that Paradigm traded and invested in tokens linked with FTX, including as Serum token (SRM), Oxygen Protocol (OXY), and Maps.Me, were debunked by him (MAPS).
CK Zheng, co-founder of ZX Squared Capital, blamed a lack of due diligence on the part of venture capital firms for the negative effects that were caused by the sudden decline of FTX. He was speaking in the context of addressing the negative effects of the decline. According to the co-founder of the hedge fund, the fact that young businesses are dependent on advanced technology makes venture capitalists vulnerable to investment loss because these individuals incur huge damage from having insufficient knowledge of finance and technology.
Sequoia Capital regards FTX Stake as a total loss at this point.
Due to the magnitude of the FTX collapse, Sequoia Capital, the former employer of Matt Huang, informed its partners on November 10 that they were writing off the $213.5 million FTX and FTX US stake as being completely lost. Sequoia Capital acknowledged the solvency risk that was passed down from the FTX crisis, but they considered the exposure to be limited due to the fact that the cost basis of the stake was $150 million.
The management of Sequoia remained optimistic regarding the structure of the fund and the fact that the $7.5 billion in unrealized and realized gains balanced out the loss of $150 million. In addition, Sequoia's portfolio was so large that its $63.5 million investment in FTX Group and its affiliate companies represented less than 1% of the total.
In a letter to its partners, Sequoia explained how the company's 2021 investment decision was influenced by FTX's operating income of $250 million, which was derived from revenue of $1 billion. In addition, Sequoia reminded its partners that the venture capital industry is a risky business in which certain investments may occasionally surprise with unexpectedly positive or negative outcomes.
The extent to which Feature Multiple Markdown contributed to the FTX Collapse
Other venture capital and hedge funds will be dragged along by the diversified portfolio that is managed by FTX and its affiliate firms. In addition to Sequoia Capital and Paradigm, SoftBank Group Corporation has indicated that they will be writing down the $100 million. In a similar vein, the Ontario Teachers' Pension Plan is contemplating the possibility of writing off an investment that was worth 95 million dollars. As a consequence of this, the failure of FTX could result in widespread write-offs across the industry, which would result in a complete loss for active investment vehicles and venture capitalists.
