Venture Capital Funds Flow into Professor-Founded Crypto Firms

The cryptocurrency market has seen a resurgence in venture capital investments, with a focus on projects led by university professors. Dubbed “Professor Coins,” these initiatives are attracting funding from venture capital firms, driven by renewed market interest and technological innovation. 

According to a Bloomberg report, the influx of capital into these academic-led startups follows a bullish market trend, highlighted by Bitcoin reaching an all-time high above $72,000 in early 2024.

Investment Surge in Academic-Led Startups

Venture capitalists are increasingly backing crypto projects founded by academics, with firms like Sahara, CheckSig, and NEBRA recently securing fresh capital. Two startups, EigenLayer and Babylon, have particularly stood out. EigenLayer, founded by former University of Washington associate professor Sreeram Kannan, raised $100 million from Andreessen Horowitz in February. 

Babylon, launched by Stanford University Professor David Tse, garnered $18 million in December. Both projects focus on “restaking,” a process that allows new blockchain projects to leverage the security infrastructure of established networks like Ethereum and Bitcoin.

Riad Wahby, an engineering professor at Carnegie Mellon University and CEO of crypto startup Cubist, emphasized the significance of research in developing these restaking technologies. Wahby noted that much of the current yield-generating technology in the crypto space originates from the academic research conducted by Kannan and Tse.

Academic Backgrounds and Venture Capital Interest

Despite venture firms’ general hesitance to invest in academic-led ventures due to concerns over practical and business applications, Kannan and Tse’s expertise in restaking has proven to be a strong attraction for investors. Kate Laurence, CEO of Bloccelerate VC, stated that her firm typically views academic backgrounds as a potential drawback. 

However, Kannan and Tse’s innovative solutions led Bloccelerate to invest in EigenLayer and Babylon, recognizing their potential to address different market needs.

Restaking enables new blockchain projects to bypass the extensive time and capital required to build their staking support by borrowing the staking power of established networks like Ethereum. Babylon applies a similar strategy to Bitcoin, addressing the complexities of its proof-of-work mechanism and aiming to provide yield generation for Bitcoin holders.

Challenges and Criticisms

Professor-led crypto projects often face hurdles, with many failing to achieve commercial success. Emin Gun Sirer, a former associate professor at Cornell University and CEO of Ava Labs, highlighted the frequent disconnect between technical innovation and market needs. Despite EigenLayer attracting over $15 billion in crypto assets to its platform, it encountered setbacks due to perceived misunderstandings of the broader digital asset market.

In February, Kannan stated there were no plans for an EigenLayer token. However, the subsequent release of the Eigen token plan in April sparked controversy. Critics pointed to the allocation of over half of the 1.67 billion total token supply to investors and early contributors, raising concerns about potential sell-off pressure and accusations of self-enrichment. The decision to make the tokens non-transferable at launch further frustrated some early users who had invested significant capital.

The Eigen Foundation defended its strategy, explaining that the non-transferable tokens would allow time to improve project decentralization and enhance token features. Ayesha Kiani, COO of crypto hedge fund MNNC Group and an adjunct professor at New York University argued that EigenLayer’s critics overlook Kannan and Tse’s broader contributions to the industry. Kiani emphasized that their efforts are aimed at advancing the field, not merely generating quick profits.

Vance Spencer, from Framework Ventures echoed this sentiment, noting that the technical expertise required to build blockchain technologies is often found within academic institutions. The trend of investing in professor-led projects is expected to continue as these ventures bring advanced research-driven innovations to the market.