LPs of crypto investment firm Multicoin are frustrated over its Solana bet

Illustration: Annelise Capossela/Axios

Crypto investment firm Multicoin Capital and the FTX family of companies were a match made on Solana, the super fast smart-contract blockchain that shot up in popularity in 2021.

Why it matters: Some Multicoin limited partners (LPs) take a different view. With FTX evaporating, Multicoin Capital‘s bets have taken a very bad turn. This is especially bad news for LPs due to make tax payments on sales the firm made in 2021.

Driving the news: Three LPs who asked to remain nameless explained to Axios that Multicoin closed out significant positions during the 2021 bull market. However, instead of returning at least part of these realized gains in cash to its backers, the company instead reinvested in Solana’s native coin, SOL.

  • Normally, LPs said, a sale would correspond with something like 40% disbursement to LPs to cover taxes.
  • LPs are also frustrated that the firm’s leadership seems to have brushed off concerns about a 90% drawdown.
  • SOL has been hit especially hard by the FTX scandal.

What they’re saying: Multicoin spokesperson John Robert Reed tells Axios, “We don’t comment on performance.” The company again declined to say more after a subsequent request for comment on the LP’s claims around the tax-related disbursement.

Multicoin announced leading a $20 million round for the Solana blockchain in July 2019. Subsequently, SOL has been one of the wildest rides in the markets.

  • When Solana went live in early 2020, its tokens traded for just under $1. The price peaked at $260 in Nov. 2021. As of the end of last year, SOL was Multicoin’s biggest position.
  • Today SOL trades at around $13.
  • Peer blockchains like Polkadot, Cardano and Avalanche all had their runs in 2021, but — in the end — SOL’s market cap hit by far the highest highs, reaching $78 billion at one point.

Details: Multicoin operates several funds. It has a hedge fund, which is the most liquid it offers. Then it has three venture funds which are subject to longer lockups (I, II and III). Two of the investors we spoke to were only in II. Another was in all the funds.

  • Its first venture fund and its hedge fund had an extraordinary 2021.
  • Some of the tokens of companies it made big venture commitments to have performed much worse than the rest of the crypto market year to date.

  • For example, assets like Helium’s HNT, Eden Network’s EDEN and Metaplex’s MPLX are all down over 90%. Bitcoin, by comparison, is down 65%.

In the weeds: Multicoin’s ventures frequently dovetailed with those of FTX or its trading arm, Alameda.

What we’re watching: CNBC reported that 15% of Multicoin’s assets under management were stuck on FTX after it shut down.

Flashback: In 2021, Multicoin cofounder Kyle Samani drew side-eye from many in the industry when he tweeted, “Why does security have to be #1 priority? I value speed more tbh.”

Quick take: The thing about trade-offs is that you never know when you’ll be forced to make that trade.

Be smart: No one said this would be easy. Polychain, a premiere crypto fund, was feted for hitting a billion dollar valuation, only to have questions swirl as its bets tanked amidst Crypto Winter.

  • By 2020, the limited partners who stuck it out were crowing again about wild gains.

Lucinda Shen contributed reporting.